<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 27, 1996
REGISTRATION NO. 333-14711
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
AMENDMENT NO. 2
TO
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
THE SHAW GROUP INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
LOUISIANA 72-1106167
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
11100 MEAD ROAD, SECOND FLOOR J. M. BERNHARD, JR.
BATON ROUGE, LOUISIANA 70816 THE SHAW GROUP INC.
(504) 296-1140 11100 MEAD ROAD, SECOND FLOOR
(Address, including zip code, and telephone BATON ROUGE, LOUISIANA 70816
number, including area code, of registrant's (504) 296-1140
principal executive offices) (Name, address, including zip code, and
telephone number, including area code,
of agent for service)
Copies to:
ROBERT F. GRAY, JR. DEREK R. MCCLAIN
FULBRIGHT & JAWORSKI L.L.P. VINSON & ELKINS L.L.P.
1301 MCKINNEY, SUITE 5100 2001 ROSS AVENUE, SUITE 3700
HOUSTON, TEXAS 77010-3095 DALLAS, TEXAS 75201-2916
(713) 651-5151 (214) 220-7700
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act"), other than securities offered only in
connection with dividend or interest reinvestment plans, check the following
box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF TO BE OFFERING AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PRICE PER SHARE OFFERING PRICE FEE
- --------------------------------------------------------------------------------------------------
Common Stock, no par value........ 2,868,118(1) $27.3125(2) $78,335,472.88(2) $23,738.02(2)
- --------------------------------------------------------------------------------------------------
Common Stock, no par value........ 189,000(3) $24.9375(4) $ 4,713,187.50(4) $ 1,428.24(4)
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes 374,000 shares reserved for the over-allotment option granted to
the Underwriters.
(2) Estimated solely for purposes of calculating the registration fee in
accordance with Rule 457 of the Securities Act. This fee was previously
paid.
(3) Includes an additional 24,000 shares reserved for the over-allotment option
granted to the Underwriters.
(4) Estimated solely for purposes of calculating the registration fee in
accordance with Rule 457 of the Securities Act. This additional fee is being
paid with this filing.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT, OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE
ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION (THE "COMMISSION"),
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may
not be sold nor may offers to buy be accepted prior to the time the
registration statement becomes effective. This prospectus shall not
constitute an offer to sell or the solicitation of an offer
to buy nor shall there be any sale of these securities in any State in
which such offer, solicitation or sale would be unlawful prior to
registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION, DATED NOVEMBER 26, 1996
PROSPECTUS
2,659,118 SHARES
THE SHAW GROUP INC.
LOGO COMMON STOCK
------------------
Of the 2,659,118 shares of common stock (the "Common Stock") of The Shaw
Group Inc. (the "Company" or "Shaw") offered hereby (the "Offering"), 2,000,000
are being sold by the Company and 659,118 are being sold by certain shareholders
of the Company (the "Selling Shareholders"). See "Principal and Selling
Shareholders". The Company will not receive any of the proceeds from the sale of
shares of Common Stock by the Selling Shareholders.
The Common Stock is listed on the New York Stock Exchange (the "NYSE")
under the symbol "SGR". On November 25, 1996, the last reported sale price of
the Common Stock as reported on the NYSE was $26.25 per share. See "Price Range
of Common Stock and Dividend Policy".
------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) SHAREHOLDERS
- --------------------------------------------------------------------------------------------------
Per Share......................... $ $ $ $
- --------------------------------------------------------------------------------------------------
Total(3).......................... $ $ $ $
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
</TABLE>
(1) For information regarding indemnification of the Underwriters, see
"Underwriting".
(2) Before deducting expenses estimated at $600,000, which are payable by the
Company.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
an aggregate of 398,000 additional shares of Common Stock solely to cover
over-allotments, if any. See "Underwriting". If such option is exercised in
full, the total Price to Public, Underwriting Discounts and Commissions and
Proceeds to Company will be $ , $ and $ , respectively.
------------------
The shares of Common Stock are being offered by the several Underwriters
named herein, subject to prior sale, when, as and if accepted by them and
subject to certain conditions. It is expected that certificates for the shares
of Common Stock offered hereby will be available for delivery on or about
, 1996, at the office of Smith Barney Inc., 333 West 34th Street,
New York, New York 10001.
------------------
SMITH BARNEY INC.
JEFFERIES & COMPANY, INC.
HOAK BREEDLOVE WESNESKI & CO.
, 1996
<PAGE> 3
[PHOTOGRAPHS OF COMPANY'S FABRICATION FACILITIES AND BENDING EQUIPMENT]
IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
<PAGE> 4
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company with the Commission can be
inspected at the Public Reference Section of the Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and the
Regional Offices of the Commission at Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661-2511, and 7 World Trade Center, New York,
New York 10048. Copies of such material can also be obtained from the Public
Reference Section of the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. The Commission
maintains a World Wide Web site on the Internet at http://www.sec.gov that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission. Such
reports, proxy and information statements and other information concerning the
Company can also be inspected and copied at the offices of the NYSE, 20 Broad
Street, New York, New York 10005.
The Company has filed with the Commission a Registration Statement on Form
S-3 under the Securities Act with respect to the Common Stock offered hereby.
This Prospectus, which constitutes a part of the Registration Statement, does
not contain all of the information set forth in the Registration Statement,
certain items of which are contained in exhibits to the Registration Statement
as permitted by the rules and regulations of the Commission. For further
information with respect to the Company and the Common Stock offered hereby,
reference is made to the Registration Statement, including the exhibits thereto.
Statements made in this Prospectus concerning the contents of any document
referred to herein are not necessarily complete. With respect to each such
document filed with the Commission as an exhibit to the Registration Statement,
the material terms of each such document are set forth in this Prospectus.
However, reference is made to the exhibit for a more complete description of the
matter involved, and each such statement shall be deemed qualified in its
entirety by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents are incorporated herein by reference:
(a) The Company's Annual Report on Form 10-K for the fiscal year ended
August 31, 1996; and
(b) The description of the Company's Common Stock contained in the
Company's Registration Statement on Form 8-A (including any amendments
or reports filed for the purpose of updating such description).
All documents filed by the Company with the Commission pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this Prospectus
and prior to the termination of the offering of the Common Stock pursuant hereto
shall be deemed to be incorporated by reference in this Prospectus and to be a
part hereof from the date of the filing of such documents. Any statement
contained in this Prospectus or in a document incorporated or deemed to be
incorporated by reference in this Prospectus shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained in this Prospectus or in any other subsequently filed document that
also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
The Company undertakes to provide without charge to each person to whom a
copy of this Prospectus has been delivered, upon the written or oral request of
any such person, a copy of any or all of the documents incorporated by reference
herein, other than the exhibits to such documents, unless such exhibits are
specifically incorporated by reference into the information that this Prospectus
incorporates. Written or oral requests for such copies should be directed to the
Company's executive offices at 11100 Mead Road, Second Floor, Baton Rouge,
Louisiana 70816, Attention: Secretary (telephone number: (504) 296-1140).
3
<PAGE> 5
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and Consolidated Financial
Statements appearing elsewhere in this Prospectus. Unless otherwise noted
herein, (i) the information contained in this Prospectus assumes that the
Underwriters' over-allotment option will not be exercised, and (ii) all
references in this Prospectus to "Shaw" or the "Company" include Shaw's
subsidiaries, unless the context otherwise requires. See "Risk Factors" for a
discussion of certain factors that should be considered in connection with an
investment in the Common Stock offered hereby. References in this Prospectus to
a specific fiscal year of the Company refer to the 12 months ending August 31 of
the designated year.
THE COMPANY
Shaw is a leading supplier of industrial piping systems for new
construction and retrofit projects throughout the world, primarily for the
electric power, refining and chemical industries. Shaw is committed to being the
"total piping resource" for its customers by offering comprehensive design and
engineering services, piping system fabrication, manufacturing and sale of
specialty pipe fittings and design and fabrication of pipe support systems.
The Company was founded in 1987 by current management and subsequently
purchased the assets of Benjamin F. Shaw Company, a century-old pipe fabricator.
The Company has increased its revenues from $29.3 million in fiscal 1988 to
$222.0 million in fiscal 1996, both increasing its domestic and international
businesses. Through internal expansion and a series of strategic acquisitions,
the Company has expanded its fabrication capacity, increased its bending
capabilities and broadened its piping system products and services. These
actions have provided the Company with the ability to achieve substantial
economies of scale in purchasing, manufacturing and transporting fabricated
products and the ability to provide customers with complete piping systems.
The Company believes it has earned a reputation as an efficient, low-cost
supplier of complex piping systems as a result of several competitive
advantages. Specifically, the Company coordinates and integrates project
engineering and fabrication processes in order to maximize overall efficiency in
time, cost and performance. In addition, the Company's significant investment in
state-of-the-art induction bending equipment provides it with time, labor and
raw material savings as compared to traditional fabrication methods. Shaw also
manufactures specialty pipe fittings, pipe hangers and other pipe products. This
manufacturing capability has served to reduce the Company's supply costs and
enhance its overall piping package. The Company utilizes its proprietary
software technology to enhance the planning and scheduling efforts of its
customers, helping to reduce total installed costs and project cycle times.
As a result of its favorable cost structure, its extensive piping resources
and its ability to handle complex piping systems, Shaw has increased
substantially its presence in the worldwide pipe fabrication industry, competing
effectively on large scale piping projects worldwide. Beginning in 1991, the
Company expanded into international markets in anticipation of the worldwide
infrastructure build-up in the electric power, refining and chemical industries.
International revenues have increased from $4.5 million in fiscal 1991 to $75.7
million in fiscal 1996. International projects represented 66% of the Company's
backlog at August 31, 1996.
The Company estimated its backlog at approximately $154.0 million at August
31, 1996 compared to approximately $101.0 million and $75.0 million at August
31, 1995 and 1994, respectively. The Company estimates that $141.8 million, or
92.1%, of its backlog at August 31, 1996 will be completed in fiscal 1997. The
Company defines its backlog as a "working backlog", whereby only projects with a
written commitment are included.
4
<PAGE> 6
BUSINESS STRATEGY
The Company is committed to strengthening its leadership position as a
"total piping resource" for the electric power, refining and chemical industries
worldwide by providing high-quality, competitively-priced piping systems within
significantly reduced project delivery times. The key components of Shaw's
business strategy include:
- Providing a comprehensive range of products and services that enhances
the Company's prefabricated piping systems, including initial design and
engineering services, customer interactive software, induction pipe
bending, manufactured pipe components and supports and final on-site
erection and testing.
- Pursuing strategic acquisitions that will complement and enhance Shaw's
existing operations by allowing the Company to further broaden its piping
products and services, selectively expand geographic manufacturing
capabilities and maintain its technological leadership position.
- Investing in new equipment, technology and information systems designed
to increase the Company's manufacturing and fabrication capabilities and
capacity and improve overall project efficiency.
- Broadening its base of "alliance" customers through the negotiation of
"Alliance Agreements" that allow the Company to expedite individual
project contract negotiations. These Alliance Agreements are intended to
reduce total installed costs and project cycle times of prefabricated
piping systems for customers and enable the Company to forecast a larger
portion of its future revenue stream.
- Increasing the utilization of Shaw's unique design and engineering
resources as the first step in providing an integrated "turnkey" piping
systems approach.
The Company believes that by employing its business strategy it will be able to
further capitalize on the worldwide infrastructure build-up in the electric
power, refining and chemical industries and enhance its relationships with its
existing and potential domestic customers as they expand and retrofit existing
facilities. Shaw has facilities certified by the American Society of Mechanical
Engineers (ASME) for nuclear power piping and registered by the International
Organization of Standards (ISO 9001 and 9002), which registration is required to
perform certain international work.
RECENT DEVELOPMENTS
Shaw has entered into an agreement to acquire NAPTech, Inc., a fabricator
of industrial piping systems and engineered piping modules located in
Clearfield, Utah. In connection with the acquisition, pursuant to the
acquisition agreement as it is proposed to be amended, the Company expects to
issue up to an aggregate of 366,790 shares of Common Stock in exchange for
NAPTech, Inc. and the 335,000 square foot facility that NAPTech, Inc. currently
leases from a related entity (collectively, "NAPTech"). For the fiscal years
ended March 29, 1996 and March 31, 1995, NAPTech, Inc. reported revenues of
$24.9 million and $21.7 million, respectively, and net losses of $3.1 million
and $224,000, respectively. In addition, at June 30, 1996, NAPTech had an
accumulated deficit was $6.1 million and, for the three months ended June 30,
1996, net cash used by operating activities of $2.0 million. Although NAPTech
has experienced historical operating and liquidity difficulties, the Company
does not expect such difficulties to continue after the NAPTech acquisition due
in part to the Company's materials purchasing power and fabrication expertise.
The Company expects benefits from the acquisition of NAPTech to include, among
other things, increased fabrication capacity and additional induction pipe
bending capabilities. In addition, NAPTech estimates it had a backlog of
approximately $39.0 million at August 31, 1996, which primarily consisted of a
large mining industry project. The acquisition of NAPTech is subject to various
conditions, including, without limitation, the approval of Shaw's Board of
Directors and NAPTech's shareholders, as well as necessary regulatory approvals.
If consummated, the Company expects that the acquisition of NAPTech will be
accounted for as a pooling of interests and, accordingly, will result in a
restatement of the Company's financial statements for the year ended August 31,
1994 and subsequent periods. See "Pro Forma Condensed Consolidated Financial
Statements". Although there can be no assurance that the acquisition of NAPTech
will be completed, the Company currently anticipates that the acquisition will
be consummated on or before December 31, 1996.
5
<PAGE> 7
THE OFFERING
Common Stock being offered by:
The Company....................... 2,000,000 shares
The Selling Shareholders.......... 659,118 shares
Common Stock to be outstanding after
the Offering........................ 11,524,552 shares(1)
Time-phased voting.................. Each holder of shares of Common Stock
(including purchasers of shares offered
hereby) will be entitled to one vote
for each such share at all
shareholders' meetings until such
shares have been owned continuously for
a period of four years, in which case
the holder will be entitled to five
votes for each such share on all
matters submitted to shareholders. Each
change in beneficial ownership with
respect to a particular share will
begin a new "one vote period" for such
share. See "Description of Capital
Stock -- Common Stock".
New York Stock Exchange Symbol...... SGR
Use of Proceeds..................... To repay a portion of the Company's
indebtedness and for general corporate
purposes, including acquisitions,
equipment purchases and working
capital. See "Use of Proceeds".
- ---------------
(1) Does not include (i) 552,125 shares subject to options that have been
granted pursuant to the Company's 1993 Employee Stock Option Plan and 1996
Non-Employee Director Stock Option Plan or (ii) 366,790 shares (subject to
adjustment) issuable upon consummation of the proposed acquisition of
NAPTech. See "Description of Capital Stock" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Recent
Acquisitions".
RISK FACTORS
The Company's business and operations are subject to certain risks,
including without limitation, (i) cyclicality of customer projects, (ii)
dependence on major customers, (iii) the potential for product liability and
warranty claims, (iv) risks associated with competition, (v) risks associated
with the growth of the Company's core business and the integration of acquired
businesses into the Company, (vi) risks associated with international contracts,
operations and expansion and (vii) foreign exchange risks. See "Risk Factors".
FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISK
This Prospectus, including the information incorporated by reference,
contains forward-looking statements within the meaning of Section 27A of the
Securities Act and Section 21E of the Exchange Act, including statements
regarding, among other items, (i) the Company's growth strategies, including its
intention to make acquisitions; (ii) anticipated trends in the Company's
business; and (iii) the Company's intention to enter into satisfactory contracts
with its customers, including Alliance Agreements. These forward-looking
statements are based largely on the Company's expectations and are subject to a
number of risks and uncertainties, certain of which are beyond the Company's
control. Actual results could differ materially from these forward-looking
statements as a result of the factors described in this Prospectus including,
but not limited to, (i) adverse economic conditions; (ii) the impact of
competitive products and pricing; (iii) product demand and acceptance risks;
(iv) the presence of competitors with greater financial resources; (v) costs and
financing difficulties; and (vi) delays or difficulties in the production,
delivery or installation of products, including a lengthy strike or other work
stoppage by the Company's union employees at any of the Company's facilities.
See "Risk Factors". In light of these risks and uncertainties, there can be no
assurance that actual results will be as projected in the forward-looking
statements.
6
<PAGE> 8
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table sets forth certain summary historical and pro forma
condensed consolidated financial data of the Company. The pro forma statement of
income data give effect to this Offering, the acquisitions of Word Industries
Pipe Fabricating, Inc. ("Word") and Alloy Piping Products, Inc. ("APP"), which
were consummated during fiscal 1996, and the proposed acquisition of NAPTech. If
completed, the Company expects that the acquisition of NAPTech would be
accounted for as a pooling of interests. The pro forma balance sheet data give
effect to this Offering and the proposed acquisition of NAPTech. This
information should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations", "Selected
Consolidated Financial Data", "Pro Forma Condensed Consolidated Financial
Statements" and the Company's Consolidated Financial Statements and the related
notes thereto included elsewhere herein.
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
--------------------------------------------------
1994 1995 1996
-------- -------- ------------------------
PRO FORMA,
ACTUAL AS ADJUSTED
-------- -----------
<S> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Sales............................................................. $113,177 $135,265 $222,017 $ 292,626
Cost of sales..................................................... 96,523 110,578 180,835 245,167
-------- -------- -------- --------
Gross profit...................................................... 16,654 24,687 41,182 47,459
General and administrative expenses............................... 11,631 15,023 25,202 32,931
-------- -------- -------- --------
Operating income.................................................. 5,023 9,664 15,980 14,528
Interest expense.................................................. (1,731) (2,829) (3,970) (2,907)
Other income, net................................................. 293 236 880 1,482
-------- -------- -------- --------
Income before income taxes........................................ 3,585 7,071 12,890 13,103
Provision for income taxes........................................ 1,368 2,217 4,216 4,340
-------- -------- -------- --------
Income before earnings (losses) from unconsolidated entities...... 2,217 4,854 8,674 8,763
Earnings (losses) from unconsolidated entities.................... 792 (588) 103 103
-------- -------- -------- --------
Income before extraordinary item.................................. $ 3,009 $ 4,266 $ 8,777 $ 8,866
======== ======== ======== ========
Income per common share before extraordinary item(1).............. $ 0.39(2) $ 0.50 $ 0.94 $ 0.73
======== ======== ======== ========
Weighted average number of common shares outstanding.............. 7,744 8,552 9,325 12,108
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
AT AUGUST 31, 1996
------------------------
PRO FORMA,
ACTUAL AS ADJUSTED
-------- -----------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital.......................................................................... $ 49,626 $ 94,260
Total assets............................................................................. 205,366 219,857
Long-term debt and capital lease obligations, net of current maturities.................. 32,158 32,158
Shareholders' equity..................................................................... 73,322 124,772
</TABLE>
- ---------------
(1) If the acquisition of NAPTech is consummated as discussed above, the Company
expects that the historical financial statements of the Company would be
restated, with the effect that income per common share before extraordinary
item would be $0.40, $0.44 and $0.68 for the years ended August 31, 1994,
1995 and 1996, respectively. See "Pro Forma Condensed Consolidated Financial
Statements".
(2) Excludes $0.05 per share ($370,455) attributable to a gain on the early
retirement of certain debt instruments (after income tax).
7
<PAGE> 9
RISK FACTORS
Prospective purchasers of the Common Stock offered hereby should carefully
consider the following risk factors, together with the information provided
elsewhere in this Prospectus (or incorporated herein by reference), in
evaluating an investment in the Common Stock.
CYCLICALITY OF CUSTOMER PROJECTS
The demand for the Company's products and services depends primarily on the
existence of construction and retrofit projects, particularly in the electric
power, refining and chemical industries. These industries historically have
been, and will likely continue to be, cyclical in nature and vulnerable to
general downturns in the economy. The Company's results of operations may vary
depending on the availability of future projects from such industries.
DEPENDENCE ON MAJOR CUSTOMERS
Projects in the electric power, refining and chemical industries frequently
involve a lengthy and complex bidding and selection process, and the ability of
the Company to obtain future contracts is difficult to predict. Because a
significant portion of the Company's sales is generated from large projects, its
results of operations can fluctuate from quarter to quarter. For fiscal 1996,
affiliates of Mitsubishi Heavy Industries Ltd. accounted for 12.3% of the
Company's sales. While a concentration of customers has been historically
prevalent, because of the nature of the Company's business, the significant
customers vary between years. See "Business -- Customers and Marketing".
POTENTIAL FOR PRODUCT LIABILITY AND WARRANTY CLAIMS
Certain of the Company's products are used in potentially hazardous
environments, including without limitation, nuclear facilities. Any catastrophic
occurrences in excess of insurance limits at locations where the Company's
products are used could in the future result in significant product liability
claims against the Company.
In addition, the Company under certain contracts must use new metals or
processes for producing or fabricating pipe for its customers, and the failure
of any such metals or processes could result in significant replacement or
reworking costs on a project. In the fourth quarter of fiscal 1994 and the first
quarter of fiscal 1995, the Company, at a customer's request, engaged in the
significant reworking of a project. Warranty claims against the Company could in
the future result in significant reworkings.
RISKS ASSOCIATED WITH COMPETITION
The Company's competition in the supply and fabrication of piping systems
generally consists of a number of pipe fabricators domestically and divisions of
large industrial firms in the international sector. Some of the competitors,
especially in the international sector, have greater financial and other
resources than the Company. See "Business -- Competition".
RISKS ASSOCIATED WITH GROWTH OF CORE BUSINESS AND INTEGRATION OF ACQUIRED
BUSINESSES
In the past few years, the Company has experienced substantial growth
through internal expansion and acquisitions, and the Company plans to continue
to grow in this manner. This growth, and the resulting need to integrate
acquired companies into the Company's operations economically and efficiently,
has required, and will continue to require, significant management, production,
technical, financial and other resources. Due to a substantial increase in
sales, the Company has experienced, and is continuing to experience, billing
delays. There can be no assurance that the Company will be able to manage this
growth effectively or to integrate fully the operations of any acquired company
into the Company, and any failure to do so could have a material adverse effect
on the Company's results of operations or financial condition, or both. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Results of Operations -- Fiscal 1995 Compared to Fiscal 1994" and
"-- Liquidity and Capital Resources".
8
<PAGE> 10
RISKS ASSOCIATED WITH INTERNATIONAL CONTRACTS, OPERATIONS AND EXPANSION; FOREIGN
EXCHANGE RISK
To date, a substantial portion of the Company's sales and earnings have
been attributable to its sales to and operations in international markets, and
the Company expects international sales and operations to increase and
substantially contribute to the Company's growth and earnings for the
foreseeable future. The success of the Company's sales to, operations in and
expansion into international markets depends on numerous factors, many of which
are beyond its control. Such factors include, but are not limited to, economic
conditions in the foreign countries in which the Company operates and to which
it sells its products and services and the lack of well-developed legal systems
in certain of such countries. In addition, international contracts, operations
and expansion may increase the Company's exposure to certain risks inherent in
doing business outside the United States, including currency fluctuations,
restrictions on the repatriation of profits and assets, compliance with foreign
laws and standards and political risks. The Company attempts to minimize its
foreign exchange risks, primarily through denominating contracts in United
States dollars or the inclusion of escalation provisions in contracts, or both.
The Company from time to time enters into contracts denominated in a foreign
currency without escalation provisions, thereby subjecting itself to foreign
exchange risks. The Company generally does not obtain such insurance or hedge
such risks. In addition, the Company's ability to obtain international contracts
is impacted by the relative strength or weakness of the United States dollar
relative to foreign currencies.
During the last several years, Venezuela has been experiencing a monetary
and economic crisis. In response, the Venezuelan government imposed, among other
things, foreign exchange controls that affected the Company's ability to
repatriate profits from the joint venture or otherwise convert local currency
into United States dollars. Given Venezuela's lack of economic stability, the
Company believes that its investment in Venezuela may be at risk from future
foreign exchange and repatriation restrictions. There can be no assurance that
the Venezuelan operations will be profitable. See "Business -- Markets".
FIXED PRICE CONTRACT EXPOSURE
Substantially all of the Company's international projects are quoted on a
"fixed" or "lump-sum" price basis. To the extent that the Company is unable to
secure fixed pricing commitments from its suppliers at the time such a contract
is entered into and experiences cost increases for materials or labor during the
performance of such a contract, the Company's profit for such project could
decrease, or the Company could experience a loss with respect to such contract
that could have a material adverse effect on the Company's results of operations
or financial condition, or both.
CONTROL BY MANAGEMENT
At October 31, 1996, the officers and directors of the Company and its
subsidiaries beneficially owned approximately 42% of the outstanding Common
Stock but controlled approximately 73% of the voting power. Immediately after
this Offering, the officers and directors of the Company beneficially will own
approximately 29% of the outstanding Common Stock and will control approximately
61% of the voting power. Consequently, these persons will be able to exercise
effective control over corporate actions and the outcomes of matters requiring a
shareholder vote, including the election of directors. See "Principal and
Selling Shareholders" and "Description of Capital Stock".
VOTING RIGHTS TIED TO DURATION OF STOCK OWNERSHIP; ANTI-TAKEOVER EFFECTS
The Company's Restated Articles of Incorporation provide that each share of
Common Stock that has been held by the same person for at least four consecutive
years is entitled to five votes on each matter to be voted upon at shareholders'
meetings, and all shares held for less than four years are entitled to one vote
per share for each such matter. This charter provision could concentrate control
in existing shareholders of the Company, increase the difficulty of removing the
incumbent Board of Directors or management, diminish the likelihood that a
potential buyer would make an offer for the Common Stock, and impede a
transaction favorable to the interests of certain shareholders. Each purchaser
of shares of Common Stock offered hereby will be entitled to one vote for each
such share at all shareholders' meetings until such shares have been, in
9
<PAGE> 11
accordance with the Company's Restated Articles of Incorporation, continuously
owned for a period of four years, in which case the holder will be entitled to
five votes for each share on all matters submitted to shareholders. See
"Description of Capital Stock -- Common Stock".
DEPENDENCE ON KEY MANAGEMENT
The success of the Company's business will be materially dependent upon the
continued services of its founder, Chairman, President and Chief Executive
Officer, J.M. Bernhard, Jr., and other key officers and employees. The loss of
Mr. Bernhard or such other key personnel due to death, disability or termination
of employment could have a material adverse effect on the Company's results of
operations or financial condition, or both.
POSSIBLE WORK STOPPAGE
Certain of the Company's employees in the United States are represented by
the United Association of Journeymen and Apprentices of the Plumbing and
Pipefitting Industry of the United States and Canada, AFL-CIO (the "Union").
While the Company believes that its current relationship with its employees and
the Union is generally good, the collective bargaining agreement between the
Company and the Union regarding one of the Company's facilities is due to expire
on November 30, 1996, and the collective bargaining agreements covering two of
the Company's other facilities are due to expire on December 31, 1996. See
"Business -- Employees". A lengthy strike or other work stoppage at any of the
Company's facilities could have a material adverse effect on the Company's
results of operations or financial condition, or both. The Company experienced a
Union-initiated work stoppage of five days in 1992 relating to the expiration
and renegotiation of a collective bargaining agreement covering the Company's
B.F. Shaw, Inc. subsidiary in Laurens, South Carolina.
RISKS ASSOCIATED WITH ISSUANCE OF PREFERRED STOCK
The Company has available for issuance 5,000,000 shares of Preferred Stock,
no par value, which the Board of Directors of the Company is authorized to
issue, in one or more series, without any further action on the part of
shareholders. In the event the Company issues a series of preferred stock in the
future that has preference over the Common Stock with respect to the payment of
dividends and upon the Company's liquidation, dissolution or winding up, the
rights of the holders of Common Stock offered hereby could be adversely
affected. See "Description of Capital Stock -- Preferred Stock". In addition,
such an issuance could adversely impact the market price of the outstanding
common stock.
ANTI-TAKEOVER EFFECTS OF CERTAIN CHARTER AND BYLAW PROVISIONS AND LOUISIANA LAW
Certain provisions of the Restated Articles of Incorporation and Amended
and Restated By-Laws of the Company and certain provisions of Louisiana law may
tend to deter potential unsolicited offers or other efforts to obtain control of
the Company that are not approved by the Board of Directors. Such provisions may
therefore deprive the shareholders of the Company of opportunities to sell
shares of Common Stock at prices higher than prevailing market prices. See
"Description of Capital Stock -- Louisiana Fair Price and Control Acquisition
Shares", "-- Classified Board of Directors", "-- Advance Notice Provisions for
Certain Shareholder Actions", and "-- Super Majority Provisions".
VOLATILITY OF STOCK PRICE
In the past, the Company has experienced significant fluctuations in the
market price of its Common Stock, and, in the future, the market price of the
Common Stock may experience fluctuations that are unrelated to the operating
performance of the Company, such as market conditions generally and developments
specifically related to the industrial piping industry. Additionally, the volume
of daily trading in the Common Stock to date has been limited, and, as a result,
the sale of a significant number of shares of Common Stock by one or more
shareholders within a relatively short time period could adversely affect the
market price for the Common Stock. See "Price Range of Common Stock and Dividend
Policy".
10
<PAGE> 12
ABSENCE OF DIVIDENDS
The Company has not paid any dividends on the Common Stock and currently
anticipates that, for the foreseeable future, any earnings will be retained for
the development of the Company's business. In addition, the Company is subject
to certain prohibitions on the payment of dividends under the terms of existing
credit facilities. See "Price Range of Common Stock and Dividend Policy".
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
The Common Stock is traded on the NYSE under the symbol "SGR". The Company
delisted the Common Stock from the Nasdaq National Market on October 17, 1996,
and the Common Stock commenced trading on the NYSE on October 18, 1996. The
following table sets forth, for the quarterly periods indicated, the high and
low sale prices per share for the Common Stock as reported on the Nasdaq
National Market through October 17, 1996, and thereafter as reported by the
NYSE, for the Company's two most recent fiscal years and for the current fiscal
year to date.
<TABLE>
<CAPTION>
HIGH LOW
----- ----
<S> <C> <C>
Fiscal year ended August 31, 1995
First quarter................................................... $12 3/4 $ 2 3/4
Second quarter.................................................. 6 1/4 3 7/8
Third quarter................................................... 8 11/32 5 5/8
Fourth quarter.................................................. 10 1/4 7 1/2
Fiscal year ended August 31, 1996
First quarter................................................... $10 3/32 $8 1/4
Second quarter.................................................. 16 3/8 8 3/4
Third quarter................................................... 20 5/8 14 1/4
Fourth quarter.................................................. 33 1/2 15 3/8
Fiscal year ending August 31, 1997
First quarter (through November 25, 1996)....................... $37 $21 7/8
</TABLE>
The closing sale price of the Common Stock on November 25, 1996, as
reported on the NYSE, was $26.25 per share. As of September 25, 1996, the
Company had approximately 2,942 shareholders of record.
The Company has not paid any dividends on the Common Stock and currently
anticipates that, for the foreseeable future, any earnings will be retained for
the development of the Company's business. Accordingly, no dividends are
expected to be declared or paid on the Common Stock for the foreseeable future.
The declaration of dividends is at the discretion of the Company's Board of
Directors. The Company's dividend policy will be reviewed by the Board of
Directors at such future time as may be appropriate in light of relevant factors
at the time; however, the Company is subject to certain prohibitions on the
payment of dividends under the terms of existing credit facilities.
11
<PAGE> 13
USE OF PROCEEDS
The net proceeds to the Company from the sale of 2,000,000 shares of Common
Stock offered by the Company hereby, assuming a public offering price of $26.25
per share, are estimated to be $49.3 million ($59.2 million if the Underwriters'
over-allotment option is exercised in full), after deducting underwriting
discounts and commissions and other expenses payable by the Company. All of such
proceeds will be used to repay outstanding amounts on the Company's revolving
line of credit, which is generally used by the Company for working capital
purposes. Approximately $12.0 million of the Company's line of credit was used
to fund a portion of the acquisition costs of Word and APP. As of November 25,
1996, the Company had outstanding $60.9 million under its revolving line of
credit, which bears interest at 7.44% and which expires on March 31, 1999.
Repayments to the line of credit are made through a lockbox arrangement as the
Company's customers remit payments on outstanding accounts receivable.
Pending the use of the net proceeds of this Offering, such funds will be
invested in short-term, interest-bearing, investment-grade securities.
CAPITALIZATION
(IN THOUSANDS, EXCEPT SHARE DATA)
The following table sets forth the consolidated capitalization of the
Company at August 31, 1996 (i) on an actual historical basis, (ii) as adjusted
to reflect the issuance of the Common Stock offered by the Company hereby and
the application of the net proceeds therefrom and (iii) pro forma, as adjusted,
to reflect the issuance of the Common Stock offered by the Company hereby and
the proposed acquisition of NAPTech. This table should be read in conjunction
with the Company's Consolidated Financial Statements and "Pro Forma Condensed
Consolidated Financial Statements", including the notes thereto, contained
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AT AUGUST 31, 1996
----------------------------------------
PRO FORMA,
ACTUAL AS ADJUSTED AS ADJUSTED
-------- ----------- -----------
<S> <C> <C> <C>
Short-term borrowings and current portion of long-term
debt(1)................................................ $ 52,839 $ 3,564 $ 11,280
-------- -------- --------
Long-term debt, excluding current portion(1)............. 32,158 32,158 32,158
-------- -------- --------
Shareholders' equity:
Preferred Stock, no par value, 5,000,000 shares
authorized; no shares issued and outstanding........ -- -- --
Common Stock, no par value, 50,000,000 shares
authorized; 16,186,218 shares issued (18,186,218
shares as adjusted and 18,553,008 shares pro forma,
as adjusted); 9,523,302 shares outstanding
(11,523,302 shares as adjusted and 11,890,092 shares
pro forma, as adjusted)(2).......................... 50,120 99,395 105,850
Retained earnings...................................... 30,030 30,030 25,750
Less: 6,662,916 shares held in treasury, at cost....... (6,828) (6,828) (6,828)
-------- -------- --------
Total shareholders' equity..................... 73,322 122,597 124,772
-------- -------- --------
Total capitalization..................................... $158,319 $ 158,319 $ 168,210
======== ======== ========
</TABLE>
- ---------------
(1) Includes obligations under capital leases.
(2) Does not include 552,125 shares subject to options that have been granted
pursuant to the Company's 1993 Employee Stock Option Plan and 1996
Non-Employee Director Stock Option Plan. See "Description of Capital Stock".
12
<PAGE> 14
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Set forth on the following pages are the unaudited pro forma condensed
consolidated statements of income of the Company for the year ended August 31,
1996 and the unaudited pro forma condensed consolidated balance sheet of the
Company at August 31, 1996. The unaudited pro forma condensed consolidated
statement of income for the year ended August 31, 1996 is presented (i) giving
effect to the acquisition of Word and the acquisition of APP (together, the
"1996 Acquisitions") and this Offering and (ii) giving effect to the 1996
Acquisitions, the proposed acquisition of NAPTech and this Offering. The
unaudited pro forma condensed consolidated balance sheet gives effect to this
Offering and the proposed acquisition of NAPTech. The unaudited pro forma
condensed consolidated statement of income assumes that the 1996 Acquisitions,
the proposed acquisition of NAPTech and this Offering occurred at September 1,
1995, and the unaudited pro forma condensed consolidated balance sheet assumes
that the proposed acquisition of NAPTech and this Offering occurred at August
31, 1996. The pro forma financial information assumes that the proposed
acquisition of NAPTech will be accounted for using the pooling-of-interests
method of accounting, while the 1996 Acquisitions were accounted for using the
purchase method of accounting.
The following pages set forth (i) historical condensed consolidated
statements of income of the Company for the years ended August 31, 1994, 1995,
and 1996 and (ii) condensed consolidated statements of income of the Company for
the years ended August 31, 1994, 1995, and 1996 restated to reflect the proposed
acquisition of NAPTech as a pooling of interests which include NAPTech's results
of operations for the years ended April 1, 1994, and March 31, 1995, and the
twelve months ended June 30, 1996, respectively. Assuming the proposed
acquisition of NAPTech is consummated, the Company expects that these pro forma
condensed consolidated statements of income will become the restated historical
statements of income of the Company upon the publication of combined financial
results of the Company and NAPTech covering a period subsequent to the
consummation of the acquisition of NAPTech.
The unaudited pro forma condensed consolidated statement of income for the
fiscal year ended August 31, 1996, for both the historical and restated
presentations, combines the historical condensed consolidated statements of
income of (i) the Company for the twelve months ended August 31, 1996, (ii) APP
for the six months ended February 29, 1996 (the period prior to the date of
acquisition by the Company) and (iii) Word for the five months ended January 30,
1996 (the period prior to the date of acquisition by the Company).
The following unaudited pro forma condensed consolidated financial
statements should be read in conjunction with (i) the Consolidated Financial
Statements of the Company and the related notes thereto included elsewhere
herein, (ii) the audited historical consolidated financial statements of Word
for the year ended December 31, 1994, and related notes, and the unaudited
historical consolidated financial statements of Word for the year ended December
31, 1995, filed with the Company's Current Report on Form 8-K/A-1 filed on March
29, 1996 and (iii) the historical combined financial statements of APP for the
year ended July 31, 1995, and the six months ended January 31, 1996, and related
notes filed with the Company's Current Report on Form 8-K/A-1 filed on June 19,
1996.
The following pro forma information is not necessarily indicative of the
results that might have occurred had the transactions taken place at the
beginning of any of the periods specified and is not intended to be a projection
of future results.
13
<PAGE> 15
THE SHAW GROUP INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Set forth below are (i) the historical condensed consolidated statements of
income of the Company for the years ended August 31, 1994, 1995 and 1996 and
(ii) a pro forma condensed consolidated statement of income for the year ended
August 31, 1996 giving effect to the 1996 Acquisitions and this Offering.
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
---------------------------------------------------- --------------------------
1996
ACQUISITIONS YEAR ENDED
YEAR ENDED AUGUST 31, AND AUGUST 31,
------------------------------------ 1996 OFFERING 1996
1994 1995 1996 ACQUISITIONS ADJUSTMENTS AS ADJUSTED
-------- -------- -------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Sales........................................ $113,177 $135,265 $222,017 $43,268 $ 265,285
Cost of sales................................ 96,523 110,578 180,835 36,119 $ (163)(a) 216,791
-------- -------- -------- ------- -------- --------
Gross profit......................... 16,654 24,687 41,182 7,149 163 48,494
General and administrative expenses.......... 11,631 15,023 25,202 6,080 9(b) 31,454
(78)(c)
(9)(a)
250(d)
-------- -------- -------- ------- -------- --------
Operating income..................... 5,023 9,664 15,980 1,069 (9) 17,040
Interest expense............................. (1,731) (2,829) (3,970) (715) (468)(e) (2,627)
468(f)
715(g)
1,343(h)
Other income, net............................ 293 236 880 559 1,439
-------- -------- -------- ------- -------- --------
Income before income taxes................... 3,585 7,071 12,890 913 2,049 15,852
Provision for income taxes................... 1,368 2,217 4,216 659 427(j) 5,302
-------- -------- -------- ------- -------- --------
Income before earnings from unconsolidated
entities................................... 2,217 4,854 8,674 254 1,622 10,550
Earnings from unconsolidated entities........ 792 (588) 103 -- 103
-------- -------- -------- ------- -------- --------
Income before extraordinary item............. $ 3,009 $ 4,266 $ 8,777 $ 254 $ 1,622 $ 10,653
======== ======== ======== ======= ======== ========
Income per common share before extraordinary
item....................................... $ 0.39(k) $ 0.50 $ 0.94 $ 0.91
======== ======== ======== ========
Weighted average number of common shares
outstanding................................ 7,744 8,552 9,325 11,741(l)
======== ======== ======== ========
</TABLE>
Set forth below are (i) the condensed consolidated statements of income of
the Company for the years ended August 31, 1994, 1995 and 1996, as such
statements would be required to be restated (in connection with pooling-of-
interests method of accounting) if the proposed acquisition of NAPTech is
consummated and (ii) a pro forma condensed consolidated statement of income for
the year ended August 31, 1996 giving effect to such restatement and to the 1996
Acquisitions and this Offering.
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
---------------------------------------------------- --------------------------
1996
ACQUISITIONS YEAR ENDED
YEAR ENDED AUGUST 31, AND AUGUST 31,
------------------------------------ 1996 OFFERING 1996
1994 1995 1996 ACQUISITIONS ADJUSTMENTS AS ADJUSTED
-------- -------- -------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Sales........................................ $130,663 $156,922 $249,358 $43,268 $ 292,626
Cost of sales................................ 112,005 130,715 209,211 36,119 $ (163)(a) 245,167
-------- -------- -------- ------- ------- --------
Gross profit......................... 18,658 26,207 40,147 7,149 163 47,459
General and administrative expenses.......... 12,617 16,460 26,679 6,080 9(b) 32,931
(78)(c)
(9)(a)
250(d)
-------- -------- -------- ------- ------- --------
Operating income..................... 6,041 9,747 13,468 1,069 (9) 14,528
Interest expense............................. (2,365) (3,465) (4,823) (715) (468)(e) (2,907)
468(f)
715(g)
1,063(h)
853(i)
Other income, net............................ 304 245 923 559 1,482
-------- -------- -------- ------- ------- --------
Income before income taxes................... 3,980 6,527 9,568 913 2,622 13,103
Provision for income taxes................... 1,508 2,027 3,053 659 628(m) 4,340
-------- -------- -------- ------- ------- --------
Income before earnings from unconsolidated
entities................................... 2,472 4,500 6,515 254 1,994 8,763
Earnings from unconsolidated entities........ 751 (588) 103 -- 103
-------- -------- -------- ------- ------- --------
Income before extraordinary item............. $ 3,223 $ 3,912 $ 6,618 $ 254 $ 1,994 $ 8,866
======== ======== ======== ======= ======= ========
Income per common share before extraordinary
item....................................... $ 0.40(k) $ 0.44 $ 0.68 $ 0.73
======== ======== ======== ========
Weighted average number of common shares
outstanding................................ 8,111 8,919 9,692 12,108(l)
======== ======== ======== ========
</TABLE>
14
<PAGE> 16
THE SHAW GROUP INC.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AT AUGUST 31, 1996
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
PRO FORMA
-----------------------------
NAPTECH
AND
HISTORICAL OFFERING HISTORICAL OFFERING
SHAW ADJUSTMENTS AS ADJUSTED NAPTECH ADJUSTMENTS AS ADJUSTED
---------- ----------- ----------- ------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Current assets:
Cash.......................... $ 2,932 $ -- $ 2,932 $ 9 $ $ 2,941
Accounts receivable........... 71,286 71,286 5,919 77,205
Receivables from
unconsolidated entities..... 701 701 701
Inventories................... 66,412 66,412 898 67,310
Prepaid expenses.............. 2,039 2,039 2,039
Other......................... 1,635 1,635 401 2,036
-------- --------- --------- ------- ------- ---------
Total current assets.... 145,005 -- 145,005 7,227 -- 152,232
Investment in unconsolidated
entities...................... 1,921 1,921 0 -- 1,921
Property and equipment.......... 60,083 -- 60,083 7,200 -- 67,283
Less: Accumulated depreciation
(including amortization of
assets acquired under capital
leases)....................... (9,195) (9,195) (2,635) (11,830)
-------- --------- --------- ------- ------- ---------
50,888 -- 50,888 4,565 -- 55,453
Notes receivable from related
party......................... 625 625 625
Other assets, net............... 6,927 6,927 63 2,636 (n) 9,626
-------- --------- --------- ------- ------- ---------
Total assets.................... $205,366 $ -- $ 205,366 $11,855 $ 2,636 $ 219,857
======== ========= ========= ======= ======= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Outstanding checks............ $ 3,105 $ 3,105 $ $ 3,105
Accounts payable.............. 25,762 25,762 3,217 28,979
Accrued liabilities........... 8,843 8,843 536 9,379
Current maturities of
long-term debt.............. 3,449 3,449 1,367 $(1,367)(p) 3,449
Revolving line of credit...... 49,322 $ (49,275)(o) 47 7,716 (p) 7,763
Current obligations under
capital leases.............. 68 68 68
Deferred
revenue -- prebilled........ 1,839 1,839 1,839
Advance billings.............. 2,991 2,991 399 3,390
-------- --------- --------- ------- ------- ---------
Total current
liabilities........... 95,379 (49,275) 46,104 5,519 6,349 57,972
Long-term debt, less current
maturities.................... 32,113 32,113 6,349 (6,349)(p) 32,113
Obligations under capital
leases, less current
maturities.................... 45 45 45
Deferred income taxes........... 4,507 4,507 -- 448 (n) 4,955
Shareholders' equity:
Common stock.................. 50,120 49,275 (q) 99,395 51 382 (n) 105,850
6,022 (r)
Paid in capital............... -- -- 6,022 (6,022)(r) --
Retained earnings............. 30,030 30,030 (6,086 ) 1,806 (n) 25,750
Treasury stock................ (6,828) (6,828) (6,828)
-------- --------- --------- ------- ------- ---------
Total shareholders'
equity................ 73,322 49,275 122,597 (13 ) 2,188 124,772
-------- --------- --------- ------- ------- ---------
Total liabilities and
shareholders' equity.......... $205,366 $ -- $ 205,366 $11,855 $ 2,636 $ 219,857
======== ========= ========= ======= ======= =========
</TABLE>
15
<PAGE> 17
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following notes set forth the assumptions used in preparing the
unaudited Pro Forma Condensed Consolidated Financial Statements. The pro forma
adjustments are based on estimates made by the Company's management using
information currently available. As a result, the pro forma adjustments
discussed below are subject to change pending the completion of the acquisition
of NAPTech.
The adjustments to the accompanying unaudited pro forma condensed
consolidated statements of income are described below:
(a) To adjust depreciation on the APP assets acquired based on their
adjusted value per the purchase price allocation.
(b) To adjust depreciation on the Word assets acquired based on their
adjusted value per the purchase price allocation.
(c) To eliminate Word intercompany rent expense due to the acquisition of
the plant and office building from an affiliated entity.
(d) To adjust compensation for certain APP employees to conform with
contractual agreements entered into in connection with the acquisition
of APP.
(e) To record additional interest expense due to the net increase in debt
resulting from the 1996 Acquisitions.
(f) To record a reduction in interest expense associated with the
application of a portion of the net proceeds of this Offering to pay
down debt of approximately $12 million used to finance the 1996
Acquisitions.
(g) To record a reduction in interest expense associated with the
application of a portion of the net proceeds of this Offering to pay
down debt of Word of approximately $0.3 million and APP of approximately
$11.9 million assumed by the Company.
(h) To record a reduction in interest expense associated with the
application of a portion of the net proceeds of this Offering to pay
down the revolving line of credit of the Company.
(i) To record a reduction in interest expense associated with the
application of a portion of the net proceeds of this Offering to pay
down all of the outstanding indebtedness of NAPTech assumed by the
Company.
(j) To record the income tax provision related to the net loss from the
acquisition of Word, the income of an affiliate of APP and the effect of
pro forma adjustments.
(k) Excludes $0.05 per share ($370,455) for the year ended August 31, 1994,
and $0.04 per share on a restated basis for the year ended August 31,
1994, attributable to a gain on the early retirement of certain debt
instruments (after income tax).
(l) Pro forma common shares outstanding include 385,000 shares of Common
Stock issued in connection with the acquisition of Word; 541,177 shares
of Common Stock issued in connection with the acquisition of APP;
2,000,000 shares of Common Stock issued in connection with this
Offering; and, where appropriate, 366,790 shares of Common Stock to be
issued in connection with the acquisition of NAPTech.
(m) To record the income tax provision related to the net loss from the
acquisitions of Word and NAPTech, the income of an affiliate of APP and
the effect of pro forma adjustments.
The adjustments to the accompanying unaudited pro forma condensed
consolidated balance sheet are described below:
(n) To record the deferred tax assets of $2.6 million relating to tax
benefits of NAPTech and to record the deferred tax liability of $448,000
relating to differences in the book and tax basis of the net assets of
NAPTech.
(o) To record the assumed net reduction of indebtedness of the Company
through the application of a portion of the net proceeds to the Company
from this Offering.
(p) To record the reduction of indebtedness of NAPTech assumed by the
Company through the application of proceeds from the Company's revolving
line of credit.
(q) To record the issuance by the Company of 2,000,000 shares of Common
Stock and related net proceeds of $49,275,000 received in this Offering.
(r) To record the issuance by the Company of 366,790 shares of Common Stock
relating to the pooling of interests with NAPTech.
16
<PAGE> 18
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table presents, for the periods and as of the dates
indicated, selected statement of income data and balance sheet data of the
Company on a consolidated basis. The selected historical consolidated financial
data for each of the three fiscal years in the period ended August 31, 1996
presented below have been derived from the Company's audited consolidated
financial statements. Such data should be read in conjunction with the
Consolidated Financial Statements of the Company and related notes thereto
included elsewhere in this Prospectus and "Management's Discussion and Analysis
of Financial Condition and Results of Operations".
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
------------------------------------
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
STATEMENT OF INCOME DATA:
Sales.................................................. $113,177 $135,265 $222,017
Cost of sales.......................................... 96,523 110,578 180,835
-------- -------- --------
Gross profit........................................... 16,654 24,687 41,182
General and administrative expenses.................... 11,631 15,023 25,202
-------- -------- --------
Operating income....................................... 5,023 9,664 15,980
Interest expense....................................... (1,731) (2,829) (3,970)
Other income, net...................................... 293 236 880
-------- -------- --------
Income before income taxes............................. 3,585 7,071 12,890
Provisions for income taxes............................ 1,368 2,217 4,216
-------- -------- --------
Income before earnings (losses) from unconsolidated
entities............................................ 2,217 4,854 8,674
Earnings (losses) from unconsolidated entities......... 792 (588) 103
-------- -------- --------
Income before extraordinary item....................... 3,009 4,266 8,777
Extraordinary item, less applicable income taxes....... 370 -- --
-------- -------- --------
Net income............................................. $ 3,379 $ 4,266 $ 8,777
======== ======== ========
Income per common share before extraordinary item(1)... $ 0.39 $ 0.50 $ 0.94
Extraordinary item per common share.................... 0.05 -- --
-------- -------- --------
Net income per common share(1)......................... $ 0.44 $ 0.50 $ 0.94
======== ======== ========
Weighted average number of common shares outstanding... 7,744 8,552 9,325
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
BALANCE SHEET DATA: AT AUGUST 31, 1996
------------------
<S> <C>
Working capital........................................................... $ 49,626
Total assets.............................................................. 205,366
Long-term debt and capital lease obligations, net of current maturities... 32,158
Shareholders' equity...................................................... 73,322
</TABLE>
- ---------------
(1) If the acquisition of NAPTech is consummated, the Company expects that the
historical financial statements of the Company would be restated, with the
effect that income per common share before extraordinary item would be
$0.40, $0.44 and $0.68 and net income per common share would be $0.44, $0.44
and $0.68 for the years ended August 31, 1994, 1995 and 1996, respectively.
See "Pro Forma Condensed Consolidated Financial Statements".
17
<PAGE> 19
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following analysis of the financial condition and results of operations
of the Company should be read in conjunction with the Company's Consolidated
Financial Statements, including the notes thereto and selected financial data,
included elsewhere in this document.
RECENT ACQUISITIONS
On April 29, 1994, the Company acquired the business of Fronek Company,
Inc. ("FCI"), an engineering firm with offices located in Englewood, New Jersey
and Toronto, Canada, and F.C.I. Pipe Support Sales, Inc. ("PSSI"), a pipe
support fabrication facility located in Longview, Texas. These acquisitions were
completed through the issuance of 75,000 shares of the Company's Common Stock
valued at $1.4 million and cash of $2.1 million. In addition, the Company agreed
to issue options to acquire up to 57,000 shares of the Company's Common Stock
and make additional cash payments up to $300,000 based on the future earnings of
the Company's subsidiaries managed by the former owner of FCI and PSSI through
1997. See Note 3 to the Company's Consolidated Financial Statements.
On December 15, 1994, the Company acquired the 50% interest of the other
participant in the Shaw-Formiconi joint venture located in Venezuela, together
with the concurrent acquisition of certain land, buildings and other assets used
by the venture. The total amount of the purchase price related to this
acquisition, including the selling participant's share of joint venture profits,
was approximately $2.9 million. The Company had previously accounted for its
investment in the joint venture as an unconsolidated subsidiary under the equity
method. Since December 15, 1994, the Venezuelan operation has operated as a
wholly owned subsidiary and is included as a consolidated subsidiary in the
Company's consolidated statements since that date. See Notes 3 and 5 to the
Company's Consolidated Financial Statements.
On January 16, 1996, the Company purchased certain assets and assumed
certain liabilities of Word, TS&M Corporation and T.N. Word and certain of Mr.
Word's family members. The acquisition of Word increased the Company's
production capacity and added a facility in Tulsa, Oklahoma. The total purchase
price related to the acquisition was approximately $4.2 million, consisting of
the issuance of 385,000 shares of the Company's Common Stock valued at $3.4
million and cash and other consideration of approximately $750,000. See Note 3
of the Notes to Consolidated Financial Statements.
Effective March 1, 1996, the Company acquired all of the outstanding
capital stock of APP, a leading United States manufacturer of specialty
stainless and carbon steel pipe fittings and other stainless pipe products, and
the assets of an APP-related entity, Speedline. In connection with the
acquisition of APP, the Company issued 541,177 shares of the Company's Common
Stock valued at $6.8 million and paid cash of $11.6 million. See Note 3 of the
Notes to Consolidated Financial Statements.
Shaw has entered into an agreement to acquire NAPTech, Inc., a fabricator
of industrial piping systems and engineered piping modules located in
Clearfield, Utah. In connection with the acquisition, pursuant to the
acquisition agreement as it is proposed to be amended, the Company expects to
issue up to an aggregate of 366,790 shares of the Company's Common Stock in
exchange for NAPTech, Inc. and the 335,000 square foot facility that NAPTech,
Inc. currently leases from a related entity. For the fiscal years ended March
29, 1996 and March 31, 1995, NAPTech, Inc. reported revenues of $24.9 million
and $21.7 million, respectively, and net losses of $3.1 million and $224,000,
respectively. In addition, at June 30, 1996, NAPTech had an accumulated deficit
of $6.1 million and, for the three months ended June 30, 1996, net cash used by
operating activities was $2.0 million. Although NAPTech has experienced
historical operating and liquidity difficulties, the Company does not expect
such difficulties to continue after the NAPTech acquisition due in part to the
Company's materials purchasing power and fabrication expertise. The Company
expects benefits from the acquisition of NAPTech to include, among other things,
increased fabrication capacity and additional induction pipe bending
capabilities. In addition, NAPTech estimates it had a backlog of approximately
$39.0 million at August 31, 1996, which primarily consisted of a large mining
industry project. The acquisition of NAPTech is subject to various conditions,
including, without limitation, the approval of Shaw's Board of Directors and
NAPTech's shareholders, as well as necessary regulatory approvals. If
consummated, the
18
<PAGE> 20
Company expects that the acquisition of NAPTech will be accounted for as a
pooling of interests and, accordingly, will result in a restatement of the
Company's financial statements for the year ended August 31, 1994 and subsequent
periods. See "Pro Forma Condensed Consolidated Financial Statements". Although
there can be no assurance that the acquisition of NAPTech will be completed, the
Company currently anticipates that the acquisition will be consummated on or
before December 31, 1996.
RESULTS OF OPERATIONS
General
The following table sets forth, for the periods indicated, the percentages
of the Company's sales that certain income and expense items represent.
<TABLE>
<CAPTION>
YEAR ENDED
AUGUST 31,
-----------------------------
1994 1995 1996
----- ----- -----
<S> <C> <C> <C>
Sales........................................................... 100.0% 100.0% 100.0%
Cost of sales................................................... 85.3 81.8 81.4
----- ----- -----
Gross profit.................................................... 14.7 18.2 18.6
General and administrative expenses............................. 10.3 11.1 11.4
----- ----- -----
Operating income................................................ 4.4 7.1 7.2
Interest expense................................................ (1.5) (2.1) (1.8)
Other income, net............................................... 0.3 0.2 0.4
----- ----- -----
Income before income taxes...................................... 3.2 5.2 5.8
Provision for income taxes...................................... 1.2 1.6 1.9
----- ----- -----
Income before earnings (losses) from unconsolidated entities.... 2.0 3.6 3.9
Earnings (losses) from unconsolidated entities.................. 0.7 (0.4) 0.1
----- ----- -----
Income before extraordinary item................................ 2.7 3.2 4.0
Extraordinary item, less applicable income taxes................ 0.3 -- --
----- ----- -----
Net income...................................................... 3.0% 3.2% 4.0%
===== ===== =====
</TABLE>
Fiscal 1996 Compared to Fiscal 1995
Sales increased $86.7 million, or 64.1%, for fiscal 1996 to $222.0 million
from $135.3 million for fiscal 1995. This increase was due primarily to
increased sales for projects in the domestic chemical and refinery sectors and
the international power sector, as well as to the acquisitions of Word and APP,
which contributed approximately $15.6 million and $24.9 million, respectively,
in sales from their respective dates of acquisition.
The Company's sales by geographic region were as follows:
<TABLE>
<CAPTION>
FISCAL 1995 FISCAL 1996
--------------------------------- ---------------------------------
(IN MILLIONS) % (IN MILLIONS) %
------------- ------ ------------- ------
<S> <C> <C> <C> <C>
Geographic Region:
U.S.A................................ $ 86.2 63.7% $ 146.3 65.9%
Far East/Pacific Rim................. 24.3 18.0 39.6 17.8
Middle East.......................... 4.2 3.1 21.4 9.6
Latin America........................ 20.5 15.2 2.6 1.2
Europe............................... -- -- 9.0 4.1
Other................................ 0.1 0.0 3.1 1.4
------ ----- ------ -----
$ 135.3 100.0% $ 222.0 100.0%
====== ===== ====== =====
</TABLE>
19
<PAGE> 21
The Company's sales by industry sector were as follows:
<TABLE>
<CAPTION>
FISCAL 1995 FISCAL 1996
--------------------------------- ---------------------------------
(IN MILLIONS) % (IN MILLIONS) %
------------- ------ ------------- ------
<S> <C> <C> <C> <C>
Industry Sector:
Power................................ $ 59.2 43.8% $ 86.7 39.0%
Refining............................. 39.2 29.0 62.4 28.1
Chemical............................. 33.5 24.7 62.1 28.0
Other................................ 3.4 2.5 10.8 4.9
------ ----- ------ -----
$ 135.3 100.0% $ 222.0 100.0%
====== ===== ====== =====
</TABLE>
The gross margin for fiscal 1996 increased to 18.6% from 18.2% for the
prior year. The increase was attributable primarily to the increase in
international projects with their generally higher profit margins, improvement
in pricing in the domestic market and contributions from the APP and Word
subsidiaries. These improvements in gross margins were offset to a large extent
by a substantial decrease in sales and gross profits from the company's
Venezuelan facility, which historically has achieved higher gross margin
percentages than the Company's domestic subsidiaries. The Company does not
expect significant contributions in sales or profits, if any, from its
Venezuelan subsidiary until at least the second quarter of fiscal 1997.
General and administrative expenses were $25.2 million for fiscal 1996,
compared to $15.0 million for the prior year. The $10.2 million increase was due
primarily to the integration of Word and APP into Shaw's business and to the
variable costs associated with the increased sales.
Interest expense for fiscal 1996 was $4.0 million, up 40.3% from the $2.8
million incurred in fiscal 1995, primarily due to increased borrowing resulting
from the expansion of business, billing delays, and the acquisitions of APP and
Word in 1996. Beginning in the fourth quarter of fiscal 1995, the Company has
benefitted from new loan and security agreements with commercial lenders and
insurance companies, as well as an industrial revenue bond financing, that
reduced overall interest rates applicable to the Company and helped reduce the
impact of the aforementioned increased borrowings.
The Company's effective tax rates for fiscal 1996 and 1995 were 32.7% and
31.4%, respectively. The increase in the fiscal 1996 tax rates, as compared to
the same period the prior year, was primarily due to an increased proportion of
the Company's net profit in the domestic market due in part to the integration
of APP and Word into the Company's operations.
Fiscal 1995 Compared to Fiscal 1994
Sales increased by 19.5% for fiscal 1995 to $135.3 million from $113.2
million for fiscal 1994. Gross profit increased 48.2% to $24.7 million for
fiscal 1995 from $16.7 million for fiscal 1994. Both sales and gross profits
were positively impacted by the increase in international sales which have
historically generated higher profit margins. International sales for fiscal
1995 included $9.4 million of sales by the Company's Venezuelan subsidiary,
which became a wholly owned subsidiary in December 1994. In addition, fiscal
1995 sales included $10.2 million of sales by the Company's engineering and pipe
support fabrication subsidiaries, which were acquired in April 1994.
20
<PAGE> 22
The Company's sales by geographic region were as follows:
<TABLE>
<CAPTION>
FISCAL 1995
---------------------------------
(IN MILLIONS) %
------------- ------
<S> <C> <C>
Geographic Region:
U.S.A................................................ $ 86.2 63.7%
Far East/Pacific Rim................................. 24.3 18.0
Middle East.......................................... 4.2 3.1
Latin America........................................ 20.5 15.2
Other................................................ 0.1 0.0
------ -----
$ 135.3 100.0%
====== =====
</TABLE>
International sales by geographic region are not available for fiscal 1994.
The Company's sales by industry sector were as follows:
<TABLE>
<CAPTION>
FISCAL 1994 FISCAL 1995
--------------------------------- ---------------------------------
(IN MILLIONS) % (IN MILLIONS) %
------------- ------ ------------- ------
<S> <C> <C> <C> <C>
Industry Sector:
Power................................ $ 57.7 51.0% $ 59.2 43.8%
Refining............................. 31.7 28.0 39.2 29.0
Chemical............................. 20.4 18.0 33.5 24.7
Other................................ 3.4 3.0 3.4 2.5
------ ----- ------ -----
$ 113.2 100.0% $ 135.3 100.0%
====== ===== ====== =====
</TABLE>
Gross margins for fiscal 1995 increased to 18.2% from 14.7% for fiscal
1994. This increase was due to higher margins on international projects,
primarily attributable to work performed by the Company's Venezuelan subsidiary,
as well as improvement in the domestic market in the third and fourth quarters
of fiscal 1995. Fiscal 1994 gross margins were down due to a number of domestic
projects that were adversely affected by competitive pricing, quick delivery
requirements and/or productivity difficulties. These factors also impacted gross
margins for the first and second quarters of fiscal 1995.
General and administrative expenses for fiscal 1995 increased by $3.4
million to $15.0 million as compared to $11.6 million in fiscal 1994. This
increase was due primarily to $1.5 million in additional overhead attributable
to the Company's engineering and pipe support fabrication subsidiaries and a
$1.2 million increase in overhead relating to the Company's international
operations. The remaining $700,000 increase was due primarily to variable costs
associated with increased sales levels.
The Company's effective tax rates for fiscal 1995 and fiscal 1994 were
31.4% and 38.2%, respectively. The decrease in fiscal 1995 from fiscal 1994 was
primarily due to tax benefits derived from export sales and lower state income
taxes.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operations was $20.0 million for fiscal 1996, compared to
net cash provided by operations of $5.5 million for fiscal 1995. For fiscal
1996, net cash used in operations was a result primarily of increases of $16.1
million in receivables and $21.1 million in inventories, partially offset by an
increase of $8.3 million in accounts payable.
The increase in receivables was primarily attributable to a higher volume
of sales activity for fiscal 1996. During the year, the Company experienced some
billing delays due to an increased number of contracts with intricate and time
consuming billing provisions. At the end of fiscal 1996, there has been a shift
in the contract mix, and the Company has substantially eliminated these billing
delays.
Inventories increased due to the procurement of material for current and
future sales activities, which are expected to exceed historical levels, based
upon the Company's backlog at August 31, 1996 of approximately
21
<PAGE> 23
$154.0 million. The increase in inventories was primarily financed by the
increase in accounts payable and increases in the Company's revolving credit
agreement.
Net cash used in investing activities was $25.6 million for fiscal 1996,
compared to $2.7 million for fiscal 1995. During fiscal 1996, the Company
invested $0.8 million in cash in connection with the acquisition of Word and a
net $8.7 million of cash in connection with the acquisition of APP. In addition,
the Company purchased $18.1 million of property and equipment in fiscal 1996.
Major property and equipment purchases include $2.3 million for an induction
bending machine for the Company's subsidiary in Laurens, South Carolina; $2.6
million for an induction bending machine and $2.8 million of facility expansion
for the Company's subsidiary in Walker, Louisiana; $2.0 million of assets at the
Company's Venezuelan subsidiary; and $3.7 million of transportation equipment.
Net cash provided by financing activities was $48.8 million for fiscal
1996, compared to $2.6 million used for fiscal 1995. For fiscal 1996, $30.5
million of cash was provided from the Company's revolving line of credit
facility under the Company's loan and security agreement with its commercial
lenders. The revolving line of credit facility has been used generally to
provide working capital and fund fixed asset purchases and acquisitions. During
fiscal 1996, the Company borrowed $21.1 million in term debt. The borrowings
were used primarily to refinance $5.8 million of APP's debt, pay down $3.8
million of revolving debt and purchase two induction bending machines
aggregating $4.9 million and transportation equipment totaling $2.8 million.
Concurrent with the acquisition of APP, the Company amended its loan and
security agreement with its commercial lenders to provide for a revolving line
of credit of up to $70.0 million, depending upon the Company's collateral base
(which consists primarily of certain eligible amounts of receivables and
inventory) and up to $10.0 million in term loans at an interest rate based upon,
at the Company's option, either the London Interbank Offering Rate ("LIBOR")
plus 85 to 200 basis points or prime rate plus zero to 75 basis points,
depending on certain financial ratios. Pursuant to the amended loan and security
agreement, the Company makes daily draws against the line of credit to fund its
cash disbursements. Repayments to the line of credit are made through a lockbox
arrangement as the Company's customers remit payments on outstanding accounts
receivable. The line of credit facility expires on March 31, 1999, and the term
loans expire on March 31, 2001. The effective interest rate at August 31, 1996
for the line of credit and the term loans was 7.0%.
In September 1995, the Company obtained industrial development bond
financing of $4.0 million. Approximately $2.3 million of the bond proceeds were
used to purchase a bending machine for the Laurens, South Carolina facility in
November 1995. The remaining balance is held in short-term marketable securities
until used for other capital improvements at such facility. The loan is due
September 1, 2005 and is secured by a letter of credit issued under the loan and
security agreement with the Company's commercial lenders. The loan has a
variable interest rate, with the effective interest rate at August 31, 1996
being 3.95%.
In addition, since February 29, 1996, the Company has obtained an aggregate
of $16.9 million in term loans from a commercial lender and an insurance
company. The loans, which are secured by equipment, and real estate, have terms
ranging from five to seven years and variable interest rates based upon LIBOR
plus 160 basis points and 30-day commercial paper rates plus 190 and 235 basis
points for the equipment and real estate loans, respectively. The effective
rates at November 25, 1996 ranged from 7.10% to 7.74%.
The Company believes that its current financing arrangements are sufficient
to support its operations for the foreseeable future.
MATERIAL CHANGES IN FINANCIAL CONDITION
The Company's current assets increased by $64.4 million from $80.6 million
at August 31, 1995 to $145.0 million at August 31, 1996. The increase resulted
primarily from increases in inventories of $38.0 million and accounts receivable
of $23.0 million. Receivables increased primarily due to increased sales levels
and acquisitions, and inventories increased primarily due to current and future
production requirements and acquisitions. At August 31, 1996, approximately
$23.4 million of the inventories and $9.5 million of the receivables were
attributable to the newly acquired Word and APP subsidiaries.
22
<PAGE> 24
Property and equipment increased by $33.7 million to $60.1 million at
August 31, 1996 from $26.4 million at August 31, 1995. This increase resulted
primarily from the $12.3 million of property and equipment acquired in the
acquisition of APP, the $5.4 million of property and equipment acquired in the
acquisition of Word, the purchase of two induction bending machines aggregating
$4.9 million, $4.8 million in fixed asset additions relating to the expansion of
the facilities for the Company's subsidiaries in Walker, Louisiana and
Venezuela, and transportation equipment of $3.7 million.
The Company's current liabilities increased $54.8 million from $40.6
million at August 31, 1995 to $95.4 million at August 31, 1996. The increase is
due primarily to increases of $35.3 million in the revolving line of credit and
$10.7 million in accounts payable. The increases in accounts payable and the
revolving line of credit were used to finance the Company's increase in accounts
receivable, inventories, fixed asset purchases and acquisitions.
FINANCIAL ACCOUNTING STANDARDS BOARD STATEMENTS
In December 1990, Statement of Financial Accounting Standards No. 106,
Employer's Accounting for Post-Retirement Benefits Other Than Pensions ("SFAS
106"), was issued and required to be adopted by the Company no later than fiscal
1994. The Company presently offers no post-retirement benefits which would be
required to be reflected in its financial statements by SFAS 106.
In November 1992, Statement of Financial Accounting Standards No. 112,
Employer's Accounting for Post-Employment Benefits ("SFAS 112"), was issued and
required to be adopted by the Company no later than fiscal 1995. The Company
presently offers no post-employment benefits which would be required to be
reflected in its financial statements by SFAS 112.
In March 1995, Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-lived Assets and for Long-Lived Assets to
be Disposed of", was issued and required to be adopted by the Company no later
than the fiscal year ending August 31, 1997. The adoption of this new standard
will not have a material impact on the Company's financial position or results
of operations.
In December 1995, Statement of Financial Accounting Standards No.
123 -- "Accounting for Stock-Based Compensation" ("SFAS 123") was issued which
establishes, among other things, financial accounting and reporting standards
for stock-based employee compensation plans. Entities may either adopt a "fair
value based method" of accounting for an employee stock option as defined by
SFAS 123 or may continue to use accounting methods as prescribed by APB Opinion
No. 25 -- "Accounting for Stock Issued to Employees". Entities electing to
remain with the accounting in APB Opinion No. 25 are required to make pro forma
disclosures of net income and earnings per share as if the fair value based
method of accounting defined in SFAS 123 had been applied. The Company expects
to continue following APB Opinion No. 25 and make appropriate disclosures in the
future in accordance with SFAS 123.
FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISK
This Prospectus, including the information incorporated by reference,
contains forward-looking statements within the meaning of Section 27A of the
Securities Act and Section 21E of the Exchange Act, including statements
regarding, among other items, (i) the Company's growth strategies, including its
intention to make acquisitions; (ii) anticipated trends in the Company's
business; and (iii) the Company's intention to enter into satisfactory contracts
with its customers, including Alliance Agreements. These forward-looking
statements are based largely on the Company's expectations and are subject to a
number of risks and uncertainties, certain of which are beyond the Company's
control. Actual results could differ materially from these forward-looking
statements as a result of the factors described in this Prospectus, including,
but not limited to, (i) adverse economic conditions; (ii) the impact of
competitive products and pricing; (iii) product demand and acceptance risks;
(iv) the presence of competitors with greater financial resources; (v) costs and
financing difficulties; and (vi) delays or difficulties in the production,
delivery or installation of products, including a lengthy strike or other work
stoppage by the Company's union employees at any of the Company's facilities.
See "Risk Factors". In light of these risks and uncertainties, there can be no
assurance that actual results will be as projected in the forward-looking
statements.
23
<PAGE> 25
BUSINESS
COMPANY OVERVIEW
Shaw is a leading supplier of industrial piping systems for new
construction and retrofit projects throughout the world, primarily for customers
in the electric power, refining and chemical industries. Shaw is committed to
being the "total piping resource" for its customers by offering comprehensive
design and engineering services, piping system fabrication, manufacturing and
sale of specialty pipe fittings and design and fabrication of pipe support
systems.
The Company was founded in 1987 by current management and subsequently
purchased the assets of Benjamin F. Shaw Company, a century-old pipe fabricator.
The Company has increased its revenues from $29.3 million in fiscal 1988 to
$222.0 million in fiscal 1996, both increasing its domestic and international
businesses. Through internal expansion and a series of strategic acquisitions,
the Company has expanded its fabrication capacity, increased its bending
capabilities and broadened its piping system products and services. These
actions have provided the Company with the ability to achieve substantial
economies of scale in purchasing, manufacturing and transporting fabricated
products and the ability to provide customers with complete piping systems.
The Company believes it has earned a reputation as an efficient, low-cost
supplier of complex piping systems as a result of several competitive
advantages. Specifically, the Company coordinates and integrates project
engineering and fabrication processes in order to maximize overall efficiency in
time, cost and performance. In addition, the Company's significant investment in
state-of-the-art induction bending equipment provides it with time, labor and
raw material savings as compared to traditional fabrication methods. Shaw also
manufactures specialty pipe fittings, pipe hangers and other pipe products. This
manufacturing capability has served to reduce the Company's supply costs and
enhance its overall piping package. The Company utilizes its proprietary
software technology to enhance the planning and scheduling efforts of its
customers, helping to reduce total installed costs and project cycle times.
As a result of its favorable cost structure, its extensive piping resources
and its ability to handle complex piping systems, Shaw has increased
substantially its presence in the worldwide pipe fabrication industry, competing
effectively on large scale piping projects worldwide. Beginning in 1991, the
Company expanded into international markets in anticipation of the worldwide
infrastructure build-up in the electric power, refining and chemical industries.
International revenues have increased from $4.5 million in fiscal 1991 to $75.7
million in fiscal 1996. International projects represented approximately 66% of
backlog at August 31, 1996.
The Company estimated its backlog at approximately $154.0 million at August
31, 1996 compared to approximately $101.0 million and $75.0 million at August
31, 1995 and 1994, respectively. The Company estimates that $141.8 million, or
92.1%, of its backlog at August 31, 1996 will be completed in fiscal 1997. The
Company defines its backlog as a "working backlog", whereby only projects with a
written commitment are included.
BUSINESS STRATEGY
The Company is committed to strengthening its leadership position as a
"total piping resource" for the electric power, refining and chemical industries
worldwide by providing high-quality, competitively-priced piping systems within
significantly reduced project delivery times. The key components of Shaw's
business strategy include:
- Providing a comprehensive range of products and services that enhances
the Company's prefabricated piping systems, including initial design and
engineering services, customer interactive software, induction pipe
bending, manufactured pipe components and supports and final on-site
erection and testing.
- Pursuing strategic acquisitions that will complement and enhance Shaw's
existing operations by allowing the Company to further broaden its piping
products and services, selectively expand geographic manufacturing
capabilities and maintain its technological leadership position.
24
<PAGE> 26
- Investing in new equipment, technology and information systems designed
to increase the Company's manufacturing and fabrication capabilities and
capacity and improve overall project efficiency.
- Broadening its base of "alliance" customers through the negotiation of
"Alliance Agreements" that allow the Company to expedite individual
project contract negotiations. These Alliance Agreements are intended to
reduce total installed costs and project cycle times of prefabricated
piping systems for customers and enable the Company to forecast a larger
portion of its future revenue stream.
- Increasing the utilization of Shaw's unique design and engineering
resources as the first step in providing an integrated "turnkey" piping
systems approach.
The Company believes that by employing its business strategy it will be able to
further capitalize on the worldwide infrastructure build-up in the electric
power, refining and chemical industries and enhance its relationships with its
existing and potential domestic customers as they expand and retrofit existing
facilities. Shaw has facilities certified by the American Society of Mechanical
Engineers (ASME) for nuclear power piping and registered by the International
Organization of Standards (ISO 9001 and 9002), which registration is required to
perform certain international work.
INDUSTRY OVERVIEW
The industrial pipe fabrication industry provides piping systems for new
construction and retrofit projects in the electric power, refining, chemical and
other industries, including the gas processing, pulp and paper, pharmaceutical
and food processing industries. The Company estimates that prefabricated piping
systems account for approximately 3% of the total costs of a new construction
project and are crucial components of each project. The Company divides the
industry into two major segments, the electric power industry segment and the
process industry segment. The refining and chemical sectors represent the
largest portion of the process industry segment.
The domestic pipe fabrication industry depends largely on new construction
and retrofit projects in the chemical, refining, gas processing, pulp and paper,
pharmaceutical, food processing and other industries. These industries have
historically been cyclical in nature and vulnerable to general downturns in the
economy. The chemical sector began to experience an upturn in mid-1995 driven by
an increase in capital expenditures for capacity expansions and retrofits. This
resulted in a significant improvement in the domestic pricing environment during
fiscal 1996. Project activity in the chemical and refining sectors continues to
be robust and the Company anticipates that a significant portion of domestic
project work over the next several years will be generated by chemical plant
expansions and refinery retrofits relating to the modernization of aging
facilities and compliance with environmental regulations. Due to the minimal
demand for new electric power plant construction in the United States, the
electric power piping market in the United States consists almost exclusively of
retrofits.
In contrast to the domestic market, the international pipe fabrication
market has exhibited significant growth over the last several years, and
industry sources project this growth to continue. New construction represents
the majority of work performed in the electric power sector overseas. Strong
demand for electricity, particularly in underdeveloped and overpopulated areas
of the world, has resulted in a significant increase in new power plant
construction.
Generally, United States pipe fabricators can fabricate electric power
piping systems domestically and ship the finished goods to selected
international markets less expensively than their major overseas competitors,
due primarily to significantly lower labor costs than in certain other
industrialized countries (principally Germany and Japan), greater availability
of raw materials in the United States and a more favorable valuation of the
United States dollar relative to certain foreign currencies. Typically, the
Company's international competitors are divisions of large industrial firms.
Most international projects require a certain percentage of "local content"
sourcing. Therefore, non-critical or low pressure piping for electric power
projects is frequently fabricated at the project site by local welders or in
local fabrication facilities. The same is true for the chemical and refining
sectors, which utilize less critical piping systems. In most areas of the
Pacific Rim and South America, this work is performed at
25
<PAGE> 27
significantly lower labor costs. In order to bid more competitively for the
process and low pressure piping portion of an overseas project, Shaw has
established overseas facilities and has developed for delivery in January 1997 a
portable induction bending machine that can be used on international job
construction sites.
PRODUCTS AND SERVICES
As part of its commitment to being a "total piping resource" for its
customers, the Company provides a complete range of piping products and
services, including pipe fabrication, bending, engineering and design and pipe
fittings manufacturing.
Pipe Fabrication
Shaw's core business is the fabrication of complex piping systems from raw
material made of carbon steel, stainless and other alloys, as well as other
materials, including nickel, titanium and aluminum. The Company produces
prefabricated piping systems by cutting pipe to length, welding fittings on the
pipe and bending the pipe, each to precise customer specifications. Shaw owns
and operates six fabrication facilities in South Carolina, Louisiana, Oklahoma
and Venezuela as well as a 49% interest in a joint venture fabrication facility
in Bahrain. These seven fabrication facilities are capable of handling and
fabricating pipe ranging in diameter from one inch to 72 inches, with overall
wall thicknesses from 1/8 inch to 7 inches. Prefabricated pipe assemblies up to
100 feet in length and weighing up to 45 tons can be processed by the Company.
The Company's products must meet rigid quality control standards. In
addition to visual inspection, the Company uses radiography, hydro testing, dye
penetration and ultrasonic flaw detection to confirm that its products meet
specifications. A significant portion of Shaw's work is the fabrication of
"critical piping systems" for use in high pressure, high temperature or
corrosive applications, including systems designed to withstand pressures of up
to 2,700 pounds per square inch and temperatures of up to 1,020 degrees
Fahrenheit.
Bending
Beginning in fiscal 1994, the Company began purchasing state-of-the-art
induction bending equipment, which significantly increased the Company's
capacity to fabricate piping systems, in both volume and complexity. In
addition, on certain projects Shaw can substitute bends for the cutting of pipe
and welding fittings, resulting in labor, time and raw material savings.
Although the Company has historically been capable of bending pipe using
traditional methods, such bending capabilities were limited with respect to pipe
composition, diameter, wall thickness and bend characteristics. As a result, the
Company generally was required to subcontract for more complex bends,
particularly for pipes with large diameters and wall thicknesses.
The market for pipe fabrication is increasingly moving in the direction of
custom pipe bending according to the specifications of customers, since bending
generally allows for significant reductions in labor, time and materials costs
as compared to traditional means of fabrication. The Company believes its
state-of-the-art equipment gives it a technological advantage in this growing
segment of the market.
26
<PAGE> 28
The Company currently owns four induction pipe bending machines and has
another machine on order. The Company believes its Cojafex model PB Special 16,
currently on order and expected to be delivered in January 1997, will be the
only portable machine of its class in existence and will allow the Company to
perform multi-directional pipe bends at project sites around the world. The
following table shows the locations and technical capabilities of the Company's
pipe bending machines.
<TABLE>
<CAPTION>
PIPE BENDING CAPABILITIES
-----------------------------------
MAXIMUM PIPE MAXIMUM PIPE
MODEL LOCATION DIAMETER WALL THICKNESS
- ----------------------------- ------------------------------ ------------ --------------
<S> <C> <C> <C>
Cojafex PB Special 16 Walker, Louisiana 16 inches 2.5 inches
Cojafex PB Special 16 Laurens, South Carolina 16 inches 2.5 inches
Cojafex PB Special 16 Tulsa, Oklahoma 16 inches 2.5 inches
Cojafex PB Special 16 Portable(1) 16 inches 2.5 inches
Cojafex PB-1200 Walker, Louisiana 48 inches 4.0 inches
</TABLE>
- ---------------
(1) Expected delivery in January 1997.
In addition to the induction bending machines in the above table, the
Company will acquire three additional machines in the proposed acquisition of
NAPTech. Specifically, NAPTech's Clearfield, Utah facility has the following
machines: a Cojafex model PB-1600, which is capable of bending pipe with
diameters of up to 66 inches and wall thicknesses of up to 5 inches, a Cojafex
model PB-850, which is capable of bending pipe with diameters of up to 34 inches
and wall thicknesses of up to 3 inches; and a Cojafex model PB Special 12, which
is capable of bending pipe with diameters of up to 12 inches and wall
thicknesses of up to 3/4 of an inch. The acquisition of NAPTech is subject to
various conditions, including the approval of Shaw's Board of Directors and
NAPTech's shareholders, as well as necessary regulatory approvals. Although
there can be no assurance that the acquisition of NAPTech will close, the
Company currently anticipates that the acquisition will be consummated on or
before December 31, 1996.
Engineering and Design
In 1994, as an integral part of its strategy of becoming a "total piping
resource", the Company integrated engineering and design capabilities into its
business for complex piping systems for electric power projects, mainly for the
Company's customers outside the United States. Shaw also designs and engineers
pipe hanger and support systems and specializes in engineering analyses of
complex piping systems and related services, primarily for the electric power
industry. These engineering, design and pipe support capabilities complement the
Company's fabrication business, particularly for electric power projects,
enabling the Company to provide more comprehensive piping packages with reduced
overall lead times and lower total installed costs.
The Company utilizes sophisticated plant design software to create virtual
three-dimensional piping system models. The result is a clear, understandable
picture of the complete project which allows clients to "walk through" the
three-dimensional model for an accurate design review. The Company currently
operates 28 workstations utilizing the plant design software at its offices in
Englewood, New Jersey and Toronto, Canada.
The Company's engineering capabilities are directly linked to the Company's
fabrication shops and the Company's proprietary computer aided design system,
SHAW-DRAW(TM). SHAW-DRAW(TM) converts customer design drawings to the Company's
detailed production drawings in seconds, significantly reducing the lead time
required before fabrication can begin and substantially eliminating detailing
errors. The Company has also implemented SHAW-MAN(TM), which efficiently manages
and controls the movement of all required materials into and through each stage
of the fabrication process utilizing bar code technology. These proprietary
programs enhance the planning and scheduling efforts for Shaw's customers,
helping to reduce total installed costs and project cycle times.
27
<PAGE> 29
Pipe Fittings Manufacturing
Shaw's manufacturing capabilities extend to specialty stainless, alloy and
carbon steel pipe fittings for the electric power, refining, chemical and other
industries, including the gas processing, pulp and paper, pharmaceutical and
food processing industries. These fittings include stainless and other alloy
elbows, tees, reducers and stub ends ranging in wall thicknesses from 1/2 to 12
inches and heavy wall carbon and chrome elbows, tees, caps and reducers with
wall thicknesses of up to 3 1/2 inches. In addition to its manufacturing
facility in Shreveport, Louisiana, Shaw has manufacturing outlets in New Jersey,
North Carolina, Georgia, Louisiana, Texas, Oklahoma and Arizona, which also
distribute pipe and fittings manufactured by third parties. Shaw's in-house
manufacturing capabilities for pipe fittings further enhance the Company's
piping package, enable the Company to realize greater efficiencies in the
purchase of raw materials, help reduce overall lead times and lower total
installed costs, and are additional steps in the integration of the Company's
"total piping resource" strategy.
MARKETS
The Company's principal markets are new construction and retrofits in the
electric power, refining and chemical industries, both in the United States and
internationally. The Company also historically has supplied piping systems to
the gas processing, pulp and paper, pharmaceutical and manufacturing industries.
The Company's sales for the two fiscal years ended August 31, 1996 by
industry sector were (in millions):
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
---------------------
INDUSTRY SECTOR 1995 1996
--------------- ------ ------
<S> <C> <C>
Electric Power.............................. $ 59.2 $ 86.7
Refining.................................... 39.2 62.4
Chemical.................................... 33.5 62.1
Other....................................... 3.4 10.8
------ ------
$135.3 $222.0
====== ======
</TABLE>
The Company's sales for the two fiscal years ended August 31, 1996 by
geographic region were (in millions):
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
---------------------
GEOGRAPHIC REGION 1995 1996
----------------- ------ ------
<S> <C> <C>
United States............................... $ 86.2 $146.3
Far East/Pacific Rim........................ 24.3 39.6
Middle East................................. 4.2 21.4
Latin America............................... 20.5 2.6
Europe...................................... -- 9.0
Other....................................... 0.1 3.1
------ ------
$135.3 $222.0
====== ======
</TABLE>
Prior to February 1994, the Company's international business was conducted
exclusively from its plants in the United States. The Company believes that
having fabrication facilities in certain key international locations will assist
it in securing additional overseas work, specifically for chemical and refining
projects, where the piping is generally fabricated at the project site or in a
regional shop by local welders. The Company currently has a wholly owned
subsidiary operating in Venezuela and a joint venture facility operating in
Bahrain.
Demand for the Company's products and services in Venezuela was low during
the fiscal year ended August 31, 1996. Although the Company is encouraged by
recent improvements in economic conditions in Venezuela, there can be no
assurance that the Venezuelan operations will be profitable.
In November 1993, the Company also entered into a joint venture agreement
to construct and operate a fabrication facility in Bahrain. The Company's joint
venture partner is Abdulla Ahmed Nass, a Bahrain
28
<PAGE> 30
industrialist. The Bahrainian joint venture facility is one of the first modern
pipe fabrication facilities in the Middle East and has received the Gulf States
Certification from the Gulf Cooperation Council. The Gulf States Certification
enables the venture to export products to other Arab countries without payment
of additional tariffs. For fiscal 1996, the joint venture had sales of $11.5
million and the Company's share of the joint venture's net earnings was
approximately $100,000.
In the future, the Company's use of joint venture relationships for foreign
operations will be determined on a case-by-case basis depending on market,
operational, legal and other relevant factors.
CONTRACTS AND PRICING
The Company obtains orders through competitive bidding, negotiated
contracts and awards under Alliance Agreements. The awarding of contracts is
frequently not based exclusively on price but on the Company's reputation and
ability to meet project deadlines.
The Company's contracts are priced on either a "unit" or a "fixed" or
"lump-sum" price basis. The majority of the Company's contracts are bid on a
"unit" basis, pursuant to which the customer pays an agreed-upon rate for each
individual service provided, such as a weld, radiograph inspection, bend or
engineering revision, or the amount of inventory items used. Raw materials
generally are billed to customers at published prices in effect at the date of
the contract, and the Company generally obtains fixed pricing commitments from
its suppliers at such time for most of the items necessary to complete the
project. The Company thereby minimizes the risk of raw material price increases
that may occur during the fabrication process.
Substantially all of the Company's international projects are quoted on a
"fixed" or "lump-sum" price basis. Increasingly, this type of contract is being
requested by the Company's customers, particularly for international electric
power projects. The Company generally does not quote the actual contract price
until it has secured a fixed pricing commitment from its suppliers for most of
the items necessary to complete the project, thereby minimizing any risk of
price increases between the contract date and the time the project is completed.
The Company also obtains work under Alliance Agreements, which are
agreements that the Company enters into with its customers in order to expedite
individual project contract negotiations through means other than the formal
bidding process. These agreements are typically implemented by establishing a
joint steering committee to provide guidance and direction on alliance issues.
Normally this committee meets on a periodic basis to monitor alliance progress
and assign resources to effect continuous improvements in the various work
processes associated with project execution.
Alliance Agreements allow the customer to achieve greater cost efficiency
and reduced cycle times in the design and fabrication of complex piping systems
for electric power, chemical and refinery projects. In addition, the Company
believes that these agreements will provide Shaw with a steady source of new
projects and help minimize the impact of short-term pricing volatility.
BACKLOG
Shaw generally bids for projects that require delivery of piping systems
over a period of three to eighteen months. The Company defines its backlog as a
"working backlog", whereby only projects with a written commitment are included.
Typically, electric power projects remain in the Company's backlog for at least
nine months, depending on the size of the project or whether the Company is
doing the design and engineering as well as the fabrication for a given project.
Refining and chemical projects remain in the Company's backlog three to six
months on average.
On occasion, customers will cancel or delay projects for reasons out of the
Company's control. Projects will remain in the Company's backlog for longer
periods if delays occur. Historically, on average less than one percent of
booked projects have been canceled from the Company's backlog or delayed for an
extended period of time. This low cancellation rate is due to the fact that
piping systems are one of the final steps in the construction of a project and
are essential to the construction of these systems as a whole.
29
<PAGE> 31
The Company estimated its backlog at approximately $154.0 million at August
31, 1996, not including approximately $3.0 million in joint-venture backlog.
This compares to approximately $101.0 million and $75.0 million at August 31,
1995 and 1994, respectively. The Company estimates that $141.8 million, or
92.1%, of its backlog at August 31, 1996 will be completed in fiscal 1997.
The following table breaks out the percentage of backlog by industry sector
and geographic region for the periods indicated:
<TABLE>
<CAPTION>
AT AUGUST 31,
----------------------
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
INDUSTRY SECTOR:
Electric Power................................................ 47 % 51 % 57 %
Chemical...................................................... 14 20 32
Refining...................................................... 38 28 10
Other......................................................... 1 1 1
--- ---- ----
100 % 100 % 100 %
=== ==== ====
GEOGRAPHIC REGION:
Domestic...................................................... * 56 % 34 %
International................................................. * 44 66
---- ----
100 % 100 %
==== ====
</TABLE>
- ---------------
* Backlog by geographic region is not available for fiscal year 1994.
CUSTOMERS AND MARKETING
The Company's customers are principally major multi-national engineering
and construction firms, equipment manufacturers and industrial corporations. For
fiscal 1996, affiliates of Mitsubishi Heavy Industries Ltd. accounted for 12.3%
of the Company's sales. No other customers represented more than 10% of the
Company's sales for fiscal 1996.
The Company's marketing is principally conducted through its own sales
force, comprised of eleven employees. In addition, certain customers and
territories are covered by independent representatives. The Company's sales
force is paid a base salary plus an annual bonus, while independent
representatives receive commissions.
RAW MATERIALS AND SUPPLIERS
The Company's principal raw materials are carbon steel, stainless and other
alloy piping, which it obtains from a number of domestic and foreign primary
steel producers. The Company believes that it is not generally dependent upon
any one of its suppliers for raw materials, that the market is extremely
competitive and that its relationship with its suppliers is good. Certain types
of raw materials, however, are available from only one or a few specialized
suppliers, and although the Company has not experienced any significant sourcing
problems to date, there can be no assurance that sourcing problems will not
occur in the future. Shaw purchases a majority of its piping directly from
manufacturers. This eliminates the need for a distributor and results in lower
costs to the Company. Because of the volume of these materials purchased, the
Company is often able to negotiate advantageous purchase prices for steel
piping. Certain items are kept in stock at each of the Company's facilities and
are transported between facilities as required. The Company obtains more
specialized materials from suppliers when required for a project. To date, the
Company has not experienced any significant shortages or delays in obtaining raw
materials.
In recent months, the prices for carbon steel have increased. At the time
of obtaining a contract, the Company generally obtains fixed pricing commitments
from its suppliers for most of the items necessary to complete the project,
thereby minimizing any risk of price increases that may occur during the
fabrication process. See "Business -- Contracts and Pricing".
30
<PAGE> 32
INDUSTRY CERTIFICATION
In order to perform fabrication and repairs of coded piping systems, the
Company's domestic fabrication facilities have obtained the required American
Society of Mechanical Engineers (ASME) stamp, and its Laurens, South Carolina
and Walker, Louisiana facilities have obtained the National Board stamp. In
addition, the Laurens, South Carolina facility is licensed to fabricate piping
for nuclear power plants and is registered by the International Organization of
Standards (ISO 9002), which is required to perform certain international work.
The Company's engineering subsidiary is also registered by the International
Organization of Standards (ISO 9001), as is its pipe support fabrication
facility (ISO 9002).
PATENTS, TRADEMARKS AND LICENSES
The Company does not own any patents, registered trademarks or licenses.
However, the Company considers its design and project control systems,
SHAW-DRAW(TM) and SHAW-MAN(TM), to be proprietary information of the Company.
COMPETITION
The Company experiences significant competition from a limited number of
competitors in both international and domestic markets. In the United States,
there are a number of smaller pipe fabricators. Internationally, the principal
competitors are divisions of large industrial firms. See "Risk Factors --
Competition".
Orders are obtained by the Company through competitive bidding, negotiated
contracts and awards under Alliance Agreements. In a competitive bid, the
awarding of contracts is frequently not based solely on price but also on the
Company's reputation and ability to meet project deadlines.
EMPLOYEES
At November 25, 1996, the Company employed 1,862 full-time employees, 846
of whom are represented by the Union and 130 of whom worked in the Company's
wholly owned subsidiary in Venezuela. In January 1993, the Company settled a
dispute with the Union pursuant to which Shaw agreed to allow the Union to
solicit membership at all of its non-union pipe fabricating facilities in the
United States. To date, employees at four of the five United States pipe
fabrication facilities of the Company have approved a Union contract.
The Company believes that the current relationship with its employees and
the Union is generally good. The Company is not aware of any circumstances that
are likely to result in a work stoppage at any of its facilities, although the
collective bargaining agreement with the Union for the Laurens, South Carolina
facility expires on November 30, 1996, and the collective bargaining agreement
with the Union for the Walker, Louisiana and Prairieville, Louisiana facilities
expires on December 31, 1996. The Company experienced a Union-initiated work
stoppage of five days in 1992 relating to the expiration and renegotiation of a
collective bargaining agreement covering the Company's B.F. Shaw, Inc.
subsidiary in Laurens, South Carolina.
ENVIRONMENTAL
The Company is subject to environmental laws and regulations, including
those concerning emissions into the air, discharges into waterways, generation,
storage, handling, treatment and disposal of waste materials and health and
safety. These laws and regulations generally impose limitations and standards
for certain pollutants or waste materials to obtain a permit and comply with
various other requirements. In addition, under the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended ("CERCLA") and
comparable state laws, the Company may be required to investigate and remediate
hazardous substances. CERCLA and these comparable state laws typically impose
liability without regard to whether a company knew of or caused the release, and
liability has been interpreted to be joint and several unless the harm is
divisible and there is a reasonable basis of allocation. The Company has not
been notified
31
<PAGE> 33
that it is a potentially responsible party under CERCLA or any comparable state
law at any site. The Company's foreign operations are also subject to various
requirements governing environmental protection.
The environmental, health and safety laws and regulations to which the
Company is subject are constantly changing, and it is impossible to predict the
effect of such laws and regulations on the Company in the future. The Company
believes that it is in substantial compliance with all applicable environmental,
health and safety laws and regulations. However, with respect to environmental
matters, the Company has not conducted environmental audits of all of its
properties. To date, the Company's costs with respect to environmental
compliance have not been material, and the Company does not anticipate any
material environmental liability.
PROPERTIES
The principal properties of the Company are as follows:
<TABLE>
<CAPTION>
LOCATION DESCRIPTION SQUARE FEET
-------- ----------- -----------
<S> <C> <C>
Baton Rouge, LA Corporate Headquarters 20,000(1)
Laurens, SC Fabrication Facility 200,000
Prairieville, LA Fabrication Facility 60,000(1)
West Monroe, LA Fabrication Facility 70,000
Walker, LA Fabrication Facility 154,000
Maracaibo, Venezuela Fabrication Facility 45,000
Tulsa, OK Fabrication Facility 158,600
Baton Rouge, LA Distribution Facility 30,000(1)
Englewood, NJ Design and Engineering Headquarters 14,000(1)
Toronto, Canada Design and Engineering Office 5,750(1)
Longview, TX Pipe Support Fabrication Facility 28,000
Shreveport, LA Manufacturing Facility 385,000
Shreveport, LA Pipe Storage Facility 40,000
</TABLE>
- ---------------
(1) Leased facility.
In addition to the above properties, the Company will obtain a 335,000
square foot fabrication facility located in Clearfield, Utah, upon successful
completion of the proposed acquisition of NAPTech.
The Bahrain joint venture leases a 94,000 square foot facility in Manama,
Bahrain.
The Company considers each of its current facilities to be in good
operating condition and adequate for its present use.
32
<PAGE> 34
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table provides information with respect to the directors and
executive officers of the Company. With the exception of R. Dale Brown, Sr.,
each director has been elected by a vote at the annual meeting of the
shareholders and serves for a term of one year. In connection with the
acquisition of APP, the Company's Board of Directors, pursuant to the Restated
of Articles of Incorporation and Restated Bylaws of the Company, elected Mr.
Brown to fill a newly-created Board position. Each executive officer has been
elected to serve until his successor is duly appointed or elected by the Board
of Directors or his earlier removal or resignation from office.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
J. M. Bernhard, Jr............ 42 President, Chief Executive Officer and Director
Bret M. Talbot................ 36 Chief Financial Officer, Treasurer and Director
George R. Shepherd............ 58 Chief Operating Officer and Director
R. Dale Brown, Sr. ........... 62 Chairman of Alloy Piping Products, Inc.* and Director
Frank Fronek.................. 48 President of Fronek Company, Inc.* and F.C.I. Pipe
Support Sales, Inc.* and Director
L. Lane Grigsby............... 55 Director
David W. Hoyle................ 57 Director
Albert McAlister.............. 45 Director
John W. Sinders, Jr........... 42 Director
A. W. Angelo.................. 63 Executive Vice President
John W. Dalton, Sr. .......... 46 Executive Vice President
G. Ray Wilkie, Jr............. 51 Executive Vice President
Michael H. Wootton............ 50 President of Shaw International, Inc.*
</TABLE>
- ---------------
* Wholly owned subsidiaries of the Company.
J. M. BERNHARD, JR., founder of the Company, has been President and Chief
Executive Officer of the Company since its inception in September 1987. He has
also been a director of the Company since its inception. Mr. Bernhard has been
Chairman of the Board since August 1990. Mr. Bernhard has spent the last 20
years in the pipe fabrication business. Immediately prior to his position with
the Company, Mr. Bernhard was Vice President and General Manager of Sunland
Services and served on the Board of Directors of Barnard and Burk Engineers &
Constructors.
BRET M. TALBOT has been Chief Financial Officer and Treasurer of the
Company since February 1989. Mr. Talbot has been a director of the Company since
January 1993. He also served as Secretary for the Company from February 1989
until March 1994. Prior to his position with the Company, Mr. Talbot was Audit
Manager for Hannis T. Bourgeois & Co., LLP.
GEORGE R. SHEPHERD joined the Company in August 1993 as Vice President and
has been its Chief Operating Officer since 1993. Mr. Shepherd has been a
director of the Company since 1994. Prior to joining the Company, Mr. Shepherd
served as President of International Piping Systems, Inc. from March 1984 to
July 1993. He has spent the last 39 years in the pipe fabrication business.
R. DALE BROWN, SR. has served the Company as Chairman of APP since April
1996, when such business was acquired by the Company. Prior to joining the
Company, Mr. Brown was the owner and Chairman of APP, which he founded in 1972.
Mr. Brown has been a director of the Company since March 1996. He has 42 years
of experience in the manufacture and distribution of specialty pipe fittings.
FRANK FRONEK has served the Company as the President of Fronek Company,
Inc. and F.C.I. Pipe Support Sales, Inc. since April 1994, when such businesses
were acquired by the Company. Prior to joining the Company, Mr. Fronek was the
owner and President of such businesses, which he founded in 1980 and
33
<PAGE> 35
1986, respectively. Mr. Fronek has been a director of the Company since 1994. He
has 26 years of experience in the engineering and design of piping systems and
piping support systems.
L. LANE GRIGSBY has served as a director of the Company since January 1995
and a member of its Compensation Committee since March 1995. Mr. Grigsby is also
the Chairman of the Board of Cajun Contractors, Inc., for which he served as
President and Chief Executive Officer from April 1973 to June 1994. He has 29
years of experience in the industrial construction industry. He also serves as a
director for several industry and charitable organizations, including the
Associated Builders and Contractors and the Louisiana Association of Business
and Industry, for which he serves as Chairman.
DAVID W. HOYLE has served as a director of the Company since January 1995
and a member of its Compensation Committee since March 1995. For the past ten
years, he has been self-employed primarily as a real estate developer and has
been a member of the Senate Chamber of the North Carolina General Assembly since
1992. Senator Hoyle serves as a director of several private corporations, as
well as several civic, educational and charitable organizations.
ALBERT MCALISTER has been a director of the Company since April 1990 and
has served on the Company's Audit Committee since November 1993. He also served
on the Company's Compensation Committee from November 1993 to March 1995. Since
1975, Mr. McAlister has been a partner in the law firm of McAlister & McAlister,
P.A., in Laurens, South Carolina. He also served as Chairman of the Democratic
Party in South Carolina from 1990 until 1994.
JOHN W. SINDERS, JR. has served as a director of the Company and a member
of its Audit Committee since March 1995. He has served as a managing director of
Jefferies & Company, Inc. since 1993. From 1987 to 1993, Mr. Sinders served as a
managing director of Howard, Weil, Labouisse, Friedrichs Incorporated and a
member of the Board of Directors of Howard Weil from 1990 to 1993. Prior to
joining Howard Weil, he was a director with the law firm of McGlinchey,
Stafford, Mintz, Cellini & Lang, P.C.
A. W. ANGELO joined the Company in September 1987 and has been Executive
Vice President of the Company since September 1990. Mr. Angelo served as a
director of the Company from August 1990 to March 1995. Mr. Angelo served as
President of Lone Star Fabricators, Inc., a wholly owned subsidiary of the
Company located in Texas City, Texas, which was closed in August 1994, from
March 1990 until July 1993. Mr. Angelo has spent the last 41 years in the pipe
fabrication business.
JOHN W. DALTON, SR. has been Executive Vice President of the Company since
April 1995. Immediately prior to joining the Company, he was employed by the
Bechtel Group (an engineering and construction firm) in various positions for 19
years, most recently as Manager of Business Development. His experience
includes, among other things, positions in construction, manufacturing, project
management, procurement and contracts, as well as managerial and financial
functions.
G. RAY WILKIE, JR. joined the Company in March 1988 and served as Vice
President of B. F. Shaw, Inc., a wholly-owned subsidiary of the Company, from
September 1990 until May 1993 and President of B. F. Shaw, Inc. from May 1993
until November 1995, when he was appointed Executive Vice President of the
Company. Mr. Wilkie also served as a director of the Company from January 1993
to March 1995. Mr. Wilkie has spent the last 30 years in the pipe fabrication
business.
MICHAEL H. WOOTTON has been employed by the Company since October 1991 and
has been President of Shaw International, Inc. since April 1993. Prior to his
employment with the Company, Mr. Wootton was President of Connex Piping Systems.
Mr. Wootton has spent the last 28 years in the pipe fabrication business.
34
<PAGE> 36
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information regarding the ownership
and voting power of the Common Stock at October 31, 1996 (except as otherwise
noted) with respect to (i) each person known by the Company to own beneficially
more than 5% of the outstanding shares of Common Stock, (ii) each named
executive officer, director and nominee for director of the Company, (iii) all
executive officers and directors as a group, and (iv) certain other Selling
Shareholders. Each of the following shareholders has sole voting and investment
power with respect to shares beneficially owned by such shareholder, except to
the extent that authority is shared by spouses under applicable law or as
otherwise noted. The Common Stock constitutes the only class of equity
securities of the Company which is outstanding. Of the shares to be sold by the
Selling Shareholders, only the 300,000 shares beneficially owned by J.M.
Bernhard, Jr. are entitled to five votes per share. See "Description of Capital
Stock -- Common Stock".
<TABLE>
<CAPTION>
BEFORE OFFERING AFTER OFFERING
------------------------------------- -------------------------------------
BENEFICIAL OWNERSHIP PERCENT OF SHARES TO BENEFICIAL OWNERSHIP PERCENT OF
NAME OF BENEFICIAL OWNER SHARES PERCENT VOTING POWER BE SOLD SHARES PERCENT VOTING POWER
- ---------------------------- ---------- --------- ------------ --------- ---------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
J. M. Bernhard, Jr.......... 1,708,146 17.9% 41.6% 300,000 1,408,146 12.2% 33.0%
11100 Mead Road
Baton Rouge, Louisiana
70816
R. Dale Brown, Sr........... 394,118 4.1 1.9 94,118 300,000 2.6 1.4
G. Ray Wilkie, Jr.(1)....... 318,238 3.3 7.5 -- 318,238 2.8 7.2
A. W. Angelo................ 282,757 3.0 6.9 -- 282,757 2.5 6.6
Bret M. Talbot(2)........... 148,002 1.6 * -- 148,002 1.3 *
Frank Fronek(3)............. 80,000 * * -- 80,000 * *
Albert McAlister............ 69,042 * * -- 69,042 * *
George R. Shepherd(4)....... 10,400 * * -- 10,400 * *
David W. Hoyle(5)........... 10,000 * * -- 10,000 * *
John W. Sinders, Jr......... 9,500 * * -- 9,500 * *
John W. Dalton, Sr.......... 4,450 * * -- 4,450 * *
L. Lane Grigsby............. 3,850 * * -- 3,850 * *
Michael H. Wootton.......... -- -- -- -- -- -- --
All executive officers and
directors as a group (13
persons)(6)............... 3,038,503 31.8 59.5 394,118 2,644,385 22.9 49.8
T. N. Word(7)............... 298,315 3.1 1.5 165,000 133,315 1.2 *
Ronald D. Brown, Jr......... 147,059 1.5 * 100,000 47,059 * *
Word Industries Pipe
Fabricating, Inc.......... 115,000 1.2 * 115,000 -- -- --
</TABLE>
- ---------------
* Less than 1%.
(1) Includes 7,500 shares of which Mr. Wilkie may be deemed to be beneficial
owner as a result of rights that he may exercise to acquire beneficial
ownership within 60 days.
(2) Includes 8,750 shares of which Mr. Talbot may be deemed to be beneficial
owner as a result of rights that he may exercise to acquire beneficial
ownership within 60 days.
(3) Includes 12,500 shares owned of record by Mr. Fronek's spouse and 5,000
shares of which Mr. Fronek may be deemed to be the beneficial owner as a
result of rights that Mr. Fronek may exercise to acquire beneficial
ownership within 60 days.
(4) Includes 8,750 shares of which Mr. Shepherd may be deemed to be beneficial
owner as a result of rights that he may exercise to acquire beneficial
ownership within 60 days.
(5) Includes 2,000 shares owned of record by Mr. Hoyle's spouse.
(6) Includes 14,500 shares owned of record by the spouses of executive officers
and directors and 30,000 shares of which executive officers and directors
may be deemed to be the beneficial owners as a result of rights they may
exercise to acquire beneficial ownership within 60 days.
(7) Includes 115,000 shares owned before the Offering by Word Industries Pipe
Fabricating, Inc., in which Mr. Word has a controlling interest, and
reflects the sale of all of such shares in this Offering. In addition, Mr.
Word is selling 50,000 shares directly owned by him.
The Company will pay the expenses of registering the shares of Common Stock
to be offered by the Selling Shareholders under the Securities Act, including
the registration and filing fees, printing expenses and the fees and
disbursements of counsel and accountants for the Company.
35
<PAGE> 37
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 50,000,000 shares
of Common Stock, no par value; and 5,000,000 shares of Preferred Stock, no par
value. The following summary of certain provisions of the Company's capital
stock describes all material provisions of, but does not purport to be complete
and is subject to and is qualified in its entirety by, the Restated Articles of
Incorporation and the Amended and Restated By-Laws of the Company that are
incorporated herein by reference as exhibits to the Registration Statement of
which this Prospectus forms a part and by the provisions of applicable law.
COMMON STOCK
At October 31, 1996, there were 9,524,552 shares of Common Stock
outstanding. In addition, at October 31, 1996, 803,625 shares of Common Stock
are reserved for issuance pursuant to the Company's 1993 Employee Stock Option
Plan and 50,000 shares of Common Stock are reserved under the Company's 1996
Non-Employee Director Stock Option Plan (the "Director Plan"). The Director Plan
and awards made thereunder are subject to approval at the Company's 1997 Annual
Meeting of Shareholders. Cumulative voting is prohibited in the election of
directors. The holders of Common Stock are entitled to receive ratably such
dividends, if any, as may be declared from time to time by the Board of
Directors out of funds legally available therefor. In the event of a
liquidation, dissolution or winding up of the Company, the holders of Common
Stock are entitled to share equally and ratably in the assets available for
distribution after payment of all liabilities, and subject to any prior rights
of any holders of preferred stock that at the time may be outstanding. The
Common Stock is not redeemable, does not have any conversion rights and is not
subject to call. Holders of shares of Common Stock have no preemptive rights to
maintain their respective percentage of ownership in future offerings or sales
of stock by the Company. The shares of Common Stock presently outstanding are
fully paid and non-assessable. The Company delisted the Common Stock from the
Nasdaq National Market on October 17, 1996, and the Common Stock commenced
trading on the NYSE under the symbol "SGR" on October 18, 1996.
Each outstanding share of Common Stock will entitle the holder thereof to
five votes on each matter properly submitted to the shareholders of the Company
for their vote, waiver, release or other action; except that no holder of
outstanding shares of Common Stock will be entitled to exercise more than one
vote on any such matter in respect of any share of Common Stock with respect to
which there has been a change in beneficial ownership during the four years
immediately preceding the date on which a determination is made of the
shareholders of the Company who are entitled to vote or to take any other
action. A change in beneficial ownership of an outstanding share of Common Stock
will be deemed to have occurred whenever a change occurs in any person or
persons who, directly or indirectly, through any contract, agreement,
arrangement, understanding, relationship or otherwise has or shares any of the
following:
(a) voting power, which includes, without limitation, the right to
vote or the power to direct the voting power of such share of Common Stock;
(b) investment power, which includes, without limitation, the power to
direct the sale or other disposition of such share of Common Stock;
(c) the right to receive or to retain the proceeds of any sale or
other disposition of such share of Common Stock; or
(d) the right to receive or to retain any distributions, including,
without limitation, cash dividends, in respect of such share of Common
Stock.
Without limiting the generality of the foregoing, the following events or
conditions will be deemed to involve a change in beneficial ownership of a share
of Common Stock:
(a) in the absence of proof to the contrary provided in accordance
with certain procedures set forth below, a change in beneficial ownership
will be deemed to have occurred (i) whenever an outstanding share of Common
Stock is transferred of record into the name of any other person, and (ii)
upon the issuance of shares in a public offering;
36
<PAGE> 38
(b) in the case of an outstanding share of Common Stock held of record
in the name of a corporation, general partnership, limited partnership,
voting trustee, bank, trust company, broker, nominee or clearing agency, if
it has not been established pursuant to the procedures set forth below that
there has been no change in the person or persons who or that direct the
exercise of the rights referred to in (a) through (d), inclusive, above
with respect to such outstanding share of Common Stock during the four
years immediately preceding the date on which a determination is made of
the shareholders of the Company entitled to vote or to take any other
action, then a change in beneficial ownership of such share of Common Stock
shall be deemed to have occurred during such period;
(c) in the case of an outstanding share of Common Stock held of record
in the name of any person as a trustee, agent, guardian or custodian under
the Uniform Gifts to Minors Act as in effect in any jurisdiction, a change
in beneficial ownership will be deemed to have occurred whenever there is a
change in the beneficiary of such trust, the principal of such agent, the
ward of such guardian, the minor for whom such custodian is acting or a
change in such trustee, agent, guardian or custodian; or
(d) in the case of outstanding shares of Common Stock beneficially
owned by a person or group of persons, who, after acquiring, directly or
indirectly, the beneficial ownership of 5% of the outstanding shares of
Common Stock, fails to notify the Company of such ownership within ten days
after such acquisition, a change in beneficial ownership of such shares of
Common Stock will be deemed to occur on each day while such failure
continues.
Notwithstanding any other provisions in the Company's Restated Articles of
Incorporation to the contrary, no change in beneficial ownership of an
outstanding share of Common Stock shall be deemed to have occurred solely as a
result of:
(a) any transfer of any interest in an outstanding share of Common
Stock pursuant to a bequest or inheritance, by operation of law upon the
death of any individual or by any other transfer without valuable
consideration, including, without limitation, a gift that is made in good
faith and not for the purpose of circumventing the provisions of the
Company's Restated Articles of Incorporation;
(b) any changes in beneficiary of any trust, or any distribution of an
outstanding share of Common Stock from trust, by reason of the birth,
death, marriage or divorce of any natural person; the adoption of any
natural person prior to age 18; or the passage of a given period of time or
the attainment by any natural person of a specific age; or the creation or
termination of any guardianship or custodial arrangement;
(c) any appointment of a successor trustee, agent, guardian or
custodian with respect to an outstanding share of Common Stock if neither
such successor has nor its predecessor had the power to vote or to dispose
of such share of Common Stock without further instructions from others;
(d) any change in the person to whom dividends or other distributions
in respect of an outstanding share of Common Stock are to be paid pursuant
to the issuance or modification of a revocable dividend payment order;
(e) any issuance of a share of Common Stock by the Company or any
transfer by the Company of a share of Common Stock held in treasury other
than in a public offering thereto, unless otherwise determined by the Board
of Directors at the time of authorizing such issuance or transfer;
(f) any giving of a proxy in connection with a solicitation of proxies
subject to the provisions of Section 14 of the Securities Exchange Act of
1934, as amended, and the rules and regulations thereunder promulgated;
(g) any transfer, whether or not with consideration, among individuals
related or formerly related by blood, marriage or adoption ("relatives") or
between a relative and any person controlled by one or more relatives where
the principal purpose for the transfer is to further the estate tax
planning objectives of the transferor or of relatives of the transferor;
37
<PAGE> 39
(h) any appointment of a successor trustee as a result of the death of
the predecessor trustee (which predecessor trustee shall have been a
natural person);
(i) any appointment of a successor trustee who or which was
specifically named in a trust instrument prior to the effective date of
this Offering; or
(j) any appointment of a successor trustee as a result of the
resignation, removal or failure to qualify of a predecessor trustee or as a
result of mandatory retirement pursuant to the express terms of a trust
instrument; provided, that less than 50% of the trustees administering any
single trust will have changed (including in such percentage the
appointment of the successor trustee) during the four-year period preceding
the appointment of such successor trustee.
All determinations concerning changes in beneficial ownership, or the
absence of any such change, are made by the Board of Directors of the Company
or, at any time when the Company employs a transfer agent with respect to the
shares of Common Stock, at the Company's request, by such transfer agent on the
Company's behalf. Written procedures designated to facilitate such
determinations are to be established and may be amended, from time to time, by
the Board of Directors. Such procedures will provide, among other things, the
manner of proof of facts that will be accepted and the frequency with which such
proof may be required to be renewed. The Company and any transfer agent will be
entitled to rely on any and all information concerning beneficial ownership of
the outstanding shares of Common Stock coming to their attention from any source
and in any manner reasonably deemed by them to be reliable, but neither the
Company nor any transfer agent shall be charged with any other knowledge
concerning the beneficial ownership of outstanding shares of Common Stock.
In the event of any stock split or stock dividend with respect to the
outstanding shares of Common Stock, each share of Common Stock acquired by
reason of such split or dividend will be deemed to have been beneficially owned
by the same person from the same date as that on which beneficial ownership of
the outstanding share or shares of Common Stock, with respect to which such
share of Common Stock was distributed, was acquired.
Each outstanding share of Common Stock, whether at any particular time the
holder thereof is entitled to exercise five votes or one vote, shall be
identical to all other shares of Common Stock in all respects, and together the
outstanding shares of Common Stock will constitute a single class of shares of
the Company.
PREFERRED STOCK
The Board of Directors is authorized to provide for the issuance of
5,000,000 shares of Preferred Stock in one or more series and to fix the number
of shares constituting any such series, the voting powers, designations,
preferences and relative, participating, optional or other special rights and
qualifications, limitations or restrictions thereof, including the dividend
rights, dividend rate, terms of redemption, redemption price or prices,
conversion rights and liquidation preferences of the shares constituting any
series, without any further vote or action by the shareholders of the Company.
The issuance of Preferred Stock by the Board of Directors could adversely affect
the rights of holders of Common Stock. For example, issuance of Preferred Stock
could result in a series of securities outstanding that would have preferences
over the Common Stock with respect to dividends and in liquidation and that
could (upon conversion or otherwise) enjoy all of the rights appurtenant to the
Common Stock. The authority possessed by the Board of Directors to issue
Preferred Stock could potentially be used to discourage attempts by others to
obtain control of the Company through merger, tender offer, proxy, consent or
otherwise by making such attempts more difficult to achieve or more costly. The
Board of Directors may issue Preferred Stock without shareholder approval and
with voting and conversion rights which could adversely affect the voting power
of holders of Common Stock. There are no agreements or understandings for the
issuance of Preferred Stock, and the Board of Directors has no present intention
to issue any shares of Preferred Stock.
38
<PAGE> 40
LOUISIANA FAIR PRICE AND CONTROL ACQUISITION STATUTES
Under Louisiana law, the acquisition of voting power (a "control share
acquisition") of an "issuing public corporation" that results in the purchaser
acquiring voting power in excess of 20%, 33 1/3% or 51% of the total voting
power of the issuing public corporation requires approval of a majority of the
voting power of the issuing public corporation and each class entitled to vote
separately on the proposal, excluding the shares of the acquiring person, any
officer of the issuing public corporation and any employee of the issuing public
corporation who is also a director of such corporation. Shares acquired in a
control share acquisition without such approval will have no voting rights and
under certain circumstances may be subject to a redemption by the corporation.
The restrictions imposed under such law are applicable to all Louisiana
corporations that fall within the definition of an "issuing public corporation"
(as does the Company) unless the issuing public corporation's articles of
incorporation or by-laws, as in effect before the acquisition has occurred,
provide that such provisions do not apply. The Company's Restated Articles of
Incorporation and Amended and Restated By-Laws do not contain such a provision;
therefore, the above restrictions contained in Louisiana law do apply to the
Company.
In addition, if certain elections were to be made by the Company's Board of
Directors under the Louisiana Business Corporation Law, unless certain price and
procedural requirements are met, certain business combinations involving the
Company and any holder of 20% or more of the Company's outstanding voting stock
may be required to be approved by at least (i) 80% of the votes entitled to be
cast by holders of the outstanding voting stock and (ii) two-thirds of the votes
entitled to be cast by the holders of voting stock other than the voting stock
held by such holder. This provision could be regarded as a deterrent to a
takeover of the Company and could be applied selectively by the Board of
Directors.
LIMITATION OF DIRECTOR AND OFFICER LIABILITY
The Company's Restated Articles of Incorporation contain provisions which
eliminate the personal liability of its directors and officers for monetary
damages resulting from breaches of their fiduciary duty other than liability for
breaches of the duty of loyalty, acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, for violations
under Section 92(D) of the Louisiana Business Corporation Law or any transaction
from which the director or officer derived an improper personal benefit. The
Restated Articles of Incorporation contain provisions requiring the
indemnification of the Company's directors and officers to the fullest extent
permitted by Section 83 of the Louisiana Business Corporation Law, including
circumstances in which indemnification is otherwise discretionary. The Company
agents believe that these provisions are necessary to attract and retain
qualified persons as directors and officers.
CLASSIFIED BOARD OF DIRECTORS
The Company's Restated Articles of Incorporation provide that if the number
of directors constituting the entire Board of Directors is increased to twelve
or more members, then at the next meeting of shareholders at which directors are
to be elected, the Board of Directors shall be divided into three classes, the
members of which will serve staggered three-year terms. The Company believes
that a classified board of directors could help to assure the continuity and
stability of the Board's and Shaw's business strategies and policies as
determined by the Board of Directors. The classified board provision, if
implemented, could have the effect of making the removal of incumbent directors
more time-consuming and, therefore, discouraging a third party from making a
tender offer or otherwise attempting to obtain control of Shaw, even though such
an attempt might be beneficial to Shaw and its shareholders. Thus, the
classified board provision could increase the likelihood that incumbent
directors would retain their positions.
ADVANCE NOTICE PROVISIONS FOR CERTAIN SHAREHOLDER ACTIONS
The Company's Amended and Restated By-Laws establish an advance notice
procedure with regard to the nomination, other than by or at the direction of
the Board or a committee thereof, of candidates for election as directors (the
"Nomination Procedure") and with regard to certain matters to be brought before
an annual meeting of shareholders of the Company (the "Business Procedure").
39
<PAGE> 41
Under the Business Procedure, a shareholder seeking to have any business
conducted at an annual meeting must give prior written notice, in proper form,
to the Secretary of the Company. The requirements as to the form and timing of
that notice are specified in the Company's Amended and Restated By-Laws. If the
Chairman or other officer presiding at a meeting determines that other business
was not properly brought before such meeting in accordance with the Business
Procedure, such business will not be conducted at the meeting.
The Nomination Procedure requires that a shareholder give prior written
notice, in proper form, of a planned nomination for the Company's Board of
Directors to the Secretary of the Company. The requirements as to the form and
timing of that notice are specified in the By-Laws. If the election inspectors
determine that a person was not nominated in accordance with the Nomination
Procedure, such person will not be eligible for election as a director.
Although the By-Laws do not give the Board of Directors any power to
approve or disapprove shareholder nominations for the election of directors or
of any other business desired by shareholders to be conducted at an annual or
any other meeting, the Company's Amended and Restated By-Laws (i) may have the
effect of precluding a nomination for the election of directors or precluding
the conduct of business at a particular annual meeting if the proper procedures
are not followed, or (ii) may discourage or deter a third party from conducting
a solicitation of proxies to elect its own slate of directors or otherwise
attempting to obtain control of the Company, even if the conduct of such
solicitation or such attempt might be beneficial to the Company and its
shareholders.
SUPER MAJORITY PROVISIONS
The Company's Restated Articles of Incorporation contain provisions
requiring the affirmative vote of the holders of at least 75% of voting power of
the Company's capital stock to amend certain provisions of the Articles,
including provisions relating to the removal of directors.
The Company's Restated Articles of Incorporation require the approval of
the holders of at least 75% of the Company's outstanding shares of Common Stock,
not including shares held by a Related Person (as defined below), to approve
certain Business Combinations (as defined below) and related transactions. The
term "Related Person" is defined to include any individual, corporation,
partnership or other entity which owns beneficially, directly or indirectly,
more than 5% of the outstanding shares of Common Stock of the Company. The term
"Business Combination" is defined to include, among other things, (i) any merger
or consolidation of the Company or a subsidiary of the Company which constitutes
more than 50% of the assets of the Company, other than a merger or consolidation
which results in the voting securities of the Company outstanding immediately
prior thereto continuing to represent more than 50% of the combined voting power
of the voting securities of the surviving entity; (ii) any sale, lease,
exchange, transfer or other disposition of more than 50% of the assets of the
Company; (iii) any reclassification of the Common Stock of the Company; and (iv)
any liquidation or dissolution of the Company.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is First Union
National Bank, Charlotte, North Carolina.
40
<PAGE> 42
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting
Agreement, the Company and the Selling Shareholder have agreed to sell to each
of the Underwriters named below (the "Underwriters"), for whom Smith Barney
Inc., Jefferies & Company, Inc. and Hoak Breedlove Wesneski & Co. are acting as
representatives (the "Representatives"), and the Underwriters have severally
agreed to purchase from the Company and the Selling Shareholders, the number of
shares of Common Stock set forth opposite their respective names below:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
----------- ---------
<S> <C>
Smith Barney Inc. ...........................................
Jefferies & Company, Inc. ...................................
Hoak Breedlove Wesneski & Co. ...............................
---------
Total...............................................
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters thereunder are subject to various conditions. The nature of the
Underwriters' obligations are such that they are committed to take and pay for
all of the shares offered hereby if any are purchased.
The Company and the Selling Shareholders have been advised by the
Underwriters that they propose to offer the shares of Common Stock to the public
at the public offering price set forth on the cover page hereof and to certain
selected dealers (who may include the Underwriters) at such price less a
concession not in excess of $ per share. The Underwriters may allow, and
such dealers may reallow, a concession not in excess of $ per share to
certain other dealers. After the initial offering, the public offering price,
the concession to selected dealers and the reallowance to other dealers may be
changed by the Underwriters.
The Company has granted to the Underwriters an option to purchase up to an
additional 398,000 shares of Common Stock, at the public offering price less the
underwriting discounts and commissions shown on the cover page of this
Prospectus, solely to cover over-allotments, if any. Such option may be
exercised at any time up to 30 days after the date of this Prospectus. To the
extent that the Underwriters exercise such option, each of the Underwriters will
be committed, subject to certain conditions, to purchase a number of additional
shares that is proportional to such Underwriter's initial commitment.
The Company and the executive officers and directors of the Company,
including the Selling Shareholders, have agreed that they will not, for a period
of 90 days following the date of this Prospectus, without the prior written
consent of the Representatives, offer, sell or contract to sell, or otherwise
dispose of, directly or indirectly, or announce an offering of, any shares of
Common Stock beneficially owned by such person or entity or any securities
convertible into, or exchangeable for, any shares of Common Stock (i) in a
public offering or (ii) in a private offering, unless, in the case of the
Company only, (a) such private offering shall occur more than 30 days after the
date of this Prospectus, (b) the Company will issue shares of Common Stock in
such private offering as full or partial consideration for the acquisition by
merger or purchase of assets or businesses, and (c) the recipient of such Common
Stock shall agree not to sell, offer to sell, grant any option for the sale of,
or otherwise dispose of, such Common Stock for the remaining portion of the
90-day period from the date of this Prospectus.
41
<PAGE> 43
The Company and the Selling Shareholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act, and to contribute to payments the Underwriters may be required
to make in respect thereof.
John W. Sinders, Jr., a director of the Company and a member of its Audit
Committee since March 1995, is a Managing Director of Jefferies & Company, Inc.
As noted above, Jefferies & Company, Inc. is one of the Representatives. Mr.
Sinders beneficially owns 9,500 shares of Common Stock.
LEGAL MATTERS
The validity of the issuance of the Common Stock will be passed upon for
the Company and the Selling Shareholders by Fulbright & Jaworski L.L.P.,
Houston, Texas. Vinson & Elkins L.L.P., Dallas, Texas, is acting as counsel for
the Underwriters in connection with certain legal matters relating to the Common
Stock offered hereby. Fulbright & Jaworski L.L.P. and Vinson & Elkins L.L.P.
will rely as to all matters of Louisiana law upon the opinion of Kantrow Spaht
Weaver & Blitzer (A Professional Law Corporation), Baton Rouge, Louisiana, local
counsel of the Company.
EXPERTS
The consolidated financial statements of The Shaw Group Inc. included and
incorporated by reference in this Prospectus have been audited by Arthur
Andersen LLP and Hannis T. Bourgeois & Co., L.L.P., independent public
accountants, as indicated in their reports with respect thereto, and are
included and incorporated by reference herein in reliance upon the authority of
such firms as experts in accounting and auditing. The single jointly signed
auditor's report is considered to be the equivalent of two separately signed
auditor's reports. Thus, each firm represents that it has complied with
generally accepted auditing standards and is in a position that would justify
being the only signatory of the report.
42
<PAGE> 44
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Independent Public Accountants.............................................. F-2
Consolidated Balance Sheets as of August 31, 1995 and 1996............................ F-3
Consolidated Statements of Income for the years ended August 31, 1994, 1995 and
1996................................................................................ F-4
Consolidated Statements of Shareholders' Equity for the years ended August 31, 1994,
1995 and 1996....................................................................... F-5
Consolidated Statements of Cash Flows for the years ended August 31, 1994, 1995 and
1996................................................................................ F-6
Notes to Consolidated Financial Statements............................................ F-7
</TABLE>
F-1
<PAGE> 45
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders
of The Shaw Group Inc.:
We have audited the accompanying consolidated balance sheets of The Shaw
Group Inc. (a Louisiana corporation) and subsidiaries as of August 31, 1995 and
1996, and the related consolidated statements of income, shareholders' equity
and cash flows for each of the three years in the period ended August 31, 1996.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of The Shaw Group Inc. and
subsidiaries as of August 31, 1995 and 1996, and the results of their operations
and their cash flows for each of the three years in the period ended August 31,
1996, in conformity with generally accepted accounting principles.
<TABLE>
<S> <C>
/s/ Arthur Andersen LLP /s/ Hannis T. Bourgeois & Co., L.L.P.
Arthur Andersen LLP Hannis T. Bourgeois & Co., L.L.P.
New Orleans, Louisiana Baton Rouge, Louisiana
</TABLE>
October 31, 1996
F-2
<PAGE> 46
THE SHAW GROUP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF AUGUST 31, 1995 AND 1996
<TABLE>
<CAPTION>
1995 1996
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................................... $ 766,319 $ 2,932,434
Accounts receivable, net -- Note 7........................... 48,238,346 71,286,099
Receivables from unconsolidated entities -- Note 5........... 1,630,862 700,479
Inventories -- Notes 4 and 7................................. 28,456,393 66,411,960
Prepaid expenses............................................. 644,300 2,039,182
Deferred income taxes -- Note 8.............................. 857,400 1,634,817
------------ ------------
Total current assets................................. 80,593,620 145,004,971
Investment in unconsolidated entities -- Note 5................ 1,824,448 1,920,880
Property and equipment -- Notes 6 and 10:
Transportation equipment..................................... 939,616 4,593,249
Furniture and fixtures....................................... 3,837,829 5,895,454
Machinery and equipment...................................... 10,210,324 29,482,645
Buildings and improvements................................... 7,302,977 16,213,648
Assets acquired under capital leases......................... 2,693,616 896,677
Land......................................................... 1,411,030 3,001,626
------------ ------------
26,395,392 60,083,299
Less: Accumulated depreciation (including amortization of
assets acquired under capital leases).................... (6,338,976) (9,194,533)
------------ ------------
20,056,416 50,888,766
Note receivable from related party -- Notes 3 and 15........... -- 625,000
Other assets, net -- Notes 3, 8 and 15......................... 3,893,022 6,926,849
------------ ------------
$106,367,506 $205,366,466
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Outstanding checks in excess of bank balance................. $ 781,185 $ 3,104,746
Accounts payable -- Note 15.................................. 15,059,300 25,761,803
Accrued liabilities.......................................... 5,561,045 8,843,391
Current maturities of long-term debt -- Note 6............... 1,676,890 3,448,670
Revolving line of credit -- Note 7........................... 14,001,285 49,322,111
Current portion of obligations under capital leases -- Note
10........................................................ 481,411 68,143
Deferred revenue -- prebilled................................ 902,004 1,839,689
Advanced billings............................................ 2,135,820 2,990,631
------------ ------------
Total current liabilities............................ 40,598,940 95,379,184
Long-term debt, less current maturities -- Note 6.............. 8,896,537 32,112,869
Obligations under capital leases, less current portion -- Note
10........................................................... 709,547 44,696
Deferred income taxes -- Note 8................................ 2,024,800 4,507,411
Shareholders' equity -- Notes 9 and 12:
Preferred stock, no par value, 5,000,000 shares authorized,
no shares issued and outstanding.......................... -- --
Common stock, no par value, 50,000,000 shares authorized;
15,214,916 and 16,186,218 shares issued in 1995 and 1996;
8,552,000 and 9,523,302 shares outstanding in 1995 and
1996...................................................... 39,711,434 50,119,560
Retained earnings............................................ 21,254,083 30,030,581
Treasury stock, 6,662,916 shares............................. (6,827,835) (6,827,835)
------------ ------------
Total shareholders' equity........................... 54,137,682 73,322,306
------------ ------------
$106,367,506 $205,366,466
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE> 47
THE SHAW GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED AUGUST 31, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
1994 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
Income:
Sales.......................................... $113,176,824 $135,264,643 $222,017,437
Cost of sales.................................. 96,522,760 110,578,027 180,834,668
------------ ------------ ------------
Gross profit................................... 16,654,064 24,686,616 41,182,769
General and administrative expenses.............. 11,631,175 15,022,595 25,202,302
------------ ------------ ------------
Operating income.......................... 5,022,889 9,664,021 15,980,467
Interest expense................................. (1,731,456) (2,828,968) (3,970,336)
Other income, net................................ 292,990 235,619 879,839
------------ ------------ ------------
(1,438,466) (2,593,349) (3,090,497)
------------ ------------ ------------
Income before income taxes....................... 3,584,423 7,070,672 12,889,970
Provision for income taxes -- Note 8............. 1,368,188 2,217,058 4,216,403
------------ ------------ ------------
Income before earnings (losses) from
unconsolidated entities........................ 2,216,235 4,853,614 8,673,567
Earnings (losses) from unconsolidated
entities -- Note 5............................. 792,144 (587,569) 102,931
------------ ------------ ------------
Income before extraordinary item................. 3,008,379 4,266,045 8,776,498
Extraordinary item, less applicable income taxes
of
$204,000 -- Note 2............................. 370,455 -- --
------------ ------------ ------------
Net income..................................... $ 3,378,834 $ 4,266,045 $ 8,776,498
============ ============ ============
Earnings per common share -- Note 12:
Income before extraordinary item............... $ .39 $ .50 $ .94
Extraordinary item............................. .05 -- --
------------ ------------ ------------
Net income..................................... $ .44 $ .50 $ .94
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE> 48
THE SHAW GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED AUGUST 31, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
COMMON STOCK TREASURY STOCK TOTAL
------------------------- ------------------------ RETAINED SHAREHOLDERS'
SHARES AMOUNT SHARES AMOUNT EARNINGS EQUITY
---------- ----------- --------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance, September 1,
1993...................... 12,264,916 $ 748,713 5,789,041 $(1,977,835) $13,609,204 $12,380,082
Net income................ -- -- -- -- 3,378,834 3,378,834
Share purchase............ -- -- 873,875 (4,850,000) -- (4,850,000)
Share sale................ 2,875,000 37,612,721 -- -- -- 37,612,721
Shares issued to acquire
F.C.I. Pipe Support
Sales, Inc. -- Note
3...................... 75,000 1,350,000 -- -- -- 1,350,000
---------- ----------- --------- ----------- ----------- -----------
Balance, August 31, 1994.... 15,214,916 39,711,434 6,662,916 (6,827,835) 16,988,038 49,871,637
Net income................ -- -- -- -- 4,266,045 4,266,045
---------- ----------- --------- ----------- ----------- -----------
Balance, August 31, 1995.... 15,214,916 39,711,434 6,662,916 (6,827,835) 21,254,083 54,137,682
Net income.................. -- -- -- -- 8,776,498 8,776,498
Shares issued to acquire
Word -- Note 3............ 385,000 3,401,900 -- -- -- 3,401,900
Shares issued to acquire
APP -- Note 3............. 541,177 6,724,712 -- -- -- 6,724,712
Exercise of options......... 45,125 281,514 -- -- -- 281,514
---------- ----------- --------- ----------- ----------- -----------
Balance, August 31, 1996.... 16,186,218 $50,119,560 6,662,916 $(6,827,835) $30,030,581 $73,322,306
========== =========== ========= =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE> 49
THE SHAW GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED AUGUST 31, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income..................................................... $ 3,378,834 $ 4,266,045 $ 8,776,498
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization................................ 1,494,588 2,234,187 4,040,100
Provision (benefit) for deferred income taxes................ 90,500 809,900 (1,231,745)
(Earnings) losses from unconsolidated entities............... (792,144) 663,569 (102,931)
Translation loss............................................. -- -- 863,822
Gain on sale of marketable securities........................ -- -- (855,047)
Other........................................................ (314,981) 55,692 (251,170)
Changes in assets and liabilities, net of effects of
acquisitions:
(Increase) in receivables.................................... (12,208,847) (8,265,755) (16,143,275)
(Increase) in inventories.................................... (641,726) (2,830,372) (21,052,970)
(Increase) decrease in other current assets.................. 8,853 (67,571) (1,127,130)
(Increase) in other assets................................... (200,713) (1,004,108) (863,184)
Increase (decrease) in accounts payable...................... (2,822,608) 6,650,126 8,255,580
Increase (decrease) in deferred revenue -- prebilled......... (288,563) 156,014 937,685
Increase (decrease) in accrued liabilities................... (2,812,737) 665,216 (2,114,045)
Increase in advanced billings................................ -- 2,135,820 854,811
------------ ------------ ------------
Net cash provided by (used in) operating activities.............. (15,109,544) 5,468,763 (20,013,001)
Cash flows from investing activities:
Investment in unconsolidated entities.......................... (1,316,408) (381,678) 95,513
Dividends received from unconsolidated entities................ 350,000 -- --
Investment in subsidiaries, net of cash received............... (2,101,909) (482,243) (9,516,276)
Proceeds from sale of property and equipment................... 9,536 70,275 1,702,573
Purchase of property and equipment............................. (4,708,509) (4,591,595) (18,145,089)
Purchase of marketable securities.............................. (920,411) (269,351) (1,433,143)
Cash transferred (to) from escrow fund......................... (802,000) 1,295,000 --
Proceeds from sale of marketable securities.................... -- 1,694,070 2,288,190
Issuance of note receivable to a related party................. -- -- (625,000)
------------ ------------ ------------
Net cash used in investing activities............................ (9,489,701) (2,665,522) (25,633,232)
Cash flows from financing activities:
Net proceeds (repayments) from revolving credit agreement...... (2,173,750) (10,930,673) 30,466,289
Proceeds from issuance of debt................................. 1,245,884 10,208,218 21,109,541
Repayment of debt and leases................................... (11,115,124) (2,250,250) (5,414,414)
Increase (decrease) in outstanding checks in excess of bank
balance...................................................... (380,255) 380,734 2,323,561
Purchase of treasury stock..................................... (1,000,000) -- --
Issue common stock............................................. 37,619,309 -- 281,514
------------ ------------ ------------
Net cash provided by (used in) financing activities............ 24,196,064 (2,591,971) 48,766,491
Effects of exchange rate changes on cash....................... -- -- (954,143)
------------ ------------ ------------
Net increase (decrease) in cash.................................. (403,181) 211,270 2,166,115
Cash and cash equivalents -- beginning of year................... 958,230 555,049 766,319
------------ ------------ ------------
Cash and cash equivalents -- end of year......................... $ 555,049 $ 766,319 $ 2,932,434
============ ============ ============
Supplemental disclosures:
Cash payments for:
Interest....................................................... $ 1,823,509 $ 2,842,980 $ 4,012,283
============ ============ ============
Income taxes (refund).......................................... $ 3,151,457 $(2,370,260) $ 7,712,620
============ ============ ============
Noncash investing and financing activities:
Property and equipment acquired through issuance of debt....... $ 366,852 $ 86,363 $ --
============ ============ ============
Investment in subsidiaries acquired through issuance of common
stock........................................................ $ 1,350,000 $ -- $10,126,613
============ ============ ============
Treasury stock acquired through issuance of debt............... $ 3,850,000 $ -- $ --
============ ============ ============
Investment in unconsolidated entities through reduction in
receivables.................................................. $ -- $ 1,015,000 $ 89,014
============ ============ ============
Property and equipment acquired through recovery of investment
in unconsolidated subsidiary................................. $ -- $ 1,075,300 $ --
============ ============ ============
Other assets acquired through issuance of debt................. $ -- $ -- $ 2,131,515
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE> 50
THE SHAW GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of The Shaw
Group Inc. (a Louisiana corporation) and its wholly-owned subsidiaries (the
Company). All material intercompany accounts and transactions have been
eliminated in these financial statements.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Nature of Operations
The Company is a supplier of industrial piping systems for new construction
and retrofit projects throughout the world, primarily for customers in the
electric power, refining and chemical industries. The Company offers
comprehensive design and engineering services, piping system fabrication,
manufacturing and sale of speciality pipe fittings and design and fabrication of
pipe support systems. The Company's operations are conducted through eight
fabrication facilities, two engineering offices and one manufacturing facility.
Cash and Cash Equivalents
For purposes of reporting cash flows, all highly liquid investments with a
maturity of three months or less when purchased are cash equivalents.
Accounts Receivable and Credit Risk
The Company's customers include major multi-national construction and
engineering firms and industrial corporations. Work is performed under contract
and the Company believes that its credit risk is minimal. The Company grants
short-term credit to its customers.
During 1996, the Company established an allowance for doubtful accounts and
contract adjustments. The reserve balance as of August 31, 1996 is $430,000.
Charges to this allowance were not material during fiscal 1996. Prior to 1996,
uncollectible accounts receivable and contract adjustments were charged directly
against earnings when they were determined to be uncollectible. Charge-offs have
not been material. The use of this method did not result in a material
difference from the valuation method required by generally accepted accounting
principles.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined
using the first-in, first-out (FIFO) cost method in 1996 and the average cost
method in 1995 and 1994. The effect of changing from the average to the FIFO
cost method during 1996 was not material.
Work in Process
Work in process includes primarily the costs accumulated in the fabrication
process for units only partially completed.
F-7
<PAGE> 51
THE SHAW GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Property and Equipment
Property and equipment is recorded at cost. Additions and improvements are
capitalized. Maintenance and repair expenses are charged to income as incurred.
The cost of property sold or otherwise disposed of and the accumulated
depreciation thereon are eliminated from the property and related accumulated
depreciation accounts, and any gain or loss is credited or charged to income.
For financial reporting purposes, depreciation is provided by utilizing the
straight-line method over the following estimated useful service lives:
<TABLE>
<S> <C>
Transportation Equipment............................... 5 - 15 Years
Furniture and Fixtures................................. 5 - 7 Years
Machinery and Equipment................................ 3 - 18 Years
Buildings and Improvements............................. 8 - 40 Years
</TABLE>
Income Taxes
The Company provides for deferred taxes in accordance with FASB Statement
109, which requires an asset and liability approach for measuring deferred tax
assets and liabilities due to temporary differences existing at year end using
currently enacted tax rates.
Revenues
Revenue on fabrication contracts is generally recognized upon the
completion of an individual spool of production. A spool consists of piping
materials and associated shop labor to form a pre-fabricated unit according to
contract specifications. During the fabrication process, all direct and indirect
costs related to the fabrication process are capitalized as work in process
inventory. Capitalized costs are charged to earnings upon completion of the
fabrication process for each spool. Spools are generally shipped to job site
locations when complete.
The Company also contracts with certain customers on a fixed price basis.
Revenue is recognized as spools are completed. Costs and estimated earnings in
excess of billings included in accounts receivable totaled $1,943,128 and
$5,597,175 for the years ended August 31, 1995 and 1996, respectively. Billings
in excess of costs and estimated earnings for both years are not material.
Profit related to prebilled materials is deferred until the fabrication of
the spools is completed.
Intangible Assets
Intangible assets represent the excess of the purchase price of
acquisitions over the fair value of the net assets acquired. Such excess costs
are being amortized on a straight-line basis over a twenty year period. The
Company periodically assesses the recoverability of the unamortized balance
based on expected future profitability and undiscounted future cash flows of the
acquisitions and their contribution to the overall operation of the Company.
Reclassifications
Certain reclassifications have been made to the prior year's financial
statements in order to conform to current reporting practices.
New Accounting Standards
In 1995, Statement of Financial Accounting Standards No. 121 -- "Accounting
for Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of"
was issued and required to be adopted by the
F-8
<PAGE> 52
THE SHAW GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Company no later than the fiscal year ending August 31, 1997. Management
believes that such adoption will not have a material effect on the Company's
financial statements taken as a whole.
Also in 1995, Statement of Financial Accounting Standards No.
123 -- "Accounting for Stock-Based Compensation" (the "Statement") was issued
which establishes, among other things, financial accounting and reporting
standards for stock-based employee compensation plans. Entities may either adopt
a "fair value based method" of accounting for an employee stock option as
defined by the Statement or may continue to use accounting methods as prescribed
by APB Opinion No. 25 -- "Accounting for Stock issued to Employees." Entities
electing to remain with the accounting in APB Opinion No. 25 are required to
make pro forma disclosures of net income and earnings per share as if the fair
value based method of accounting defined in the Statement had been applied. The
Company expects to continue following APB Opinion No. 25 and make appropriate
disclosures in the future in accordance with the Statement.
NOTE 2 -- INITIAL PUBLIC OFFERING
In December 1993, the Company completed the initial public offering (the
"IPO") of its common stock. The Company issued 2,875,000 shares at $14.50 per
share. Net proceeds to the Company, after underwriting discounts and commissions
and other expenses of the offering, were approximately $38 million. The net
proceeds from the offering were used primarily to repay the Company's
outstanding indebtedness. As a result of its early retirement of certain debt
instruments, the Company recognized an extraordinary gain of approximately
$370,000 (net of income tax).
NOTE 3 -- ACQUISITIONS
On April 29, 1994, the Company acquired the business of Fronek Company,
Inc. (FCI), an engineering firm with offices located in Englewood, New Jersey
and Toronto, Canada, and F.C.I. Pipe Support Sales, Inc. (PSSI), a pipe support
fabrication facility in Longview, Texas. These acquisitions were completed
through the issuance of 75,000 shares of the Company's common stock valued at
$1,350,000 and cash of $2,130,524. In addition, the Company agreed to issue
options to acquire up to 57,000 shares of common stock and additional cash
payments up to $300,000 based on the future earnings of the Company's
subsidiaries managed by the former owner through 1997.
These acquisitions were accounted for using the purchase method of
accounting. The excess of cost over the estimated fair value of the net assets
acquired of $1,565,912, included in other assets, is being amortized over twenty
years using the straight-line method. The pro forma effect of this acquisition,
as though it had occurred at the beginning of year ended August 31, 1994, is not
material to the operating results of the Company.
On December 15, 1994, the Company acquired the 50% interest of the other
participant in the Shaw-Formiconi joint venture located in Venezuela, together
with the concurrent acquisition of certain land, buildings and other assets used
by the venture. The total amount of the purchase price related to this
acquisition, including the selling participant's share of joint venture profits,
was approximately $2,900,000. The purchase method was used to account for the
acquisition. The $926,825 of excess cost over the estimated fair value of the
assets acquired, which is included in other assets, is being amortized over
twenty years using the straight-line method. The name of the wholly-owned
continuing entity is Manufacturas Shaw South America, C.A.
On January 16, 1996, the Company's newly formed, wholly-owned subsidiary,
Word Industries Fabricators, Inc. (Word), purchased certain assets and assumed
certain liabilities from Word Industries Pipe Fabricating, Inc. (WIPF), TS&M
Corporation and T.N. Word and certain of his family members. The acquisition was
completed through the issuance of 385,000 shares of the Company's common stock
valued at $3,442,000 and cash of $503,000. Acquisition costs of $246,000 were
incurred by the Company. The purchase
F-9
<PAGE> 53
THE SHAW GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
method was used to account for the acquisition. The purchase price has been
allocated to the estimated fair value of assets acquired and liabilities assumed
at the date of acquisition as follows:
<TABLE>
<S> <C>
Property and Equipment........................................... $5,405,000
Notes Payable.................................................... (294,000)
Accrued Liabilities.............................................. (306,000)
Deferred Income Taxes............................................ (614,000)
---------
Purchase Price......................................... $4,191,000
=========
</TABLE>
The operating results of Word have been included in the consolidated
statements of income from the date of acquisition.
In addition to the transactions described above, the Company agreed to loan
WIPF an aggregate of $1,725,000 pursuant to two separate loan agreements, each
dated as of January 15, 1996, one in the amount of $625,000 and the other in the
amount of $1,100,000. The $625,000 loan has been funded and is secured by a
pledge of 115,000 shares of the Company's common stock received by WIPF in
connection with the acquisition. The $1,100,000 loan will be secured by (i) a
mortgage covering an approximately 6-acre tract of land in Tulsa, Oklahoma and
(ii) a mortgage covering an approximately 12-acre tract of land in Tulsa,
Oklahoma. This $1,100,000 loan had not been funded as of August 31, 1996.
Effective March 1, 1996, the Company purchased all of the outstanding
capital stock of Alloy Piping Products, Inc. (APP), a leading U.S. manufacturer
of specialty stainless and carbon steel pipe fittings and other stainless pipe
products, and the assets of an APP-related entity, Speedline, a Louisiana
partnership (Speedline). The acquisition was completed through the issuance of
541,177 shares of the Company's common stock valued at $6,765,000 and cash of
$11,280,000. Acquisition costs of $366,000 were incurred by the Company. The
purchase method was used to account for the acquisitions. The purchase price has
been allocated to the estimated fair value of assets purchased and liabilities
assumed at the date of acquisition as follows:
<TABLE>
<S> <C>
Accounts Receivable............................................. $6,751,000
Inventory....................................................... 16,923,000
Other Current Assets............................................ 268,000
Property and Equipment.......................................... 12,253,000
Other Assets.................................................... 222,000
Revolving Line of Credit........................................ (4,855,000)
Notes Payable................................................... (5,789,000)
Accounts Payable and Accrued Liabilities........................ (8,117,000)
Deferred Income Taxes........................................... (2,205,000)
----------
Purchase price (net of cash received of $2,960,000)... $15,451,000
==========
</TABLE>
The operating results of APP have been included in the consolidated
statements of income from the effective date of acquisition.
In addition, in connection with the Company's acquisition of APP and
Speedline, options to acquire an aggregate of 85,000 shares of the Company's
common stock at an exercise price of $19.50 per share were issued. The options
are exercisable in 25% increments on each April 5, 1997, 1998, 1999 and 2000
based upon continued employment of the recipients by the Company.
F-10
<PAGE> 54
THE SHAW GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following summarized unaudited income statement data reflects the
impact the above acquisitions would have had on the Company's results of
operations if the Shaw-Formiconi transaction had taken place on September 1,
1993 and the Word and APP acquisitions had taken place on September 1, 1994:
<TABLE>
<CAPTION>
UNAUDITED PRO-FORMA RESULTS FOR THE YEAR ENDED
AUGUST 31,
------------------------------------------------
1994 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
Gross revenue.......................... $120,512,408 $215,744,556 $265,285,338
============ ============ ============
Net income............................. $ 4,170,978 $ 7,585,139 $ 9,009,967
============ ============ ============
Earnings per common share.............. $ 0.54 $ 0.80 $ 0.92
============ ============ ============
</TABLE>
The Company has entered into an agreement to acquire NAPTech, Inc.
("NAPTech"), a fabricator of industrial piping systems and engineered piping
modules located in Clearfield, Utah. In connection with the acquisition, the
Company expects to issue up to an aggregate of 366,790 shares of common stock in
exchange for NAPTech and the 335,000 square foot facility that NAPTech currently
leases from a related entity. The acquisition of NAPTech is subject to various
conditions, including, without limitation, the approval of the Company's Board
of Directors and NAPTech's shareholders, as well as necessary regulatory
approvals. If consummated, the acquisition of NAPTech will be accounted for as a
pooling of interests and, accordingly, will result in a restatement of the
Company's financial statements. Although there can be no assurance that the
acquisition of NAPTech will be completed, the Company currently anticipates that
the acquisition will be consummated on or before December 31, 1996.
NOTE 4 -- INVENTORIES
The major components of inventories consist of the following:
<TABLE>
<CAPTION>
AUGUST 31,
----------------------------
1995 1996
----------- -----------
<S> <C> <C>
Finished Goods........................................... $ 2,023,748 $23,138,238
Raw Materials............................................ 21,596,205 32,972,692
Work In Process.......................................... 4,836,440 10,301,030
----------- -----------
$28,456,393 $66,411,960
=========== ===========
</TABLE>
NOTE 5 -- INVESTMENT IN UNCONSOLIDATED ENTITIES
During the years ended August 31, 1994 and 1995, the Company invested
$250,000 and $1,880,000, respectively in Shaw-Nass Middle East, W.L.L., the
Company's Bahrain joint venture ("Shaw-Nass"). The Company owns 49% of Shaw-Nass
and accounts for this investment on the equity basis. As such, during the years
ended August 31, 1994, 1995, and 1996 the Company recognized earnings (losses)
of $-0-, ($205,968) and $102,931 respectively from Shaw-Nass. No distributions
have been received through August 31, 1996 from Shaw-Nass. In addition, as of
August 31, 1995 and 1996, the Company had outstanding receivables from Shaw-Nass
totaling $1,630,862 and $700,479 respectively. These receivables relate
primarily to inventory and equipment sold to Shaw-Nass.
As discussed in Note 3, the Company purchased the 50% interest of the other
participant in its Venezuelan joint venture, together with the concurrent
acquisition of certain land, buildings and other assets used by the venture. The
Company had previously accounted for its investment in the joint venture as an
unconsolidated subsidiary under the equity method and had recognized net income
of approximately $792,000 during the year ended August 31, 1994 and $29,000
during the period from September 1 to December 15, 1994.
F-11
<PAGE> 55
THE SHAW GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In February 1994, the Company entered into a joint venture agreement with
Sino-Thai Engineering and Construction Co., Ltd. and PAE (Thailand) Company
Limited for the formation of Shaw Asia Company, Ltd. (Shaw Asia) to construct
and operate a pipe fabrication facility in Thailand. During the year ended
August 31, 1994, the Company recognized no income from Shaw Asia as its
operations were not significant. During the year ended August 31, 1995, the
venture did not achieve the desired level of activity, and the Company withdrew
from the joint venture. In conjunction with the withdrawal, the Company
recovered approximately $1.1 million in equipment from the joint venture which
reduced its net investment to approximately $400,000. The remaining balance was
charged off.
NOTE 6 -- LONG-TERM DEBT
Long-term debt consisted of:
<TABLE>
<CAPTION>
AUGUST 31,
----------------------------
1995 1996
----------- -----------
<S> <C> <C>
Notes payable to insurance companies; variable interest
rates based on 30-day commercial paper rates plus 190
to 235 basis points ranging from 7.26% to 7.74% as of
August 31, 1996; payable in monthly installments based
on amortization over the respective note lives;
maturing from 2001 to 2005; secured by property and
equipment with an approximate net book value of
$20,253,000 as of August 31, 1996 and guaranties by the
Company and certain subsidiaries of the Company........ $ 7,089,437 $15,971,239
Note payable to a bank; variable interest rate based upon
London Interbank Offering Rate (LIBOR) plus 85 to 200
basis points depending upon certain financial ratios.
Interest rate as of August 31, 1996 was 7.0%; 60
monthly principal payments of $50,000 through May 31,
2000; secured by equipment with an approximate net book
value of $2,832,000 as of August 31, 1996.............. 2,900,000 2,300,000
Note payable to a corporation; interest payable quarterly
at 60% of prime rate; repayable in annual installments
through December 15, 1995, unsecured................... 580,000 --
Note payable to a bank; interest payable annually at
LIBOR plus 1.6%; payable in 28 annual installments of
$264,286 with remaining balance due in 2003; secured by
equipment with an approximate net book value of
$8,757,000............................................. -- 7,400,000
Mortgages payable to a bank; interest payable monthly at
8.375%; 95 monthly payments of $9,850 and $26,935 with
remaining balance due on June 1, 2002; secured by real
property with an approximate net book value of
$2,074,000 and deposits at financial institutions with
an approximate value of $2,010,000..................... -- 3,432,531
South Carolina Revenue Bonds payable; principal due in
2005; interest paid monthly accruing at a variable rate
of 3.95% as of August 31, 1996; secured by $4,000,000
letter of credit....................................... -- 4,000,000
</TABLE>
F-12
<PAGE> 56
THE SHAW GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
AUGUST 31,
----------------------------
1995 1996
----------- -----------
<S> <C> <C>
Notes payable to employees relating to non-competition
agreements; interest payable monthly at 7%; monthly
payments of $42,000, and $5,000 until April 2001 and
August 2000 respectively; unsecured -- see Note 15..... -- 2,131,515
Installment notes payable; variable interest rates
ranging from 8% to 11.5%; payable in monthly
installments based on amortization over the respective
note lives; maturing from 1996 to 1998................. 3,990 326,254
----------- -----------
Total debt............................................... 10,573,427 35,561,539
Less: current maturities................................. (1,676,890) (3,448,670)
----------- -----------
Total long-term debt..................................... $ 8,896,537 $32,112,869
========== ==========
</TABLE>
Annual maturities of long-term debt during each year ending August 31, are
as follows:
<TABLE>
<S> <C>
1997............................................................ $ 3,448,670
1998............................................................ 3,458,867
1999............................................................ 3,603,497
2000............................................................ 3,730,780
2001 and thereafter............................................. 21,319,725
-----------
$35,561,539
===========
</TABLE>
Certain of the debt agreements contain restrictive covenants which the
Company is required to meet including financial ratios and minimum capital
levels. As of August 31, 1996, the Company was in compliance with the covenants
or had obtained the required waivers.
The estimated fair value of long-term debt approximated its carrying value,
based on borrowing rates currently available to the Company for notes with
similar terms and average maturities, as of August 31, 1995 and 1996.
NOTE 7 -- REVOLVING LINE OF CREDIT
In 1996, the Company entered into a new loan and security agreement with
its commercial lenders which allows the Company to borrow up to $70,000,000,
depending upon the Company's collateral base (which consists primarily of
certain eligible amounts of receivables and inventory), under a revolving line
of credit at an interest rate not to exceed 2% over the London Interbank
Offering Rate (LIBOR) or .75% over the Prime rate. The index used to determine
the interest rate is selected by the Company and the spread over the index is
dependent upon certain financial ratios of the Company. The interest rate
adjusts quarterly. This replaced the prior year revolving line of credit which
allowed the Company to borrow up to $30,000,000 at an interest rate based upon
the LIBOR plus 85 to 200 basis points depending upon certain financial ratios of
the Company. During 1995 and 1996, the maximum amount outstanding was
approximately $29,318,000 and $55,512,000, respectively, and the average amount
outstanding was $24,441,000 and $31,752,000, respectively, at weighted average
interest rates of 9.79% and 7.04%, respectively. The new agreement expires March
31, 1999.
The line of credit is secured by the Company's accounts receivable and
inventories.
The line of credit is also subject to certain restrictive covenants similar
to those of the long-term debt. As of August 31, 1996, the Company was in
compliance with these covenants or had obtained the required waivers.
F-13
<PAGE> 57
THE SHAW GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 8 -- INCOME TAXES
A summary of net deferred taxes is as follows:
<TABLE>
<CAPTION>
AUGUST 31,
-------------------------
1995 1996
---------- ----------
<S> <C> <C>
Deferred tax assets....................................... $ 857,400 $1,971,900
Deferred tax liabilities (Net of deferred tax liabilities
assumed in Word and APP acquisitions totaling -0- in
1995 and $2,818,541 in 1996)............................ (2,024,800) (1,688,870)
----------- -----------
Net deferred taxes........................................ $(1,167,400) $ 283,030
=========== ===========
</TABLE>
The significant components of net deferred taxes are as follows:
<TABLE>
<S> <C> <C>
Assets:
Tax basis of inventory in excess of book basis.......... $ 184,200 $ 244,800
Expenses not currently deductible....................... 673,200 1,727,100
---------- ----------
$ 857,400 $1,971,900
========== ==========
Liabilities:
Excess of financial reporting over tax basis of
assets............................................... $1,751,300 $4,009,273
Income not currently taxable............................ 273,500 498,138
---------- ----------
$2,024,800 $4,507,411
Less: Deferred tax liabilities assumed in Word and APP
acquisitions......................................... -- (2,818,541)
---------- ----------
$2,024,800 $1,688,870
========== ==========
</TABLE>
Long-term deferred tax assets as of August 31, 1995 and 1996 were $0 and
$337,083, respectively. These balances are included in other assets.
Income before provision for income taxes for the years ended August 31 was
as follows:
<TABLE>
<CAPTION>
1994 1995 1996
--------- --------- ----------
<S> <C> <C> <C>
Domestic...................................... $3,584,423 $1,803,426 $12,848,236
Foreign....................................... -- 5,267,246 41,734
---------- ---------- -----------
Total......................................... $3,584,423 $7,070,672 $12,889,970
========== ========== ===========
</TABLE>
The provision for income taxes for the years ended August 31 was as
follows:
<TABLE>
<CAPTION>
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Current....................................... $1,271,888 $1,423,158 $5,546,833
Deferred...................................... (113,500) 809,900 (1,450,430)
State......................................... 209,800 (16,000) 120,000
---------- ---------- ----------
Total......................................... $1,368,188 $2,217,058 $4,216,403
========== ========== ==========
</TABLE>
F-14
<PAGE> 58
THE SHAW GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A reconciliation of Federal statutory and effective income tax rates for
the years ended August 31 was as follows:
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Statutory rate........................................ 34% 34% 34%
State taxes provided.................................. 5 -- 1
Other................................................. (1) (3) (2)
-- - -- -
---
38% 31% 33%
=== === ===
</TABLE>
NOTE 9 -- TREASURY STOCK
The Company previously had two classes of common stock. The classes had
identical rights, preferences and powers except that Class A common stock had
certain voting preferences. In connection with the Company's initial public
offering, the Company's charter was amended to provide for only one class of
common stock; however, holders for at least four consecutive years generally
have voting preferences. Also, the amended charter authorizes the Board of
Directors to approve the issuance of preferred stock.
During fiscal 1994, prior to its initial public offering, the Company
repurchased 873,875 shares of common stock from one of its stockholders for
$4,850,000.
NOTE 10 -- LEASES
Capital leases -- The Company leases computers, office equipment and
machinery under various non-cancelable lease agreements. Minimum lease rentals
have been capitalized and the related assets and obligations recorded utilizing
various interest rates. The assets are amortized on the straight-line method
over the lease terms and interest expense is accrued on the basis of the
outstanding lease obligations.
Assets acquired under capital leases -- net of accumulated amortization are
as follows:
<TABLE>
<CAPTION>
AUGUST 31,
----------------------
1995 1996
--------- --------
<S> <C> <C>
Transportation equipment..................................... $1,710,270 $ --
Furniture and fixtures....................................... 899,352 878,236
Machinery and equipment...................................... 83,994 18,441
---------- --------
$2,693,616 $896,677
Less: accumulated amortization............................... (595,520) (245,385)
---------- --------
$2,098,096 $651,292
========== ========
</TABLE>
F-15
<PAGE> 59
THE SHAW GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following is a summary of future obligations under capital leases
(present value of future minimum rentals):
<TABLE>
<S> <C>
Minimum lease payments:
1997.................................................... $ 75,986
1998.................................................... 29,839
1999.................................................... 18,591
--------
Total minimum lease payments.............................. $124,416
Less: amount representing interest........................ (11,577)
--------
$112,839
Less: current portion..................................... (68,143)
--------
Long-term obligations under capital leases................ $ 44,696
========
</TABLE>
Operating leases -- The Company leases certain offices, fabrication shops,
warehouse facilities, office equipment and machinery under noncancelable
operating lease agreements which expire at various times and which require
various minimum rentals. The non-cancelable operating leases which were in
effect as of August 31, 1996 require the Company to make the following future
minimum lease payments:
<TABLE>
<S> <C>
For the year ending August 31:
1997..................................................... $1,187,869
1998..................................................... 927,145
1999..................................................... 517,493
2000..................................................... 371,856
----------
Total minimum lease payments............................. $3,004,363
==========
</TABLE>
NOTE 11 -- COMMITMENTS AND CONTINGENCIES
As of August 31, 1996, the Company has committed to purchase approximately
$4.3 million of additional pipe bending machines for its domestic facilities.
The Company has posted letters of credit aggregating approximately $4
million as of August 31, 1996 to secure its performance under certain contracts
and insurance arrangements, as well as its purchase of a pipe bending machine
for one of its domestic facilities.
For the year ended August 31, 1996, 58% of the Company's labor force was
covered by collective bargaining agreements. Of this amount, 92% are covered by
collective bargaining agreements which will expire during the Company's next
fiscal year. The Company does not expect the renewal of the agreements will have
an adverse impact on the Company's results of operations or financial position.
See Note 3 regarding the Company's proposed acquisition of NAPTech.
NOTE 12 -- EARNINGS PER COMMON SHARE
In connection with the initial public offering of 2,500,000 shares of its
common stock, the Company's shareholders approved a stock split and
recapitalization on December 6, 1993 which caused the number of outstanding
shares to increase from 4,567.5 to 5,602,000. For all periods, the share amounts
and per share data throughout the financial statements have been adjusted to
give effect to the stock split. Earnings per common share is calculated based on
the weighted average number of shares outstanding, including dilutive common
stock equivalents when material, during the periods adjusted for the effect of
the stock split. The weighted average number of shares outstanding for 1994,
1995, and 1996 were 7,744,209, 8,552,001, and 9,324,729 respectively.
F-16
<PAGE> 60
THE SHAW GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 13 -- MAJOR CUSTOMERS AND EXPORT SALES
For the year ended August 31, 1994, sales to customers accounting for more
than 10% of sales totaled $13,100,000 and $11,900,000 for two customers and
comprised 22% of sales. For the year ended August 31, 1995, sales to a customer
accounting for more than 10% of sales totaled $19,100,000 and comprised 14% of
sales. For the year ended August 31, 1996, sales to a customer accounting for
more than 10% of sales totaled $27,200,000 and comprised 12% of sales. Because
of the nature of the Company's business, the significant customers vary between
years.
For the years ended August 31, 1994, 1995 and 1996, the Company has
included as part of its international sales approximately $32,000,000,
$40,000,000, and $74,000,000 respectively, of exports from its domestic
facilities.
NOTE 14 -- EMPLOYEE BENEFIT PLANS
Effective with its initial public offering, the Company adopted a Stock
Option Plan (the Plan) under which both qualified and non-qualified options may
be granted. In addition, 804,875 shares of common stock are reserved for
issuance under the Plan. The Plan is administered by a committee of the Board,
which selects persons eligible to receive options and determines the number of
shares subject to each option, the vesting schedule, the option price, and the
duration of the option. The exercise price of any option granted under the Plan
cannot be less than 100% of the fair market value on date of grant and its
duration cannot exceed 10 years. Only qualified options have been granted under
the Plan.
In connection with the Company's acquisition of FCI and PSSI during 1994,
5,000 options with an exercise price of $18.00 were issued. The options expire
in 2004 and are currently exercisable. In January 1995, the exercise price of
these options was amended to $5.875 per share, which was the fair market value
of the Common Stock at the date of such amendment. In addition, in 1994 the
Company granted options contingent upon the ability of FCI and PSSI to generate
consolidated net income in excess of certain thresholds during the fiscal years
ending August 31, 1995, 1996 and 1997. The maximum number of options issuable
under this plan is 19,000 per year or 57,000. These options expire in 2004 and
have an exercise price equal to the closing price quoted on the last business
day of the immediately preceding fiscal year to which the grant of options
relate. The minimum threshold for the year ended August 31, 1995 was not met,
and therefore, no options were issued for that year. For the year ended August
31, 1996, 9,000 options with an exercise price of $9.59 per share were earned
and will be issued in fiscal 1997.
The following table summarizes the activity in the outstanding stock
options of the Company:
<TABLE>
<CAPTION>
SHARES
-------------------------
PLAN ACQUISITIONS OPTION PRICE
------- ------------ --------------
<S> <C> <C> <C>
Outstanding at September 1, 1993............ -- -- --
Granted..................................... 210,500 5,000 $5.875
Exercised................................... -- -- --
------- ------
Outstanding at August 31, 1994.............. 210,500 5,000 $5.875
Granted..................................... 220,000 -- $5.875-$6.75
Exercised................................... -- -- --
------- ------
Outstanding at August 31, 1995.............. 430,500 5,000 $5.875-$6.75
Granted..................................... 20,000 85,000 $17.375-$19.50
Exercised................................... (45,125) -- $5.875-$6.75
------- ------
Outstanding at August 31, 1996.............. 405,375 90,000 $5.875-$19.50
======= ======
Exercisable at August 31, 1996.............. 58,125 5,000 $5.875-$6.75
======= ======
</TABLE>
F-17
<PAGE> 61
THE SHAW GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
During 1994, the Company adopted a voluntary 401(k) profit sharing plan for
substantially all employees who are not subject to collective bargaining
agreements. The plan provides for the eligible employee to contribute from 1% to
10% of annual compensation, subject to an annual limit, with the Company
matching 50% of the employee's eligible contribution up to 6%. The Company's
contribution to this plan during 1994, 1995 and 1996 was approximately $102,000,
$220,000, and $285,000 respectively.
APP has a defined contribution profit sharing plan covering substantially
all of APP's employees. The plan allows APP to make a discretionary contribution
to the plan of up to 15% of eligible employee compensation. For the period from
the effective date of acquisition through August 31, 1996, APP accrued $175,000
in contributions to the plan.
NOTE 15 -- RELATED PARTY TRANSACTIONS
During 1994, the Company entered into an employment agreement with the
President and Chief Executive Officer (CEO) of the Company. Under terms of the
agreement, the President and CEO has agreed to serve in that capacity until
December 31, 1996 (subject to an automatic three-year extension) and will
receive, among other things, an annual base salary of $500,000, participation in
the Company's annual bonus plan as determined by the Compensation Committee of
the Board of Directors, and other benefits such as health and life insurance. In
the event the President and CEO's employment is terminated due to events as
defined in the agreement, the President and CEO will receive a lump-sum payment
equal to the full amount payable under the agreement.
During 1995, the Company entered into several loan agreements with key
management some of which were non-interest bearing. The impact of discounting
such loans to record interest income was not significant. The balance of these
employee loan receivables as of August 31, 1995 and 1996 was $231,900 and
$220,191, respectively. These balances are included in other assets.
As discussed in Note 3, in connection with the Word acquisition, the
Company entered into a $625,000 loan agreement with Word Industries Pipe
Fabricating, Inc. ("WIPF"). WIPF is owned primarily by certain stockholders of
the Company. The loan is due on January 15, 2001 and bears interest at a rate
equal to that charged on the Company's revolving line of credit.
In addition, as of August 31, 1996 the Company has included in its accounts
payable approximately $280,000 to WIPF.
During 1996, in connection with an acquisition, the Company has entered
into non-competition agreements with certain employees. Related assets totaling
approximately $2.3 million, included in other assets, are being amortized over
five years using the straight-line method. The corresponding liabilities are
included in long-term debt as further discussed in Note 6.
NOTE 16 -- FOREIGN CURRENCY TRANSACTIONS
The Company's wholly-owned subsidiary in Venezuela has net assets of
approximately $7,000,000 denominated in Venezuelan Bolivars. In accordance with
SFAS 52, the U.S. dollar is used as the functional reporting currency since the
Venezuelan economy is defined as highly inflationary. Therefore, the assets and
liabilities must be translated into U.S. dollars using a combination of current
and historical exchange rates. During 1995, the Venezuelan government fixed the
exchange rate for Bolivars, thus there was no change in the exchange rate used
to translate these assets and liabilities, and accordingly no gain or loss was
recognized in 1995 by this translation. During the year ended August 31, 1995,
the Company recognized as part of its sales aggregate exchange gains of
approximately $.9 million relating to collections on contracts in progress
during the year.
F-18
<PAGE> 62
THE SHAW GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
During 1996, the Venezuelan government lifted all foreign exchange
controls. Subsequent to this action, the Bolivar devalued from 170 to 475 to the
U.S. dollar. As a result, the Company recorded a translation loss of
approximately $864,000 in translating the assets and liabilities into U.S.
dollars. The Company also recognized a gain of approximately $818,000 during
1996 related to a Venezuelan Government bond purchased at a fixed exchange rate
which was subsequently sold. The earnings from this subsidiary in 1996 were not
material to the consolidated results of operations.
NOTE 17 -- SUBSEQUENT EVENT
On October 24, 1996, the Company filed a registration statement with the
Securities and Exchange Commission for a public offering of 2,659,118 shares of
Common Stock. Of the shares offered, 2,000,000 shares will be offered by the
Company and 659,118 shares will be offered by certain selling shareholders. The
net proceeds to the Company from the sale of 2,000,000 shares of Common Stock
will be used to repay outstanding amounts on the Company's line of credit, which
is generally used by the Company for working capital purposes.
F-19
<PAGE> 63
================================================================================
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER CONTAINED HEREIN, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR BY ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE TO WHICH IT RELATES
OR A SOLICITATION OF AN OFFER TO BUY THOSE TO WHICH IT RELATES IN ANY STATE TO
ANY PERSON TO WHOM IT IS NOT LAWFUL TO MAKE SUCH OFFER IN SUCH STATE. THE
DELIVERY OF THIS PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT THE INFORMATION
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information................. 3
Incorporation of Certain Documents by
Reference........................... 3
Prospectus Summary.................... 4
Risk Factors.......................... 8
Price Range of Common Stock and
Dividend Policy..................... 11
Use of Proceeds....................... 12
Capitalization........................ 12
Pro Forma Condensed Consolidated
Financial Statements................ 13
Selected Consolidated Financial
Data................................ 17
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 18
Business.............................. 24
Management............................ 33
Principal and Selling Shareholders.... 35
Description of Capital Stock.......... 36
Underwriting.......................... 41
Legal Matters......................... 42
Experts............................... 42
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>
================================================================================
================================================================================
2,659,118 SHARES
THE SHAW GROUP INC.
COMMON STOCK
[LOGO]
------------
PROSPECTUS
, 1996
------------
SMITH BARNEY INC.
JEFFERIES & COMPANY, INC.
HOAK BREEDLOVE WESNESKI & CO.
================================================================================
<PAGE> 64
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses in connection with this Offering are:
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee....................... $ 26,889
NASD Filing Fee........................................................... 9,374
NYSE Listing Fee.......................................................... 7,000
Legal Fees and Expenses................................................... 100,000*
Accounting Fees and Expenses.............................................. 150,000*
Blue Sky Fees and Expenses (including legal fees)......................... 5,000*
Printing Expenses......................................................... 150,000*
Transfer Agent and Registrar Fees......................................... 15,000*
Miscellaneous............................................................. 136,737*
----------
TOTAL........................................................... $600,000
==========
</TABLE>
- ---------------
* Estimated.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 83 of the Louisiana Business Corporation Law (the "LBCL") provides
that a corporation may indemnify any person who was or is a party or is
threatened to be made a party to any action, suit or proceeding, whether civil,
criminal, administrative, or investigative (other than an action by or in the
right of the corporation), by reason of the fact that he is or was a director,
officer, employee, or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee, or agent of another
business, foreign or nonprofit corporation, partnership, joint venture, or other
enterprise. The indemnity may include expenses, including attorney fees,
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him in connection with such action, suit or proceeding if he acted in good
faith and in a manner he reasonably believed to be in, or not opposed to, the
best interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. Section
83 of the LBCL further provides that a Louisiana corporation may indemnify
officers and directors in an action by or in the right of the corporation under
the same conditions except that no indemnification is permitted without judicial
approval if the director or officer shall have been adjudged to be liable for
willful or intentional misconduct in the performance of his duty to the
corporation. Where an officer or director is successful on the merits or
otherwise in any defense of any action referred to above or any claim therein,
the corporation must indemnify him against such expenses that such officer or
director actually incurred. Section 83 of the LBCL permits a corporation to pay
expenses incurred by the officer or director in defending an action, suit or
proceeding in advance of the final disposition thereof if approved by the board
of directors.
Pursuant to Section 83 of the LBCL, the Company has adopted provisions in
its Restated Articles of Incorporation which require the Company to indemnify
its directors and officers to the fullest extent permitted by the LBCL.
The Company has entered into indemnification agreements with its directors
and certain of its officers which provide that the Company will, if certain
conditions are met and the director or officer acted in accordance with the
applicable standards and subject to certain procedures and exceptions, indemnify
such persons for claims, judgments and related expenses resulting from their
service on behalf of the Company and its affiliated entities in any pending,
threatened or completed action, suit or proceeding, whether civil,
administrative or criminal, except where (i) the Company is prohibited by law
from providing such indemnification; (ii) payment of the indemnification amounts
has been made under an insurance policy; or
II-1
<PAGE> 65
(iii) the director or officer gained a personal profit to which he or she was
not legally entitled including profits arising from the violation of certain
securities laws.
ITEM 16. EXHIBITS.
<TABLE>
<C> <S>
+1.1 -- Form of Underwriting Agreement.
*2.1 -- Plan and Agreement of Merger dated as of August 5, 1996, as amended,
among the shareholders of NAPTech, Inc., NAPTech, Inc., The Shaw
Group Inc. and SAON, Inc.
4.1 -- Form of Common Stock Certificate (incorporated by reference to the
Company's Registration Statement on Form S-1 filed October 22, 1993,
as amended (Registration No. 33-70722)).
+5.1 -- Opinion of Fulbright & Jaworski L.L.P.
+23.1 -- Consent of Fulbright & Jaworski L.L.P. (included in Exhibit 5.1).
*23.2 -- Consent of Arthur Andersen LLP.
*23.3 -- Consent of Hannis T. Bourgeois & Co., L.L.P.
**24.1 -- Powers of Attorney from certain members of the Board of Directors of
the Company.
**27.1 -- Financial Data Schedule.
</TABLE>
- ---------------
* Filed herewith.
** Previously filed.
+ To be filed by amendment.
As permitted by Item 601(b)(4)(iii)(A) of Regulation S-K, the Registrant
has not filed with this Registration Statement certain instruments defining the
rights of holders of long-term debt of the Registrant and its subsidiaries
because the total amount of securities authorized under any of such instruments
does not exceed 10% of the total assets of the Registrant and its subsidiaries
on a consolidated basis. The Registrant agrees to furnish a copy of any such
agreement to the Commission upon request.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Exchange Act) that is
incorporated by reference in this Registration Statement shall be deemed to be a
new registration statement relating to the securities offered herein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the Securities Act or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. If a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-2
<PAGE> 66
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
the Registration Statement in reliance upon Rule 430A and contained in the
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of the
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new Registration Statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-3
<PAGE> 67
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Baton Rouge, State of Louisiana, on November 26,
1996.
THE SHAW GROUP INC.
By: /s/ BRET M. TALBOT
--------------------------------
Bret M. Talbot
Vice President, Chief Financial
Officer, Treasurer and Director
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- ---------------------------- ------------------
<C> <S> <C>
* President, Chief Executive November 26, 1996
- --------------------------------------------- Officer and Director
J. M. Bernhard, Jr. (Principal Executive
Officer)
/s/ BRET M. TALBOT Vice President, Chief November 26, 1996
- --------------------------------------------- Financial Officer,
Bret M. Talbot Treasurer and Director
(Principal Financial and
Accounting Officer)
* Vice President, Chief November 26, 1996
- --------------------------------------------- Operating Officer and
George R. Shepherd Director
* Chairman of Alloy Piping November 26, 1996
- --------------------------------------------- Products, Inc. and
R. Dale Brown, Sr. Director
* President of Fronek Company November 26, 1996
- --------------------------------------------- Inc. and F.C.I. Pipe
Frank Fronek Support Sales and Director
* Director November 26, 1996
- ---------------------------------------------
L. Lane Grigsby
* Director November 26, 1996
- ---------------------------------------------
David W. Hoyle
* Director November 26, 1996
- ---------------------------------------------
Albert McAlister
* Director November 26, 1996
- ---------------------------------------------
John W. Sinders, Jr.
*By: /s/ BRET M. TALBOT November 26, 1996
----------------------------------------
Bret M. Talbot
Attorney-in-Fact
</TABLE>
II-4
<PAGE> 68
INDEX TO EXHIBITS
<TABLE>
<C> <S>
+1.1 -- Form of Underwriting Agreement.
*2.1 -- Plan and Agreement of Merger dated as of August 5, 1996, as amended,
among the shareholders of NAPTech, Inc., NAPTech, Inc., The Shaw
Group Inc. and SAON, Inc.
4.1 -- Form of Common Stock Certificate (incorporated by reference to the
Company's Registration Statement on Form S-1 filed October 22, 1993,
as amended (Registration No. 33-70722)).
+5.1 -- Opinion of Fulbright & Jaworski L.L.P.
+23.1 -- Consent of Fulbright & Jaworski L.L.P. (included in Exhibit 5.1).
*23.2 -- Consent of Arthur Andersen LLP.
*23.3 -- Consent of Hannis T. Bourgeois & Co., L.L.P.
**24.1 -- Powers of Attorney from certain members of the Board of Directors of
the Company.
**27.1 -- Financial Data Schedule.
</TABLE>
- ---------------
* Filed herewith.
** Previously filed.
+ To be filed by amendment.
<PAGE> 1
EXHIBIT 2.1
THIS PLAN AND AGREEMENT OF MERGER IS NOT A PROSPECTUS AND ANY OFFERING OF THE
SHARES OF COMMON STOCK OF THE SHAW GROUP INC., COVERED BY THIS AGREEMENT IS NOT
A PUBLIC OFFERING. RECIPIENTS OF SUCH SHARES WILL NOT BE ENTITLED TO BRING A
CAUSE OF ACTION FOR RESCISSION UNDER SECTION 12(2) OF THE SECURITIES ACT OF
1933 FOR AN UNTRUE STATEMENT OF A MATERIAL FACT OR FOR THE FAILURE TO STATE A
MATERIAL FACT.
====================================================
---------------------------------
PLAN AND AGREEMENT OF MERGER
--------------------------------
AMONG
THE SHAREHOLDERS OF NAPTECH, INC., NAPTECH, INC.,
SAON, INC. AND THE SHAW GROUP INC.
DATED AS OF AUGUST 5, 1996
====================================================
<PAGE> 2
TABLE OF CONTENTS
(Not a Part of the Agreement)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1.01. Certain Defined Terms . . . . . . . . . . . . . 1
ARTICLE II THE MERGER, ETC. . . . . . . . . . . . . . . . . . . . . 10
SECTION 2.01. The Merger . . . . . . . . . . . . . . . . . . . . 10
SECTION 2.02. Effective Time . . . . . . . . . . . . . . . . . . . . 10
SECTION 2.03. Closing . . . . . . . . . . . . . . . . . . . . 10
SECTION 2.04. Terms of Merger . . . . . . . . . . . . . . . . . 10
SECTION 2.05. Merger Consideration; Cancellation of the Shares in
the Merger, Etc. . . . . . . . . . . . . . . . . . . . . 11
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE
SHAREHOLDERS AND THE COMPANY . . . . . . . . . . . . . 12
SECTION 3.01. Capacity of the Shareholders . . . . . . . . . 12
SECTION 3.02. Organization, Authority and Qualification of the
Company . . . . . . . . . . . . . . . . . . . . . . . . 12
SECTION 3.03. Capital Stock of the Company; Ownership of the Shares 13
SECTION 3.04. Subsidiaries . . . . . . . . . . . . . . . . . . . . 13
SECTION 3.05. Corporate Books and Records . . . . . . . . . . . . . 15
SECTION 3.06. No Conflict . . . . . . . . . . . . . . . . . . . . 15
SECTION 3.07. Governmental Consents and Approvals . . . . . . 16
SECTION 3.08. Financial Information and Books and Records . . 16
SECTION 3.09. Certain Additional Representations . . . . . . . . . 17
SECTION 3.10. No Undisclosed Liabilities or Capital Commitments 17
SECTION 3.11. Acquired Assets . . . . . . . . . . . . . . . . 18
SECTION 3.12. Conduct in the Ordinary Course; Absence of Certain
Changes, Events and Conditions . . . . . . . . . . . . 18
SECTION 3.13. Litigation . . . . . . . . . . . . . . . . . . . . 20
SECTION 3.14. Certain Interests . . . . . . . . . . . . . . . . 21
SECTION 3.15. Compliance with Laws . . . . . . . . . . . . . . . . 21
SECTION 3.16. Environmental and Other Permits and Licenses; Related
Matters . . . . . . . . . . . . . . . . . . . . . . . . 21
SECTION 3.17. Material Contracts . . . . . . . . . . . . . . . . 23
SECTION 3.18. Intellectual Property . . . . . . . . . . . . . . . . 25
SECTION 3.19. Real Property . . . . . . . . . . . . . . . . . . . . 26
SECTION 3.20. Tangible Personal Property . . . . . . . . . . . . . 26
SECTION 3.21. Assets . . . . . . . . . . . . . . . . . . . . . . . 27
SECTION 3.22. Accounts Receivable and Inventory . . . . . . . . . 28
</TABLE>
- i -
<PAGE> 3
<TABLE>
<S> <C>
SECTION 3.23. Customers . . . . . . . . . . . . . . . . . . . . . . . . 28
SECTION 3.24. Employee Benefit Matters. . . . . . . . . . . . . . . . . . . . 28
SECTION 3.25. Labor Matters . . . . . . . . . . . . . . . . . . . . . . . . 32
SECTION 3.26. Key Employees . . . . . . . . . . . . . . . . . . . . . . . . 33
SECTION 3.27. Risk Management . . . . . . . . . . . . . . . . . . . . 33
SECTION 3.28. Accounts; Lockboxes; Safe Deposit Boxes; Powers of
Attorney. . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
SECTION 3.29. Full Disclosure . . . . . . . . . . . . . . . . . . . . 35
SECTION 3.30. Investment Purpose, Etc.. . . . . . . . . . . . . . . . . . . . 35
SECTION 3.31. Brokers . . . . . . . . . . . . . . . . . . . . . . . . 36
SECTION 3.32. Freeport Property . . . . . . . . . . . . . . . . . . . . 36
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE
PARENT AND THE PARENT SUB . . . . . . . . . . . . . . . . . . . . . . . 36
SECTION 4.01. Organization and Authority of the Parent and the
Parent Sub. . . . . . . . . . . . . . . . . . . . . . . . . . . 37
SECTION 4.02. No Conflict . . . . . . . . . . . . . . . . . . . . . . . . 37
SECTION 4.03. Governmental Consents and Approvals . . . . . . . . . . 37
SECTION 4.04. Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . 37
SECTION 4.05. Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
SECTION 4.06. Reports; Financial Statements . . . . . . . . . . . . . 38
ARTICLE V ADDITIONAL AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . 39
SECTION 5.01. Conduct of Business Prior to the Effective Time . . . . . . 39
SECTION 5.02. Access to Information . . . . . . . . . . . . . . . . . . . . 40
SECTION 5.03. Confidentiality . . . . . . . . . . . . . . . . . . . . 41
SECTION 5.04. Regulatory and Other Authorizations; Notices and
Consents. . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
SECTION 5.05. Notice of Developments . . . . . . . . . . . . . . . . . . . . 44
SECTION 5.06. Acquisition Proposals . . . . . . . . . . . . . . . . . . . . 44
SECTION 5.07. Use of Names and Intellectual Property . . . . . . . . . . 45
SECTION 5.08. Non-Competition . . . . . . . . . . . . . . . . . . . . 45
SECTION 5.09. Release of Indemnity and Other Obligations . . . . . . 46
SECTION 5.10. Further Action . . . . . . . . . . . . . . . . . . . . 46
SECTION 5.11. Removal of Encumbrances on Assets . . . . . . . . . . . . . 46
SECTION 5.12. Certain Additional Covenants . . . . . . . . . . . . . 47
SECTION 5.13. Termination of Inter-Company Arrangements, etc. . . . . . . 48
ARTICLE VI MINORITY SHAREHOLDERS. . . . . . . . . . . . . . . . . . . . . . . . . . 48
SECTION 6.01. Certain Limitations on Representations
and Warranties of the Minority Shareholders . . . . . . . . . . 48
</TABLE>
- ii -
<PAGE> 4
<TABLE>
<S> <C>
ARTICLE VII TAX MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
SECTION 7.01. Representations, Warranties and Covenants . . . . . . . . . . . 49
SECTION 7.02. Access to Information . . . . . . . . . . . . . . . . . . . . . 54
SECTION 7.03. Returns and Payments. . . . . . . . . . . . . . . . . . . . . . 55
SECTION 7.04. Refunds . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
SECTION 7.05. Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
SECTION 7.06. Contests. . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
SECTION 7.07. Time of Payment . . . . . . . . . . . . . . . . . . . . . . . . 59
SECTION 7.08. Cooperation and Exchange of Information . . . . . . . . . . . . 60
SECTION 7.09. Retention of Tax Returns and Records. . . . . . . . . . . . . . 60
SECTION 7.10. Conveyance Taxes. . . . . . . . . . . . . . . . . . . . . . . . 61
SECTION 7.11. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . 61
ARTICLE VIII CONDITIONS TO CLOSING . . . . . . . . . . . . . . . . . . . . . . . 62
SECTION 8.01. Conditions to Obligations of the Shareholders and the
Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
SECTION 8.02. Conditions to Obligations of the Parent and the
Parent Sub . . . . . . . . . . . . . . . . . . . . . . . . . . 64
ARTICLE IX SURVIVAL AND INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . 68
SECTION 9.01. Survival of Representations, Warranties and Covenants . . . 68
SECTION 9.02. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . 69
SECTION 9.03. Limits on Indemnification . . . . . . . . . . . . . . . . . . . 73
SECTION 9.04 Security for Shareholders' Agreement to Indemnify . . . . . . . 74
ARTICLE X TERMINATION AND WAIVER . . . . . . . . . . . . . . . . . . . . . . . . 74
SECTION 10.01. Termination by the Shareholders or Parent . . . . . . . . . . . 74
SECTION 10.02. Effect of Termination . . . . . . . . . . . . . . . . . . . . . 75
SECTION 10.03. Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
ARTICLE XI GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . 76
SECTION 11.01. Solidary Obligation of Shareholders
Other than Minority Shareholders . . . . . . . . . . . . . . . 76
SECTION 11.02. Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
SECTION 11.03. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
SECTION 11.04. Public Announcements . . . . . . . . . . . . . . . . . . . . . 78
SECTION 11.05. Headings; Construction. . . . . . . . . . . . . . . . . . . . . 78
SECTION 11.06. Severability . . . . . . . . . . . . . . . . . . . . . . . . 78
SECTION 11.07. Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . 78
SECTION 11.08. Assignment. . . . . . . . . . . . . . . . . . . . . . . . . . . 78
SECTION 11.09. No Third Party Beneficiaries. . . . . . . . . . . . . . . . . . 78
SECTION 11.10. Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
</TABLE>
- iii -
<PAGE> 5
<TABLE>
<S> <C>
SECTION 11.11. Governing Law . . . . . . . . . . . . . . . . . . . . . . 79
SECTION 11.12. Counterparts. . . . . . . . . . . . . . . . . . . . . . . 79
SECTION 11.13. Specific Performance. . . . . . . . . . . . . . . . . . . 79
SECTION 11.14. Legal Advice. . . . . . . . . . . . . . . . . . . . . . . 79
SECTION 11.15. Remedies Not Exclusive. . . . . . . . . . . . . . . . . . 79
ARTICLE XII SHAREHOLDER REPRESENTATIVE; POWER. . . . . . . . . . . . . . . .
OF ATTORNEY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
SECTION 12.01. Shareholder Representative; Etc.. . . . . . . . . . . . . 79
</TABLE>
Exhibits
Exhibit 1.01(i) List of Minority Shareholders
Exhibit 1.01(ii) Permitted Encumbrances
Exhibit 1.01(iii) List of Shareholders Represented by Company's Counsel
Exhibit 2.05(a)(ii) Allocation of Merger Consideration Among Shareholders
Exhibit 3.03 List of Shares Owned by Each of the Shareholders
Exhibit 3.32 Members and Percentage Ownership of Freeport Properties,
L.L.C.
Exhibit 5.04 Third Party Consents and Estoppel Certificates
Exhibit 5.08(a) Locations for Non-Competition
Exhibit 8.01(f) Legal Opinion of Parent's Counsel
Exhibit 8.01(s)(1) Registration Rights Agreement
Exhibit 8.02(f) Legal Opinion of Company's Counsel
Exhibit 8.02(h)(1) Directors and Officers of the Subsidiary who are not
resigning or to be removed
Exhibit 8.02(s)(2) Representation Letter by the Shareholders
Exhibit 8.02(l) Escrow Agreement
Disclosure Schedule
3.02 Organization, Authority and Qualification of the Company
3.03 Outstanding Options of the Company
3.04 Subsidiaries
3.07 Governmental Consents and Approvals
3.10 No Undisclosed Liabilities or Capital Commitments
3.13 Litigation
3.14 Certain Interests
3.15 Compliance with Laws
3.16 Environmental and Other Permits and Licenses; Related
Matters
3.17 Material Contracts
3.18 Intellectual Property
3.19 Real Property
3.20 Tangible Personal Property
3.21 Assets Needing Repairs
- iv -
<PAGE> 6
3.22 Accounts Receivable and Inventory
3.23 Customers
3.24 Employee Benefit Matters
3.25 Labor Matters
3.26 Key Employees
3.27 Risk Management
3.28 Accounts; Lockboxes; Safe Deposit Boxes; Powers of
Attorney
5.09 Certain Agreements Not Released
5.13 Inter-Company Agreements Not Terminated
7.01 Representations and Warranties
8.01(l) Certain Obligations to be Paid by the Company Pre-Closing
- v -
<PAGE> 7
THIS PLAN AND AGREEMENT OF MERGER, dated as of August 5, 1996, among THE
UNDERSIGNED SHAREHOLDERS OF NAPTECH, INC. (collectively, the "Shareholders"),
NAPTECH, INC., a Delaware corporation (the "Company"), THE SHAW GROUP INC., a
Louisiana corporation (the "Parent"), and SAON, INC., a Louisiana corporation
(the "Parent Sub").
RECITALS
WHEREAS, the Shareholders own all the issued and outstanding shares (the
"Shares") of common stock, $0.01 par value per share (the "Common Stock"), of
the Company; and
WHEREAS, the Parent owns all of the issued and outstanding shares of
common stock, $0.01 par value, of the Parent Sub; and
WHEREAS, the Parent, the Parent Sub, the Shareholders and the Company
each have determined that it is in their best interests for the Parent Sub to
merge with and into the Company, upon the terms and subject to the conditions
of this Agreement with the Company to be the Surviving Corporation; and
WHEREAS, for federal income tax purposes, it is intended that the Merger
shall qualify as a reorganization within the meaning of Sections 368(a)(1)(A)
and (a)(2)(E) or Section 368(a)(1)(B) of the Code;
WHEREAS, the Boards of Directors of the Company and the Parent Sub have
duly approved this Agreement and have authorized the execution hereof by the
respective undersigned officers of the Company and the Parent Sub, and have
directed that this Agreement be submitted to the votes of their respective
shareholders, the Shareholders and the Parent, in accordance with Sections 251-
262 of the General Corporation Law of the State of Delaware and Part XI of the
Business Corporation Law (La.R.S. 12:111-116) of the State of Louisiana,
respectively;
NOW, THEREFORE, in consideration of the premises and the mutual
agreements and covenants hereinafter set forth, the Shareholders, the Company,
the Parent Sub and the Parent hereby agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. Certain Defined Terms. As used in this Agreement, the
following terms shall have the following meanings:
"Acquisition Documents" has the meaning specified in Section 9.01.
"Acquisition Proposal" has the meaning specified in Section 5.06.
"Action" means any claim, action, suit, arbitration, inquiry, proceeding
or investigation by or before any Governmental Authority.
<PAGE> 8
"Affiliate" means, with respect to any specified Person, any other
Person that directly, or indirectly through one or more intermediaries,
controls, is controlled by, or is under common control with, such specified
Person.
"Agreement" or "this Agreement" means this Plan and Agreement of Merger,
dated as of the date set forth in the preamble to this Agreement, among the
Shareholders, the Company, the Parent Sub and the Parent (including the
Exhibits hereto and the Disclosure Schedule) and all amendments hereto made in
accordance with the provisions of Section 11.10.
"APB 16" has the meaning specified in Section 3.09.
"Asset" or "Assets" has the meaning specified in Section 3.21.
"Balance Sheet Date" means March 29, 1996.
"Best" means A.M. Best Company, Inc.
"Business" means the forming, bending, coating, welding, sale,
engineering, fabrication and manufacture of piping, pipeline systems, piping
sub-assemblies, skids, and modules, and seamless steel pressure vessels, and
all other businesses which are on the date hereof being conducted by the
Company, the Subsidiary and the LLC Subsidiary.
"Business Day" means any day that is not a Saturday, a Sunday or other
day on which banks are required or authorized by law to be closed in the State
of Louisiana or in the State of Utah.
"CERCLA" means the Comprehensive Environmental Response Compensation and
Liability Act, 42 U.S.C. Sections 9601 et seq.
"Certificate of Merger" shall mean the certificate of merger with
respect to the merger of the Parent Sub with and into the Company, containing
the provisions required by, and executed in accordance with, Section 112 of the
LBCL and Sections 103 and 251 of the DGCL.
"Claim Notice" has the meaning specified in Section 9.02.
"Closing" has the meaning specified in Section 2.03 .
"Closing Date" has the meaning specified in Section 2.03.
"COBRA" means continuation coverage as set forth in Sections 601 and 602
of ERISA.
"Code" means the Internal Revenue Code of 1986, as amended through the
date hereof.
- 2 -
<PAGE> 9
"Common Stock" has the meaning specified in the Recitals to this
Agreement.
"Company" has the meaning specified in the preamble to this Agreement.
"Company Certificate(s)" has the meaning specified in Section 2.05.
"Company GAAP Statements" has the meaning specified in Section 3.08.
"Company Interim GAAP Statements" has the meaning specified in Section
3.08.
"Company's Counsel" means LeBoeuf, Lamb, Greene & MacRae L.L.P., legal
counsel to the Shareholders listed on Exhibit 1.01 (iii), the Company, the
Subsidiary and the LLC Subsidiary in connection with this Agreement and the
transactions contemplated hereby.
"Company Options" means those outstanding stock options issued by the
Company which are identified in Section 3.03(b) of the Disclosure Schedule.
"Control" (including, without limitation, the terms "controls",
"controlled by" and "under common control with"), with respect to the
relationship between or among two or more Persons, means the possession,
directly or indirectly, or as trustee or executor, of the power to direct or
cause the direction of the affairs or management of a Person, whether through
the ownership of voting securities, as trustee or executor, by contract or
otherwise, including, without limitation, the ownership, directly or
indirectly, of securities having the power to elect a majority of the board of
directors or similar body governing the affairs of such Person.
"Convertible Note" means that certain convertible promissory note dated
July 26, 1996, made by the Company, having a principal amount outstanding as of
the date hereof of $36,000, payable to Edward Davin.
"D&P" means Duff & Phelps Credit Rating Co.
"DGCL" means the General Corporation Law of the State of Delaware.
"Disclosure Schedule" means the schedules attached hereto and delivered
to the Parent and the Parent Sub by the Shareholders and the Company together
with this Agreement.
"Effective Time" shall have the meaning specified in Section 2.02.
"Encumbrance" or "Encumbrances" means any security interest, pledge,
mortgage, lien (including, without limitation, environmental and tax liens),
charge, encumbrance, adverse claim, preferential arrangement or restriction of
any kind, including, without limitation, any restriction on the use, voting,
transfer, receipt of income or other exercise of any attributes of ownership.
- 3 -
<PAGE> 10
"Environmental Claims" means any and all administrative, regulatory or
judicial actions, suits, demands, demand letters, claims, liens, notices of
non-compliance or violation, notices of liability or potential liability,
investigations, proceedings, settlements, consent orders or consent agreements
by any Person relating in any way to any Environmental Law, Environmental
Permits or Hazardous Materials, or arising from alleged injury or threat of
injury to health, safety or the environment.
"Environmental Law" means any Law, now in effect, and any judicial or
administrative interpretation thereof, including, without limitation, any
judicial or administrative order, consent decree or judgment, relating to or
addressing the environment, health, safety or Hazardous Materials, including
without limitation any Occupational Safety and Health Law.
"Environmental Lien" means a lien in favor of any Governmental Authority
for any (a) liability under any Environmental Law, or (b) damages arising from,
or costs incurred by, such Governmental Authority in response to a Release of a
Hazardous Material.
"Environmental Permits" means all Permits required under any applicable
Environmental Law.
"ERISA" has the meaning specified in Section 3.24.
"Escrow Agreement" means the agreement referred to in Section 8.02.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Financial Statements" has the meaning specified in Section 3.08.
"Freeport Property" means the land, building(s) and other improvements
located on South Freeport Industrial Parkway, Clearfield, Utah, in which the
Company conducts its primary business activities and which is owned by Freeport
Properties, L.L.C.
"GAAP" means United States generally accepted accounting principles and
practices as in effect from time to time.
"Governmental Authority" means any United States federal, state or local
or any foreign government, governmental, regulatory or administrative
authority, agency or commission or any court, tribunal, or judicial or arbitral
body.
"Governmental Order" or "Governmental Orders" means any order, writ,
judgment, injunction, decree, stipulation, determination or award entered by or
with any Governmental Authority.
"Hazardous Materials" means any pollutant, hazardous substance,
radioactive substance, toxic substance, hazardous waste, medical waste,
radioactive waste, special waste, petroleum or petroleum-derived substance or
waste, asbestos, polychlorinated biphenyls, or
- 4 -
<PAGE> 11
any hazardous or toxic constituent thereof and includes, but is not limited to,
any substance defined in or regulated under any Environmental Law.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended, and the rules and regulations promulgated thereunder.
"Indebtedness" means, with respect to any Person, (a) all indebtedness
of such Person, whether or not contingent, for borrowed money, (b) all
obligations of such Person for the deferred purchase price of property or
services, (c) all obligations of such Person evidenced by notes, bonds,
debentures or other similar instruments, (d) all indebtedness created or
arising under any conditional sale or other title retention agreement with
respect to property acquired by such Person (even though the rights and
remedies of the seller or lender under such agreement in the event of default
are limited to repossession or sale of such property), (e) all obligations of
such Person as lessee under leases that have been or should be, in accordance
with GAAP, recorded as capital leases, (f) all obligations, contingent or
otherwise, of such Person under acceptance, letter of credit or similar
facilities, (g) all obligations of such Person to purchase, redeem, retire,
defease or otherwise acquire for value any capital stock of such Person or any
warrants, rights or options to acquire such capital stock, valued, in the case
of redeemable preferred stock, at the greater of its voluntary or involuntary
liquidation preference plus accrued and unpaid dividends, (h) all Indebtedness
of others referred to in clauses (a) through (f) above guaranteed directly or
indirectly in any manner by such Person, or in effect guaranteed directly or
indirectly by such Person through an agreement (i) to pay or purchase such
Indebtedness or to advance or supply funds for the payment or purchase of such
Indebtedness, (ii) to purchase, sell or lease (as lessee or lessor) property,
or to purchase or sell services, primarily for the purpose of enabling the
debtor to make payment of such Indebtedness or to assure the holder of such
Indebtedness against loss, (iii) to supply funds to or in any other manner
invest in the debtor (including, without limitation, any agreement to pay for
property or services irrespective of whether such property is received or such
services are rendered) or (iv) otherwise to assure a creditor against loss, and
(i) all Indebtedness referred to in clauses (a) through (f) above secured by
(or for which the holder of such Indebtedness has an existing right, contingent
or otherwise, to be secured by) any Encumbrance on property (including, without
limitation, accounts and contract rights) owned by such Person, even though
such Person has not assumed or become liable for the payment of such
Indebtedness.
"Indemnified Party" has the meaning specified in Section 9.02.
"Indemnifying Party" has the meaning specified in Section 9.02.
"Indemnity Notice" has the meaning specified in Section 9.02.
"Intellectual Property" means (a) trademarks, service marks, trade
dress, logos, trade names and corporate names, whether or not registered, (b)
copyrights, whether or not registered, and all patents, patent applications and
inventions and discoveries, (c) registrations of and applications for
registration of any of the foregoing, (d) computer software, including, without
limitation, source code, operating systems and specifications, data, data
bases, files, documentation and other materials related thereto, data and
- 5 -
<PAGE> 12
documentation, (e) trade secrets and confidential, technical and business
information, and (f) whether or not confidential, technology (including,
without limitation, know-how and show-how), research and development
information, drawings, plans, proposals, technical data, copyrightable works,
financial, marketing and business data, pricing information, business and
marketing plans and customer and supplier lists and information.
"Inter-Company Arrangements" has the meaning specified in Section 3.14.
"IRS" means the Internal Revenue Service of the United States.
"Law" or "Laws" means any United States federal, state, local or foreign
statute, law, ordinance, regulation, rule, code, order, Permit, other legal
requirement or rule of law.
"LBCL" means the Business Corporation Law of the State of Louisiana,
La.R.S. 12:1, et seq.
"LLC Subsidiary" means IRM NAPTech Joint Venture, L.L.C.
"Lease" for purposes of Sections 3.17, 3.19 and 3.20 means any and all
leases, subleases, sale/leaseback agreements or similar arrangements, whether
or not capitalized.
"Leased Real Property" means the real property leased by the Company,
the Subsidiary or the LLC Subsidiary, as tenant, together with, to the extent
leased by the Company or the Subsidiary, all buildings and other structures,
facilities or improvements currently or hereafter located thereon, all
fixtures, systems, equipment and items of personal property of the Company or
the Subsidiary attached or appurtenant thereto, and all easements, licenses,
rights and appurtenances relating to the foregoing.
"Liabilities" means any and all debts, liabilities and obligations,
whether accrued or fixed, absolute or contingent, matured or unmatured or
determined or determinable, including, without limitation, those arising under
any Law (including, without limitation, any Environmental Law), Action or
Governmental Order and those arising under any contract, agreement,
arrangement, commitment or undertaking.
"Licensed Intellectual Property" means all Intellectual Property
licensed or sublicensed to the Company, the Subsidiary or the LLC Subsidiary
from a third party.
"Losses" has the meaning specified in Section 9.02 .
"Material Adverse Effect" means any circumstance, change in, or effect
on the Business or the Company that, individually or in the aggregate with any
other circumstances, changes in, or effects on, the Business or the Company:
(a) is or could be materially adverse to the business, operations, prospects,
results of operations or financial condition of the Company, or (b) could
materially and adversely affect the ability of the Parent or the Company to
operate or conduct the Business in the manner in which it is currently operated
or conducted by the Company, the Subsidiary and the LLC Subsidiary.
- 6 -
<PAGE> 13
"Material Contracts" has the meaning specified in Section 3.17.
"Merger" shall mean the merger of the Parent Sub with and into the
Company as contemplated by Section 2.01.
"Merger Consideration" shall have the meaning specified in Section 2.05.
"Minority Shareholders" means the Shareholders owning 4.33% of the
Shares who are identified on Exhibit 1.01(i).
"Multiemployer Plan" has the meaning specified in Section 3.24.
"Multiple Employer Plan" has the meaning specified in Section 3.24.
"Name" has the meaning specified in Section 5.07.
"Notice Period" has the meaning specified in Section 9.02.
"Occupational Safety and Health Law" means any law, rule or regulation
designed to provide safe and healthful working conditions and to reduce
occupational safety and health hazards, and any mandatory program designed to
provide safe and healthful working conditions.
"Owned Intellectual Property" means all Intellectual Property in and to
which the Company, the Subsidiary, or the LLC Subsidiary holds, or has a right
to hold, any right, title and interest.
"Owned Real Property" means the real property owned by the Company, the
Subsidiary or the LLC Subsidiary prior to the Closing, together with all
buildings and other structures, facilities or improvements currently or
hereafter located thereon, all fixtures, systems, equipment and items of
personal property of the Company, the Subsidiary or the LLC Subsidiary attached
or appurtenant thereto and all easements, licenses, rights and appurtenances
relating to the foregoing.
"Parent" has the meaning specified in the preamble to this Agreement.
"Parent SEC Reports" has the meaning specified in Section 4.06.
"Parent Sub" has the meaning specified in the preamble of this
Agreement.
"Parent's Common Stock" means the common stock, no par value, of the
Parent.
"Parent's Counsel" means Kantrow, Spaht, Weaver & Blitzer (A
Professional Law Corporation) and Fulbright & Jaworski L.L.P., legal counsel to
the Parent and the Parent Sub in connection with this Agreement and the
transactions contemplated hereby.
"Parent's Due Diligence Review" has the meaning specified in Section
8.02(q).
- 7 -
<PAGE> 14
"Permits" has the meaning specified in Section 3.16.
"Permitted Encumbrances" means such of the following as to which no
enforcement, collection, execution, levy or foreclosure proceeding shall have
been commenced: (a) liens for taxes, assessments and governmental charges or
levies not yet due and payable which are not in excess of $10,000 in the
aggregate or which are being contested in good faith and for which reserves in
accordance with GAAP have been established on the Financial Statements; (b)
Encumbrances imposed by law, such as materialmen's, mechanics', carriers',
workmen's and repairmen's liens and other similar liens arising in the ordinary
course of business securing obligations that (i) are not overdue for a period
of more than 30 days or (ii) are not in excess of $5,000 in the case of a
single property or $10,000 in the aggregate at any time or which are being
contested in good faith and for which reserves in accordance with GAAP have
been established on the Financial Statements; (c) pledges or deposits to secure
obligations under worker's compensation laws or similar legislation or to
secure public or statutory obligations; (d) minor survey exceptions, reciprocal
easement agreements and other customary encumbrances on title to real property
that (i) were not incurred in connection with any Indebtedness,(ii) do not
render title to the property encumbered thereby unmarketable and (iii) do not,
individually or in the aggregate, materially adversely affect the value or use
of such property for its current purposes; (e) in the case of stock of a
corporation, restrictions on the payment of dividends arising under applicable
corporate law or on transferability arising under applicable securities laws;
and (f) the Encumbrances identified on Exhibit 1.01(ii).
"Person" means any individual, partnership, firm, corporation,
association, trust, unincorporated organization, governmental authority or
other entity, as well as any syndicate or group that would be deemed to be a
person under Section 13(d)(3) of the Exchange Act.
"Plan of Merger" shall mean this Agreement.
"Plans" has the meaning specified in Section 3.24.
"Real Property" means the Leased Real Property and the Owned Real
Property.
"Regulations" means the Treasury Regulations (including, without
limitation, Temporary Regulations) promulgated by the United States Department
of Treasury with respect to the Code or other federal tax statutes.
"Release" means the release or threatened release, spill, emission,
leaking, pumping, injection, deposit, disposal, discharge, dispersal, leaching
or migrating into the indoor or outdoor environment of any Hazardous Material.
"Replacement Options" means stock options to be issued by the Parent at
the Closing pursuant to its 1993 Employee Stock Option Plan in substitution of
the Company Options held by employees of the Company which have not been
exercised prior to the Effective Time, each such Replacement Option to have the
same term, aggregate exercise price, vesting and other provisions, as the
Company Option for which it is substituted and shall be
- 8 -
<PAGE> 15
exercisable into the number of shares of the Parent's Common Stock equal to the
product of 0.0772611 times the aggregate number of shares included in the
Company Option.
"Returns" has the meaning specified in Section 7.01.
"S&P" means Standard & Poor's Corporation.
"SEC" means the Securities and Exchange Commission.
"Secured Real Property" has the meaning specified in Section 3.16.
"Securities" has the meaning specified in Section 2(11) of the
Securities Act.
"Securities Act" means the Securities Act of 1933, as amended.
"Shareholder Representative" has the meaning specified in Section 12.07.
"Shareholders" has the meaning specified in the preamble to this
Agreement.
"Shareholders' Accountants" means Deloitte & Touche LLP, independent
accountants of the Company and the Subsidiary.
"Shares" has the meaning specified in the preamble to this Agreement.
"Subsidiary" means NAPTech Pressure Systems Corporation, a Utah
corporation.
"subsidiaries" means any and all other corporations, partnerships, joint
ventures, limited liability companies, associations and other entities
controlled by the Company directly or indirectly through one or more
intermediaries.
"Surviving Corporation" shall mean the surviving corporation in the
Merger.
"Tangible Personal Property" has the meaning specified in Section 3.20.
"Tax" or "Taxes" means any and all taxes, fees, levies, duties, tariffs,
imposts, and other charges of any kind (together with any and all interest,
penalties, additions to tax and additional amounts imposed with respect
thereto) imposed by any government or taxing authority, including, without
limitation: taxes or other charges on or with respect to income, franchises,
windfall or other profits, gross receipts, premiums, property, sales, use,
capital stock, payroll, employment, social security, workers' compensation,
unemployment compensation, or net worth; taxes or other charges in the nature
of excise, withholding, ad valorem, stamp, transfer, value added, or gains
taxes; license, registration and documentation fees; and customs duties,
tariffs, and similar charges.
"Tax Returns" has the meaning specified in Section 7.01.
"Third Party Claim" has the meaning specified in Section 9.02.
- 9 -
<PAGE> 16
ARTICLE II
THE MERGER, ETC.
SECTION 2.01 The Merger. Subject to the terms and conditions of this
Agreement, at the Effective Time, the Parent Sub will be merged with and into
the Company in accordance with the provisions of the LBCL and the DGCL and with
the effect provided in Section 115 of the LBCL and Section 259 of the DGCL.
The separate corporate existence of the Parent Sub shall thereupon cease and
the Company shall be the Surviving Corporation and shall continue to be
governed by the laws of the State of Delaware.
SECTION 2.02 Effective Time. The merger shall become effective on such
date and at such time (the "Effective Time") as (a) the Plan of Merger or, in
lieu thereof, a certificate of merger as permitted by La.R.S. 12:112(F) and
Section 251(c) of the DGCL (the "Certificate of Merger"), shall have been
accepted for filing by the Secretary of State of the State of Louisiana and the
Secretary of State of the State of Delaware, or (b) such later date and time as
may be specified in the Plan of Merger or Certificate of Merger, as permitted
by the LBCL and the DGCL.
SECTION 2.03 Closing. Upon the terms and subject to the conditions of
this Agreement, the exchange of the Shares contemplated by this Agreement shall
take place at a closing (the "Closing") to be held at the offices of Kantrow,
Spaht, Weaver & Blitzer (A Professional Law Corporation), Baton Rouge,
Louisiana, at 10:00 A.M. Baton Rouge time on a day selected by the Parent
following the satisfaction or waiver of all other conditions to the obligations
of the parties set forth in Article 8, or at such other place or at such other
time or on such other date as the Shareholders and the Parent may mutually
agree upon in writing (the day on which the Closing takes place being the
"Closing Date"). The Effective Time shall occur on the Closing Date.
SECTION 2.04 Terms of Merger.
(a) Articles of Incorporation. The Articles of Incorporation of the
Company as in effect immediately prior to the Effective Time shall be the
Articles of Incorporation of the Surviving Corporation, until duly amended in
accordance with the terms thereof and of the DGCL.
(b) Bylaws. The Bylaws of the Company in effect at the Effective
Time shall be the Bylaws of the Surviving Corporation, until duly amended in
accordance with the terms thereof, of the Articles of Incorporation of the
Surviving Corporation and of the DGCL.
(c) Directors and Officers. The directors and officers of the Parent
Sub at the Effective Time shall, from and after the Effective Time, be the
directors and officers, respectively, of the Surviving Corporation until their
successors have been duly elected or appointed and qualified or until their
earlier death, resignation or removal in accordance with the Articles of
Incorporation and Bylaws of the Surviving Corporation and the DGCL.
- 10 -
<PAGE> 17
SECTION 2.05 Merger Consideration; Cancellation of the Shares in the
Merger, Etc.
(a) Consideration; Cancellation of the Shares in the Merger. At the
Effective Time, by virtue of the Merger and without any action by the holders
thereof:
(i) The Shares, constituting all of the issued and outstanding
capital stock of the Company immediately prior to the Effective Time, shall be
converted into the right to receive in exchange therefor 432,783 unregistered
shares of the Parent's Common Stock (the "Merger Consideration"), such number
of shares to be (i) appropriately adjusted for any stock dividends, stock split
or combination of the outstanding shares of the Parent's Common Stock declared
after the date hereof and prior to the Closing Date and (ii) reduced by the
aggregate number of shares of the Parent's Common Stock for which (A)
Replacement Options shall be exercisable after the Effective Time and (B) the
Convertible Note is convertible after the Effective Time at a conversion ratio
of 0.0772611 of shares of the Parent's Common Stock for each share of the
Common Stock.
(ii) All of the Shares to be converted into the right to
receive in exchange therefor the Parent's Common Stock, pursuant to this
Section 2.05, shall cease to be outstanding, shall be canceled and retired and
shall cease to exist, and the Shareholders, which are the registered holders of
the certificates representing the Shares (the "Company Certificate(s)") shall
thereafter cease to have any rights with respect to the Shares, except the
right to receive, upon the surrender of the Company Certificate(s) in
accordance with Section 2.05(b), the Merger Consideration to be allocated among
the Shareholders as set forth on Exhibit 2.05(a)(ii).
(iii) Each share of common stock par value $0.01 per share, of
the Parent Sub issued and outstanding immediately prior to the Effective Time
shall continue to be outstanding and shall be converted into a share of common
stock of the Surviving Corporation.
(b) Exchange of the Shares in the Merger. Following the Effective
Time, upon surrender of the Company Certificate(s) for cancellation to the
Parent, the Shareholders shall receive, in exchange for the Shares represented
by the Company Certificate(s), the Merger Consideration and the Company
Certificate(s) so surrendered shall forthwith be canceled. Until surrendered,
the Company Certificate(s) shall, upon and after the Effective Time, be deemed
canceled and for all purposes to evidence ownership of the number of shares of
the Parent's Common Stock into which the Shares have been converted pursuant to
Section 2.05(a).
(c) No Transfer of Shares after the Day Prior to the Date of this
Agreement. The Shareholders and the Company agree that no transfers of the
Shares will be made on the stock transfer books of the Company after the close
of business on the day prior to the date of this Agreement except as
contemplated by Section 5.12(c)-(e).
- 11 -
<PAGE> 18
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE
SHAREHOLDERS AND THE COMPANY
Subject to the terms and conditions of this Agreement, each of the
Shareholders and the Company hereby represents and warrants to the Parent and
the Parent Sub as of the date hereof, except as may otherwise be set forth on
the Disclosure Schedule, as set forth in Sections 3.01 through 3.31, as
follows:
SECTION 3.01. Capacity of the Shareholders. The Shareholders are
either (i) individuals with full legal capacity to enter into this Agreement,
to carry out Shareholders' obligations hereunder and to consummate the
transactions contemplated hereby, or (ii) corporations, partnerships or limited
liabilities companies duly organized, validly existing and in good standing
under the laws of their respective state(s) of formation with all necessary
power and authority to enter into this Agreement and to carry out their
obligations hereunder and to consummate the transactions contemplated hereby.
The execution and delivery of this Agreement by the Shareholders, the
performance by the Shareholders of their obligations hereunder and the
consummation by the Shareholders of the transactions contemplated hereby have
been duly authorized by all requisite action by the Shareholders signatories
hereto. This Agreement has been duly executed and delivered by the
Shareholders, and this Agreement constitutes a legal, valid and binding
obligation of the Shareholders enforceable against the Shareholders in
accordance with its terms, except as enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting rights of creditors generally or by general principles of equity.
SECTION 3.02. Organization, Authority and Qualification of the Company.
The Company is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware and has all necessary power
and authority to own, operate or lease the properties and assets now owned,
operated or leased by it and to conduct the Business. The Company has all
necessary power and authority to enter into this Agreement, and upon
shareholder approval as required by the DGCL, to carry out the Company's
obligations hereunder and to consummate the transactions contemplated hereby.
This Agreement has been duly authorized, executed and delivered by the Company,
and this Agreement constitutes a legal, valid and binding obligation of the
Company enforceable against the Company in accordance with its terms, except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting rights of creditors
generally or by general principles of equity. The Company is duly licensed or
qualified to do business and is in good standing in each jurisdiction in which
the properties owned or leased by it or the operation of its business makes
such licensing or qualification necessary (other than those jurisdictions where
the failure to be so licensed or qualified are not reasonably likely to have a
Material Adverse Effect) and all such jurisdictions are set forth on Schedule
3.02 of the Disclosure Schedule. All of the foregoing registrations, licenses,
and qualifications are in full force and effect and the Company has not
received any notice of any event, inquiry, investigation or proceeding that
could result in the suspension, revocation or limitation of any such
registration, license, or qualification and to the best knowledge of the
Shareholders and the Company, there is no sustainable basis for any such
suspension, revocation or limitation. All corporate actions taken by the
- 12 -
<PAGE> 19
Company have been duly authorized or ratified, and the Company has not taken
any action that in any respect conflicts with, constitutes a default under or
results in a violation of any provision of its Articles of Incorporation or By-
laws. True and correct copies of the articles of incorporation and by-laws of
the Company, each as in effect on the date hereof, have been delivered by the
Shareholders to the Parent.
SECTION 3.03. Capital Stock of the Company; Ownership of the Shares.
(a) The authorized capital stock of the Company consists of 10,000,000 shares
of Common Stock. As of the date hereof, 5,124,058 shares of Common Stock are
issued and outstanding, all of which are validly issued, fully paid and
nonassessable. None of the issued and outstanding shares of Common Stock was
issued in violation of any preemptive rights.
(b) Except as set forth in Section 3.03 of the Disclosure Schedule,
there are no options, warrants, convertible securities or other rights,
agreements, arrangements or commitments of any character relating to the
capital stock of the Company or obligating the Shareholders or the Company to
issue or sell any shares of capital stock of, or any securities or obligations
convertible into or exchangeable for shares of capital stock of the Company, or
any other interest in, the Company; and, except as permitted by Section 5.12(c)
and (d), no options, warrants, convertible securities or other such rights,
agreements, assignments or commitments shall be outstanding as of the Closing
Date.
(c) The Shares constitute all the issued and outstanding capital
stock of the Company. The Shares are owned of record and beneficially solely
by Shareholders and are registered in the names of Shareholders free and clear
of all Encumbrances other than those set forth in item (e) of Permitted
Encumbrances. Exhibit 3.03 accurately sets forth the number of the Shares
owned by each of the Shareholders.
(d) There are no voting trusts, stockholder agreements, proxies or
other agreements or understandings in effect with respect to the voting or
transfer of any of the Shares.
SECTION 3.04. Subsidiaries. (a) There are no subsidiaries other than
the Subsidiary and the LLC Subsidiary. Section 3.04 of the Disclosure Schedule
sets forth, with respect to the Subsidiary and the LLC Subsidiary, the
jurisdiction and date of its incorporation or formation, its authorized capital
stock or membership interests, the number and type of its issued and
outstanding shares of capital stock or membership interests and the current
ownership of such shares or membership interests.
(b) The Company is not a partner or member of (nor is any part of the
Business conducted through) any partnership or limited liability company other
than the LLC Subsidiary. The Company is not a participant in any other joint
venture or similar arrangement.
(c) (i) The Subsidiary is a corporation duly organized, validly
existing and in good standing under the laws of the State of Utah and has all
necessary power and authority to own, operate or lease the properties and
assets now owned, operated or leased by it and to conduct its business. The
Subsidiary is duly licensed or qualified to do business and is
- 13 -
<PAGE> 20
in good standing in each jurisdiction in which the properties owned or leased
by it or the operation of its business makes such licensing or qualification
necessary (other than those jurisdictions where the failure to be so qualified
or licensed is not reasonably likely to have a Material Adverse Effect) and all
such jurisdictions are set forth on Schedule 3.04(a) of the Disclosure
Schedule. All of the foregoing registrations, licenses, and qualifications are
in full force and effect and the Subsidiary has not received any notice of any
event, inquiry, investigation or proceeding that could result in the
suspension, revocation or limitation of any such registration, license,
qualification or membership, and to the best knowledge of the Shareholders and
the Company, there is no sustainable basis for any such suspension, revocation
or limitation.
(ii) The LLC Subsidiary is a limited liability company duly
organized, validly existing and in good standing under the laws of the State of
Utah and has all necessary power and authority to own, operate or lease the
properties and assets now owned, operated or leased by it and to conduct its
business. The LLC Subsidiary is duly licensed or qualified to do business and
is in good standing in each jurisdiction in which the properties owned or
leased by it or the operation of its business makes such licensing or
qualification necessary (other than those jurisdictions where the failure to be
so qualified or licensed is not reasonably likely to have a Material Adverse
Effect) and all such jurisdictions are set forth on Schedule 3.04(a) of the
Disclosure Schedule. All of the foregoing registrations, licenses, and
qualifications are in full force and effect and the LLC Subsidiary has not
received any notice of any event, inquiry, investigation or proceeding that
could result in the suspension, revocation or limitation of any such
registration, license, qualification or membership, and to the best knowledge
of the Shareholders and the Company, there is no sustainable basis for any such
suspension, revocation or limitation. Satisfactory evidence of the execution
and registration of the Articles of Organization of the LLC Subsidiary was
provided to Kennecott Utah Cooper Corporation ("Kennecott") prior to the
commencement of any work being performed by the LLC Subsidiary relating to
Kennecott's purchase order no. BP009.0A-P.
(d) (i) All the outstanding shares of capital stock of the
Subsidiary are validly issued, fully paid, nonassessable, free of preemptive
rights and owned by the Company, free and clear of all Encumbrances other than
those set forth in item (e) of Permitted Encumbrances.
(ii) No less than 50% of the membership interests of the LLC
Subsidiary are owned by the Company, and all membership interests of the LLC
Subsidiary are validly issued, fully paid, nonassessable, free of preemptive
rights and, as of the Closing Date, all membership interests of the LLC
Subsidiary shall be owned by the Company and the Subsidiary, free and clear of
all Encumbrances other than those set forth in item (e) of Permitted
Encumbrances.
(e) (i) There are no options, warrants, convertible securities, or
other rights, agreements, arrangements or commitments of any character relating
to the capital stock of the Subsidiary or obligating the Shareholders, the
Company, the Subsidiary or the LLC Subsidiary to issue or sell any shares of
capital stock of, or any other interest in, the Subsidiary.
- 14 -
<PAGE> 21
(ii) There are no options, warrants, convertible securities, or
other rights, agreements, arrangements or commitments of any character relating
to the membership interests of the LLC Subsidiary or obligating the
Shareholders, the Company, the Subsidiary or the LLC Subsidiary to issue or
sell any membership interests of, or any other interest in, the LLC Subsidiary.
(f) (i) All corporate actions taken by the Subsidiary have been
duly authorized or ratified and the Subsidiary has not taken any action that in
any respect conflicts with, constitutes a default under or results in a
violation of any provision of, its articles of incorporation or by-laws.
Complete and accurate copies of the articles of incorporation and by-laws, in
each case as in effect on the date hereof, of the Subsidiary have been
delivered by the Shareholders and the Company to the Parent.
(ii) All actions taken by the LLC Subsidiary have been duly
authorized or ratified and the LLC Subsidiary has not taken any action that in
any respect conflicts with, constitutes a default under or results in a
violation of any provision of, its articles of organization or operating
agreement. Complete and accurate copies of the articles of organization and
operating agreement, in each case as in effect on the date hereof, of the LLC
Subsidiary have been delivered by the Shareholders and the Company to the
Parent.
(g) (i) The Subsidiary is not a partner or member of (nor is any
part of its business conducted through) any partnership or limited liability
company nor is the Subsidiary a participant in any joint venture or similar
arrangement.
(ii) The LLC Subsidiary is not a partner or member of (nor is
any part of its business conducted through) any partnership or limited
liability company nor is the LLC Subsidiary a participant in any joint venture
or similar arrangement.
(h) (i) There are no voting trusts, stockholder agreements,
proxies or other agreements or understandings in effect with respect to the
voting or transfer of any shares of capital stock of or any other interests in
the Subsidiary.
(ii) There are no voting trusts, stockholder agreements,
proxies or other agreements or understandings in effect with respect to the
voting or transfer of any membership interest of or any other interests in the
LLC Subsidiary.
SECTION 3.05. Corporate Books and Records. The minute books of the
Company and the Subsidiary contain minutes of all meetings of the stockholders,
Boards of Directors and all committees of the Boards of Directors of the
Company and the Subsidiary. Complete and accurate copies of all such minute
books of the Company and the Subsidiary have been made available to the Parent
by the Shareholders and the Company.
SECTION 3.06. No Conflict. Assuming that all consents, approvals,
authorizations and other actions described in Section 3.07 have been obtained
and all filings and notifications listed in Section 3.07 of the Disclosure
Schedule have been made, the execution, delivery and performance of this
Agreement by the Shareholders and the Company do not and will not (a) violate,
conflict with or result in the breach of any
- 15 -
<PAGE> 22
provision of (i) the articles of incorporation or by-laws (or similar
organizational documents) of the Company or the Subsidiary or (ii) the articles
of organization or operating agreement of the LLC Subsidiary, (b) conflict with
or violate any Law or Governmental Order applicable to the Shareholders, the
Company, the Subsidiary or any of their respective assets, properties or
businesses, including, without limitation, the Business, or (c) conflict with,
result in any breach of, constitute a default (or event which with the giving
of notice or the lapse of time, or both, would become a default) under, require
any consent under, or give to others any rights of termination, amendment,
acceleration, suspension, revocation or cancellation of, or result in the
creation of any Encumbrance on any of the Shares or on any of the assets or
properties of the Shareholders, the Company, the Subsidiary or the LLC
Subsidiary pursuant to any note, bond, mortgage or indenture, contract,
agreement, lease, sublease, license, permit, franchise or other instrument or
arrangement to which the Shareholders, the Company, the Subsidiary or the LLC
Subsidiary is a party or by which any of the Shares or any of such assets or
properties is bound or affected.
SECTION 3.07. Governmental Consents and Approvals. (a) The execution,
delivery and performance of this Agreement do not and will not require any
consent, approval, authorization or other order of, action by, filing with or
notification to any Governmental Authority or any other third party, except as
set forth on Section 3.07 of the Disclosure Schedule.
(b) Neither the Shareholders nor the Company has knowledge of any
facts or circumstances pertaining to the Parent or the Parent Sub which are
reasonably likely to prevent the parties hereto from obtaining the governmental
consents and approvals contemplated by Section 3.07(a).
SECTION 3.08. Financial Information and Books and Records. (a) The
Shareholders have previously furnished the Parent complete and accurate copies
of (i) the audited consolidated GAAP balance sheet of the Company and the
Subsidiary for each of the fiscal years ended as of March 29, 1996, March 31,
1995, and April 1, 1994, and the related audited GAAP consolidated statements
of earnings, stockholder's equity and cash flows for each of such periods then
ended together with all related notes and schedules thereto, accompanied by the
reports thereon of the Company and the Shareholders' Accountants (collectively
referred to herein as the "Company GAAP Statements") and (ii) the unaudited
GAAP consolidated balance sheets of the Company and its Subsidiary as May 31,
1996, and the related unaudited GAAP consolidated statements of earnings for
two-month period then ended (collectively referred to herein as the "Company
Interim GAAP Statements" and, together with the Company GAAP Statements, the
"Financial Statements"). The Financial Statements (i) were prepared in
accordance with the books of account and other financial records of the Company
and the Subsidiary, (ii) present fairly in all material respects the
consolidated financial condition and results of operations of the Company and
the Subsidiary as of the dates thereof or for the periods covered thereby in
accordance with GAAP, applied on a basis consistent with the past practices of
the Company, and (iii) include all adjustments that are necessary for a fair
presentation of the consolidated financial condition and the results of the
operations of the Company and the Subsidiary as of the dates thereof or for the
periods covered thereby in accordance with GAAP (subject, in the case of the
Company Interim GAAP Statements, to normal year-end audit adjustments).
- 16 -
<PAGE> 23
(b) The books of account and other financial records of the Company
and the Subsidiary: (i) reflect all items of income and expense and all assets
and liabilities required to be reflected therein in accordance with GAAP, (ii)
are in all material respects complete and correct, and (iii) have been
maintained in accordance with good business and accounting practices.
(c) The LLC Subsidiary has no liabilities except as disclosed in
Section 3.08(c) of the Disclosure Schedule. All receipts and disbursements of
the LCC Subsidiary are reflected in its bank account or will be reflected in
the Company's June and July, 1996 inter-company account.
SECTION 3.09. Certain Additional Representations.
(a) The Shareholders and the Company hereby acknowledge that the
Parent would not have entered into this Agreement unless it were able to
account for the transactions contemplated by this Agreement by the pooling of
interest method within the meaning of Accounting Principles Board Opinion No.
16 ("APB 16"). Accordingly, with respect to the transactions contemplated by
this Agreement, the Shareholders and the Company hereby represent, warrant and
covenant that the Company has as of the date hereof, and will have as of the
Closing Date, the attributes of a combining enterprise for the pooling of
interest method within the meaning of APB 16. Not by way of limitation or
exclusion, the Shareholders and the Company represent and warrant that there
have not been any transactions which could be construed and interpreted to be a
change in the equity interest of the common stock of the Company in accordance
with APB 16, Paragraph 47c, within two years before the date of this Agreement
and between the date of this Agreement and the Closing Date.
(b) The Convertible Note has been paid in full.
(c) The consolidated losses of the Company, computed in accordance
with GAAP, for the months of April through August, 1996, shall not exceed
$700,000.
(d) The Company and the Shareholders represent and warrant that all
of the Company Options held by individuals no longer employed by the Company,
the Subsidiary or the LLC Subsidiary as of the date hereof are fully vested in
accordance with the original terms of such Company Options.
SECTION 3.10. No Undisclosed Liabilities or Capital Commitments.
(a) There are no Liabilities of the Company, the Subsidiary or the
LLC Subsidiary, other than Liabilities (i) reflected or reserved against in the
Financial Statements, (ii) completely and accurately disclosed in Section 3.10
of the Disclosure Schedule or (iii) incurred since the Balance Sheet Date in
the ordinary course of business of the Company or the Subsidiary and which have
not had and could not have a Material Adverse Effect.
- 17 -
<PAGE> 24
(b) Except as completely and accurately set forth in Section 3.10 of
the Disclosure Schedule or arising in the ordinary course of business, none of
the Company, the Subsidiary or the LLC Subsidiary is subject to any commitment,
actual or contingent, to make any investment or capital contribution, or
purchase any securities, or supply funds to any Person, in each case in excess
of $5,000 or $10,000 in the aggregate.
SECTION 3.11. Acquired Assets. Each asset of the Company, the
Subsidiary or the LLC Subsidiary (including, without limitation, the benefit of
any licenses, leases or other agreements or arrangements) acquired since the
Balance Sheet Date has been acquired for consideration not more than the fair
market value of such asset at the date of such acquisition.
SECTION 3.12. Conduct in the Ordinary Course; Absence of Certain
Changes, Events and Conditions. Since the Balance Sheet Date, except as
completely and accurately disclosed in Section 3.12 of the Disclosure Schedule
(a) the Business has been conducted in the ordinary course and consistent with
past practice and (b) none of the Company, the Subsidiary or the LLC Subsidiary
has:
(i) permitted or allowed any of the assets or properties
(whether tangible or intangible) of the Company, the Subsidiary or the LLC
Subsidiary to be subjected to any Encumbrance, other than Permitted
Encumbrances and Encumbrances that will be released at or prior to the Closing;
(ii) except in the ordinary course of business, discharged or
otherwise obtained the release of any Encumbrance or paid or otherwise
discharged any Liability, other than current liabilities reflected on the
Financial Statements and current liabilities incurred in the ordinary course of
business since the Balance Sheet Date;
(iii) guaranteed any Indebtedness of, or otherwise incurred any
Indebtedness on behalf of any Person;
(iv) failed to pay any creditor any amount owed to such
creditor when due;
(v) redeemed any of the capital stock or declared, made or
paid any dividends or distributions with respect to capital (whether in cash,
securities or other property) to the holders of capital stock of the Company or
the Subsidiary or otherwise, other than dividends, distributions and
redemptions declared, made or paid by the Subsidiary solely to the Company;
(vi) made any material changes in the customary methods of
operations of the Company, the Subsidiary or the LLC Subsidiary, including,
without limitation, purchasing, marketing, selling, pricing, investing or
accounting practices and policies;
(vii) merged with, entered into a consolidation with or acquired
any interest of 5% or more in any Person or acquired a substantial portion of
the assets or business of any Person or any division or line of business
thereof, or otherwise acquired any assets other than in the ordinary course of
business consistent with past practice;
- 18 -
<PAGE> 25
(viii) made any capital expenditure or commitment for any capital
expenditure in excess of $5,000 in any individual instance, $10,000 in the
aggregate;
(ix) sold, transferred, leased, subleased, licensed or
otherwise disposed of any properties or assets, real, personal or mixed
(including, without limitation, investment assets, leasehold interests and
intangible assets), other than the sale of its products in the ordinary course
of business;
(x) issued or sold any capital stock, notes, bonds or other
securities, or any option, warrant or other right to acquire the same, of, or
any other interest in, the Company, the Subsidiary or the LLC Subsidiary.
(xi) except as completely and accurately set forth in Section
3.12 of the Disclosure Schedule, entered into any agreement, arrangement or
transaction with any of its directors, officers, employees or shareholders (or
with any relative, beneficiary, spouse or Affiliate of such Person);
(xii) except as completely and accurately set forth in Section
3.12 of the Disclosure Schedule, (A) granted any increase, or announced any
increase, in the wages, salaries, compensation, bonuses, incentives, pension or
other benefits payable by the Company, the Subsidiary or the LLC Subsidiary to
any of its employees, including, without limitation, any increase or change
pursuant to any Plan or (B) established or increased or promised to increase
any benefits under any Plan;
(xiii) revalued (other than in accordance with GAAP and as
completely and accurately set forth in Section 3.12 of the Disclosure Schedule)
or restructured any assets of the Company, the Subsidiary or the LLC Subsidiary
(xiv) amended, terminated, cancelled or compromised any material
claims of the Company or the Subsidiary or waived any other rights of
substantial value to the Company, the Subsidiary or the LLC Subsidiary;
(xv) made any change in any method of accounting or accounting
practice or policy used by the Company, the Subsidiary or the LLC Subsidiary
other than changes which were required by GAAP and are completely and
accurately set forth in Section 3.12 of the Disclosure Schedule;
(xvi) failed to maintain the Assets material to the operation of
the Business in such operating condition and repair as is suitable for the
purposes for which they are used;
(xvii) allowed any material Permit or material Environmental
Permit that was issued or relates to the Company, the Subsidiary or the LLC
Subsidiary or otherwise relates to any Asset to lapse or terminate or failed to
renew any such Permit or Environmental Permit or any insurance policy under
which the Company, the Subsidiary or the LLC Subsidiary is an insured that is
scheduled to terminate or expire within forty-five (45) days of the Closing
Date;
- 19 -
<PAGE> 26
(xviii) incurred any Indebtedness in excess of $5,000 in
any individual instance or since the Balance Sheet Date $10,000 in the
aggregate;
(xix) amended or modified in any material respects, or consented
to the termination of, any Material Contract or the Company's, the Subsidiary's
or the LLC Subsidiary's rights thereunder;
(xx) amended or restated the articles of incorporation or the
by-laws (or other organizational documents) of the Company or the Subsidiary or
the articles of organization or operating agreement of the LLC Subsidiary;
(xxi) terminated, discontinued, closed or disposed of any
office, facility or other business operation, or laid off any employees (other
than less than 15 employees in the ordinary course of business consistent with
past practice) or implemented any early retirement, separation or program
providing early retirement window benefits within the meaning of Section
1.401(a)-4 of the Regulations or announced or planned any such action or
program for the future;
(xxii) settled or compromised any liability, with respect to
Taxes of the Company, the Subsidiary or the LLC Subsidiary;
(xxiii) suffered any casualty loss or damage with respect to any
of the Assets which in the aggregate have a replacement cost in excess of
$10,000, whether or not such loss or damage shall have been covered by
insurance;
(xxiv) disclosed any confidential Intellectual Property (other
than as requested by the Parent) or permitted to lapse or abandoned any
Intellectual Property (or any registration or grant thereof or any application
relating thereto) to which, or under which, the Company or the Subsidiary has
any right, title, interest or license and which is material to the Business;
(xxv) suffered any Material Adverse Effect; or
(xxvi) agreed, whether in writing or otherwise, to take any of
the actions specified in this Section 3.12 or granted any options to purchase,
rights of first refusal, rights of first offer or any other similar rights or
commitments with respect to any of the actions specified in this Section 3.12,
except as expressly contemplated by this Agreement.
SECTION 3.13. Litigation. Set forth in Section 3.13 of the Disclosure
Schedule (with respect to each Action disclosed therein) are the parties, the
nature of the proceeding, the date and method commenced and the amount of
damages or other relief sought and, if applicable, paid or granted. Except as
completely and accurately set forth in Section 3.13 of the Disclosure Schedule,
there are no Actions by or against the Company, the Subsidiary or the LLC
Subsidiary (or by or against the Shareholders or any Affiliate thereof and
relating to the Business, the Company, the Subsidiary or the LLC Subsidiary),
or affecting any of the Assets, pending before any Governmental Authority (or,
to the best knowledge of the Shareholders and the Company, threatened to be
brought by or before any
- 20 -
<PAGE> 27
Governmental Authority). No such Action has, has had or could have a Material
Adverse Effect or could affect the legality, validity or enforceability of this
Agreement or the consummation of the transactions contemplated hereby. None of
the Company, the Subsidiary, or the LLC Subsidiary, any of the Assets or the
Shareholders is subject to any Governmental Order (nor, to the best knowledge
of the Shareholders and the Company, are there any such Governmental Orders
threatened to be imposed by any Governmental Authority) which has, has had or
could have a Material Adverse Effect.
SECTION 3.14. Certain Interests. None of the Shareholders or any
Affiliate of the Shareholders (other than the Company, the Subsidiary or the
LLC Subsidiary) have and no officer or director of the Company, the Subsidiary
or the LLC Subsidiary, and no relative or spouse (or relative of such spouse)
who resides with, or is a dependent of, any such officer or director has (i)
outstanding any Indebtedness to the Company or the Subsidiary, or (ii) entered
into any transactions with the Company, the Subsidiary or the LLC Subsidiary,
individually or in the aggregate, exceeding $20,000, other than market rate
loans which have been paid in full as of the date hereof (any arrangement
referred to in (i) or (ii) shall be referred to as an "Inter-Company
Arrangement") except as completely and accurately set forth in Section 3.14 of
the Disclosure Schedule. Except as set forth in Section 3.14 of the Disclosure
Schedule, all Inter-Company Arrangements are on terms that are at least as
favorable to the Company, the Subsidiary or the LLC Subsidiary as would prevail
in a comparable arm's-length transaction with a third party.
SECTION 3.15. Compliance with Laws. The Company, the Subsidiary and
the LLC Subsidiary have each conducted and continue to conduct the Business in
accordance with all material Laws and Governmental Orders applicable to the
Company, the Subsidiary or the LLC Subsidiary or any of the Assets or the
Business, and none of the Company, the Subsidiary or the LLC Subsidiary is in
violation of any such Law or Governmental Order. The Company, the Subsidiary
and the LLC Subsidiary have duly and validly filed or caused to be filed all
material reports, statements, documents, registrations, filings or submissions
that were required by applicable Laws to be filed; all such filings complied
with all applicable Laws in all material respects when filed, and no material
deficiencies have been asserted with respect to any such filings which have not
been satisfied.
SECTION 3.16. Environmental and Other Permits and Licenses; Related
Matters.
(a) The Shareholders, the Company, the Subsidiary and the LLC
Subsidiary currently hold all the permits, licenses, authorizations,
certificates, consents, exemptions and approvals required under any Law
(collectively, "Permits"), including, without limitation, Environmental
Permits, necessary for the ownership, use, occupancy and operation of each
Asset of the Company, the Subsidiary and the LLC Subsidiary and the conduct of
the Business, and all such Permits are in full force and effect.
(b) (i) Each tenant and occupant of the Real Property holds all
Permits, including, without limitation, Environmental Permits, necessary for
the use, occupancy and operation of the Real Property by such tenant or
occupant, and all such Permits are in full force and effect; (ii) there is no
existing practice, action or activity of any tenant or occupant
- 21 -
<PAGE> 28
of the Real Property, or of any owner, tenant or occupant of any real property
in which the Company,
the Subsidiary or the LLC Subsidiary or with respect to the Business, the
Shareholders currently holds a security interest (the "Secured Real Property"),
which will give rise to any criminal liability or civil Liability under, or
violate or prevent compliance with, any applicable material Law, including,
without limitation, any applicable Environmental Law; (iii) no tenant or
occupant of the Owned Real Property has received any notice from any
Governmental Authority revoking, cancelling, rescinding, materially modifying
or refusing to renew any Permit or providing written notice of violations under
any Law, including, without limitation, any applicable Environmental Law; (iv)
each tenant and occupant of the Owned Real Property is in all respects in
compliance with its Permits, including, without limitation, Environmental
Permits; (v) there is no existing practice, action or activity of the Company,
the Subsidiary or the LLC Subsidiary or, with respect to any portion of the
Business, the Shareholders and no existing condition of the Assets of the
Company, the Subsidiary or the LLC Subsidiary or the Business which has given
or will give rise to any unresolved criminal liability or civil Liability
under, or violate or prevent compliance with, any applicable Law, including,
without limitation,any applicable Environmental Law; (vi) none of the
Shareholders, the Company, the Subsidiary or the LLC Subsidiary has received
any notice from any Governmental Authority revoking, cancelling, rescinding,
materially modifying or refusing to renew any Permit; and (vii) the Company,
the Subsidiary and the LLC Subsidiary are in all respects in compliance with
the Permits, including, without limitation, Environmental Permits. Section
3.16(a) of the Disclosure Schedule completely and accurately identifies all
Permits, including, without limitation, Environmental Permits and indicates by
asterisk those that will require the consent of any Governmental Authority in
the event of the execution of this Agreement or the consummation of the
transactions contemplated by this Agreement.
(c) (i) None of the Company, the Subsidiary or the LLC Subsidiary,
nor, with respect to any portion of the Business, the Shareholders has violated
or is violating any applicable Environmental Law; (ii) no tenant or occupant of
the Real Property or owner, tenant or occupant of the Secured Real Property is
violating any applicable Environmental Law in connection with the ownership,
use, occupancy or operation of the Real Property or Secured Real Property;
(iii) there has been no Release of Hazardous Materials at, to, from, or under
any real property currently or formerly owned, leased, or operated by the
Company, the Subsidiary or the LLC Subsidiary, or, with respect to any portion
of the Business, the Shareholders, or at, to, from or under any Secured Real
Property except (x) Releases which individually or collectively do not exceed
the applicable reportable quantity established pursuant to CERCLA, or (y)
Releases of petroleum or its derivatives which individually or collectively do
not exceed ten gallons; (iv) none of the Company, the Subsidiary or the LLC
Subsidiary nor, with respect to any portion of the Business, the Shareholders
has generated, transported or arranged for the transport of, or disposed of any
Hazardous Materials at any location, other than amounts and types of Hazardous
Materials normally present in ordinary office trash or household waste other
than the transportation set forth in Section 3.16 of the Disclosure Schedule;
(v) no tenant or occupant of the Real Property has generated at such Real
Property any Hazardous Material, other than amounts and types of Hazardous
Materials normally present in ordinary office trash or household
- 22 -
<PAGE> 29
waste; (vi) none of the Company, the Subsidiary or the LLC Subsidiary nor, with
respect to any portion of the Business, the Shareholders has any Liabilities in
connection with the Release of any Hazardous Material at any location; (vii)
there is not present at any of the Real Property any underground storage tanks
or sumps, asbestos, or polychlorinated biphenyls; (viii) no Environmental Lien
has attached to any of the Real Property; and (ix) there are no unresolved
past, pending or threatened Environmental Claims against the Company, the
Subsidiary or the LLC Subsidiary, or, with respect to the Business, the
Shareholders, nor are there any circumstances that may form the basis of any
such Environmental Claim.
SECTION 3.17. Material Contracts. (a) Section 3.17(a) of the
Disclosure Schedule completely and accurately lists each of the following
contracts and agreements (including, without limitation, oral agreements) of
the Company, the Subsidiary and the LLC Subsidiary (such contracts and
agreements, together with all contracts, agreements and Leases concerning the
management or operation of any Real Property (including, without limitation,
brokerage contracts) listed or otherwise disclosed in Section 3.19(a) or
3.19(b) of the Disclosure Schedule to which the Company, the Subsidiary or the
LLC Subsidiary is a party and all agreements relating to Intellectual Property
set forth in Section 3.18(a) of the Disclosure Schedule, being "Material
Contracts"):
(i) each contract and agreement for the purchase of materials
or personal property with any supplier or for the furnishing of services to the
Company, the Subsidiary and the LLC Subsidiary or otherwise related to the
Business under the terms of which the Company, the Subsidiary or the LLC
Subsidiary: (A) is likely to pay or otherwise give consideration of more than
$10,000 individually and $20,000 in the aggregate during the current fiscal
year, (B) is likely to pay or otherwise give consideration of more than $5,000
in the aggregate over the remaining term of such contract or (C) cannot be
cancelled by the Company, the Subsidiary or the LLC Subsidiary without penalty
or further payment and without more than 30 days' notice;
(ii) each contract and agreement for the sale of materials or
personal property or for the furnishing of services by the Company, the
Subsidiary or the LLC Subsidiary which: (A) is likely to involve consideration
of more than $5,000 in the aggregate during the calendar year ending December
31, 1996, (B) is likely to involve consideration of more than $5,000 in the
aggregate over the remaining term of the contract or (C) cannot be cancelled by
the Company, the Subsidiary or the LLC Subsidiary without penalty or further
payment and without more than 30 days' notice;
(iii) all broker, distributor, agency, sales promotion, market
research, marketing consulting and advertising contracts and agreements to
which the Company, the Subsidiary or the LLC Subsidiary is a party pursuant to
which services were being provided on the Balance Sheet Date in an amount more
than $5,000 individually and $10,000 in the aggregate over the term of the
contract or agreement;
(iv) all management contracts and contracts with independent
contractors or consultants (or similar arrangements) to which the Company, the
Subsidiary or the LLC
- 23 -
<PAGE> 30
Subsidiary is a party and which are not cancelable without penalty or further
payment and without more than 30 days' notice;
(v) all contracts and agreements relating to Indebtedness of
the Company, the Subsidiary or the LLC Subsidiary in an amount more than $5,000
individually and $10,000 in the aggregate over the term of the contract or
agreement;
(vi) all contracts and agreements with any Governmental
Authority to which the Company, the Subsidiary or the LLC Subsidiary is a
party;
(vii) all contracts and agreements that limit or purport to
limit the ability of the Company, the Subsidiary or the LLC Subsidiary to
compete in any line of business or with any Person or in any geographic area or
during any period of time;
(viii) all Inter-Company Arrangements and all other contracts and
agreements between or among the Company, the Subsidiary or the LLC Subsidiary
and the Shareholders or any Affiliate of the Shareholders (other than the
Company, the Subsidiary or the LLC Subsidiary);
(ix) all trust agreements or other security agreements related
thereto, to which the Company, the Subsidiary or the LLC Subsidiary is a party
that remain in force; and
(x) all other contracts and agreements whether or not made in
the ordinary course of business, which are material to the Company, the
Subsidiary or the LLC Subsidiary or the conduct of the Business or the absence
of which would have a Material Adverse Effect.
(b) Each Material Contract is legal, valid, binding, enforceable and
in full force and effect, and will not cease to be in full force and effect on
terms identical to those currently in effect following the consummation of the
transactions contemplated by this Agreement, except, in either case, as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting rights of creditors, of
creditors generally or by general principles of equity, nor will the
consummation of the transactions contemplated by this Agreement constitute a
breach or default under such Material Contract. None of the Company, the
Subsidiary or the LLC Subsidiary is in breach of, or default under, any
Material Contract.
(c) To the best knowledge of the Shareholders and the Company, no
other party to any Material Contract is in breach thereof or default
thereunder.
(d) There is no contract, agreement or other arrangement granting any
Person any preferential right to purchase, other than the ordinary course of
business consistent with past practice, any of the properties or assets of the
Company, the Subsidiary or the LLC Subsidiary.
- 24 -
<PAGE> 31
SECTION 3.18. Intellectual Property.
(a) Section 3.18(a)(i) of the Disclosure Schedule sets forth a
complete and accurate list and a brief description of the Owned Intellectual
Property consisting of trademarks, service marks, corporate and assumed names,
trade names and copyrights, patents and pending registrations and applications
therefor and Section 3.18(a)(ii) of the Disclosure Schedule sets forth a
complete and accurate list and a brief description, including, without
limitation, a description of any license or sublicense thereof, of all Licensed
Intellectual Property. In each case where a registration or application for
registration listed in Section 3.18(a)(i) of the Disclosure Schedule is held by
assignment, the assignment has been duly recorded with the United States Patent
and Trademark Office. To the Shareholders' and the Company's knowledge, the
rights of the Company, the Subsidiary or the LLC Subsidiary, as the case may
be, in or to such Intellectual Property do not conflict with or infringe on the
rights of any other Person, and none of the Shareholders, the Company, the
Subsidiary or the LLC Subsidiary has received any claim or written notice of
infringement or conflict in respect of any Intellectual Property.
(b) (i) all the Owned Intellectual Property is owned by either the
Company, the Subsidiary or the LLC Subsidiary, as the case may be, free and
clear of any Encumbrance other than Permitted Encumbrances, (ii) the Company,
the Subsidiary or the LLC Subsidiary has the right, pursuant to valid and
enforceable licenses, to use the Licensed Intellectual Property in the manner
in which the Licensed Intellectual Property is currently being used and (iii)
no Actions have been made or asserted or are pending (nor, to the best
knowledge of the Shareholders and the Company, has any such Action been
threatened) against the Company, the Subsidiary or the LLC Subsidiary either
(A) based upon or challenging or seeking to deny or restrict the use by the
Company, the Subsidiary or the LLC Subsidiary of any of the Intellectual
Property or (B) alleging that any services provided or products sold by the
Company, the Subsidiary or the LLC Subsidiary are being provided or sold in
violation of any trademarks, or any other rights of any Person. To the best
knowledge of the Shareholders and the Company, no Person is using any
trademarks, service marks, trade names or similar property that are confusingly
similar to the Owned Intellectual Property or that infringe upon the Owned
Intellectual Property or upon the rights of the Company, the Subsidiary or the
LLC Subsidiary therein. None of the Shareholders, the Company, the Subsidiary
or the LLC Subsidiary has granted any license or other right to any other
Person with respect to the Owned Intellectual Property. The consummation of
the transactions contemplated by this Agreement will not result in the
termination or impairment of any of the owned Intellectual Property or any of
the rights of the Company, the Subsidiary or the LLC Subsidiary in any of the
Licensed Intellectual Property.
(c) The Intellectual Property described in Section 3.18(a)(i) and
3.18(a)(ii) of the Disclosure Schedule constitutes all of the Intellectual
Property used or held or intended to be used by the Company, the Subsidiary or
the LLC Subsidiary or forming a part of all such Intellectual Property
necessary and material in the conduct of the Business and there are no other
items of Intellectual Property that are material to the Company, the Subsidiary
or the LLC Subsidiary or the Business. Such Intellectual Property is all that
is necessary for the operation of the Businesses as currently conducted.
- 25 -
<PAGE> 32
SECTION 3.19. Real Property.
(a) Section 3.19(a) of the Disclosure Schedule lists: (i) the street
address of each parcel of Owned Real Property, (ii) the date on which each
parcel of Owned Real Property was acquired, (iii) the current owner of each
such parcel of Owned Real Property, (iv) information relating to the
recordation of the deed pursuant to which each such parcel of Owned Real
Property was acquired and (v) the current use of each such parcel of Owned Real
Property.
(b) Section 3.19(b) of the Disclosure Schedule lists: (i) the street
address of each parcel of Leased Real Property, (ii) the identity of the
lessor, lessee and current occupant (if different from lessee) of each such
parcel of Leased Real Property and (iii) the current use of each such parcel of
Leased Real Property.
(c) The Shareholders have, or have caused to be, delivered to the
Parent complete and accurate copies of all Leases listed in Section 3.19(b) of
the Disclosure Schedule. Each such Lease is legal, valid, binding, enforceable
and in full force and each such Lease will not cease to be in full force and
effect on terms identical to those currently in effect as a result of the
consummation of the transactions contemplated by this Agreement, except, in
either case, as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting rights of
creditors generally or by general principles of equity, nor will the
consummation of the transactions contemplated by this Agreement constitute a
breach or default under such Lease or otherwise give the landlord a right to
terminate such Lease in accordance with the terms thereof.
(d) There are no condemnation proceedings or eminent domain
proceedings of any kind pending or, to the best knowledge of the Shareholders
and the Company, threatened against the Real Property.
(e) The rental set forth in each Lease of the Leased Real Property is
the actual rental being paid, and there are no separate agreements or
understandings with respect to the same.
SECTION 3.20. Tangible Personal Property. (a) Section 3.20 of the
Disclosure Schedule lists each group of equipment, inventory, supplies,
furniture, fixtures, personalty, vehicles and other tangible personal property
(the "Tangible Personal Property") used in the Business or owned or leased by
the Company, the Subsidiary or the LLC Subsidiary with a value reasonably
estimated by the Shareholders for each group to exceed $5,000. Except as set
forth in Section 3.20 of the Disclosure Schedule, all of the Tangible Personal
Property is located at 851 South Freeport Industrial Parkway, Clearfield, UT
84105.
(b) The Shareholders have, or have caused to be, delivered to the
Parent complete and accurate copies of all Leases for Tangible Personal
Property providing for annual rentals in excess of $5,000 and any and all
material ancillary documents pertaining thereto. Each such Lease is legal,
valid, binding, enforceable and in full force and effect and each such Lease
will not cease to be legal, valid, binding, enforceable and in full force and
effect on terms identical to those currently in effect as a result of the
consummation of the
- 26 -
<PAGE> 33
transactions contemplated by this Agreement except, in either case, as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting rights of creditors
generally or by general principles of equity, nor will the consummation of the
transactions contemplated by this Agreement constitute a breach or default
under such Lease or otherwise give the lessor a right to terminate such Lease
in accordance with the terms thereof.
SECTION 3.21. Assets. (a) None of the Company, the Subsidiary or the
LLC Subsidiary, as the case may be, owns, leases or has the legal right to use
all the properties and assets, including, without limitation, the Owned
Intellectual Property, the Licensed Intellectual Property, the Real Property
and the Tangible Personal Property, used in the conduct of the Business or
otherwise purported to be owned, leased or used by the Company, the Subsidiary
or the LLC Subsidiary and, with respect to contract rights, is a party to and
enjoys the right to the benefits of all material contracts, agreements and
other arrangements used by the Company, the Subsidiary or the LLC Subsidiary or
in or relating to the conduct of the Business (all such properties, assets and
contract rights being the "Assets"). Any of the Company, the Subsidiary or the
LLC Subsidiary, as the case may be, has good and marketable title to, or, in
the case of leased or subleased Assets, valid and subsisting leasehold
interests in, all the Assets, free and clear of all Encumbrances, except for
Permitted Encumbrances. All buildings, plants, and structures owned by the
Company, the Subsidiary and the LLC Subsidiary lie wholly within the boundaries
of the real property owned by the Company and do not encroach upon the property
of, or otherwise conflict with the property rights of, any other Person. The
LLC Subsidiary owns no buildings, plants or structures.
(b) Except as set forth in Section 3.21 of the Disclosure Schedule,
all the Assets, including without limitation the buildings, plants, structures,
and equipment of the Company, the Subsidiary and the LLC Subsidiary, are
structurally sound, are in good operating condition and repair, and are
adequate for the uses to which they are being put, and none of such buildings,
plants, structures, equipment or other Assets is in need of maintenance or
repairs except for ordinary, routine maintenance and repairs that are not
material in nature or cost. The building, plants, structures, and equipment of
the Company, the Subsidiary and the LLC Subsidiary are sufficient for the
continued conduct of the Business after the Closing in substantially the same
manner as conducted prior to the Closing.
(c) Immediately following the Closing, any of the Company, the
Subsidiary or the LLC Subsidiary, as the case may be, will continue to own,
pursuant to good and marketable title, or lease, under valid and subsisting
leases, or otherwise retain its respective interest in, the Assets without
incurring any material penalty or other materially adverse consequence,
including, without limitation, any increase in rentals, royalties, or licenses
or other fees imposed as a result of, or arising from, the consummation of the
transactions contemplated by this Agreement. Immediately following the
Closing, any of the Company, the Subsidiary or the LLC Subsidiary, as the case
may be, shall own and possess all presently existing documents, books, records,
agreements and financial data of any sort used by the Company, such Subsidiary
or such LLC Subsidiary, in the conduct of the Business or otherwise.
- 27 -
<PAGE> 34
SECTION 3.22. Accounts Receivable and Inventory. (a) All accounts
receivable of the Company, the Subsidiary and the LLC Subsidiary that are
reflected on the Financial Statements or on the accounting records of the
Company, the Subsidiary and the LLC Subsidiary as of the Closing Date
(collectively, the "Accounts Receivable") represent or will represent valid
obligations arising from sales actually made or services actually performed in
the ordinary course of business. Unless paid prior to the Closing Date, the
Accounts Receivable are or will be as of the Closing Date collectible net of
the respective reserves shown on the Financial Statements or on the accounting
records of the Company, the Subsidiary and the LLC Subsidiary as of the Closing
Date (which reserves are adequate and calculated consistent with past practice
and, in the case of the reserve as of the Closing Date, will not represent a
greater percentage of the Accounts Receivable as of the Closing Date than the
reserve reflected in the Company GAAP Statements represented of the Accounts
Receivable reflected therein and will not represent a material adverse change
in the composition of such Accounts Receivable in terms of aging). Subject to
such reserves, each of the Accounts Receivable either has been or will be
collected in full, without any set-off, within 90 days after the day on which
it first becomes due and payable. There is no contest, claim or right of set-
off, other than returns in the ordinary course of business, under any contract
with any obligor of an Accounts Receivable relating to the amount or validity
of such Accounts Receivable. Section 3.22(a) of the Disclosure Schedule
contains a complete and accurate list of all Accounts Receivable as of the last
day of the calendar month preceding the date of this Agreement, which list sets
forth the aging of such Accounts Receivable.
(b) Except as set forth in Section 3.22(b) of the Disclosure
Schedule, all inventory of the Company, the Subsidiary and the LLC Subsidiary,
whether or not reflected in the Financial Statements, consists of a quality and
quantity usable and salable in the ordinary course of business, except for
obsolete items and items of below-standard quality, all of which have been
written off or written down to net realizable value in the Financial Statements
or on the accounting records of the Company, the Subsidiary and the LLC
Subsidiary as of the Closing Date, as the case may be. All inventories not
written off have been priced at the lower of cost or market on a first in,
first out basis. Except as set forth in Section 3.22 of the Disclosure
Schedule, the quantities of each item of inventory (whether raw materials,
work-in-process, or finished goods) are not excessive, but are reasonable in
the present circumstances of the Company, the Subsidiary and the LLC Subsidiary
SECTION 3.23. Customers. Listed in Section 3.23 of the Disclosure
Schedule are the names and addresses of the most significant customers (by
sales volume) of the Company, the Subsidiary and the LLC Subsidiary for the
twelve-month period ended March 29, 1996 and the amount of products which each
purchased during such period.
SECTION 3.24. Employee Benefit Matters.
(a) Plans and Material Documents. Section 3.24(a) of the Disclosure
Schedule is a complete and accurate list of (i) all employee welfare benefit
and employee pension benefit plans as defined in Sections 3(1) and 3(2) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
including, but not limited to, plans that provide retirement income or result
in a deferral of income by employees for periods
- 28 -
<PAGE> 35
extending to termination of employment or beyond, and plans that provide
medical, surgical, or hospital care benefits or benefits in the event of
sickness, accident, disability, death or unemployment, and (2) all other
employee benefit agreements or arrangements, including without limitation
deferred compensation plans, incentive plans, bonus plans or arrangements,
stock option plans, stock purchase plans, stock award plans, golden parachute
agreements, severance pay plans, dependent care plans, cafeteria plans,
employee assistance programs, scholarship programs, employment contracts,
vacation policies, and other similar plans, agreements and arrangements that
are currently in effect or were maintained within three years of the date of
this Agreement, or have been approved before this date but are not yet
effective, for the benefit of directors, officers, employees or former
employees (or their beneficiaries) of the Company, the Subsidiary or the LLC
Subsidiary, (ii) each employee benefit plan for which the Company, the
Subsidiary or the LLC Subsidiary could reasonably be expected to incur
liability under Section 4069 of ERISA in the event such plan has been or were
to be terminated, and (iii) any plan in respect of which the Company, the
Subsidiary or the LLC Subsidiary could reasonably be expected to incur
liability under Section 4212(c) of ERISA (collectively, the "Plans"). Section
3.24(a) of the Disclosure Schedule sets forth a complete description of each
Plan that is not in writing and, with respect to each Plan that is in writing,
the Shareholders has furnished the Parent with a complete and accurate copy of
each Plan and a complete and accurate copy of each material document prepared
in connection with each such Plan including, where applicable, without
limitation, (i) a copy of each trust or other funding arrangement, (ii) the
most recently distributed summary plan description and summary of material
modifications, (iii) the most recently filed annual IRS Form 5500, 990 and 1041
reports, (iv) the most recently prepared actuarial report and financial
statement in connection with each such Plan, (v) the most recent IRS
determination letter and all rulings or determinations requested from the IRS
after the date of that determination letter, and (vi) all other correspondence
from the IRS or the Department of Labor received that relate to one or more of
the Plans with respect to any matter, audit or inquiry that is still pending.
Except as completely and accurately set forth in Section 3.24(a) of the
Disclosure Schedule, none of the Company, the Subsidiary or the LLC Subsidiary
has any express or implied commitment (i) to create, incur liability with
respect to or cause to exist any other employee benefit plan, program or
arrangement, (ii) to enter into any contract or agreement to provide
compensation or benefits to any individual or (iii) to modify, change or
terminate any Plan, other than with respect to a modification, change or
termination required by ERISA or the Code.
(b) Absence of Certain Types of Plans. Except as completely and
accurately disclosed in Section 3.24(b) of the Disclosure Schedule, none of the
Plans provides for the payment of separation, severance, termination or
similar-type benefits to any Person or obligates the Company, the Subsidiary or
the LLC Subsidiary to pay separation, severance, termination or similar-type
benefits solely as a result of any transaction contemplated by this Agreement
or as a result of a "change in control", within the meaning of such term under
Section 280G of the Code. Except as completely and accurately described in
Section 3.24(b) of the Disclosure Schedule, none of the Plans provides for the
deferral of compensation (other than any Plan intended to be qualified under
Section 401(a) of the Code) or for the grant of stock options, restricted
stock, stock appreciation rights, phantom shares or other equity-based awards
or contingent compensation. Each of the Plans is subject only to the laws of
the United States or a political subdivision thereof.
- 29 -
<PAGE> 36
(c) Compliance with Applicable Law. Except as completely and
accurately disclosed in Section 3.24(c) of the Disclosure Schedule, each Plan
is now and always has been operated in all material respects in accordance with
the requirements of all applicable Law, including, without limitation, ERISA
and the Code, and all "fiduciaries" of such Plans (within the meaning of
Section 3(21) of ERISA) have always acted in accordance with the provisions of
all applicable Law, including, without limitation, ERISA and the Code. Each of
the Company, the Subsidiary and the LLC Subsidiary has performed all
obligations required to be performed by it under, is not in any respect in
default under or in violation of, and has no knowledge of any default or
violation by any party to, any Plan. There is no litigation, action,
proceeding, investigation or claim asserted or, to the Shareholders', the
Company's or the Subsidiary's or the LLC Subsidiary's knowledge, threatened or
contemplated, with respect to any Plan (other than the payment of benefits in
the normal course) nor any issue resolved adversely to the Company, the
Subsidiary or the LLC Subsidiary that may subject the Company, the Subsidiary
or the LLC Subsidiary to the payment of a penalty, interest, tax or other
amount.
(d) Qualification of Certain Plans. Except as completely and
accurately disclosed in Section 3.24(d) of the Disclosure Schedule, each Plan
which is intended to be qualified under Section 401(a) of the Code or Section
401(k) of the Code has received a favorable determination letter from the IRS
that it is so qualified and each trust established in connection with any Plan
which is intended to be exempt from federal income taxation under Section
501(a) of the Code has received a determination letter from the IRS that it is
so exempt, and no fact or event has occurred since the date of such
determination letter from the IRS which could reasonably be expected to
adversely affect the qualified status of any such Plan or the exempt status of
any such trust.
(e) Absence of Certain Liabilities and Events. There has been no
prohibited transaction (within the meaning of Section 406 of ERISA or Section
4975 of the Code) with respect to any Plan. Except as completely and
accurately set forth in Section 3.24(e) of the Disclosure Schedule, none of the
Company, the Subsidiary or the LLC Subsidiary has incurred any liability for
any penalty or tax arising under Section 4971, 4972, 4980, 4980B or 6652 of the
Code or any liability under Section 502 of ERISA, and no fact or event exists
which could reasonably be expected to give rise to any such liability. Except
as set forth in Section 3.24(e) of the Disclosure Schedule, none of the
Company, the Subsidiary or the LLC Subsidiary has incurred any liability under,
arising out of or by operation of Title IV of ERISA (other than liability for
premiums to the Pension Benefit Guaranty Corporation arising in the ordinary
course), including, without limitation, any liability in connection with (i)
the termination or reorganization of any employee benefit plan subject to Title
IV of ERISA or (ii) the withdrawal from any Multiemployer Plan or Multiple
Employer Plan, and no fact or event exists which could reasonably be expected
to give rise to any such liability. Except as completely and accurately set
forth in Section 3.24(e) of the Disclosure Schedule, no complete or partial
termination has occurred within the five years preceding the date hereof with
respect to any Plan. No reportable event (within the meaning of Section 4043
of ERISA) for which the 30 days' notice to the Pension Benefit Guaranty
Corporation is not waived has occurred or is expected to occur with respect to
any Plan subject to Title IV of ERISA. Except as set forth in Section 3.24(d)
of the Disclosure Schedule, no Plan had an accumulated funding deficiency
(within the meaning of Section 302 of ERISA or Section 412
- 30 -
<PAGE> 37
of the Code), whether or not waived, as of the most recently ended plan year of
such Plan. None of the assets of the Company, the Subsidiary or the LLC
Subsidiary is the subject of any lien arising under Section 302(f) of ERISA or
Section 412(n) of the Code; none of the Company, the Subsidiary or the LLC
Subsidiary has been required to post any security under Section 307 of ERISA or
Section 401(a)(29) of the Code; and no fact or event exists which could
reasonably be expected to give rise to any such lien or requirement to post any
such security.
(f) Plan Contributions and Funding. All contributions, premiums or
payments required to be made with respect to any Plan have been made on or
before their due dates. All such contributions have been fully deducted for
income tax purposes and no such deduction has been challenged or disallowed by
any government entity and no fact or event exists which could reasonably be
expected to give rise to any such challenge or disallowance.
(g) Certain Employee-Benefit Assets. Except as completely and
accurately disclosed in Section 3.24(g) of the Disclosure Schedule, each of the
guaranteed investment contracts and other funding contracts with any insurance
company that are held by any of the Plans and any annuity contracts purchased
by any of the Plans was issued by an insurance company which carried the
highest rating from each of D&P, S&P, Best and Moody's Investors Service, Inc.,
as of the date such contract was issued, the date hereof and the Closing Date.
(h) Retiree Medical Benefits. No Plan is or includes any plan or
arrangement providing for post-employment health and/or medical benefit
coverage except to the extent required by COBRA.
(i) Supplemental Pension Benefits. The Company, the Subsidiary and
the LLC Subsidiary have no Liability for any (i) supplemental retirement
benefits or other nonqualified deferred compensation, (ii) severance pay
relating to any termination of employment which occurs prior to the Closing,
(iii) for nonqualified deferred compensation or incentive or contingent
compensation relating to any Plan as in effect, or commitment made, prior to
the Closing Date (to the extent related to periods prior to the Closing Date),
(iv) for uninsured health, medical, disability or worker's compensation claims
incurred prior to the Closing Date, regardless of whether such claims are
reported prior to the Closing Date or are not so reported, or (v) the payment
of accrued bonuses to the extent related to periods prior to the Closing Date
and not accrued or reflected on the Balance Sheet.
(j) No Implied Rights. Nothing contained herein, express or implied,
is intended to or shall confer upon any employee or former employee of the
Company, the Subsidiary or the LLC Subsidiary any right or remedy of any nature
or kind whatsoever under or by reason of this Agreement, including any rights
of continued employment for any period.
(k) Severance Pay and Vacation Pay. No Plan will cause the Company,
the Subsidiary, the LLC Subsidiary or the Parent Sub to have liability for
severance pay or vacation pay as a result of the consummation of the
transactions described in this Agreement.
- 31 -
<PAGE> 38
SECTION 3.25. Labor Matters. (a) Except as completely and accurately
disclosed in Section 3.25(a) of the Disclosure Schedule, none of the Company,
the Subsidiary or the LLC Subsidiary is a party to any collective bargaining
agreement or other labor union contract applicable to persons employed by the
Company, the Subsidiary or the LLC Subsidiary and currently there are no known
organizational campaigns, petitions or other unionization activities seeking
recognition of any other collective bargaining unit.
(b) There are no strikes, slowdowns, work stoppages or material labor
relations controversies pending or, to the best knowledge of the Shareholders
and the Company, threatened between the Company, the Subsidiary or the LLC
Subsidiary and any of their respective employees, and none of the Company, the
Subsidiary or the LLC Subsidiary has experienced any such strike, slowdown,
work stoppage or material controversy within the past three years.
(c) The Company, the Subsidiary and the LLC Subsidiary are in
compliance, in all material respects, with all applicable Laws relating to the
employment of labor, including, without limitation, those related to wages,
hours and the payment and withholding of taxes and other sums as required by
the appropriate Governmental Authority, and have withheld and paid to the
appropriate Governmental Authority or is holding for payment not yet due to
such Governmental Authority all amounts required to be withheld from employees
of the Company, the Subsidiary or the LLC Subsidiary and are not liable for any
arrears of wages, taxes, penalties or other sums for failure to comply with any
of the foregoing.
(d) Except as set forth in Section 3.25(e) of the Disclosure
Schedule, the Company, the Subsidiary and the LLC Subsidiary have paid in full
to all their respective employees, retired employees and contractors or
adequately accrued for in accordance with GAAP all wages, salaries,
commissions, bonuses, benefits and other compensation due to or on behalf of
such employees, retired employees and contractors.
(e) There is no claim against the Company, the Subsidiary or the LLC
Subsidiary with respect to payment of wages, salary or overtime pay that has
been asserted or is now pending or, to the best knowledge of the Shareholders
and the Company, threatened before any Governmental Authority with respect to
any Persons currently or formerly employed by the Company, the Subsidiary or
the LLC Subsidiary.
(f) None of the Company, the Subsidiary or the LLC Subsidiary is a
party to, or otherwise bound by, any consent decree with, or citation by, any
Governmental Authority relating to employees or employment practices.
(g) There is no charge or proceeding with respect to a violation of
any occupational safety or health standards that has been asserted or is now
pending or, to the best knowledge of the Shareholders and the Company,
threatened with respect to the Company, the Subsidiary or the LLC Subsidiary.
(h) Except as set forth in Section 3.25(h) of the Disclosure
Schedule, there is no charge against the Company, the Subsidiary or the LLC
Subsidiary of discrimination in employment or employment practices, for any
reason, including, without limitation, age,
- 32 -
<PAGE> 39
gender, race, religion or other legally protected category, which has been
asserted or is now pending or, to the best knowledge of the Shareholders and
the Company, threatened before the United States Equal Employment Opportunity
Commission, or any other Governmental Authority in any jurisdiction in which
the Company, the Subsidiary or the LLC Subsidiary has employed or currently
employs any Person.
SECTION 3.26. Key Employees. Section 3.26 of the Disclosure Schedule
lists the name, place of employment, the current annual salary rates, bonuses,
deferred or contingent compensation, pension, accrued vacation, "golden
parachute" and other like benefits paid or payable (in cash or otherwise) in
1995, 1994, 1993 and 1992, the date of employment and a brief description of
position and job function of each current salaried employee, officer or
director of the Company, the Subsidiary or the LLC Subsidiary whose current
base salary exceeded (or, in 1996, is expected to exceed) $50,000.
SECTION 3.27. Risk Management. (a) Section 3.27(a) of the Disclosure
Schedule sets forth the following information with respect to each insurance
policy (including, without limitation, policies providing property, casualty,
business interruption, liability, workers' compensation, and bond and surety
arrangements) under which the Company, the Subsidiary or the LLC Subsidiary is
an insured, a named insured or otherwise the principal beneficiary of coverage:
(i) the name of the agent or broker; (ii) the name of the insurer and the names
of the principal insured and each named insured; (iii) the policy number and
the period of coverage; (iv) the type, scope (including an indication of
whether the coverage was on a claims made, occurrence or other basis) and
amount of coverage; and (v) the premium charged for the policy, including,
without limitation, a description of any retroactive premium adjustments or
other loss-sharing arrangements.
(b) With respect to each such insurance policy: (i) the policy is in
full force and effect; (ii) none of the Company, the Subsidiary or the LLC
Subsidiary is in breach or default (including any breach or default with
respect to the payment of premiums or the giving of notice), and no event has
occurred which, with the giving of notice or the lapse of time or both, would
constitute such a breach or default or permit termination or modification,
under the policy; (iii) no party to the policy has repudiated in writing, or
given written notice of an intent to repudiate, any provision thereof; and (iv)
to the best knowledge of the Shareholders and the Company, no insurer on the
policy has been declared insolvent or placed in receivership, conservatorship
or liquidation or currently has a rating of "B+" or below from Best or a claims
paying ability rating of "BBB" or below from S&P.
(c) Section 3.27(c) of the Disclosure Schedule completely and
accurately sets forth all risks of the Company, the Subsidiary or the LLC
Subsidiary which are covered under any material risk retention program in which
the Company, the Subsidiary or the LLC Subsidiary participates, together with
details for the last three years of the Company's, the Subsidiary's and the LLC
Subsidiary's loss experience with respect to such risks.
(d) Since February 10, 1992, the Company, the Subsidiary and the LLC
Subsidiary have been covered by insurance policies or binders of insurance in
such types and covering such risks as are consistent with customary practices
and standards of companies engaged
- 33 -
<PAGE> 40
in businesses and operations similar to those of the Company, the Subsidiary or
the LLC Subsidiary, as the case may be, in amounts deemed reasonable by the
Company, the Subsidiary or the LLC Subsidiary, as the case may be.
(e) Except as set forth in Section 3.27(e) of the Disclosure
Schedule, at no time subsequent to January 1, 1993 has the Company, the
Subsidiary or the LLC Subsidiary (i) been denied any insurance or indemnity
bond coverage which it has requested, (ii) made any material reduction in the
scope or amount of its insurance coverage, or received notice from any of its
insurance carriers that any insurance coverage listed in Section 3.27(a) of the
Disclosure Schedule will not be available in the future substantially on the
same terms as are now in effect or (iii) suffered any extraordinary increase in
premium for renewed coverage. Since February 10, 1992, no insurance carrier
has cancelled, failed to renew or materially reduced any insurance coverage for
the Company, the Subsidiary or the LLC Subsidiary or given any notice or other
indication of its intention to cancel, not renew or reduce any such coverage.
(f) The Shareholders are not aware of any facts pertaining to the
Company, the Subsidiary or the LLC Subsidiary or the Business which are
reasonably likely to prevent the Parent from obtaining insurance following the
consummation of the transactions contemplated by this Agreement on terms
substantially similar to the terms currently in effect.
SECTION 3.28. Accounts; Lockboxes; Safe Deposit Boxes; Powers of
Attorney. Section 3.28 of the Disclosure Schedule is a complete and accurate
list of (a) the names of each bank, savings and loan association, securities or
commodities broker or other financial institution in which the Company, the
Subsidiary or the LLC Subsidiary has an account, including, without limitation,
cash contribution accounts, and the names of all persons authorized to draw
thereon or have access thereto, (b) the location of all lockboxes and safe
deposit boxes of the Company, the Subsidiary and the LLC Subsidiary and the
names of all Persons authorized to draw thereon or have access thereto and (c)
the names of all Persons, if any, holding powers of attorney from the
Shareholders relating to the Company, the Subsidiary or the LLC Subsidiary or
the Business, or from the Company, the Subsidiary or the LLC Subsidiary. At
the time of the Closing, without the prior written consent of the Parent, none
of the Company, the Subsidiary or the LLC Subsidiary shall have any such
account, lockbox or safe deposit box other than those listed in Section 3.28 of
the Disclosure Schedule, nor shall any additional Person have been authorized,
from the date of this Agreement, to draw thereon or have access thereto or to
hold any such power of attorney relating to the Company, the Subsidiary or the
LLC Subsidiary or the Business or from the Company, the Subsidiary or the LLC
Subsidiary. There are no commingled monies or accounts of the Company, the
Subsidiary or the LLC Subsidiary with other monies or accounts of the
Shareholders or relating to the other businesses of the Shareholders nor has
the Shareholders transferred monies or accounts of the Company, the Subsidiary
or the LLC Subsidiary other than to an account of the Company, such Subsidiary
or the LLC Subsidiary. At the time of the Closing, all monies and accounts of
the Company, the Subsidiary and the LLC Subsidiary shall be held by, and be
accessible only to, the Company, such Subsidiary or such LLC Subsidiary.
- 34 -
<PAGE> 41
SECTION 3.29. Full Disclosure. (a) There are no facts pertaining to
the Company, the Subsidiary or the LLC Subsidiary or the Business that are
reasonably likely to have a Material Adverse Effect that have not been
disclosed in this Agreement, the Disclosure Schedule or the Financial
Statements.
(b) No representation or warranty of the Shareholders in this
Agreement, nor any certificate furnished or to be furnished by the Shareholders
to the Parent pursuant to this Agreement, or in connection with the
transactions contemplated by this Agreement, contains or will contain any
untrue statement of a material fact, or omits or will omit to state a material
fact necessary to make the statements contained herein or therein not
misleading.
SECTION 3.30. Investment Purpose; Etc.
(a) Each of the Shareholders hereby confirms that the Parent's Common
Stock which (it)(he) will receive in the Merger will be acquired for investment
for the Shareholders' own account, not as a nominee or agent, and not with a
view to the resale or distribution of any part thereof, and that each of the
Shareholders has no present intention of selling, granting any participation in
or otherwise distributing the Parent's Common Stock. By executing this
Agreement, each of the Shareholders further represents that (it)(he) has no
present intention of selling, granting any participation in or otherwise
distributing the same in a manner contrary to the Securities Act or applicable
state law.
(b) Each of the Shareholders understands that the shares of the
Parent's Common Stock that (it)(he) will receive in the Merger are
characterized as "restricted securities" under the federal securities laws
inasmuch as they are being acquired from the Parent in a transaction not
involving a public offering and that under such laws and applicable regulations
such shares of the Parent's Common Stock may be resold without registration
under the Securities Act only in certain limited circumstances and in
accordance with the terms and conditions set forth in the legend described in
Section 3.30(c). In this connection, each of the Shareholders represents that
(it)(he) is familiar with SEC Rule 144, as presently in effect, and understands
the resale limitations imposed thereby and by the Securities Act.
(c) To the extent applicable, each certificate evidencing any of the
shares of the Parent's Common Stock issued to the Shareholders shall be
endorsed with a legend in substantially the form set forth below, and each of
Shareholders covenants that, except to the extent such restrictions are waived
by the Parent, the Shareholders shall not transfer the shares represented by
any such certificate without complying with the restrictions on transfer
described in the legend endorsed on such certificate:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR
APPLICABLE STATE LAW, AND NO INTEREST THEREIN MAY BE SOLD, DISTRIBUTED,
ASSIGNED, OFFERED, PLEDGED OR OTHERWISE TRANSFERRED UNLESS (i) THERE IS
AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND APPLICABLE STATE
SECURITIES LAWS COVERING ANY SUCH TRANSACTION INVOLVING SAID SECURITIES,
OR (ii)
- 35 -
<PAGE> 42
THIS CORPORATION RECEIVES AN OPINION OF LEGAL COUNSEL FOR THE HOLDER OF
THESE SECURITIES SATISFACTORY TO THIS CORPORATION STATING THAT SUCH
TRANSACTION IS EXEMPT FROM REGISTRATION. THE SECURITIES EVIDENCED BY
THIS CERTIFICATE ARE SUBJECT TO (A) THE RESTRICTION SET FORTH IN SECTION
7.01(a)(ii)(A)(2) OF THAT CERTAIN PLAN AND AGREEMENT OF MERGER DATED AS
OF SEPTEMBER _____, 1996 (THE "PLAN OF MERGER") AMONG THE SHAREHOLDERS
OF NAPTech, INC., SAON, INC. AND THE SHAW GROUP INC. ("SHAW") AND (B)
THE RESTRICTIONS SET FORTH IN THOSE TWO (2) CERTAIN REGISTRATION RIGHTS
AGREEMENTS DATED AS OF ______________, 1996 (THE "REGISTRATION
AGREEMENTS") BETWEEN SHAW AND THE SHAREHOLDERS OF NAPTech, INC. AND SHAW
AND FREEPORT PROPERTIES, L.L.C., RESPECTIVELY. COPIES OF THE PLAN OF
MERGER AND THE REGISTRATION AGREEMENTS ARE FILED WITH THE SECRETARY OF
SHAW. BY ACCEPTANCE OF THIS CERTIFICATE, THE HOLDER HEREOF AGREES TO BE
BOUND BY THE TERMS OF THE PLAN OF MERGER AND THE REGISTRATION
AGREEMENTS.
(d) Each of the Shareholders is an "accredited investor" within the
meaning of Rule 501(a) of Regulation D promulgated under the Securities Act.
(e) None of the Shareholders or their Affiliates have purchased or sold
any shares of Parent's Common Stock since February 1, 1996.
SECTION 3.31. Brokers. No broker, finder or investment banker is
entitled to any brokerage, finder's or other fee or commission in connection
with the transactions contemplated by this Agreement from the Company, the
Subsidiary or the LLC Subsidiary based upon arrangements made by or on behalf
of the Shareholders, the Company, the Subsidiary or the LLC Subsidiary
SECTION 3.32 Freeport Property. The Freeport Property is owned by
Freeport Properties, L.L.C., a Utah limited liability company, the members of
which and percentage ownership of each member is set forth on Exhibit 3.32, and
the only Encumbrance thereon other than Permitted Encumbrances, is a mortgage
in favor of Research Industries having a present outstanding principal balance
of $1,848,588.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF THE PARENT AND THE PARENT SUB
Each of the Parent and the Parent Sub hereby represents and warrants to
the Shareholders and the Company as follows:
- 36 -
<PAGE> 43
SECTION 4.01. Organization and Authority of the Parent and the Parent
Sub. Each of the Parent and the Parent Sub is a corporation duly organized,
validly existing and in good standing under the laws of the State of Louisiana
and has all necessary corporate power and authority to enter into this
Agreement, to carry out its obligations hereunder and to consummate the
transactions contemplated hereby. Upon the approval of this Agreement by the
Board of Directors of the Parent, the execution and delivery of this Agreement
by the Parent and the Parent Sub, the performance by the Parent and the Parent
Sub of their respective obligations hereunder and the consummation by the
Parent and the Parent Sub of the transactions contemplated hereby have been
duly authorized by all requisite corporate action on the part of the Parent.
This Agreement has been duly executed and delivered by the Parent and the
Parent Sub, and (assuming due authorization, execution and delivery by the
Company and the Shareholders) upon receipt of the necessary approvals by
Governmental Authorities, this Agreement will constitute a legal, valid and
binding obligation of the Parent and the Parent Sub enforceable against the
Parent and the Parent Sub in accordance with its terms, except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting rights of creditors or by
general principles of equity.
SECTION 4.02. No Conflict. Assuming the making and obtaining of all
filings, notifications, consents, approvals, authorizations and other actions
referred to in Section 4.03, except as may result from any facts or
circumstances relating solely to the Shareholders or the Parent Sub, the
execution, delivery and performance of this Agreement by the Parent and the
Parent Sub does not and will not (a) violate, conflict with or result in the
breach of any provision of the articles of incorporation or by-laws of the
Parent or the Parent Sub, (b) conflict with or violate any Law or Governmental
Order applicable to the Parent or the Parent Sub which would have a Material
Adverse Effect on the ability of the Parent or Parent Sub to consummate the
transactions contemplated by this Agreement or (c) conflict with, or result in
any breach of, constitute a default (or event which with the giving of notice
or the lapse of time, or both, would become a default) under, require any
consent under, or give to others any rights of termination, amendment,
acceleration, suspension, revocation, or cancellation of, or result in the
creation of any Encumbrance on any of the assets or properties of the Parent or
the Parent Sub pursuant to, any note, bond, mortgage or indenture, contract,
agreement, lease, sublease, license, permit, franchise or other instrument or
arrangement to which the Parent or the Parent Sub is a party or by which any of
such assets or properties are bound or affected which would have a Material
Adverse Effect on the ability of the Parent or the Parent Sub to consummate the
transactions contemplated by this Agreement. The Parent's Common Stock to be
issued pursuant to Section 2.05 will, when issued, be duly authorized, validly
issued, fully paid and nonassessable.
SECTION 4.03. Governmental Consents and Approvals. The execution,
delivery and performance of this Agreement by the Parent and the Parent Sub do
not and will not require any consent, approval, authorization or other order
of, action by, filing with, or notification to, any Governmental Authority or
any other third party, except as set forth in Section 3.07 of the Disclosure
Schedule.
SECTION 4.04. Litigation. Except as disclosed in a writing given to
the Shareholders by the Parent prior to the execution of this Agreement, no
claim, action,
- 37 -
<PAGE> 44
proceeding or investigation is pending or, to the best knowledge of the Parent
and the Parent Sub after due inquiry, threatened, which seeks to delay or
prevent the consummation of, or which could reasonably be expected to
materially adversely affect the Parent's or the Parent's Sub ability to
consummate, or which could otherwise affect the legality, validity or
enforceability of, the transactions contemplated by this Agreement.
SECTION 4.05. Brokers. No broker, finder or investment banker is
entitled to any brokerage, finder's or other fee or commission in connection
with the transactions contemplated by this Agreement based upon arrangements
made by or on behalf of the Parent.
SECTION 4.06. Reports; Financial Statements.
(a) Copies of all reports, registration statements and other filings,
together with any amendments thereto, filed by the Parent with the Securities
and Exchange Commission (the "SEC") since December 8, 1993 through the date of
this Agreement (the "Parent SEC Reports"), have been heretofore delivered to
the Shareholders by the Parent. As of the respective dates of their filing
with the SEC, the Parent SEC Reports complied, and all such reports,
registration statements and other filings to be filed by the Parent with the
SEC prior to the Closing Date will comply, in all material respects with the
applicable requirements of the Securities Act, the Exchange Act, and the rules
and regulations of the SEC promulgated thereunder, and did not at the time they
were filed with the SEC, or will not at the time they are filed with the SEC,
contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
materially misleading.
(b) The consolidated financial statements (including, in each case,
any related notes thereto) contained in the Parent SEC Reports and in any such
reports, registration statements and other filings to be filed by the Parent
with the SEC prior to the Closing Date (i) have been or will be prepared in
accordance with the published rules and regulations of the SEC and GAAP applied
on a consistent basis throughout the periods involved (except as may be
indicated in the notes thereto) and (ii) fairly present or will fairly present
in all material respects the consolidated financial position of the Parent and
its subsidiaries as of the respective dates thereof and the consolidated
results of operations and cash flows for the periods indicated, except that any
unaudited interim financial statements were or will be subject to normal and
recurring year-end adjustments and may omit footnote disclosure as permitted by
regulations of the SEC.
(c) Since May 31, 1996, to the date hereof, there has been no
material adverse event relating to the Parent and its subsidiaries taken as a
whole and no material adverse change in the financial position or results of
operations of the Parent and its subsidiaries taken as a whole which, in either
case, (i) require a public disclosure or filing by the Parent with the SEC or
(ii) will be required to be included in a Parent SEC Report which report
includes the period from May 31, 1996, to the date hereof.
- 38 -
<PAGE> 45
ARTICLE V
ADDITIONAL AGREEMENTS
SECTION 5.01. Conduct of Business Prior to the Effective Time. (a)
Each of the Shareholders and the Company covenants and agrees that from the
date hereof through the earlier of the Closing Date or the termination of this
Agreement, none of the Company, the Subsidiary or the LLC Subsidiary shall
conduct its business other than in the ordinary course and consistent with the
Company's, the Subsidiary's or the LLC Subsidiary's prior practice in order to
protect the value of the Company, the Subsidiary and the LLC Subsidiary.
Without limiting the generality of the foregoing, the Shareholders shall cause
the Company, the Subsidiary, and the LLC Subsidiary, and the Company agrees, to
(i) continue their advertising and promotional activities, pricing and
purchasing policies, operations, and business plan implementation; (ii) not
materially shorten or lengthen the customary payment cycles for any of their
payables or receivables; (iii) use reasonable efforts to attempt to (A) keep
available to the Parent and the Parent Sub the services of the employees of the
Company, (B) continue in full force and effect without material modification
all existing policies or binders of insurance currently maintained in respect
of the Company and the Business except as required by applicable law and (C)
preserve their current relationships with their suppliers, employees, customers
and other persons with which they have significant business relationships; (iv)
exercise, but only after notice to the Parent and receipt of the Parent's prior
written approval, any rights of renewal pursuant to the terms of any of the
leases or subleases set forth in Section 3.19(b) or Leases for Tangible
Personal Property set forth in Section 3.20(a) of the Disclosure Schedule which
by their terms would otherwise expire; (v) maintain all material licenses,
qualifications, registrations and authorizations to do business in each
jurisdiction in which they are so licensed, qualified, registered or
authorized; and (vi) not engage in any practice, take any action, fail to take
any action or enter into any transaction, in each case outside the normal
course of business which could reasonably be expected to cause any
representation or warranty of the Shareholders or the Company to be untrue for
purposes of this Section 5.01(a) as of the date made in any material respect or
result in a breach of any covenant made by the Shareholders or the Company in
this Agreement.
(b) Each of the Shareholders and the Company covenants and agrees
that, prior to the Effective Time, without the prior written consent of the
Parent, which consent will not be unreasonably withheld, none of the Company,
the Subsidiary or the LLC Subsidiary will make outside the ordinary course of
business consistent with past practice any commitment, actual or contingent, to
make any investment or capital contribution, or otherwise expend capital, or
purchase any inventory, or supply funds to any Person, in each case in excess
of $5,000 individually or $10,000 in the aggregate.
(c) Each of the Shareholders and the Company covenants and agrees to,
and shall cause the Company to, use reasonable efforts to minimize the
termination, withdrawal or nonrenewal of any Material Contract.
(d) Prior to the Effective Time, neither the Shareholders nor the
Company, without the prior written consent of the Parent, will:
- 39 -
<PAGE> 46
(i) except as set forth in Section 3.03 of the Disclosure
Schedule, issue, deliver, sell, dispose of, pledge or otherwise encumber, or
authorize or propose the issuance, delivery, sale, disposition or pledge or
other encumbrance of, (A) any additional shares of the capital stock of any
class of the Company, or the Subsidiary, or any membership interest of the LLC
Subsidiary, or any securities or rights convertible into, exchangeable for, or
evidencing the right to subscribe for any shares of the capital stock of the
Company, or the Subsidiary, or any membership interest of the LLC Subsidiary or
any rights, warrants, options, calls, commitments or any other agreements of
any character to purchase or acquire any shares of the capital stock of the
Company, the Subsidiary or any membership interest of the LLC Subsidiary or any
securities or rights convertible into, exchangeable for or evidencing the right
to subscribe for any shares of the capital stock or membership interest of the
LLC Subsidiary, or (B) any other securities in respect of, in lieu of, or in
substitution for the Shares;
(ii) redeem, purchase or otherwise acquire any of the
outstanding Securities of the Company, the Subsidiary or the LLC Subsidiary;
(iii) split, combine, subdivide or reclassify any shares of the
capital stock or declare, set aside for payment or pay any dividend, or make
any other actual constructive or deemed distribution in respect of any shares
of the capital stock of the Company, or the Subsidiary, or any membership
interest of the LLC Subsidiary or otherwise make any payments to the
shareholder or shareholders of the Company, the Subsidiary or the LLC
Subsidiary, as the case may be, in its capacity as such.
SECTION 5.02. Access to Information. (a) From the date hereof until
the earlier of the Effective Time or the termination of this Agreement, upon
reasonable notice, each of the Shareholders and the Company shall and shall
cause each of its Affiliates and each of the Company's and such Affiliates'
officers, directors, employees, agents, representatives, accountants and
counsel to: (i) afford the officers, employees and authorized agents,
accountants, counsel, financing sources, prospective financing sources, and
representatives of the Parent full access to the offices, properties, other
facilities, books and records of the Company, the Subsidiary and the LLC
Subsidiary to those officers, directors, employees, managers, members, agents,
accountants and counsel of the Shareholders and the Company and each of their
Affiliates who have any knowledge relating to, and to the books and records of
the Shareholders and their Affiliates relating to, the Company, the Subsidiary
or the LLC Subsidiary or the Business, (ii) furnish to the Parent monthly
financial and management statements of the Company, the Subsidiary or the LLC
Subsidiary as prepared in the ordinary course of business and (iii) furnish to
the officers, employees and authorized agents, accountants, counsel, financing
sources, prospective financing sources, and representatives of the Parent such
additional financial and operating data and other information regarding the
assets, properties and good will of the Company, the Subsidiary and the LLC
Subsidiary, and the Business (or legible copies thereof) as the Parent or any
of its officers, employees, authorized agents, accountants, counsel, financing
sources, prospective financing sources or representatives may from time to time
reasonably request.
(b) Subject to Section 7.08, in order to facilitate the resolution of
any claims made by or against or incurred by the Shareholders or the Company
prior to the Effective Time
- 40 -
<PAGE> 47
for a period of seven years after the Effective Time, or for such longer period
as may be required so as to extend to the end of the applicable statute of
limitations, the Parent or Parent Sub shall (i) retain the books and records
(or copies thereof) of the Company, the Subsidiary and the LLC Subsidiary
relating to periods prior to the Effective Time in a manner reasonably
consistent with past practice and (ii) upon reasonable notice, afford the
authorized agents and representatives of the Shareholders reasonable access
(including, without limitation, the right to make, at the Shareholders'
expense, photocopies), during normal business hours, to such books and records.
(c) Subject to Section 7.08, in order to facilitate the resolution of
any claims made by or against or incurred by the Parent, the Parent Sub, any
Affiliate of the Parent or the Parent Sub, the Company, the Subsidiary or the
LLC Subsidiary after the Effective Time, for a period of seven years following
the Effective Time, or for such longer period as may be required so as to
extend to the end of the applicable statute of limitations, the Shareholders
shall (i) retain the books and records (or copies thereof) of the Shareholders
which relate to the Company, the Subsidiary and the LLC Subsidiary and their
operations for periods prior to the Effective Time and which shall not
otherwise have been delivered to the Parent, the Company, the Subsidiary or the
LLC Subsidiary and (ii) upon reasonable notice, afford the officers, employees
and authorized agents and representatives of the Parent, the Parent Sub, any
Affiliate of the Parent or the Parent Sub, the Company, the Subsidiary or the
LLC Subsidiary reasonable access (including, without limitation, the right to
make photocopies, at the expense of the Parent, the Parent Sub, such Affiliate
of the Parent or the Parent Sub, the Company, such Subsidiary or such LLC
Subsidiary), during normal business hours, to such books and records.
(d) Within 45 days after the end of each month, each of the
Shareholders and the Company covenants and agrees to provide to the Parent the
monthly consolidated financial statements of the Company prepared in accordance
with GAAP for each month ending between the date hereof and the Closing Date,
together with all related notes, exhibits and schedules thereto.
(e) From the date hereof until the earlier of the Effective Time or
the termination of this Agreement, the Parent agrees to make available to the
Shareholder Representative and the Company's Counsel, upon reasonable notice,
its executive officers to discuss the publicly available information of the
Parent.
SECTION 5.03. Confidentiality. (a) Each of the Shareholders and the
Company agrees to, and shall use their best efforts to cause its agents,
representatives, Affiliates, employees, officers and directors and those of its
Affiliates to: (i) treat and hold as confidential all non-public information
relating to trade secrets, trademark applications, product development, price,
distributor, and customer lists, pricing and marketing plans, policies and
strategies, details of client and consultant contracts, operations methods,
product development techniques, business acquisition plans, new personnel
acquisition plans and all other confidential information with respect to the
Business, the Company, the Subsidiary and the LLC Subsidiary, except as the
Shareholders or the Company reasonably believes is otherwise required to be
disclosed by applicable Law, in which event each of the Shareholders or the
Company agrees to, and shall instruct its agents, representatives,
- 41 -
<PAGE> 48
Affiliates, employees, officers and directors and those of its Affiliates to,
furnish only that portion of such confidential information which the
Shareholders or the Company are legally required to be provided and exercise
its reasonable efforts to obtain assurances that confidential treatment will be
accorded such information, and (ii) in the event that the Shareholders or any
such agent, representative, Affiliate, employee, officer or director and those
of its Affiliates are served with a subpoena, order or other legal process to
disclose any such information, provide the Parent with prompt written notice of
such requirement so that the Parent, the Parent Sub, the Company, the
Subsidiary or the LLC Subsidiary may, at the expense of the Parent, seek a
protective order or other remedy. Each of the Shareholders and the Company
agrees to, and shall cause its agents, representatives, Affiliates, employees,
officers and directors to, furnish promptly (prior to, at, or as soon as
practicable following, the Effective Time) to the Parent Sub or the Parent any
and all copies (in whatever form or medium) of all such confidential
information then in the possession of the Shareholders or the Company or any of
their agents, representatives, Affiliates, employees, officers and directors
and, except as otherwise required by Section 5.02(c) or Section 7.09, destroy
any and all additional copies then in the possession of the Shareholders or any
of such agents, representatives, Affiliates (other than the Company, the
Subsidiary and the LLC Subsidiary), employees, officers and directors of such
information and of any analyses, compilations, studies or other documents
prepared, in whole or in part, on the basis thereof; provided, however, this
Section 5.03(a) shall not apply to any information that, at the time of
disclosure, is available publicly or was not disclosed in breach of this
Agreement by the Shareholders or the Company or their agents, representatives,
Affiliates, employees or officers or directors of its Affiliate. Each of the
Shareholders and the Company agrees and acknowledges that remedies at law for
any breach of its obligations under this Section 5.03(a) are inadequate and
that in addition thereto the Parent or the Parent Sub shall be entitled to seek
equitable relief, including injunction and specific performance, in the event
of any such breach. The non-disclosure obligations of the Company and the
Shareholders in this Section 5.03(a) shall include any non-public or
proprietary information relating to the Parent or its Affiliates which they may
obtain in the course of their due diligence activities permitted by this
Agreement.
(b) Prior to the Closing or upon earlier termination of this
Agreement, each of the Parent and the Parent Sub agrees to, and shall use their
best efforts to cause its agents, representatives, Affiliates, employees,
officers and directors and those of its Affiliates to: (i) treat and hold as
confidential all non-public information relating to trade secrets, trademark
applications, product development, price, distributor, and customer lists,
pricing and marketing plans, policies and strategies, details of client and
consultant contracts, operations methods, product development techniques,
business acquisition plans, new personnel acquisition plans and all other
confidential information with respect to the Business, the Company, the
Subsidiary and the LLC Subsidiary, except as the Parent or the Parent Sub
reasonably believes is otherwise required to be disclosed by applicable Law, in
which event each of the Parent or the Parent Sub agrees to, and shall instruct
its agents, representatives, Affiliates, employees, officers and directors and
those of its Affiliates to, furnish only that portion of such confidential
information which the Parent or the Parent Sub are legally required to be
provided and exercise its reasonable efforts to obtain assurances that
confidential treatment will be accorded such information, and (ii) in the event
that the Parent Sub or any such agent, representative, Affiliate, employee,
officer or director and
- 42 -
<PAGE> 49
those of its Affiliates are served with a subpoena, order or other legal
process to disclose any such information, provide the Shareholders
Representative with prompt written notice of such requirement so that the
Company or the Shareholders may, at the expense of the Shareholders seek a
protective order or other remedy. Upon termination of this Agreement, each of
the Parent and the Parent Sub agrees to, and shall cause its agents,
representatives, Affiliates, employees, officers and directors to, furnish
promptly (prior to, at, or as soon as practicable following, the Effective
Time) to the Company any and all copies (in whatever form or medium) of all
such confidential information then in the possession of the Parent or the
Parent Sub or any of their agents, representatives, Affiliates, employees,
officers and directors and, except as otherwise required by Section 5.02(b) or
Section 7.09, destroy any and all additional copies then in the possession of
the Parent, the Parent Sub or any of such agents, representatives, Affiliates,
employees, officers and directors of such information and of any analyses,
compilations, studies or other documents prepared, in whole or in part, on the
basis thereof; provided, however, this Section 5.03(b) shall not apply to any
information that, at the time of disclosure, is available publicly or was not
disclosed in breach of this Agreement by the Parent or the Parent Sub or their
agents, representatives, Affiliates, employees or officers or directors of its
Affiliate. Each of the Parent and the Parent Sub agrees and acknowledges that
remedies at law for any breach of its obligations under this Section 5.03(b)
are inadequate and that in addition thereto the Parent or the Parent Sub shall
be entitled to seek equitable relief, including injunction and specific
performance, in the event of any such breach.
(c) Notwithstanding the foregoing provisions of this Section 5.03,
the Parent is expressly permitted to make a press release or other public
announcement on filing regarding this transaction as it deems appropriate in
its discretion.
SECTION 5.04. Regulatory and Other Authorizations; Notices and
Consents. (a) Each of the Shareholders, the Company, the Parent Sub and the
Parent shall use all reasonable efforts to obtain (or cause the Company, the
Subsidiary and the LLC Subsidiary to obtain) all authorizations, consents,
orders and approvals of all Governmental Authorities and officials that are or
become necessary for their execution and delivery of, and the performance of
their obligations pursuant to, this Agreement, including without limitation
those set forth on Exhibit 5.04 and will cooperate fully with each other in
promptly seeking to obtain all such authorizations, consents, orders and
approvals.
(b) The Shareholders shall cause the Company, the Subsidiary, and the
LLC Subsidiary, and the Company agrees, to give promptly such notices to third
parties and use all reasonable efforts to obtain such third party consents and
estoppel certificates in connection with the transactions contemplated by this
Agreement, including without limitation those set forth on Exhibit 5.04.
(c) The Parent and the Parent Sub shall cooperate and use all
reasonable efforts to assist the Shareholders, the Company, the Subsidiary and
the LLC Subsidiary in giving such notices and obtaining such consents and
estoppel certificates; provided, however, that none of the Shareholders, the
Company, the Parent or the Parent Sub shall have any obligation to give any
guarantee or other consideration of any nature in connection with any such
notice, consent or estoppel certificate or to consent to any change in the
terms of any
- 43 -
<PAGE> 50
agreement or arrangement which would be adverse to the interests of the
Shareholders, the Parent, the Parent Sub, the Company, the Subsidiary and the
LLC Subsidiary or the Business.
(d) The Shareholders and the Parent agree that, in the event any such
consent, approval or authorization reasonably necessary to preserve for the
Business, the Company, the Subsidiary or the LLC Subsidiary any right or
benefit under any lease, license, contract, commitment or other agreement or
arrangement to which the Shareholders, the Company, the Subsidiary or the LLC
Subsidiary are or is a party is not obtained prior to the Effective Time, the
Shareholders will, subsequent to the Effective Time, cooperate with the Parent
and the Parent Sub in attempting to obtain such consent, approval or
authorization as promptly thereafter as practicable and, in the case of
contracts and agreements, so as to provide for the Parent and Parent Sub the
benefits under such contracts and agreements.
SECTION 5.05. Notice of Developments. (a) Prior to the earlier of the
Closing or termination of this Agreement, the Shareholders and the Company
shall notify promptly, and in any event within five Business Days, the Parent
in writing, to the extent of the best knowledge of the Shareholders and the
Company, of (i) all events, circumstances, facts and occurrences arising
subsequent to the date of this Agreement which could reasonably be expected to
result in any breach of a representation or warranty or covenant of the
Shareholders or the Company in this Agreement or which could reasonably be
expected to have the effect of making any representation or warranty of the
Shareholders or the Company in this Agreement untrue or incorrect in any
material respect and (ii) all other material developments, other than general
economic or market changes, and changes in Tax Law affecting the assets,
Liabilities, business, financial condition, operations, results of operations,
distributor, customer or employee relations or prospects of the Company, the
Subsidiary or the LLC Subsidiary or the Business.
(b) Prior to the earlier of the Effective Time or termination of this
Agreement, the Parent and the Parent Sub shall promptly, and in any event
within five Business Days, notify the Shareholders in writing, to the extent of
the best knowledge of the Parent and the Parent Sub, of all events,
circumstances, facts and occurrences arising subsequent to the date of this
Agreement which could reasonably be expected to result in any breach of a
representation or warranty or covenant of the Parent or Parent Sub in this
Agreement or which could reasonably be expected to have the effect of making
any representation or warranty of the Parent or Parent Sub in this Agreement
untrue or incorrect in any respect.
SECTION 5.06. Acquisition Proposals. (a) The Shareholders and the
Company and their respective officers, directors, employees, representatives
and agents shall immediately cease any existing discussions or negotiations
with any parties conducted heretofore with respect to any Acquisition Proposal.
Neither the Shareholders, the Company, nor their respective officers,
directors, employees or investment bankers, attorneys, accountants or other
agents retained by either of them will (i) initiate or solicit, directly or
indirectly, any inquiries regarding the making of any Acquisition Proposal, or
(ii) engage in negotiations or discussions with, or furnish any information or
data to any third party relating to an Acquisition Proposal.
- 44 -
<PAGE> 51
(b) For purposes of this Agreement, the term "Acquisition Proposal"
shall mean any purchase offer made by a third party to acquire (i) beneficial
ownership (as defined pursuant to Section 13(d) of the Exchange Act) of an
equity interest in the Company or the Assets or Business pursuant to a merger,
consolidation or other business combination, sale of shares of capital stock or
similar transaction involving the Company, including, without limitation, any
single or multistep transaction or series of related transactions which is
structured to permit such third party to acquire beneficial ownership of a
majority or greater equity interest in the Company or the Assets or Business or
(ii) all or substantially all of the business or assets of the Company or the
Business (other than the transactions contemplated by this Agreement).
SECTION 5.07. Use of Names and Intellectual Property. (a) Each of the
Shareholders covenants and agrees that following the Effective Time, the Parent
shall have the exclusive and royalty-free right to use the names NAPTech, North
American Piping Technologies, NAPTech Pressure Systems, NAPTech and Design
Pressure Products and such other names as may be determined upon completion of
the Due Diligence Review by Shaw (collectively, the "Name").
(b) From and after the Effective Time, neither the Shareholders nor
any of its Affiliates shall use the Name, any of the Owned Intellectual
Property or any of the Licensed Intellectual Property.
SECTION 5.08. Non-Competition. (a) For a period of two years
following the Effective Time, none of the Shareholders shall, directly or
indirectly, or as a member, shareholder, officer, director, consultant or
employee of any other person or entity, compete with the Parent or any of its
subsidiaries or Affiliates, or own, manage, operate, join, control or
participate in the ownership, management, operation, or control of, or become
employed by, consult or advise, or be connected in any manner with any business
or activity which is in actual, direct or indirect competition or anticipated
competition with the Parent or any of its subsidiaries or Affiliates within
those counties, parishes, municipalities or other places listed in Exhibit
5.08(a) annexed hereto and made a part hereof, so long as the Parent or any of
its subsidiaries or Affiliates carries on a like business therein. Not by way
of limitation or exclusion, none of the Shareholders shall, within the
aforesaid locations and during the aforesaid time period, call upon, solicit,
advise or otherwise do, or attempt to do, business with any customers or
distributors of the Business, the Company, the Subsidiary or the LLC Subsidiary
with whom the Business, the Company, the Subsidiary or the LLC Subsidiary or
any of the Shareholders had any dealings during the period of time in which the
Company was an Affiliate of the Shareholders, or take away or interfere or
attempt to interfere with any custom, trade, business or patronage of the
Business, the Company, the Subsidiary or the LLC Subsidiary, or interfere with
or attempt to interfere with any officers, employees, distributors,
representatives or agents of the Business, the Company, the Subsidiary or the
LLC Subsidiary, or employ or induce or attempt to induce any of them to leave
the employ of the Company, the Subsidiary or the LLC Subsidiary or violate the
terms of their contracts, or any employment arrangements, with the Company, the
Subsidiary or the LLC Subsidiary. Each of the Shareholders acknowledges and
agrees that any breach of the foregoing covenant not to compete would cause
irreparable injury to the Parent and its subsidiaries and Affiliates, and that
the amount of injury would be impossible or difficult
- 45 -
<PAGE> 52
to fully ascertain. Each of the Shareholders agrees that the Parent and its
subsidiaries and affiliates shall, therefore, be entitled to obtain an
injunction restraining any violation, further violation or threatened violation
of the covenant not to compete hereinabove set forth, in addition to any other
remedies that the Parent or its subsidiaries or Affiliates may pursue.
Notwithstanding the foregoing provisions of this Section 5.08, the
Shareholders, may own, solely as an investment, securities if the Shareholders
(A) are not an affiliate of the issuer of such securities and (B) do not,
directly or indirectly, beneficially own more than 5% of the class of which
such securities are a part. If the two year period referred to in this Section
5.08(a) shall be finally determined by a court to exceed the maximum period
which is permissible by applicable law, the said period shall be reduced to the
maximum period permitted by such law.
(b) Each of the Shareholders acknowledges that the covenants of the
Shareholders set forth in Section 5.08(a) are an essential element of this
Agreement and that, but for the agreement of the Shareholders to comply with
these covenants, the Parent would not have entered into this Agreement. Each
of the Shareholders has independently consulted with its counsel and after such
consultation agrees that the covenants set forth in this Section 5.08 are
reasonable and proper.
SECTION 5.09. Release of Indemnity and Other Obligations. The
Shareholders covenant and agree, on or prior to the Effective Time, to execute
and deliver to the Parent, for the benefit of the Company, the Subsidiary and
the LLC Subsidiary, a general release and discharge, in form and substance
satisfactory to the Parent, releasing and discharging the Parent, Parent Sub,
the Company, the Subsidiary and the LLC Subsidiary, from any and all
obligations to pay any amounts to or perform any obligations owing to, or
indemnify, the Shareholders or otherwise hold the Shareholders harmless
pursuant to any agreement or other arrangement entered into prior to the
Effective Time between the Shareholders or any Affiliate of the Shareholders
(other than the Company, the Subsidiary and the LLC Subsidiary) and the
Company, the Subsidiary or the LLC Subsidiary except such agreements as are
described in Section 5.09 of the Disclosure Schedule.
SECTION 5.10. Further Action. Each of the parties hereto shall use all
reasonable efforts to take, or cause to be taken, all appropriate action, do or
cause to be done all things necessary, proper or advisable under applicable
Law, and execute and deliver such documents and other papers, as may be
required to carry out the provisions of this Agreement and consummate and make
effective the transactions contemplated by this Agreement.
SECTION 5.11. Removal of Encumbrances on Assets. Each of the
Shareholders and the Company covenants and agrees to cause all Encumbrances on
the Assets (other than Permitted Encumbrances) to be removed at or prior to the
Effective Time. The Parent shall cooperate and use all reasonable efforts to
assist the Shareholders and the Company in obtaining the removal of such
Encumbrances; provided, however, that the Parent and the Parent Sub shall have
no obligation to give any guarantee or other consideration of any nature in
connection with the removal of any such Encumbrance. The parties hereto agree
that, in the event the Shareholders and the Company are unable to cause the
removal of any Encumbrance on any Asset (other than Permitted Encumbrances)
prior to the Effective
- 46 -
<PAGE> 53
Time, the Shareholders shall, following the Effective Time, use reasonable
efforts to cooperate with the Parent and the Company in attempting to remove
such Encumbrance as promptly as practicable.
SECTION 5.12. Certain Additional Covenants. (a) The Parent agrees to
cause the Company to maintain, for a period of three years after the Closing,
products liability insurance providing coverage comparable to that maintained
by the Company as of the date hereof, to the extent such coverage is available
at a reasonable cost.
(b) The Shareholders agree not to take, and prior to the Effective
Time to cause the Company not to take, an action which would cause the
representations set forth in Section 3.09(a) to become untrue or inaccurate in
any way.
(c) The Parent agrees to issue the Replacement Options at the
Effective Time in substitution of the Company Options held by employees of the
Company at the Effective Time.
(d) If any of the Company Options are exercised by any of the persons
listed in Section 3.03(b) of the Disclosure Schedule after the date of this
Agreement but before the Closing Date, then the Company and the Shareholders
covenant and agree:
(i) If the person exercising the Company Option is an
"accredited investor" within the meaning of Rule 501(a) of
Regulation D promulgated under the Securities Act, to
cause such person to become a signatory to this Agreement
at the time of such exercise; or
(ii) If the person exercising the Company Option is not an
"accredited investor" within the meaning of Rule 501(a) of
Regulation D promulgated under the Securities Act, to
purchase on or before the Closing Date, but prior to the
Closing, the Common Stock into which the Company Option is
exercised at a price per share equal to the product of
0.0772611 times the average of the published closing price
of the Parent's Common Stock on the Nasdaq Stock Market
for the five trading days immediately preceding the date
upon which the Company purchases the Common Stock.
(e) The Company and the Shareholders covenant and agree to cause the
exercise, prior to the Closing Date, of any Company Options held by individuals
no longer employed by the Company, the Subsidiary or the LLC Subsidiary as of
the date hereof, and upon such exercise, to cause compliance with the
provisions of Section 5.12(d)(i) or (ii) above, as applicable; provided,
however, the Company shall make no payments to such individuals to cause them
to exercise any such Company Options. Provided further, however, the Company
and the Shareholders shall not be required to cause such exercise if the
Company's Counsel renders an opinion satisfactory to the Parent that the
exchange of the Parent's Common Stock in lieu of the Common Stock as permitted
by each such Company
- 47 -
<PAGE> 54
Option at a conversion rate of 0.0772611 and the issuance of the Parent's
Common Stock upon exercise of such Company Option is a transaction which
qualifies for an exemption under applicable federal and state securities laws.
(f) If the Convertible Note is converted, after the date of this
Agreement, but before the Closing Date, by the holder thereof into shares of
the Common Stock, then the Company and the Shareholders agree:
(i) If the Person converting the Convertible Note into shares
of Common Stock is an "accredited investor" within the
meaning of Rule 501(a) of Regulation D promulgated under
the Securities Act, to cause such Person to become a
signatory to this Agreement at the time of such
conversion; or
(ii) If the Person converting the Convertible Note into shares
of Common Stock is not an "accredited investor" within the
meaning of Rule 501(a) of Regulation D promulgated under
the Securities Act, to purchase, on or before the Closing
Date, but prior to the Closing, Common Stock into which
the Convertible Note was converted at a price per share
equal to the product of 0.0772611 times the average of the
published closing price of the Parent's Common Stock for
the five trading days immediately preceding the date upon
which the Company purchases the Common Stock.
(g) The Company and the Shareholders agree to cause the Subsidiary to
acquire on or prior to the Closing Date all of the membership interests of the
LLC Subsidiary not owned as of the date hereof by the Company.
SECTION 5.13. Termination of Inter-Company Arrangements, etc. At or
prior to the Closing, the Shareholders shall cause the Inter-Company
Arrangements, other than those described in Section 5.13 of the Disclosure
Schedule, to be terminated on terms reasonably satisfactory to the Parent. The
Parent shall have received the general releases and discharges from the
Shareholders referred to in Section 5.09 in form and substance reasonably
satisfactory to the Parent.
ARTICLE VI
MINORITY SHAREHOLDERS
SECTION 6.01. Certain Limitations on Representations and Warranties of
the Minority Shareholders. Notwithstanding any other provision of this
Agreement to the contrary: (a) the representations and warranties of each of
the Minority Shareholders in Sections 3.01, 3.03(b), (c) and (d) and 3.30 are
limited to the Shares owned by each of such Minority Shareholder and to each
such Minority Shareholder, as applicable; and (b) the
- 48 -
<PAGE> 55
other representations and warranties of each of the Minority Shareholders in
Article III and Section 7.01 are limited to the actual knowledge of each such
Minority Shareholder.
ARTICLE VII
TAX MATTERS
SECTION 7.01. Representations, Warranties and Covenants.
(a) Reorganization.
(i) The parties hereto intend that the Merger will qualify as
a reorganization under Sections 368(a)(1)(A) and (a)(2)(E) or Section
368(a)(1)(B) of the Code and each party agrees that, unless otherwise required
by law, no such party shall at any time file any return or other document with
the U.S. Internal Revenue Service or any other taxing authority inconsistent
with such treatment.
(ii) In regard to Section 7.01(a) above, the parties hereto
make the following representations, warranties and covenants:
(A) Each of the Shareholders hereby represents and
warrants, as of the date hereof and as of the Closing Date, and
covenants to the Parent as follows:
(1) The Company will retain immediately after
the Merger 90% of the fair market value of the net assets and 70%
of the fair market value of the gross assets held by the Company
immediately prior to the Merger.
(2) None of the Shareholders has any plan or
intention, and agrees for a period of two years following the
Effective Time not, to sell, exchange or otherwise dispose of a
number of shares of the Parent's Common Stock received in the
Merger that would reduce the Shareholders' ownership of shares of
the Parent's Common Stock to a number of shares having a value,
as of the Closing Date, of less than 50% of the value of all of
the formerly outstanding stock of the Company as of the same
date.
(3) The Parent will acquire in the Merger 80% of
the outstanding stock of the Company solely in exchange for
voting stock of the Parent (i.e., the Parent's Common Stock).
(4) The liabilities of the Company, including
the liabilities to which the transferred assets of the Company
- 49 -
<PAGE> 56
are subject, were incurred by the Company in the ordinary course of
business.
(5) The Company will bear its own expenses
incurred in connection with this Agreement, and any expenses
attributable to the Shareholders incurred in connection with this
Agreement (including the fees and costs of Company's Counsel and
accountants in excess of $81,000) will be paid by them.
(B) The Parent hereby represents and warrants, as of
the date hereof and as of the Closing Date, to the Shareholders as
follows:
(1) The Parent Sub is newly formed, has no other
business or assets and was created for the purpose of this
transaction.
(2) The Parent has no plan or intention to
redeem or otherwise reacquire any of its stock issued in the
Merger.
(3) The Parent has no plan or intention to
liquidate the Surviving Corporation; to sell or otherwise dispose
of the stock of the Surviving Corporation, or cause the Surviving
Corporation to issue additional shares of its stock, thereby
resulting in the Parent losing control of the Surviving
Corporation within the meaning of Section 368(c) of the Code; or
to cause the Surviving Corporation to dispose of, in transactions
for which full consideration is not received, more than 20% of
the assets of the Company acquired in the Merger, except for
transfers of assets to a corporation controlled (within the
meaning of Section 368(c) of the Code) by the Surviving
Corporation.
(4) Following the Merger, it is intended that
the Surviving Corporation will continue the historic business of
the Company or will use a significant portion of the historic
business assets of the Company in a business as such terms are
used in Treas. Reg. Section 1.368-1(d).
(5) The Parent will pay its own expenses
incurred in this transaction and the Parent Sub's expenses, if
any, incurred in connection with this Agreement will be paid by
the Parent.
(6) The Parent will control the Parent Sub
within the meaning of Section 368(c) of the Code immediately
prior to the Closing Date.
- 50 -
<PAGE> 57
(7) The Parent has no present intention to merge
the Company with or into any other corporation, to transfer the
stock of the Company to a corporation other than one it controls
within the meaning of Section 368(c) of the Code, or to sell or
otherwise dispose of the stock of the Company.
(8) The Parent Sub has no liabilities that will
be assumed by the Company, and the Parent Sub will not transfer
any assets subject to liabilities in the Merger.
(9) Neither the Parent nor the Parent Sub is an
"investment company" as defined in Section 368(a)(2)(F) of the
Code.
(10) There is no intercorporate indebtedness
existing between the Parent and the Company or between the Parent
Sub and the Company that was issued, acquired or will be settled,
in each case at a discount, and that the Parent and the Parent
Sub do not own, nor have they owned during the past five (5)
years, any stock of the Company.
(11) Immediately prior to the Effective Time,
Parent will control the Parent Sub within the meaning of Section
368(c) of the Code.
(12) Neither the Parent nor the Parent Sub is an
"investment company" as defined in Section 368(a)(2)(F) of the
Code.
(13) There is no intercorporate indebtedness
existing between the Parent and the Company or between the Parent
Sub and the Company that was issued, acquired or will be settled
at a discount.
(14) The Parent and the Parent Sub do not own,
nor have they owned during the past five (5) years, any stock of
the Company.
(b) Each of the Shareholders hereby represents and warrants, as of
the date hereof and as of the Closing Date, as follows:
(i) except as set forth in Section 7.01 of the Disclosure
Schedule, (A) all returns and reports in respect of Taxes ("Tax Returns" or
"Returns") required to be filed as of the date of this Agreement with respect
to the Company, the Subsidiary and the LLC Subsidiary (including the
consolidated federal income Tax Returns and state income or
- 51 -
<PAGE> 58
franchise Tax Returns that include the Company, the Subsidiary or the LLC
Subsidiary on a consolidated, combined, or unitary ("combined") basis) have
been timely filed; (B) all Taxes shown to be payable on such Returns and all
assessments of Tax made against the Company, the Subsidiary or the LLC
Subsidiary with respect to such Returns have been paid; (C) all such Returns
are true, correct, and complete in all material respects; and (D) no adjustment
relating to such Returns has been proposed formally or informally by any Tax
authority and, to the best knowledge of the Shareholders and the Company, no
basis exists for any such adjustment;
(ii) except as set forth in Section 7.01 of the Disclosure
Schedule, there is no pending or, to the best knowledge of the Shareholders and
the Company, threatened actions or proceedings for the assessment or collection
of Taxes against the Company, the Subsidiary or the LLC Subsidiary;
(iii) no consent under Section 341(f) of the Code has been filed
with respect to the Company, the Subsidiary or the LLC Subsidiary;
(iv) there are no Tax liens on any assets of the Company, the
Subsidiary or the LLC Subsidiary, except liens for Taxes that are not yet due
and payable;
(v) no acceleration of the vesting schedule for any property
that is substantially nonvested within the meaning of the regulations under
Section 83 of the Code will occur in connection with the transactions
contemplated by this Agreement;
(vi) none of the Company, the Subsidiary or the LLC Subsidiary
has been a "United States real property holding corporation" within the meaning
of Section 897(c)(2) of the Code during the applicable period specified in
Section 897(c)(1)(A)(ii) of the Code;
(vii) except as set forth in Section 7.01 of the Disclosure
Schedule, none of the Company, the Subsidiary or the LLC Subsidiary is or has
been doing business in, is, or has been engaged in a trade or business or has
business in force in any jurisdiction in which it has not filed all required
material income, franchise, or gross premium tax returns or other applicable
returns;
(viii) none of the Company, the Subsidiary or the LLC Subsidiary
is subject to any accumulated earnings tax penalty or personal holding company
tax;
(ix) there are no outstanding waivers or agreements extending
the statute of limitations for any tax period with respect to any Tax to which
the Company, the Subsidiary or the LLC Subsidiary may be subject;
(x) none of the Company, the Subsidiary or the LLC Subsidiary
(A) has an unrecaptured overall foreign loss within the meaning of Section
904(f) of the Code or (B) has participated in or cooperated with an
international boycott within the meaning of Section 999 of the Code;
- 52 -
<PAGE> 59
(xi) except as set forth in Section 7.01(a) of the Disclosure
Schedule, as of March 29, 1996, none of the Company, the Subsidiary or the LLC
Subsidiary had any (1) income reportable for a taxable period ending after
March 29, 1996, but attributable to a transaction (e.q., an installment sale)
occurring in or a change in accounting method made for a taxable period ending
on or prior to March 29, 1996, that resulted in a deferred reporting of income
from such transaction or from such change in accounting method (other than a
deferred intercompany transaction), or (2) deferred gain or loss arising out of
any deferred intercompany transaction that occurred prior to March 29, 1996;
(xii) there are no outstanding requests for information made by
a taxing authority to the Company, the Subsidiary or the LLC Subsidiary;
(xiii) none of the Company, the Subsidiary or the LLC Subsidiary
has been advised by any Governmental Authority of any proposed reassessments of
the value (or other Tax base) of any property owned by the Company, the
Subsidiary or the LLC Subsidiary that could increase the amount of a property
Tax to which the Company, the Subsidiary or the LLC Subsidiary would be
subject;
(xiv) none of the Company, the Subsidiary or the LLC Subsidiary
is obligated under any agreement with respect to industrial development bonds
or other obligations with respect to which the excludability from gross income
of the holder for federal income tax purposes could be affected by the
transactions contemplated hereunder;
(xv) no power of attorney that is currently in force has been
granted with respect to any matter relating to Taxes that could affect the
Company, the Subsidiary or the LLC Subsidiary;
(xvi) except as set forth in Section 3.04 of the Disclosure
Schedule, none of the Company, the Subsidiary or the LLC Subsidiary has been a
member of any partnership or joint venture or the holder of a beneficial
interest in any trust for any period for which the statute of limitations for
any Tax has not expired;
(xvii) except as set forth in Section 7.01 of the Disclosure
Schedule, neither the Shareholders nor any Affiliate of the Shareholders has
made any capital contributions to the Company, the Subsidiary or the LLC
Subsidiary during the two-year period preceding the date of this Agreement;
(xviii) no "ownership change", within the meaning of Section 382
of the Code has occurred with respect to the Company, the Subsidiary or the LLC
Subsidiary except as contemplated by this Agreement since December 31, 1992;
(xix) Section 7.01 of the Disclosure Schedule (A) lists by type
all income, franchise, and similar Tax Returns (federal, state, local, and
foreign) filed with respect to each of the Company, the Subsidiary and the LLC
Subsidiary for taxable periods ended on or after January 1, 1992; (B) indicates
for which jurisdictions Returns have been filed on the basis of a combined
group; (C) indicates the most recent income, franchise, or similar Tax Return
for each relevant jurisdiction for which an audit has been completed or the
statute
- 53 -
<PAGE> 60
of limitations has lapsed; and (D) indicates all Tax Returns that currently are
the subject of audit;
(xx) Section 7.01 of the Disclosure Schedule sets forth as of
March 29, 1996, the amount and expiration dates of any net operating loss, net
capital loss, unused business credit, unused foreign tax credit, or excess
charitable contribution allocable to the Company, the Subsidiary and the LLC
Subsidiary as reported on the consolidated federal income tax return filed by
such corporations. As of March 29, 1996, each of the Company, the Subsidiary
and the LLC Subsidiary had no less than $4.584 million aggregate net operating
losses available for carryover to taxable years beginning after March 29, 1996;
(xxi) liabilities, expenses (defined or otherwise), reserves and
allowances on the books and records of the Company, the Subsidiary and the LLC
Subsidiary have been provided which are adequate to satisfy all Liabilities for
Taxes relating to the Company, the Subsidiary and the LLC Subsidiary for any
and all periods (A) through the date of the Financial Statements (without
regard to the materiality thereof) and (B) after the date of the last Financial
Statement through and including the Effective Time (or if later, the Closing
Date);
(xxii) Section 7.01 of the Disclosure Schedule sets forth the tax
basis of the Company, the Subsidiary and the LLC Subsidiary as of March 29,
1996 in each asset; and
(xxiii) Section 7.01 of the Disclosure Schedule shall, not
later than 30 days prior to the Closing Date, completely and accurately list,
all Tax Returns required to be filed by the Company, the Subsidiary and the LLC
Subsidiary between the date of this Agreement and December 31, 1996.
SECTION 7.02. Access to Information. (a) From the date hereof, the
Shareholders shall and shall cause the Company, the Subsidiary and the LLC
Subsidiary to make available to the Parent: (i) all federal, state, and foreign
income, franchise, and similar Tax Returns for taxable periods ended after
January 1, 1992, and any examination reports and statements of deficiencies
assessed against, proposed to be assessed against, or agreed to by the Company,
the Subsidiary or the LLC Subsidiary for such taxable periods; (ii) any tax
sharing or allocation agreement or arrangement involving the Company, the
Subsidiary or the LLC Subsidiary and a complete and accurate description of any
such unwritten or informal agreement or arrangement; (iii) any pro forma
federal income Tax Returns of the Subsidiary, together with any schedule
reconciling the items in the pro forma Tax Return to the items as included in
the consolidated Tax Return, for all taxable years ended after January 1, 1992;
and (iv) any workpapers or schedules showing (A) the tax basis of the
shareholders in the Common Stock, (B) the tax basis of the Company in the stock
of the Subsidiary or the membership interest in the LLC Subsidiary, and (C) the
amount of U.S. tax earnings and profits for the Company, the Subsidiary and the
LLC Subsidiary.
(b) The information described in Section 7.02(a) shall be made
available to the Parent in accordance with the provisions of Section 5.02(a).
- 54 -
<PAGE> 61
SECTION 7.03. Returns and Payments. (a) From the date of this Agreement
through and after the Closing Date, the Shareholders shall prepare and file or
otherwise furnish in proper form to the appropriate Governmental Authority (or
cause to be prepared and filed or so furnished) in a timely manner (with
extensions) all Tax Returns required to be filed by the Company, the Subsidiary
and the LLC Subsidiary that are due on or before the 10th day after the
Effective Time (or if later, the Closing Date) (and the Parent shall do the
same with respect to any Tax Return required to be filed after the 10th day
after the Effective Time (or if later, the Closing Date)). None of the Parent,
the Parent Sub, the Company, the Subsidiary or the LLC Subsidiary or their
employees or agents shall have any liability to the Shareholders with respect
to the preparation and filing of Returns for periods ending on or prior to the
Effective Time (or if later, the Closing Date) (other than by reason of gross
negligence); the Shareholders shall indemnify each such Person against any
liability or cost by reason of a claim by a Tax authority under Section 6694 of
the Code, or any corresponding provision of any other law, to the extent
relating to such preparation; and the Shareholders shall reimburse the Company,
the Parent Sub and the Subsidiary against third-party professional fees, if
any, incurred in connection with such preparation. Returns of the Company, the
Subsidiary and the LLC Subsidiary not yet filed for any taxable period that
begins before the Effective Time (or if later, the Closing Date) shall be
prepared in a manner consistent with past practices employed with respect to
the Company, the Subsidiary and the LLC Subsidiary (except to the extent
present counsel for the Shareholders or the Company renders a legal opinion
that there is no reasonable basis in law therefor or determines that a Return
cannot be so prepared and filed without being subject to penalties). With
respect to any Return required to be filed by the Parent or the Shareholders
with respect to the Company, the Subsidiary and the LLC Subsidiary and as to
which an amount of Tax is allocable to the other party under Section 7.05(b) or
as to which the other party is responsible for an amount of tax under Section
7.05(a), the filing party shall provide the other party and such party's
authorized representatives with a copy of such completed Return and a statement
certifying the amount of Tax shown on such Return that is allocable to such
other party pursuant to Section 7.05(b), together with appropriate supporting
information and schedules at least 20 Business Days prior to the due date
(including any extension thereof) for the filing of such Return, and such other
party and such other party's authorized representatives shall have the right to
review and comment on such Return and statement prior to the filing of such
Return. Such other party shall have the right to dispute the amount of Taxes
allocated to such party by the filing party, and any dispute that cannot be
resolved between the parties shall be resolved by an independent certified
public accountant reasonably acceptable to all parties or by binding
arbitration as described in Section 7.03(c). Any objections not raised at
least 10 Business Days after the date the filing party provides a draft
completed Return and accompanying statement shall be deemed waived.
(b) The Shareholders shall pay or cause to be paid when due and
payable all Taxes with respect to the Company, the Subsidiary and the LLC
Subsidiary for any taxable period ending before or on the Effective Time (or if
later, the Closing Date). The Parent shall pay or cause to be paid when due
and payable all Taxes with respect to the Company, the Subsidiary and the LLC
Subsidiary for any taxable period ending before or on the Effective Time (or if
later, the Closing Date) to the extent of the amount, if any, accrued for such
Taxes at the Effective Time (or if later, the Closing Date). The Parent shall
also
- 55 -
<PAGE> 62
pay or cause to be paid when due and payable all Taxes for any taxable period
ending after the Effective Time (or if later, the Closing Date) (subject to any
right of indemnification from the Shareholders hereunder for Taxes).
(c) If the parties cannot resolve a dispute under Section 7.03(a) in
the manner set forth therein, either party shall have the right to submit such
dispute to a single arbitrator for resolution. The arbitrator shall be
selected by mutual agreement of the parties. The arbitrator shall be an
individual who is a certified public accountant and who has substantial
experience with respect to tax matters. If the parties cannot agree upon an
arbitrator within fifteen (15) days after either makes a written request for
arbitration of the dispute to the other party, then within ten (10) days after
the expiration of such fifteen (15) day period, the Parent shall select one
person qualified to serve as arbitrator and the Shareholders shall select a
second person to serve as arbitrator. The Parent and the Shareholders shall
each notify the other party within such ten (10) day period of the name,
address and other information regarding the person so selected. The two (2)
persons so selected shall, within fifteen (15) days after the expiration of the
ten (10) day period, agree upon a third person to serve as arbitrator, and such
third person shall serve as the sole arbitrator. Such person must be a
certified public accountant with substantial experience in tax matters. The
arbitration shall be conducted as soon as practicable after final selection of
the arbitrator in Baton Rouge, Louisiana according to such procedures as may be
established by the arbitrator; provided, however, the arbitrator shall apply
the Federal Rules of Evidence and Federal Rules of Civil Procedures to the
proceeding. Each party shall advance one-half of the costs and fees of the
arbitrator. Arbitration may proceed in the absence of the Parent or the
Shareholders if notice of the date and time for the proceedings has been given
to the absent party at least fifteen (15) days prior to the date of the
proceeding. Submission of the disputed matter to an arbitrator pursuant to
this Section 7.03(c) shall be specifically enforceable. The decision of the
arbitrator shall be final and binding upon the Parent and the Shareholders.
All costs and expenses (including, without limitation, the arbitrator's fees,
reasonable attorney's fees, disbursements and the costs and expenses of the
Parent and the Shareholder) shall be paid by the non-prevailing party.
SECTION 7.04. Refunds. Any Tax refund (or comparable benefit resulting
from a reduction in Tax liability) for a period ending on or before the
Effective Time (or if later, the Closing Date) arising out of the carryback of
a loss or credit incurred by the Company, the Subsidiary or the LLC Subsidiary
in a taxable year ending after the Effective Time (or if later, the Closing
Date) shall be the property of the Parent and, if received by the Shareholders
or any Affiliate of the Shareholders, shall be paid over promptly to the
Parent.
SECTION 7.05. Indemnity. (a) Subject to Section (b) of this Section
7.05, the Shareholders agree to indemnify and hold the Parent, the Company, and
the Subsidiary harmless against any breach of a covenant contained in this
Article VII and the following Taxes (to the extent such Taxes are not satisfied
by liabilities, expenses, reserves or allowances established on the books and
records of the Company, the Subsidiary or the LLC Subsidiary through and
including the Effective Time (or if later, the Closing Date)) and, except as
otherwise provided in Section 7.06, against any loss, damage, liability, or
expense, including reasonable fees for attorneys and consultants, incurred in
contesting or otherwise in connection with any such Taxes: (i) Taxes imposed on
the Company, the Subsidiary or
- 56 -
<PAGE> 63
the LLC Subsidiary with respect to taxable periods of such corporations ending
before or on the Effective Time (or if later, the Closing Date); (ii) with
respect to taxable periods beginning before the Effective Time (or if later,
the Closing Date) and ending after the Closing Date, (A) Taxes imposed on the
Company, the Subsidiary or the LLC Subsidiary which are allocable, pursuant to
Section 7.05(b), to the portion of such period ending on the Effective Time (or
if later, the Closing Date), and (B) Taxes imposed on the Company, the
Subsidiary or the LLC Subsidiary by reason of such corporation's distributive
share of income or loss from, or otherwise in respect of, any partnership in
which the Company, the Subsidiary or the LLC Subsidiary was a member on or
prior to the Effective Time (or if later, the Closing Date) that are allocable,
pursuant to Section 7.05(b), to the portion of such period ending on the
Effective Time (or if later, the Closing Date); (iii) Taxes imposed on the
Company, the Subsidiary or the LLC Subsidiary by reason of being a member of
any affiliated group (other than the group for which the Company is the common
parent) with which any of the Company, the Subsidiary and the LLC Subsidiary
file or have filed a Return on a consolidated or combined basis for a taxable
period ending before or on the Effective Date (or if later, the Closing Date);
(iv) Taxes imposed on the Parent or the Company, the Subsidiary or the LLC
Subsidiary as a result of any breach of warranty or misrepresentation under
Section 7.01 (for which purpose the representations in Section 7.01 shall be
deemed to have been made with no exception for items disclosed in Section 7.01
of the Disclosure Schedule or otherwise), including as the result of any
failure of the Tax attributes referred to in Sections 7.01(xxi) and 7.01(xxii)
to at least equal the amounts represented; (v) Taxes arising in any taxable
period ending after the Effective Time (or if later, the Closing Date) as a
result of the disallowance or deferral of any expense or capitalized item from
prior periods or the deferral of income items from prior periods to the current
period (net of any applicable Tax reductions; and (vi) Taxes arising in any
taxable period ending after the Closing Date from the failure of the Company,
the Subsidiary or the LLC Subsidiary to establish or retain records required
under applicable Tax law with respect to any transaction, event or item. The
Shareholders' obligation to indemnify the Parent, the Company, the Subsidiary
or the LLC Subsidiary for pre-Closing Date Taxes under this Section 7.05 shall
be reduced to reflect the present value of any post-Closing Date benefit that
the Parent, the Company, the Subsidiary or the LLC Subsidiary (or the
consolidated group with which it files a federal income tax return) may be
reasonably expected to obtain in post-Closing Date income tax filings that
corresponds to Taxes for which an indemnity payment has been made.
(b) In the case of Taxes that are payable with respect to a taxable
period that begins before the Effective Time (or if later, the Closing Date)
and ends after the Effective Time (or if later, the Closing Date), the portion
of any such Tax that is allocable to the portion of the period ending on the
Effective Time (or if later, the Closing Date) shall be:
(i) in the case of Taxes that are either (x) based upon or
related to income or receipts, or (y) imposed in connection with any sale or
other transfer or assignment of property (real or personal, tangible or
intangible) (other than conveyances pursuant to this Agreement, as provided
under Section 7.10), deemed equal to the amount which would be payable if the
taxable year ended with the Effective Time (or if later, the Closing Date)
(except that, solely for purposes of determining the marginal tax rate
applicable to income or receipts during such period in a jurisdiction in which
such tax rate
- 57 -
<PAGE> 64
depends upon the level of income or receipts, annualized income or receipts may
be taken into account if appropriate for an equitable sharing of such Taxes);
and
(ii) in the case of Taxes not described in subparagraph (i)
that are imposed on a periodic basis and measured by the level of any item,
deemed to be the amount of such Taxes for the entire period (or, in the case of
such Taxes being determined on an arrears basis, the amount of such Taxes for
the immediately preceding period) multiplied by a fraction the numerator of
which is the number of calendar days in the period ending on the Effective Time
(or if later, the Closing Date) and the denominator of which is the number of
calendar days in the entire period.
For purposes of this Section 7.05(b) and 7.05(a), the Taxes attributable to the
Company, the Subsidiary or the LLC Subsidiary by reason of such corporation's
distributive share of income, gain, or loss from, or otherwise in respect of,
any partnership in which the Company, the Subsidiary or the LLC Subsidiary is a
member on the Effective Time (or if later, the Closing Date) shall be
determined as if such partnership's taxable year ended on the Effective Time
(or if later, the Closing Date).
SECTION 7.06. Contests. (a) After the Closing, the Parent shall promptly
notify the Shareholders in writing of any written notice of a proposed
assessment or claim in an audit or administrative or judicial proceeding of the
Parent or of any of the Company, the Subsidiary and the LLC Subsidiary which,
if determined adversely to the taxpayer, would be grounds for indemnification
under this Article VII; provided, however, that a failure to give such notice
will not affect the Parent's rights to indemnification under this Article VII
except to the extent that the Shareholders demonstrate that they were
materially prejudiced thereby.
(b) In the case of an audit or administrative or judicial proceeding
that relates to periods ending on or before the Effective Time (or if later,
the Closing Date), provided that the Shareholders acknowledge in writing its
liability under this Agreement to hold the Parent, the Company, and the
Subsidiary harmless against the full amount of any adjustment which may be made
as a result of such audit or proceeding that relates to periods ending on or
before the Closing Date, the Shareholders shall have the right at their expense
to participate in and control the conduct of such audit or proceeding but only
to the extent that such audit or proceeding relates solely to a potential
adjustment for which the Shareholders have acknowledged its liability. As
security for the indemnification provided hereunder, the Shareholders shall
place 10% of the shares of the Parent's Common Stock received by them at the
Closing in escrow pursuant to the Escrow Agreement. The Parent shall also have
the right at its expense to participate in such audit or proceeding, but the
Parent shall have no right to control all or any portion of such audit or
proceeding permitted to be controlled by the Shareholders under the immediately
preceding sentence. If the Shareholders assume the defense of any such audit
or proceeding, and the Shareholders and the relevant taxing authority are
thereafter willing to settle such audit or proceeding for the payment by the
Shareholders of a fixed amount of Tax but the Parent rejects such settlement,
then the Shareholders' liability under this sentence for Taxes with respect to
such audit or proceeding shall be limited to the aggregate amount of the
proposed settlement and the Shareholders shall not be liable for any expenses
incurred by the Parent with respect to such audit or
- 58 -
<PAGE> 65
proceeding. If the Shareholders do not assume the defense of any such audit or
proceeding, the Parent may defend the same at the reasonable expense of the
Shareholders in such manner as they may deem appropriate, including, but not
limited to, settling such audit or proceeding with the consent of the
Shareholders, which consent shall not be unreasonably withheld. In the event
that issues relating to a potential adjustment for which the Shareholders have
acknowledged their liability are required to be dealt with in the same
proceeding as separate issues relating to a potential adjustment for which the
Parent would be liable, the Shareholders shall have the right, at its expense,
to control the audit or proceeding with respect to the issues for which it is
liable and the Parent shall have the right, at its expense, to control the
audit or proceeding with respect to the issues for which they are liable.
(c) With respect to issues relating to a potential adjustment for
which the Shareholders, on the one hand (as evidenced by its acknowledgment
under this Section 7.06), and the Parent or the Company, the Subsidiary or the
LLC Subsidiary, on the other hand, could be liable, or which recur for any
period ending after the Effective Time (or if later, the Closing Date) (whether
or not the subject of audit at such time), (i) each party (either the
Shareholders, on the one hand, or the Parent, the Company, or the Subsidiary,
on the other hand) may participate at its own expense in the audit or
proceeding, and (ii) the audit or proceeding with respect to such issues shall
be controlled by that party which would bear the burden of the greater portion
of the present value of the Tax attributable to the adjustments and any
corresponding adjustments that may reasonably be anticipated for future Tax
periods. The principle set forth in the immediately preceding sentence shall
govern also for purposes of deciding any issue that must be decided jointly
(including, without limitation, choice of judicial forum) in situations in
which separate issues are otherwise controlled under this Article VII by the
Parent, on the one hand, and the Shareholders, on the other hand.
(d) Except as provided in Section 7.06(b) above, neither the Parent
nor the Shareholders shall enter into any compromise or agree to settle any
claim pursuant to any Tax audit or proceeding which would adversely affect the
other parties for such year or a subsequent year without the written consent of
the other parties, which consent may not be unreasonably withheld. The Parent
and the Shareholders agree to cooperate, and the Parent agrees to cause the
Company, the Subsidiary and the LLC Subsidiary to cooperate, in the defense
against or compromise of any claim in any audit or proceeding.
SECTION 7.07. Time of Payment. Payment by the Shareholders of any
amounts due under this Article VII in respect of Taxes shall be made (either
directly by the Shareholders or under the Escrow Agreement) as follows:
(a) at least three Business Days before the due date of the
applicable estimated or final Returns required to be filed by the Parent on
which are required to be reported income for a period ending after the
Effective Time (or if later, the Closing Date) for which the Shareholders are
responsible under Sections 7.05(a) and 7.05(b) without regard to whether the
Returns shows overall net income or loss for such period;
- 59 -
<PAGE> 66
(b) within ten Business Days following an agreement between the
Shareholders and the Parent that an indemnity amount is payable; and
(c) within five days before the due date for the payment of any Tax
pursuant to an assessment of such Tax by either a taxing authority or a
"determination" as defined in Section 1313(a) of the Code.
If liability under this Article VII is in respect of costs or expenses other
than Taxes, payment by the Shareholders or the Parent of any amounts due under
this Article VII shall be made within twenty Business Days after the date when
the party required to make such payment has been notified by the party entitled
to receive such payment that such party has a liability for a determinable
amount under this Article VII and is provided with calculations or other
materials supporting such liability.
Any amounts due and payable under this Article VII shall bear interest
at 18% per annum, or the highest non-usurious rate of interest allowed by
applicable law, whichever is lower.
SECTION 7.08. Cooperation and Exchange of Information. Pursuant to the
terms set forth in Section 5.02 of this Agreement, the Shareholders, on the one
hand, and the Parent, the Company, the Subsidiary and the LLC Subsidiary, on
the other hand, will provide each other with such cooperation and information
as any of them reasonably may request of the others in filing any Return,
amended Return or claim for refund, determining a liability for Taxes or a
right to a refund of Taxes, participating in or conducting any audit or other
proceeding in respect of Taxes or making representations to or furnishing
information to parties subsequently desiring to purchase the Company, the
Subsidiary or the LLC Subsidiary or any part of the Business from the Parent.
Such cooperation and information shall include providing copies of relevant
Returns or portions thereof, together with accompanying schedules, related work
papers and documents relating to rulings or other determinations by Tax
authorities. The Shareholders shall make their accountants and agents
available on a basis mutually convenient to both parties to provide
explanations of any documents or information provided hereunder. The
Shareholders shall cooperate, and shall cause the Company, the Subsidiary and
the LLC Subsidiary to cooperate, in maximizing the value to the Parent and the
Company of the net operating loss and capital loss carryovers and the net
unrealized built-in loss of the Company, the Subsidiary and the LLC Subsidiary.
All costs and expenses reasonably incurred by a party in responding to a
request for information or assistance, including the costs incurred by the
Shareholders in connection with the cooperation described in the preceding
sentence, pursuant to this Section 7.08 shall be paid by the party requesting
such information or assistance.
SECTION 7.09. Retention of Tax Returns and Records. Each of the
Shareholders, the Parent, the Company, and the Subsidiary shall retain all
Returns, schedules and work papers, records and other documents in its
possession relating to Tax matters of the Company, the Subsidiary and the LLC
Subsidiary for each taxable period first ending after the Effective Time (or if
later, the Closing Date) and for all prior taxable periods until the later of
(i) the expiration of the statute of limitations of the taxable periods to
which such Returns and other documents relate, or (ii) six years following the
due date (without
- 60 -
<PAGE> 67
extension) for such Returns; provided, however, that Returns, schedules, work
papers, records and other documents relating to the determination of the basis
of any asset shall be retained for six years following the disposition of such
asset; and provided, further, that the Shareholders shall not dispose of any
such documents without first notifying the Parent and providing the Parent a
reasonable period of time in which to assume possession of such documents. Any
information obtained under this Section 7.09 shall be kept confidential except
as may be otherwise necessary in connection with the filing of Returns or
claims for refund or in conducting an audit or other proceeding.
SECTION 7.10. Conveyance Taxes. Any real property transfer or gains,
sales, use, transfer, value added, stock transfer, stamp, recording,
registration, and any similar Tax or fee that becomes payable in connection
with any and all of the transactions contemplated by this Agreement shall be
paid by the Shareholders who shall file such applications and documents as
shall permit any such Tax to be assessed and paid on or prior to the Effective
Time (or if later, the Closing Date) in accordance with any available pre-sale
filing procedure. Each party hereto shall execute and deliver all instruments
and certificates necessary to enable the other to comply with the foregoing.
SECTION 7.11. Miscellaneous. (a) The Shareholders and the Parent agree
to treat all payments made by any of them to or for the benefit of the other
(including any payments to the Company, the Subsidiary or the LLC Subsidiary)
under this Article VII, under other indemnity provisions of this Agreement and
for any misrepresentations or breaches of warranties or covenants as
adjustments to the Purchase Price or as capital contributions for Tax purposes
and that such treatment shall govern for purposes hereof except to the extent
that the laws of a particular jurisdiction provide otherwise, in which case
such payments shall be made in an amount sufficient to indemnify the relevant
party on an after-Tax basis.
(b) None of the Shareholders, the Company, the Parent Sub or the
Parent shall file any Return, or take a position with a Tax authority unless
otherwise required by law, that is inconsistent with the Recitals of this
Agreement and the Merger Consideration set forth in Section 2.05.
(c) Except as otherwise specifically provided in Section 7.06, each
party shall bear its own expenses, including expenses for attorneys and other
outside consultants, in contesting any Tax for which such party is liable under
this Article VII.
(d) Any Tax sharing agreement or arrangement between the Company, the
Subsidiary or the LLC Subsidiary, on the one hand, and any other Person, on the
other hand, shall be or have been terminated on or prior to the Effective Time
(or if later, the Closing Date), and no payments shall be permitted or required
to be made thereunder by the Company, or the Subsidiary after the Closing
except to the extent that such amount is shown on the Financial Statements.
(e) Notwithstanding any provision in this Agreement to the contrary,
the obligations of the Shareholders to indemnify and hold harmless the Parent,
the Company, the Subsidiary and the LLC Subsidiary pursuant to this Article
VII, and the representations and warranties contained in Section 7.01, shall
terminate at the close of business on the 30th
- 61 -
<PAGE> 68
day following the expiration of the applicable statute of limitations with
respect to the Tax liabilities in question (giving effect to any waiver,
mitigation or extension thereof).
(f) From and after the date hereof, neither the Company nor the
Subsidiary shall, and the Shareholders shall not permit the Company, the
Subsidiary or the LLC Subsidiary to, make or revoke, or cause or permit to be
made or revoked, any Tax election, or adopt or change any method of accounting,
that would materially affect the Company, the Subsidiary or the LLC Subsidiary
for any taxable year ending after the Effective Time (or if later, the Closing
Date) without the prior written consent of the Parent, which consent shall not
be unreasonably withheld.
(g) The Parent and the Shareholders shall be entitled to recover
professional fees and related costs that they may reasonably incur to enforce
the provisions of this Article VII if and to the extent they prevail in such
enforcement.
ARTICLE VIII
CONDITIONS TO CLOSING
SECTION 8.01. Conditions to Obligations of the Shareholders and the
Company. The respective obligations of the Shareholders and the Company to
consummate the transactions contemplated by this Agreement shall be subject to
the fulfillment, at or prior to the Closing, of each of the following
conditions:
(a) Representations, Warranties and Covenants. The representations
and warranties of the Parent and the Parent Sub contained in this Agreement
shall have been true and correct as of the date they were deemed to have been
made and shall be true and correct in all material respects as of the Closing,
with the same force and effect as if made as of the Closing, except for such
changes as are permitted or contemplated by this Agreement, and other than such
representations and warranties as are made as of another date. The covenants
and agreements contained in this Agreement to be complied with by the Parent
and the Parent Sub on or before the Closing shall have been complied with. The
Shareholders shall have received a certificate from the Parent to such effect
signed by duly authorized representatives thereof and dated as of the Closing
Date;
(b) Reserved.
(c) No Proceeding or Litigation. No Action shall have been commenced
or threatened by or before any Governmental Authority against any of the
Shareholders, the Company, the Parent Sub or the Parent, seeking to restrain or
adversely alter the transactions contemplated by this Agreement or which is
likely to render it impossible or unlawful to consummate such transactions;
provided, however, that the provisions of this Section 8.01(c) shall not apply
if the Shareholders or the Company has directly or indirectly solicited or
encouraged any such Action;
- 62 -
<PAGE> 69
(d) Resolutions. The Shareholders shall have received a true and
complete copy, certified by the Secretary or an Assistant Secretary of the
Parent and the Parent Sub of the resolutions duly and validly adopted by the
Board of Directors of the Parent and the sole shareholder and the Board of
Directors of the Parent Sub evidencing its authorization of the execution and
delivery of this Agreement and the other agreements to be executed by the
Parent as contemplated hereby and the consummation of the transactions
contemplated hereby;
(e) Incumbency Certificate. The Shareholders shall have received a
certificate of the Secretary or an Assistant Secretary of the Parent and the
Parent Sub certifying the names and signatures of the officers of the Parent
and the Parent Sub authorized to sign this Agreement and the other documents to
be delivered hereunder;
(f) Legal Opinion. The Shareholders shall have received from
Parent's Counsel a legal opinion, addressed to the Shareholders and dated the
Closing Date, substantially in the form of Exhibit 8.01(f);
(g) Consents and Approvals. The Shareholders, the Company and the
Parent Sub and the Parent shall have received in form and content satisfactory
to the Company (i) all authorizations,consents, orders and approvals of all
Governmental Authorities listed in Section 3.07 of the Disclosure Schedule
which, in each case, shall not contain any material conditions or limitations
which are reasonably unacceptable to the Shareholders, and (ii) all third party
consents and estoppel certificates listed in Section 5.04 of the Disclosure
Schedule;
(h) Related Agreements. The Registration Rights Agreement, in the
form of Exhibit 8.01(h)(1) shall have been duly executed and delivered by the
parties thereto; and
(i) Organizational Documents. The Shareholders shall have received a
copy of (i) the Articles of Incorporation, as amended, of the Parent, certified
by the Louisiana Secretary of State, as of a date not earlier than 10 Business
Days prior to the Closing Date and accompanied by a certificate of the
Secretary or Assistant Secretary of the Parent, dated as of the Closing Date,
stating that no amendments have been made to such Articles of Incorporation
since such date and (ii) the By-Laws of the Parent, as amended, certified by
the Secretary or Assistant Secretary of the Parent.
(j) Sale of Freeport Property. The Freeport Property shall have been
purchased and sold for the consideration and pursuant to an acquisition
agreement as described in Section 8.02(w).
(k) No Material Adverse Event. Since May 31, 1996, to the Closing
Date, there has been no material adverse event relating to the Parent and its
subsidiaries taken as a whole and no material adverse change in the financial
position or results of operations of the Parent and its subsidiaries taken as a
whole which, in either case, (i) require a public disclosure or filing by the
Parent with the SEC or (ii) will be required to be included in a Parent SEC
Report which report includes the period from May 31, 1996, to the Closing Date.
- 63 -
<PAGE> 70
(l) Payment of Certain Obligations. The Company shall have paid the
obligations described in Section 8.01(l) of the Disclosure Schedule.
(m) Tax Opinion. The Shareholders shall have received an opinion
from the Company's Counsel that the Merger will qualify as a tax-free
reorganization under Section 368(a) of the Code to the Shareholders.
(n) Release of Personal Guarantees. The Shareholders shall have been
released from the personal guarantees set forth on Exhibit 8.01(n).
SECTION 8.02. Conditions to Obligations of the Parent and the Parent
Sub. The respective obligations of the Parent and the Parent Sub to consummate
the transactions contemplated by this Agreement shall be subject to the
fulfillment, at or prior to the Closing, of each of the following conditions,
any of which may be waived by the Parent in writing, and the Company and the
Shareholders shall use their best efforts to cause such conditions to be
fulfilled; provided, however, Parent's election to proceed with the Closing of
the transactions contemplated herein shall not be deemed a waiver of any breach
of any representation, warranty or covenant herein, whether or not known to
Parent or Parent Sub or existing on the Closing Date. For purposes of
determining whether a breach of a representation or warranty has occurred, and
determining the amount of damage suffered by the Parent or the Parent Sub or
their Affiliates as a result thereof for purposes of Section 9.02 hereof, the
Shareholders and the Company shall be deemed to have made the agreements
contained in this Agreement and the representations and warranties set forth in
Article III on the Closing Date as if they were made on such date:
(a) Representations, Warranties and Covenants. The representations
and warranties of the Shareholders and the Company contained in this Agreement
shall have been true and correct as of the date as of which they were deemed to
have been made and shall be true and correct in all material respects as of the
Closing, with the same force and effect as if made as of the Closing except for
such changes as are permitted or contemplated by this Agreement, other than
such representations and warranties as are made as of another date. The
covenants and agreements contained in this Agreement to be complied with by the
Shareholders, the Company, and the Subsidiary on or before the Closing shall
have been complied with. The Parent shall have received a certificate from the
Shareholders to such effect dated as of the Closing Date;
(b) Reserved.
(c) No Proceeding or Litigation. No Action shall have been commenced
or threatened by or before any Governmental Authority against any of the
Shareholders, the Company, the Parent Sub or the Parent, seeking to restrain or
adversely alter the transactions contemplated hereby or which is likely to
render it impossible or unlawful to consummate the transactions contemplated by
this Agreement or which could have a Material Adverse Effect; provided,
however, that the provisions of this Section 8.02(c) shall not apply if the
Parent or the Parent Sub has directly or indirectly solicited or encouraged any
such Action;
- 64 -
<PAGE> 71
(d) Release of Indemnity Obligations. The Parent shall have received
(i) the general releases and discharges from the Shareholders referred to in
Section 5.09 and (ii) evidence of removal of the Encumbrances as required by
Section 5.09, each to be in form and substance reasonably satisfactory to the
Parent;
(e) Financing. The Parent and the Parent Sub shall have received the
consent of its commercial lenders to the transactions contemplated hereunder
and obtained financing on terms acceptable to them in their sole and absolute
discretion sufficient to enable them to operate the Business;
(f) Legal Opinions. The Parent and the Parent Sub shall have
received from Company's Counsel a legal opinion, addressed to the Parent and
the Parent Sub and dated the Closing Date, substantially in the form of Exhibit
8.02(f);
(g) Consents and Approvals. The Parent and the Shareholders shall
have received, each in form and substance reasonably satisfactory to the
Parent, (i) all authorizations, consents, orders and approvals of all
Governmental Authorities listed in Section 3.07 of the Disclosure Schedule
which shall not contain any material conditions or limitations which are
reasonably unacceptable to Parent; and (ii) all third party consents and
estoppel certificates listed in Section 5.04 of the Disclosure Schedule;
(h) Resignations of Directors, Officers and Managers. The Parent
shall have received the resignations, effective as of the Closing, or evidence
of removal as of the Closing, of all the directors and officers of the
Subsidiary and all managers of the LLC Subsidiary, `except for such persons as
are designated on Exhibit 8.02(h) hereto;
(i) Organizational Documents. The Parent shall have received a copy
of (i) the Articles of Incorporation, as amended, of the Company and of the
Subsidiary, and Articles of Organization of the LLC Subsidiary, certified by
the Secretary of State of the State of its organization, as of a date not
earlier than 10 Business Days prior to the Closing Date and accompanied by a
certificate of the Secretary or Assistant Secretary of each such entity, dated
as of the Closing Date, stating that no amendments have been made to such
Articles of Incorporation and Articles of Organization, as the case may be,
since such date and (ii) the By-laws of the Company and of the Subsidiary and
the Operating Agreement, if any, of the LLC Subsidiary, as amended, certified
by the Secretary or Assistant Secretary of each such entity;
(j) Minute Books. The Parent shall have received a copy of the
minute books and stock register of the Company, the Subsidiary and the minutes
book and membership register of the LLC Subsidiary, certified by their
respective Secretaries or Assistant Secretaries as of the Closing Date;
(k) Good Standing; Qualification to Do Business. The Parent shall
have received good standing certificates, certificates of compliance, or
certificates of existence, as applicable, for the Company, for the Subsidiary
and for the LLC Subsidiary from the secretary of state, or the other applicable
Governmental Authority, of (i) the jurisdiction in which each such entity is
incorporated or organized, and (ii) each other jurisdiction in which
- 65 -
<PAGE> 72
each such entity does business requiring it to qualify in such jurisdiction, in
each case dated as of a date not earlier than ten Business Days prior to the
Closing Date;
(l) Escrow Agreement. The Shareholders shall have executed and
delivered the Escrow Agreement substantially in the form of Exhibit 8.02(l) and
made the transfer to the escrow agreement as contemplated thereby;
(m) Resolutions. The Parent shall have received a true and complete
copy, certified by the Secretary or an Assistant Secretary of the Company
resolutions duly and validly adopted by the Shareholders and the Board of
Directors of the Company evidencing its authorization of the execution and
delivery of this Agreement and the other agreements to be executed by the
Company as contemplated hereby and the consummation of the transactions
contemplated hereby;
(n) No Material Adverse Effect. No event or events shall have
occurred which, individually or in the aggregate, have a Material Adverse
Effect;
(o) Environmental Matters. (1) At Parent's election, the Parent
shall have received written reports prepared by an environmental consulting
firm chosen by Parent demonstrating that the Company, the Subsidiary and the
LLC Subsidiary, any Affiliates of the Company, the Subsidiary or the LLC
Subsidiary and, with respect to the Business, the Shareholders are, to the
satisfaction of the Parent, in compliance with Environmental Laws in connection
with the Business and the Assets, and that any potential liabilities of the
Company, the Subsidiary and the LLC Subsidiary, any Affiliates of the Company,
the Subsidiary or the LLC Subsidiary and, with respect to the Business, the
Shareholders, under any Environmental Law for the Release of any Hazardous
Material would not, in the opinion of the Parent, have a Material Adverse
Effect;
(2) Prior to the Closing, the Parent shall have received a
copy of each Environmental Permit currently required to be obtained or
maintained by the Company or, with respect to the Business, the Shareholders,
together with a description of the terms of each Environmental Law that
conditions, restricts or prohibits the transfer of such Environmental Permit to
any new owner or operator;
(p) No Regulatory Restrictions. None of the Company, the Subsidiary
or the LLC Subsidiary shall be subject to any restriction (whether on its
business, operations, ability to pay dividends or incur indebtedness, or
otherwise) imposed or proposed to be imposed as a result of the transactions
contemplated by this Agreement by any Governmental Authority except
restrictions generally applicable to companies engaging in businesses
substantially similar to the Business and restrictions which result primarily
from any action or inaction of the Parent or the fact that the Parent is a
participant in the transactions contemplated by this Agreement;
(q) Due Diligence. The Parent shall have had a full opportunity to
complete its due diligence review of the Business including (i) a review of all
documents, records and other information which the Parent in its opinion shall
have deemed relevant and (iv) visits to or inspections of any location where
the Business is conducted (the "Parent's Due
- 66 -
<PAGE> 73
Diligence Review") which Parent's Due Diligence Review shall not have revealed
any information not known to Parent on the date hereof which has or is
reasonably likely to have a Material Adverse Effect. Although the Parent has
received the Disclosure Schedule and copies of various documents referred to
therein, the Company and the Shareholders agree and acknowledge that the Parent
has not had the opportunity to review the same and, accordingly, for purposes
of this Section 8.02(q), the Parent shall be deemed to have no knowledge on the
date hereof of any information contained in the Disclosure Schedule or the
documents referred to therein;
(r) Inter-Company Arrangements. The Shareholders and the Company,
the Subsidiary or the LLC Subsidiary, as applicable, shall have terminated the
Inter-Company Arrangements in accordance with Section 5.13 and delivered to the
Parent and the Parent Sub evidence thereof which is reasonably acceptable to
Parent;
(s) Related Agreements. The Registration Rights Agreement and
Representation Letter by the Shareholders in the respective forms of Exhibit
8.01(s)(1) and Exhibit 8.02(s)(2), respectively, shall have been duly executed
and delivered by the parties thereto; and
(t) Accountants' Opinions. No later than August 11, 1996, the Parent
shall have received an opinion from its independent certified public
accountants and the Company's independent certified public accountants, each in
form and substance satisfactory to the Parent, that the transaction
contemplated by this Agreement will qualify as a "pooling of interest" under
applicable accounting rules.
(u) Board Approval. The Board of Directors of the Parent shall have
approved this Agreement and the transaction contemplated hereby.
(v) Execution by the Board of Directors and the Shareholders of the
Company. All of the members of the Board of Directors of the Company and all
of the Shareholders, other than the Minority Shareholders, shall have executed
this Agreement and provided a copy thereof to the Parent no later than August
7, 1996, and all of the Minority Shareholders shall have executed this
Agreement and provided a copy thereof to the Parent no later than August 16,
1996.
(w) Acquisition of Freeport Property. The Parent Sub shall have
acquired the Freeport Property in consideration for 127,000 unregistered shares
of the Parent's Common Stock pursuant to an acquisition agreement containing
representations, warranties, covenants and indemnities by the parties thereto,
including an escrow agreement by the seller(s) of no less than 12,700 shares of
the Parent's Common Stock, of a type and scope substantially similar to those
contained in this Agreement; provided, however, that such acquisition agreement
shall not contain a provision similar to 9.03(d) and any indemnification in
connection with the representations substantially similar to those in Section
3.16 shall not be limited by any cap.
(x) Employment Agreement and Non-Competition Agreements. Bradford J.
Bower shall have entered into an employment agreement with the Company
providing for
- 67 -
<PAGE> 74
a term of one year from the Closing Date and an annual salary of $125,000 and
Messrs. Corgiat, Bennett and Renz shall have entered into non-competition
agreements in favor of the Parent, the Company and their affiliates providing
for a term of no less than two (2) years, after the date of the termination of
their respective employments, the terms of each such agreement to be
satisfactory to the Parent and providing for periodic payments to Messrs.
Corgiat, Bennett and Renz in accordance with the schedule provided to the
Parent by the Company on or prior to August 7, 1996.
(y) Membership Interest in the LLC Subsidiary. The Subsidiary shall
have acquired all membership interests of the LLC Subsidiary, other than the
membership interest owned by the Company as of the date hereof, on such terms
as are satisfactory in the discretion of the Parent, including without
limitation, no obligation by the Company, the Subsidiary or the LLC Subsidiary
to make any additional payment in connection with such acquisition.
ARTICLE IX
SURVIVAL AND INDEMNIFICATION
SECTION 9.01. Survival of Representations, Warranties and Covenants.
(a) The representations and warranties of the Shareholders contained in this
Agreement, the Exhibits to this Agreement and the Disclosure Schedule and any
certificate, statement or report or other document delivered pursuant to this
Agreement (collectively, the "Acquisition Documents"), shall survive the
Closing until the second anniversary of the Effective Time; provided, however,
that all representations and warranties made by Shareholders in Section 3.03,
3.09(a), 3.16, 3.24 and Article VII shall survive until the expiration of the
applicable statute of limitations or any extension thereof (or as otherwise
stated in Article VII). All covenants of the Shareholders shall survive
indefinitely after the Closing Date except as specifically set forth herein.
Neither the period of survival nor the liability of the Shareholders or the
Parent with respect to the Shareholders' or the Parent's representations and
warranties shall be reduced by any investigation made at any time by or on
behalf of the Parent or the Shareholders, as the case may be. If written
notice of a claim has been properly given in the manner required by Section
9.02(d) prior to the expiration of the applicable representations and
warranties, then the relevant representations and warranties shall survive as
to such claim until such claim has been finally resolved. No representation,
warranty or covenant of the Company contained in the Acquisition Documents
shall survive the Closing.
(b) The representations and warranties of the Parent contained in
this Agreement, the Exhibits to this Agreement and the Disclosure Schedule and
any certificate, statement or report or other document delivered pursuant to
this Agreement (collectively, the "Acquisition Documents"), shall survive the
Closing until the second anniversary of the Effective Time; provided, however,
that all representations and warranties made by Parent in Article VII shall
survive until the expiration of the applicable statute of limitations or any
extension thereof (or as otherwise stated in Article VII). All covenants of
the Parent shall survive indefinitely after the Closing Date except as
specifically set forth herein. If written
- 68 -
<PAGE> 75
notice of a claim has been properly given in the manner required by Section
9.02(d) prior to the expiration of the applicable representations and
warranties, then the relevant representations and warranties shall survive as
to such claim until such claim has been finally resolved.
SECTION 9.02. Indemnification. (a) The Parent, the Parent Sub (prior
to the Closing and thereafter the Company) and its other Affiliates, and each
of their officers, directors, employees, agents, consultants, successors and
assigns shall be indemnified and held harmless by the Shareholders (and, prior
to the Closing, the Company) for any and all Liabilities, losses, damages,
claims, reasonable costs and expenses, interest, awards, judgments, damages
(including punitive damages), fines, fees and penalties (including, without
limitation, attorneys', experts and consultants' fees and expenses)
(collectively, "Losses") actually suffered or incurred by them (including,
without limitation, any Action brought or otherwise initiated by any of them),
arising out of or resulting from:
(i) the inaccuracy of any representation or warranty made by
the Shareholders or the Company contained in any of the Acquisition Documents;
(ii) the breach of any covenant or agreement by the
Shareholders or the Company contained in the Acquisition Documents;
(iii) as expressly provided by Article VII hereof; and
(iv) liabilities of the Company, the Subsidiary or the LLC
Subsidiary, any Affiliate of the Company, the Subsidiary or the LLC Subsidiary
or, with respect to the Business, the Shareholders, arising out of or relating
to events occurring or circumstances or conditions existing at or prior to the
Closing under any Environmental Law or involving Hazardous Materials in
connection with the current or former assets and operations of the Company, the
Subsidiary, the LLC Subsidiary or the Business, or any former business
conducted by the Company or any current or former subsidiary or Affiliate,
including, without limitation, in connection with any security interest in real
property obtained by the Company, the Subsidiary or the LLC Subsidiary prior to
the Closing;
(v) liabilities of the Company, the Subsidiary or the LLC
Subsidiary, any Affiliate of the Company, the Subsidiary or the LLC Subsidiary
or, with respect to the Business, the Shareholders, arising out of or relating
to products sold or services rendered at or prior to the Closing in connection
with the current or former operations of the Company, the Subsidiary, the LLC
Subsidiary or the Business, or any former business conducted by the Company or
any current or former subsidiary or Affiliate.
(b) The Shareholders and (prior to the Closing, the Company, the
Subsidiary and the LLC Subsidiary) and their respective Affiliates, officers,
directors, employees, agents, consultants, successors and assigns shall be
indemnified and held harmless by the Parent for any and all Losses actually
suffered or incurred by any Indemnified Party (including, without limitation,
any Action brought or otherwise initiated by any of them), arising out of or
resulting from:
- 69 -
<PAGE> 76
(i) the inaccuracy of any representation or warranty made by
the Parent and the Parent Sub contained in the Acquisition Documents; and
(ii) the breach of any covenant or agreement by the Parent or
the Parent Sub contained in the Acquisition Documents.
(c) To the extent that an Indemnifying Party's undertakings set forth
in this Section 9.02 may be unenforceable, such Indemnifying Party shall
contribute the maximum amount that it is permitted to contribute under
applicable law to the payment and satisfaction of all Losses incurred by an
Indemnified Party.
(d) All claims for indemnification against the Shareholders or the
Parent, as the case may be (an "Indemnifying Party"), under any provision of
this Article IX shall be asserted and resolved (except for those claims related
to Taxes specifically provided in Section 7.06) as follows:
(i) In the event of any claim or demand for which an
Indemnifying Party would be liable for Losses to the Persons specified in
Section 9.02(a) or (b), as applicable, (each an "Indemnified Party") which is
asserted against or sought to be collected from such Indemnified Party by a
Person other than the Parent, the Parent Sub or the Shareholders ("Third Party
Claim"), the Indemnified Party shall deliver a Claim Notice (as defined below)
with reasonable promptness to the Indemnifying Party after the Indemnified
Party has actual notice of the Third Party Claim. The failure by any
Indemnified Party to provide the Indemnifying Party with the Claim Notice
required by the preceding sentence shall not impair the Indemnified Party's
rights hereunder except to the extent that an Indemnifying Party demonstrates
that it has been materially prejudiced thereby. The Indemnifying Party shall
notify the Indemnified Party within thirty (30) days of receipt of the Claim
Notice ("Notice Period") whether the Indemnifying Party desires, at the sole
cost and expense of the Indemnifying Party, to defend the Indemnified Party
against such Third Party Claim.
(ii) If the Indemnifying Party notifies the Indemnified Party
within the Notice Period that the Indemnifying Party desires to defend the
Indemnified Party with respect to the Third Party Claim pursuant to this
Section 9.02(d), then the Indemnifying Party shall have the right to defend, at
its sole cost and expense, and, except as provided in the following sentence,
through counsel of its choice reasonably acceptable to the Indemnified Party
such Third party Claim by all appropriate proceedings, which proceedings shall
be diligently defended by the Indemnifying Party to a final conclusion or shall
be settled at the discretion of the Indemnifying Party (with the prior written
consent of the Indemnified Party, which consent shall not be unreasonably
withheld), so long as the Indemnified Party is fully released with respect to
such Third Party Claim. If there exists or is reasonably likely to exist a
conflict of interest that would make it inappropriate in the reasonable
judgment of the Indemnified Party for the same counsel to represent both the
Indemnified Party and the Indemnifying Party and the Indemnifying Party does
not provide separate counsel reasonably acceptable to the Indemnified Party,
then the Indemnified Party shall be entitled to retain its own counsel, in each
jurisdiction for which the Indemnified Party reasonably determines counsel is
required, at the expense of the Indemnifying Party. Assumption by the
Indemnifying Party of the defense of such Third Party Claim will not
- 70 -
<PAGE> 77
constitute an admission by the Indemnifying Party that the claim or litigation
is one for which the Indemnifying Party is required to indemnify the
Indemnifying Party under this Article IX. The Indemnifying Party shall have
full control of such defense and proceedings; provided, however, that the
Indemnified Party may at the sole cost and expense of the Indemnifying Party,
file during the Notice Period any motion, answer, or other pleadings that the
Indemnified Party may deem necessary or appropriate to protect its interests
and not irrevocably prejudicial to the Indemnifying Party (it being understood
and agreed that, except as provided in Section 9.02(d)(iii) hereof, if an
Indemnified Party takes any such action that is irrevocably prejudicial and
conclusively causes a final adjudication that is materially adverse to the
Indemnifying Party, the Indemnifying Party will be relieved of its obligations
hereunder with respect to the portion of such Third Party Claim prejudiced by
the Indemnified Party's action); and provided further, however, that if
requested by the Indemnifying Party, the Indemnified Party agrees, at the sole
cost and expense of the Indemnifying Party, to cooperate with the Indemnifying
Party and its counsel in contesting any Third Party Claim that the Indemnifying
Party elects to contest, or, if appropriate in the judgment of the Indemnified
Party and related to the Third Party Claim in question, in making any
counterclaim against the person asserting the Third Party Claim or any cross-
complaint against any Person (other than the Indemnified Party). The
Indemnified Party may, at its sole cost and expense, participate in, but not
control, any defense or settlement of any Third Party Claim controlled by the
Indemnifying Party pursuant to this Section 9.02(d)(ii).
(iii) If the Indemnifying Party fails to notify the Indemnified
Party within the Notice Period that the Indemnifying Party desires to defend
the Indemnified Party pursuant to Section 9.03(d)(i), or if the Indemnifying
Party gives such notice but fails to defend the Third Party Claim, then the
Indemnified Party will have the right (but not the obligation) to defend, at
the sole cost and expense of the Indemnifying Party, the Third Party Claim by
all appropriate proceedings, which proceedings will be vigorously defended by
the Indemnified Party or will be settled at the discretion of the Indemnified
Party. The Indemnified Party shall have full control of such defense and
proceedings, including any compromise or settlement thereof; provided, however,
that if requested by the Indemnified Party, the Indemnifying Party agrees, at
the sole cost and expense of the Indemnifying Party, to cooperate with the
Indemnified Party and its counsel in contesting any Third Party Claim which the
Indemnified Party is contesting, or, if appropriate and relating to the Third
Party Claim in question, in making any counterclaim against the person
asserting the Third Party Claim, or any cross-complaint against any person
(other than the Indemnifying Party or any of its Affiliates). Notwithstanding
the forgoing provisions of this Section 9.02(d)(iii), if the Indemnifying Party
has notified the Indemnified Party with reasonable promptness that the
Indemnifying Party disputes, or reserves its rights to dispute, its liability
to the Indemnified Party with respect to such Third Party Claim and if such
dispute is resolved in favor of the Indemnifying Party, the Indemnifying Party
will not be required to bear the costs and expenses of the Indemnified Party's
defense pursuant to this Section 9.02(d)(iii) or of the Indemnifying Party's
participation therein at the Indemnified Party's request, and the Indemnified
Party will reimburse the Indemnifying Party in full for all costs and expenses
incurred by the Indemnifying Party in connection with such litigation. The
Indemnifying Party may participate in, but not control, any defense or
settlement controlled by the Indemnified Party pursuant to this Section
9.02(d)(iii), but the Indemnifying Party will bear
- 71 -
<PAGE> 78
its own costs and expenses with respect to such participation. Regardless of
whether the Indemnifying Party defends a Third Party Claim on behalf of the
Indemnified Party or participates in the defense thereof, the Indemnified Party
and the Indemnifying Party shall reasonably cooperate with each other in all
material respects in connection with the defense for such Third Party Claim.
Each Indemnified Party shall furnish such information regarding itself and the
Third Party Claim as the Indemnifying Party may reasonably request in writing
and as shall be reasonably required in connection with the defense thereof. No
Third Party Claim may be settled by the Indemnifying Party without the prior
written consent of the Indemnified Party (which consent shall not be
unreasonably withheld), unless such settlement provides a release of the
Indemnified Party for such claim.
(iv) In the event any Indemnified Party should have a claim for
Losses against any Indemnifying Party hereunder that does not involve a Third
Party Claim being asserted against or sought to be collected from the
Indemnified Party, the Indemnified Party shall deliver an Indemnity Notice (as
defined below) with reasonable promptness to the Indemnifying Party after the
Indemnified Party has actual notice of such claim. The failure by any
Indemnified Party to give the notice referred to in the preceding sentence
shall not impair such party's rights hereunder except to the extent that an
Indemnifying Party demonstrates that it has been irreparably prejudiced
thereby. The Indemnifying Party and the Indemnified Party agree to proceed in
good faith to negotiate a resolution of any dispute relating to such a claim
for Losses within sixty (60) days following receipt of any Indemnity Notice.
If any such claim is not resolved within the foregoing period, the parties may
pursue any available remedies.
(v) The term "Claim Notice" shall mean written notification of
a Third Party Claim by an Indemnified Party to an Indemnifying Party pursuant
to Section 9.02(d)(i), enclosing a copy of all papers served, if any, and
specifying the nature of and alleged basis for such Third Party Claim and, to
the extent then feasible, the alleged amount or the estimated amount of such
Third Party Claim.
(vi) The term "Indemnity Notice" shall mean written
notification of a claim for indemnity (which claim does not involve a Third
Party Claim) by an Indemnified Party to an Indemnifying Party pursuant to
Section 9.02(d)(iv) hereof, specifying the nature of and specific basis for
such claim and, to the extent then feasible, the amount or the estimated amount
of such claim.
(vii) Any estimated amount of a claim submitted in a Claim
Notice or an Indemnity Notice shall not be conclusive of the final amount of
such claim.
(viii) Notwithstanding any other provision hereof, any contest or
claim for indemnification under Article VII shall be governed by the procedures
of such Article VII and not by the provisions of this Section 9.03.
(ix) In connection with each Third Party Claim, the
Indemnifying Party shall obligated to provide only one counsel to all
Indemnified Parties.
- 72 -
<PAGE> 79
(e) (i) The terms and provisions set forth in this Section 9.02
shall constitute the sole rights and remedies of the parties for money damages
in respect of any inaccuracies of representations or warranties or any breaches
of covenants or agreements contained in this Agreement.
(ii) In the event of a claim pursuant to Section 9.02(a)(v),
the Parent agrees, to the extent practical, to seek recovery for the related
Losses first from any products liability insurance providing coverage to the
Parent therefor, and then from the Escrow Shares (as defined in the Escrow
Agreement), prior to collection of such Losses from the Shareholders; provided,
however, the foregoing provision shall in no way limit or restrict any actions
or proceedings by the Parent against any Indemnifying Party, including without
limitation the Shareholders, to the extent the Parent deems, in its discretion,
such actions or proceedings to be necessary to preserve, maintain or enforce
any of its rights against any Indemnifying Party.
SECTION 9.03. Limits on Indemnification.
(a) No amount shall be payable by any Indemnifying Party pursuant to
Section 9.02(a) or (b) unless and until the aggregate amount of Losses
indemnifiable under Section 9.02(a) or (b) exceeds $300,000 and the
Indemnifying Party shall indemnify the Indemnified Party to the full extent of
such Losses up to but not to exceed $10,000,000.
(b) The limitations set forth in Sections 9.03(a) shall not apply
with respect to any Losses suffered or incurred by the Parent in connection
with (i) the representations contained in Sections 3.03, 3.09(a), 3.24 and
3.09(c), (ii) the representations, covenants and indemnities contained in
Article VII and (iii) any sums paid by the Subsidiary to acquire the membership
interest of the LLC Subsidiary not owned by the Company on the date hereof, and
the Shareholders shall fully indemnify the Parent for any such Losses from the
first dollar of such Losses to the full extent of such Losses.
(c) The amount of any indemnification obligation of an Indemnifying
Party shall be reduced by an amount equal to the value of the net Tax benefit
actually received by the Indemnified Party (to be calculated at the highest
marginal rate then applicable to the Indemnified Party) with respect to any
loss or other item the payment of which by an Indemnified Party shall produce a
deduction or an addition to basis for federal income tax purposes, such benefit
to be offset to the extent that the payment is treated as taxable income or
results in a reduction in basis to the Indemnified Party. No Indemnified Party
shall take any action or omit to take any action the primary purpose of which
is to avoid the application of this Subsection 9.03(c); provided, however, that
each Indemnified Party shall be permitted to engage in its own tax planning,
notwithstanding that the effect of such tax planning is to cause this
Subsection 9.03(c) to be inapplicable.
(d) Notwithstanding any provision of this Agreement to the contrary,
including Section 3.16 and this Article IX, and as consideration for the
Shareholders entering into this Agreement, the Shareholders shall have no
liability under this Agreement, direct or indirect, whether by indemnification,
contribution or otherwise, under any Environmental Law or involving any
Hazardous Waste except for Environmental Claims arising out of or relating
- 73 -
<PAGE> 80
to events occurring or circumstances or conditions existing at or prior to the
Closing under any Environmental Law or involving Hazardous Materials in
connection with the current or former assets and operations of the Company, the
Subsidiary, the LLC Subsidiary or the Business, or any former business
conducted by the Company or any current or former subsidiary or Affiliate.
SECTION 9.04. Security for Shareholders' Agreement to Indemnify. To
secure the Shareholders' obligations to indemnify the Parent hereunder, at the
Closing, the Shareholders shall deposit 10% of the shares of the Parent's
Common Stock received by them at the Closing with City National Bank of Baton
Rouge (or such other financial institution acceptable to the Parent), as escrow
agent, to be held and released in accordance with the terms of the Escrow
Agreement. Such escrowed funds and shares and right of set-off, however, shall
not be the Parent's exclusive remedies hereunder, and nothing herein shall
preclude the assertion by the Parent of any other right or remedies in respect
of the foregoing agreements on indemnity.
ARTICLE X
TERMINATION AND WAIVER
SECTION 10.01. Termination by the Shareholders or Parent. This
Agreement may be terminated at any time prior to the Effective Time:
(a) by the Parent if, between the date hereof and the time scheduled
for the Closing: (i) an event or condition occurs that has resulted in a
Material Adverse Effect, (ii) any representation or warranty of the
Shareholders or the Company contained in this Agreement shall not have been
true and correct in all material respects as of the date when deemed to have
been made and, in the case of a breach reasonably susceptible to cure, shall
not have been cured within 30 calendar days, (iii) the Shareholders or the
Company shall not have complied in all material respects with any covenant or
agreement to be complied with by it and contained in this Agreement and, in the
case of a breach reasonably susceptible to cure, shall not have been cured
within 30 calendar days, or (iv) the Shareholders, the Company, the Subsidiary
or the LLC Subsidiary makes a general assignment for the benefit of creditors,
or any proceeding shall be instituted by or against, the Shareholders, the
Company, the Subsidiary or the LLC Subsidiary seeking to adjudicate any of them
a bankrupt or insolvent, or seeking liquidation, winding up or reorganization,
arrangement, adjustment, protection, relief or composition of its debts under
any Law relating to bankruptcy, insolvency or reorganization; or
(b) by the Shareholders if, between the date hereof and the time
scheduled for the Closing: (i) any representation or warranty of the Parent or
the Parent Sub contained in this Agreement shall not have been true and correct
in all material respects as of the date when deemed to have been made and, in
the case of a breach reasonably susceptible to cure, shall not have been cured
within 30 calendar days, (ii) the Parent or the Parent Sub shall not have
complied in all material respects with any covenant or agreement to be complied
with by them and contained in this Agreement, and, in the case of a breach
- 74 -
<PAGE> 81
reasonably susceptible to cure, shall not have been cured within 30 calendar
days, or (iii) the Parent or the Parent Sub makes a general assignment for the
benefit of creditors, or any proceeding shall be instituted by or against the
Parent seeking to adjudicate it bankrupt or insolvent, or seeking liquidation,
winding up or reorganization, arrangement, adjustment, protection, relief or
composition of its debts under any Law relating to bankruptcy, insolvency or
reorganization;
(c) by either the Shareholders or the Parent if the Effective Time
shall not have occurred by September 30, 1996; provided, however, that (i) if
the provisions of Section 8.01(g) have not been satisfied by September 30,
1996, and the Parent is diligently seeking to satisfy such condition, or (ii)
if the provisions of Section 8.02(g) have not been satisfied by September 30,
1996, and the Shareholders are diligently seeking to satisfy such condition,
then, in each case (subject to the proviso below) the obligations of the
parties to proceed toward Closing shall be extended until October 30, 1996; and
provided, further, that the right to terminate this Agreement under this
Section 10.01(c) shall not be available to any party whose failure to fulfill
any obligation under this Agreement shall have been the cause of, or shall have
resulted in, the failure of the Effective Time to occur on or prior to such
date; or
(d) by either the Parent or the Shareholders in the event that any
Governmental Authority shall have issued an order, decree or ruling or taken
any other action restraining, enjoining or otherwise prohibiting the
transactions contemplated by this Agreement or in the reasonable determination
of the Parent or the Shareholders, otherwise render inadvisable the
consummation of the transaction contemplated by this Agreement and such order,
decree, ruling or other action shall have become final and nonappealable; or
(e) by the mutual written consent of the Shareholders, the Company,
the Parent Sub and the Parent.
SECTION 10.02. Effect of Termination. (a) In the event of termination
of this Agreement as provided in Section 10.01, this Agreement shall forthwith
become void and there shall be no liability on the part of any party hereto
except (a) as set forth in Sections 10.02(b) and 11.02 and (b) that nothing
herein shall relieve any party from liability for any fraud or willful breach
of this Agreement.
(b) Notwithstanding the foregoing, if the Effective Time does not
occur solely because of (i) the failure to satisfy the conditions to the
Parent's and the Parent Sub's obligation to effect the Closing contained in
Sections 8.02 (a), (d), (f), (g) (except insofar as such condition relates to
the delivery of documents required to be obtained from any Governmental
Authority), (h), (i), (j), (k), (1), (m), (r), (s), (t) (relating to the
Company's accountants), (v), (w), (x) and (y), then the Shareholders and the
Company shall reimburse the Parent for its reasonable costs and expenses,
including, without limitation, reasonable fees and disbursements of counsel,
financial advisors, financing sources and accountants, incurred by the Parent
in connection with the preparation, negotiation and performance of this
Agreement and the transactions contemplated hereby up to $250,000 (as supported
by itemized invoices delivered to Shareholder), or (ii) the failure to satisfy
the conditions to the Shareholders' or the Company's obligation to effect the
Closing contained in
- 75 -
<PAGE> 82
Sections 8.01(a), (d), (e), (f), (g) (except insofar as such condition relates
to the delivery of documents required to be obtained from any Governmental
Authority), (h), (i), (j), (k) or (l), then the Parent shall reimburse the
Shareholders and the Company for their reasonable costs and expenses,
including, without limitation, reasonable fees and disbursements of counsel,
financial advisors and accountants, incurred by the Shareholders in connection
with the negotiation and performance of this Agreement and the transactions
contemplated hereby up to $250,000 (as supported by itemized invoices delivered
to the Parent).
SECTION 10.03. Waiver. Any party to this Agreement may (a) extend the
time for the performance of any of the obligations or other acts of the other
party, (b) waive any inaccuracies in the representations and warranties of the
other party contained herein or in any document delivered by the other party
pursuant hereto or (c) waive compliance with any of the agreements or
conditions of the other party contained herein. Any such extension or waiver
shall be valid only if set forth in an instrument in writing signed by the
party to be bound thereby. Any waiver of any term or condition shall not be
construed as a waiver of any subsequent breach or a subsequent waiver of the
same term or condition, or a waiver of any other term or condition, of this
Agreement. The failure of any party to assert any of its rights hereunder
shall not constitute a waiver of any of such rights.
ARTICLE XI
GENERAL PROVISIONS
SECTION 11.01. Solidary Obligation of Shareholders Other than Minority
Shareholders. The obligations of the Shareholders under this Agreement, other
than the Minority Shareholders, shall be solidary; provided the maximum
liability of each such Shareholder shall not exceed a percentage of all amounts
owing by the Shareholders hereunder equal to 125% of a fraction of which the
numerator is the number of Shares owned by such Shareholder immediately prior
to the Closing Date and the denominator is the total number of Shares owned by
all the Shareholders immediately prior to the Closing Date. The obligations of
each of the Minority Shareholders shall be pro-rata based on the number of
Shares owned by each Minority Shareholder immediately prior to the Closing Date
as a percentage of the total number of Shares owned by all the Shareholders
immediately prior to the Closing Date. Following the Closing, the Shareholders
shall have no right of or claim to contribution or indemnity against the
Company with respect to any breach, violation, default, or alleged breach,
violation or default of any representation, warranty or covenant of the Company
in any of the Acquisition Documents.
SECTION 11.02. Expenses. Except as otherwise specified in Section
10.02(b), all costs and expenses, including, without limitation, fees and
disbursements of counsel, financial advisors and accountants, incurred in
connection with this Agreement and the transactions contemplated hereby shall
be paid by the party incurring such costs and expenses, whether or not the
Closing shall have occurred; provided, however, the costs and expenses of the
Company's counsel and accountants in excess of $81,000 shall be paid by the
Shareholders.
SECTION 11.03. Notices. All notices, requests, claims, demands and
other communications hereunder shall be in writing and shall be given or made
(and shall be
- 76 -
<PAGE> 83
deemed to have been duly given or made upon receipt) by delivery in person, by
courier service, by telecopy (confirmed by telephone within 24 hours following
receipt thereof), or by registered or certified mail (postage prepaid, return
receipt requested) to the respective parties at the following addresses (or at
such other address for a party as shall be specified in a notice given in
accordance with this Section 11.03):
(a) if to the Shareholders or the Company:
Bradford J. Brower as Shareholder Representative
851 South Freeport Industrial Parkway
Clearfield, Utah 84015
Telecopy: (801) 773-6185
Telephone: (801) 773-7300
with a copy to:
LeBoeuf, Lamb, Greene & MacRae, L.L.P.
1000 Kearns Building
136 South Main Street
Salt Lake City, Utah 84101
Attention: Nolan S. Taylor, Esq.
Telecopy: (801) 359-8256
Telephone: (801) 320-6700
and
(b) if to the Parent or the Parent Sub:
The Shaw Group Inc.
11100 Mead Road
Baton Rouge, Louisiana 70816
Attention: Bret M. Talbot
Telecopy: (504) 296-1199
Telephone: (504) 296-1140
with a copy to:
Kantrow, Spaht, Weaver & Blitzer
(A Professional Law Corporation)
Suite 300, City Plaza
445 North Boulevard
P.O. Box 2997
Baton Rouge, Louisiana 70821-2997
Attention: J. Michael Robinson, Jr., Esq.
Telecopy: (504) 343-0637
Telephone: (504) 383-4703
- 77 -
<PAGE> 84
and
Fulbright & Jaworski, L.L.P.
1301 McKinney, Suite 5100
Houston, Texas 77010-3095
Attention: William H. Caudill, Esq.
Telecopy: (713) 651-5246
Telephone: (713) 651-5151
SECTION 11.04. Public Announcements. Except to the extent that the
Shareholders or Parent believes on the advice of counsel that public disclosure
is required by Law, no party to this Agreement shall make, or cause to be made,
any press release or public announcement in respect of this Agreement or the
transactions contemplated hereby or otherwise communicate with any news media
without prior notification to the other parties, and the parties shall
cooperate as to the timing and contents of any such press release or public
announcement.
SECTION 11.05. Headings; Construction. The descriptive headings
contained in this Agreement are for convenience of reference only and shall not
affect in any way the meaning or interpretation of this Agreement. The
provisions of this Agreement were negotiated by the parties hereto and this
Agreement shall be deemed to have been drafted by all the parties hereto.
SECTION 11.06. Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any Law or
public policy, all other terms and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any party. Upon such determination that any term or
other provision is invalid, illegal or incapable of being enforced, the parties
hereto shall negotiate in good faith to modify this Agreement so as to effect
the original intent of the parties as closely as possible in an acceptable
manner in order that the transactions contemplated hereby are consummated as
originally contemplated to the greatest extent possible.
SECTION 11.07. Entire Agreement. This Agreement constitutes the entire
agreement of the parties hereto with respect to the subject matter hereof and
thereof and supersede all prior agreements and undertakings, both written and
oral, between the parties with respect to the subject matter hereof.
SECTION 11.08. Assignment. This Agreement may not be assigned by any
party hereto by operation of law or otherwise without the express written
consent of the other parties hereto (which consent may be granted or withheld
in the sole discretion of such other parties).
SECTION 11.09. No Third Party Beneficiaries. Except for the provisions
of Article IX relating to Indemnified Parties, this Agreement shall be binding
upon and inure solely to the benefit of the parties hereto and their permitted
assigns and nothing herein, express
- 78 -
<PAGE> 85
or implied, is intended to or shall confer upon any other Person any legal or
equitable right, benefit or remedy of any nature whatsoever under or by reason
of this Agreement.
SECTION 11.10. Amendment. This Agreement may not be amended or
modified except (a) by an instrument in writing signed by, or on behalf of, the
parties hereto or (b) by a waiver in accordance with Section 10.03.
SECTION 11.11. Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Louisiana, applicable to
contracts executed in and to be performed entirely within that state.
SECTION 11.12. Counterparts. This Agreement may be executed in one or
more counterparts, and by the different parties hereto in separate
counterparts, each of which when executed shall be deemed to be an original but
all of which taken together shall constitute one and the same agreement.
SECTION 11.13. Specific Performance. The parties hereto agree that
irreparable damage would occur in the event any provision of this Agreement was
not performed in accordance with the terms hereof and that the parties shall be
entitled to specific performance of the terms hereof, in addition to any other
remedy at law or in equity.
SECTION 11.14. Legal Advice. Each party hereto represents and warrants
to the other party that he, she or it has consulted attorneys, accountants and
tax advisors of their own choosing concerning the legal, financial and tax
consequences of this Agreement
SECTION 11.15. Remedies Not Exclusive. Subject to the provisions of
Section 9.02 (e), no remedy conferred by any of the specific provisions of this
Agreement is intended to be exclusive of any other remedy, and each and every
remedy shall be cumulative and shall be in addition to every other remedy given
hereunder or not or hereafter existing at law or in equity or by statute or
otherwise. The election of any one or more remedies by any party hereto shall
not constitute a waiver of the right to pursue other available remedies.
ARTICLE XII
SHAREHOLDER REPRESENTATIVE; POWER OF ATTORNEY
SECTION 12.01. Shareholder Representative, Etc. Each of the
Shareholders hereby constitutes and appoints Bradford J. Brower as his true and
lawful attorney-in-fact, agent and representative (the "Shareholder
Representative"), with full power of substitution and resubstitution, for him
and in his name, place and stead, in any and all capacities, to negotiate and
sign all amendments to this Agreement, and all other documents in connection
with the transactions contemplated by this Agreement, including without
limitation those instruments called for by this Agreement and all waivers,
consents instructions, authorizations and other actions called for,
contemplated or that may otherwise be necessary or appropriate in connection
with this Agreement or any of the foregoing agreements or instruments, granting
unto the Shareholder Representative full power and authority to do and perform
each and every act and thing requisite and necessary to be
- 79 -
<PAGE> 86
done, as fully to all intents and purposes as he might or could do in person,
hereby ratifying and confirming all that the Shareholder Representative, or his
substitute or substitutes, may lawfully do or cause to be done by virtue
hereof, including without limitation the power and authority to deliver and
convey his Shares in accordance with the terms hereof, to receive and give
receipt for all consideration due him pursuant to this Agreement and to receive
all notices, requests and demands that may be made under and pursuant to this
Agreement. Should the Shareholder Representative be unable or unwilling to
serve or to appoint his successor to serve in his stead, and unless the
Shareholders appoint a successor to serve in his stead, the Shareholders shall
be required to act jointly so that the Parent and the Parent Sub may always
deal with one person on their behalf.
IN WITNESS WHEREOF, the Shareholders, the Company the Parent and the
Parent Sub have caused this Agreement to be executed as of the date first
written above, the corporate parties represented herein by their respective
officers thereunto duly authorized.
- 80 -
<PAGE> 87
THIS PLAN AND AGREEMENT OF MERGER IS NOT A PROSPECTUS AND ANY OFFERING OF THE
SHARES OF COMMON STOCK OF THE SHAW GROUP INC., COVERED BY THIS AGREEMENT IS NOT
A PUBLIC OFFERING. RECIPIENTS OF SUCH SHARES WILL NOT BE ENTITLED TO BRING A
CAUSE OF ACTION FOR RESCISSION UNDER SECTION 12(2) OF THE SECURITIES ACT OF
1933 FOR AN UNTRUE STATEMENT OF A MATERIAL FACT OR FOR THE FAILURE TO STATE A
MATERIAL FACT.
COMPANY:
NAPTech, INC.
By:
-----------------------------------
Name: Bradford J. Brower
Title: President
PARENT:
THE SHAW GROUP INC.
By: /s/ BRET M. TALBOT
-----------------------------------
Name: Bret M. Talbot
Title: Vice President and Chief
Financial Officer
PARENT SUB:
SAON, INC.
By: /s/ BRET M. TALBOT
-----------------------------------
Name: Bret M. Talbot
Title: President
Members of the Board of Directors of NAPTech, Inc.
- ---------------------------------- -------------------------------------
Bradford J. Brower Donald L. Robertson
- ---------------------------------- -------------------------------------
M. Russell Ballard Raymond Furgeson
- ----------------------------------
Robert A. Schroeder
-81-
<PAGE> 88
Members of the Board of Directors of SAON, Inc.
/s/ BRET M. TALBOT /s/ T.A. BARFIELD, JR.
- ---------------------------------- -----------------------------------
Bret M. Talbot T.A. Barfield, Jr.
SHAREHOLDERS OF SAON, Inc.
THE SHAW GROUP INC.
By: /s/ J.M. BERNHARD, JR.
-------------------------------
Name: J. M. Bernhard, Jr.
Title: Chairman of the Board,
President and Chief
Executive Officer
-82-
<PAGE> 89
SHAREHOLDERS OF NAPTech, Inc.:
- --------------------------------- --------------------------------
Bradford J. Brower (30.64%) Gary Stevenson (.98%)
/s/ DONALD L. ROBERTSON
- --------------------------------- --------------------------------
Donald L. Robertson (10.71%) Scott Watterson (.98%)
- --------------------------------- --------------------------------
Robert A. Schroeder (10.34%) Adelyn Bonin (.05%)
- --------------------------------- --------------------------------
NUPETCO Associates (9.76%) Francis Ellyin (.10%)
- --------------------------------- --------------------------------
GES Investments (8.29%) Thomas Young (.20%)
- --------------------------------- --------------------------------
SRW Investments (8.29%) Roger Fisher (.10%)
- --------------------------------- --------------------------------
Ballard Investment (7.81%) Robert Gerbode (.49%)
- --------------------------------- --------------------------------
Richard Winwood (6.37%) Harold Stewart (.15%)
- --------------------------------- --------------------------------
Prudential Securities (.20%) Karen Norman (.15%)
- --------------------------------- --------------------------------
Kim Medeiros (.41%) Harry Norman (.10%)
- --------------------------------- --------------------------------
Wendy Robertson (.26%) Eric Menke (.10%)
- --------------------------------- --------------------------------
Greg R. Cowley (.98%) Albert Hedges (.15%)
/s/ JACK BOLLERUD
- --------------------------------- --------------------------------
Jack Bollerud (.24%) Michael Denicola (.24%)
--------------------------------
Sue Olson (.10%)
-83-
<PAGE> 90
- ---------------------------------
Anoosh Gulian (.20%)
- ---------------------------------
Phyllis Sammon (.10%)
- ---------------------------------
Sharon Slough (.10%)
- ---------------------------------
Theodore Kaspervic (.10%)
- ---------------------------------
Douglas Lehman (.10%)
- ---------------------------------
BAP (.59%)
- ---------------------------------
Diane Wiacek (.10%)
/s/ [ILLEGIBLE]
- ---------------------------------
BB & GC (.52%)
-84-
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports and the incorporation by reference in this registration statement of our
reports dated October 31, 1995 included in or made a part of this registration
statement and in The Shaw Group Inc.'s Form 10-K for the year ended August 31,
1995 and to all references to our Firm included in this registration statement.
ARTHUR ANDERSEN LLP
New Orleans, Louisiana
November 25, 1996
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports and the incorporation by reference in this registration statement of our
reports dated October 31, 1995 included in or made a part of this registration
statement and in The Shaw Group Inc.'s Form 10-K for the year ended August 31,
1995 and to all references to our Firm included in this registration statement.
HANNIS T. BOURGEOIS & CO., L.L.P.
Baton Rouge, Louisiana
November 25, 1996
