<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 13E-4
Issuer Tender Offer Statement
(Pursuant to Section 13(e)(1) of the Securities Exchange Act of 1934)
ENVIROQ CORPORATION
-------------------
(Name of Issuer)
Enviroq Corporation
-------------------
(Name of Person(s) Filing Statement)
Common Stock, Par Value $0.01 Per Share
---------------------------------------
(Title of Class of Securities)
29409M107
-------------------------------------
(CUSIP Number of Class of Securities)
William J. Long
Enviroq Corporation
3918 Montclair Road, Suite 206
Birmingham, Alabama 35213
(205) 870-0588
With copies to:
John K. Molen, Esq.
Bradley Arant Rose & White LLP
2001 Park Place, Suite 1400
Birmingham, Alabama 35203-2736
(205) 521-8238
--------------
(Name, Address and Telephone Number of Person Authorized to Receive
Notices and Communications on Behalf of the Person(s) Filing Statement)
November 9, 1998
----------------
(Date Tender Offer First Published, Sent or Given to Security Holders)
CALCULATION OF FILING FEE
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Transaction valuation (1) Amount of filing fee
- --------------------------------------------------------------------------------
<S> <C>
$2,249,999.84 $625.50
- --------------------------------------------------------------------------------
</TABLE>
[ ] Check box if any part of the fee is offset as provided by Rule
0-11(a)(2) and identify the filing with which the offsetting fee was
previously paid. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
Amount Previously Paid: Not Applicable
Form or Registration No.: Not Applicable
Filing Party: Not Applicable
Date Filed: Not Applicable
- --------------------------------
(1) Based upon the maximum number of shares of Common Stock of Enviroq
which may be redeemed by Enviroq pursuant to the transaction which is
the subject of this filing (.42698013 x 1,009,377 shares) multiplied by
the price to be paid by Enviroq for each such redeemed share
($5.220612).
================================================================================
<PAGE> 2
Item 1. Security and Issuer.
(a) The issuer to which this Schedule 13E-4 (this
"Schedule") relates is Enviroq Corporation, a Delaware corporation ("Enviroq").
The principal executive offices of Enviroq are located at 3918 Montclair Road,
Suite 206, Birmingham, Alabama 35213.
(b) The information set forth under the captions
"SUMMARY--The Special Meeting--Record Date," "SUMMARY--The Redemption," "THE
SPECIAL MEETING--The Redemption," and " THE REDEMPTION" in the Proxy
Statement/Prospectus and Offer to Redeem dated November 9, 1998 (the "Proxy
Statement") of Intrepid Capital Corporation and Enviroq, which is attached to
this Schedule as Exhibit (A)(1), is incorporated herein by reference.
(c) The information set forth under the caption
"SUMMARY--Comparative Market Prices and Dividends" in the Proxy Statement
attached to this Schedule as Exhibit (A)(1) is incorporated herein by reference.
Item 2. Source and Amount of Funds or Other Consideration.
(a) The information set forth under the caption "THE
REDEMPTION -- Source and Amount of Funds" in the Proxy Statement attached to
this Schedule as Exhibit (A)(1) is incorporated herein by reference.
(b) Not applicable.
Item 3. Purpose of the Tender Offer and Plans or Proposals of the
Issuer or Affiliate.
(a) Not applicable.
(b)-(j) The information set forth under the captions "THE
REDEMPTION," "THE REORGANIZATION," "THE MERGER AGREEMENT," "DESCRIPTION OF
INTREPID CAPITAL STOCK," "COMPARISON OF INTREPID STOCK, ENVIROQ STOCK, IAM
STOCK, AND CRC STOCK," and "CERTAIN INFORMATION CONCERNING INTREPID" in the
Proxy Statement attached to this Schedule as Exhibit (A)(1) is incorporated
herein by reference.
Item 4. Interest in Securities of the Issuer.
There has been no transaction in the class of security of the
issuer which is the subject of this Schedule and the related Rule 13e-4
transaction during the past forty days by the issuer or by any of the persons
referred to in this item.
2
<PAGE> 3
Item 5. Contracts, Arrangements, Undertakings or Relationships with
Respect to the Issuer's Securities.
The information set forth under the caption "THE SPECIAL
MEETING--Voting at the Special Meeting" in the Proxy Statement attached to this
Schedule as Exhibit (A)(1) is incorporated herein by reference.
Item 6. Persons Retained, Employed or to be Compensated.
The information set forth under the captions "THE
REORGANIZATION--Opinion of Financial Advisor" and "THE REDEMPTION--Fees and
Expenses" in the Proxy Statement attached to this Schedule as Exhibit (A)(1) is
incorporated herein by reference.
Item 7. Financial Information.
(a)(1)-(4) The information set forth under the captions
"INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE" and "SUMMARY--Summary
Historical and Pro Forma Data" in the Proxy Statement attached to this Schedule
as Exhibit (A)(1) and the information set forth in parts (iii) and (vi) of
Exhibit (A)(5) is incorporated herein by reference.
(b) The information set forth under the captions
"SUMMARY--Summary Historical and Pro Forma Data" and "UNAUDITED PRO FORMA
CONSOLIDATED FINANCIAL INFORMATION" in the Proxy Statement attached to this
Schedule as Exhibit (A)(1) is incorporated herein by reference.
Item 8. Additional Information.
(a) The information set forth under the captions "THE
REDEMPTION-The Voting Agreement" and "THE REDEMPTION--Interests of Certain
Persons in the Reorganization" in the Proxy Statement attached to this Schedule
as Exhibit (A)(1) is incorporated herein by reference.
(b) There are no applicable regulatory requirements which
must be complied with or approvals which must be obtained in connection with the
transaction subject to Rule 13e-4 of which the issuer (which is the person
filing this statement) is aware.
(c) The information set forth under the caption
"COMPARISON OF INTREPID STOCK, ENVIROQ STOCK, IAM STOCK, AND CRC STOCK--Reports
to Stockholders and Shareholders; Not Margin Securities" in the Proxy Statement
attached to this Schedule as Exhibit (A)(1) is incorporated herein by reference.
3
<PAGE> 4
(d) There are no legal proceedings pending relating to
the transaction subject to Rule 13e-4 with respect to which this Schedule is
being filed.
(e) None.
Item 9. Material to be Filed as Exhibits.
(A)(1) Proxy Statement/Prospectus and Offer to Redeem
(A)(2) Letter of Transmittal
(A)(3) Form of Proxy
(A)(4) Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9
(A)(5) Booklet distributed to Enviroq shareholders
containing the following:
(i) Annual Report of Enviroq on Form 10-KSB for
fiscal year ended March 28, 1998
(ii) Amendment to Annual Report of Enviroq on
Form 10-KSB/A for fiscal year ended March
28, 1998
(iii) Amendment to Annual Report of Enviroq on
Form 10-KSB/A-1 for fiscal year ended March
28, 1998
(iv) Amendment to Annual Report of Enviroq on
Form 10-KSB/A-2 for fiscal year ended March
28, 1998
(v) Quarterly Report of Enviroq on Form 10-QSB
for fiscal quarter ended June 27, 1998
(vi) Amendment to Quarterly Report of Enviroq on
Form 10-QSB/A for fiscal quarter ended June
27, 1998
(B) None
(C)(1) Stock Agreement
(C)(2) Form of Voting Agreement
(C)(3) Form of Employment Agreement between Intrepid Capital
Corporation and William J. Long
(D) Opinion of Deloitte & Touche LLP regarding certain
tax matters
(E) None
(F) None
4
<PAGE> 5
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this statement is true, complete, and correct.
ENVIROQ CORPORATION
By: /s/ William J. Long
--------------------------------------------
Name: William J. Long
Its: President and Chief Executive Officer
Dated: November 9, 1998
5
<PAGE> 6
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
PAGE IN
SEQUENTIALLY
EXHIBIT NUMBERED
REFERENCE DESCRIPTION FILING
- --------- ----------- ------
<S> <C> <C>
(A)(1) Proxy Statement/Prospectus and Offer to Redeem _______
(A)(2) Letter of Transmittal _______
(A)(3) Form of Proxy _______
(A)(4) Guidelines for Certification of Taxpayer Identification _______
Number on Substitute Form W-9
(A)(5) Booklet distributed to Enviroq shareholders _______
containing the following:
(i) Annual Report of Enviroq on Form 10-KSB for
fiscal year ended March 28, 1998
(ii) Amendment to Annual Report of Enviroq on
Form 10-KSB/A for fiscal year ended March
28, 1998
(iii) Amendment to Annual Report of Enviroq on
Form 10-KSB/A-1 for fiscal year ended March
28, 1998
(iv) Amendment to Annual Report of Enviroq on
Form 10-KSB/A-2 for fiscal year ended March
28, 1998
(v) Quarterly Report of Enviroq on Form 10-QSB
for quarter ended June 27, 1998
(vi) Amendment to Quarterly Report of Enviroq on
Form 10-QSB/A for quarter ended June 27,
1998
(C)(1) Stock Agreement _______
(C)(2) Form of Voting Agreement _______
(C)(3) Form of Employment Agreement between Intrepid Capital _______
Corporation and William J. Long
(D) Opinion of Deloitte & Touche LLP regarding certain tax matters _______
</TABLE>
6
<PAGE> 1
EXHIBIT (A)(1)
ENVIROQ CORPORATION
3918 MONTCLAIR ROAD, SUITE 206
BIRMINGHAM, ALABAMA 35213
(205) 870-0588
NOVEMBER 9, 1998
Dear Stockholder:
We are pleased to invite you to attend a special meeting of the
stockholders of Enviroq Corporation ("Enviroq") to be held at the Mountain
Brook Inn, 2800 Highway 280, Birmingham, Alabama at 9:00 a.m. local time,
Monday, December 14, 1998 (the "Special Meeting"). At the Special Meeting, you
will be asked to vote on a proposal relating to a strategic business
combination involving Enviroq and certain other entities.
Enviroq has entered into an Agreement and Plan of Reorganization,
dated as of April 22, 1998, as amended by Amendment No. 1 to the Agreement and
Plan of Reorganization, dated as of August 27, 1998 and as amended and restated
on October 29, 1998 (as amended and restated, the "Merger Agreement"), with
Institutional Asset Management, Inc., a Florida corporation ("IAM"), Capital
Research Corporation, a Florida corporation ("CRC"), Intrepid Capital
Corporation, a newly formed Delaware corporation and a subsidiary of Enviroq
("Intrepid"), and three wholly-owned subsidiaries of Intrepid, each of which
was formed to effect the transactions contemplated in the Merger Agreement.
Pursuant to the Merger Agreement, Enviroq will be merged with a wholly-owned
subsidiary of Intrepid (the "Enviroq Merger"), which will occur simultaneously
with similar mergers between the other two wholly-owned subsidiaries of
Intrepid and each of IAM and CRC. As a result of the simultaneous mergers (the
"Mergers"), Enviroq, IAM and CRC will become wholly-owned subsidiaries of
Intrepid (the "Reorganization").
In connection with the Enviroq Merger, and immediately prior thereto,
each stockholder of Enviroq ("Stockholder") will be given the opportunity to
have Enviroq redeem exactly 42.698013% of the issued and outstanding shares of
common stock, par value $0.10 per share, of Enviroq ("Enviroq Stock") tendered
by such Stockholder for $5.220612 per share of Enviroq Stock (the
"Redemption"). Stockholders may elect to participate in the Redemption with
fewer than all of the shares of Enviroq Stock owned by them, but only
42.698013% of the shares of Enviroq Stock actually tendered by a Stockholder
will be redeemed in the Redemption. The Redemption will occur only if all of
the terms and conditions contained in the Merger Agreement (other than the
filing of the appropriate corporate documents to effect the Mergers, which
filings will occur promptly following the Redemption) are satisfied or waived.
If you elect to participate in the Redemption and do not dissent from the
Enviroq Merger, subject to the approval of the Enviroq Merger by the
Stockholders and the consummation of the Reorganization, you will receive
1.745140 shares of common stock of Intrepid ("Intrepid Stock") for each share
of Enviroq Stock tendered but not redeemed in the Redemption. If you elect not
to participate in the Redemption and you do not dissent from the Enviroq
Merger, subject to the approval of the Enviroq Merger by the Stockholders and
the consummation of the Reorganization, you will receive one share of Intrepid
Stock and $2.229098 in cash for each share of Enviroq Stock held by you which
was not tendered in the Redemption. The total consideration received in the
Enviroq Merger by a Stockholder who elects to participate in the Redemption
will be equivalent on a per share basis to the total consideration received in
the Enviroq Merger by a Stockholder who elects not to participate in the
Redemption (or to participate by tendering less than all of such Stockholder's
shares of Enviroq Stock), subject to any possible differences attributable to
tax treatment. Each Stockholder is being given the opportunity to have Enviroq
redeem a portion of the shares of Enviroq Stock owned by such Stockholder to
enable the Stockholder to apply a portion of such Stockholder's basis in such
shares against the capital gain which is realized by the Stockholder in the
Reorganization thereby reducing the gain recognized for federal income tax
purposes by the Stockholder in connection with the Reorganization and related
transactions. Each shareholder of IAM and CRC will receive 1206.149 shares of
Intrepid Stock for each issued and outstanding share of common stock of IAM and
CRC, respectively.
After the Reorganization, the former shareholders of IAM and CRC will
own approximately 54.44% of the outstanding shares of Intrepid Stock and the
former Stockholders will own approximately 45.56% of the outstanding shares of
Intrepid Stock (subject to adjustments upon the exercise of the Stockholders'
right to dissent).
THE BOARD OF DIRECTORS OF ENVIROQ (THE "ENVIROQ BOARD") HAS
UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND HAS DETERMINED THAT THE ENVIROQ
MERGER AND THE CONSIDERATION TO BE RECEIVED BY THE STOCKHOLDERS IN THE ENVIROQ
MERGER ARE FAIR TO, AND IN THE BEST INTERESTS OF, ENVIROQ AND THE STOCKHOLDERS.
THE
<PAGE> 2
ENVIROQ BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THE ADOPTION AND
APPROVAL OF THE MERGER AGREEMENT, THE REDEMPTION AND THE ENVIROQ MERGER AT THE
SPECIAL MEETING. THE ENVIROQ BOARD'S RECOMMENDATION IS BASED ON ITS BELIEF THAT
THE REORGANIZATION WILL DELIVER GREATER LONG-TERM VALUE TO THE STOCKHOLDERS.
THE ENVIROQ BOARD BELIEVES THAT THE REORGANIZATION WILL RESULT IN A NUMBER OF
STRATEGIC AND FINANCIAL BENEFITS, WHICH ULTIMATELY WILL ENHANCE STOCKHOLDER
VALUE.
In addition, Porter, White & Company, Inc. ("Porter White") has acted
as financial advisor to Enviroq in connection with the Enviroq Merger. Porter
White delivered its opinion to the Enviroq Board prior to the execution of the
Merger Agreement, which opinion has been confirmed by Porter White in writing
as of the date of this Proxy Statement/Prospectus and Offer to Redeem, to the
effect that, based upon and subject to certain matters stated therein, as of
the date of such opinion, the consideration to be issued to all Stockholders in
the Enviroq Merger and the exchange ratio are fair to Enviroq and its
Stockholders from a financial point of view. The full text of the written
opinion, which sets forth a description of the assumptions made, matters
considered and limitations on the review undertaken, is attached as Annex B to
the accompanying Proxy Statement/Prospectus and Offer to Redeem and should be
read carefully in its entirety.
Enclosed are (i) the Notice of Special Meeting, (ii) the Proxy
Statement/Prospectus and Offer to Redeem, and (iii) a Proxy for use at or in
connection with the Special Meeting. In addition, also accompanying this Proxy
Statement/Prospectus and Offer to Redeem, is a letter of transmittal (the
"Redemption Letter of Transmittal") to be used by Stockholders electing to
participate in the Redemption and other documents relating to the Redemption
(the "Redemption Materials"). The Proxy Statement/Prospectus and Offer to
Redeem describes in more detail the Merger Agreement, the Redemption and the
Enviroq Merger, including a description of the conditions which must be
satisfied or waived to consummate the Enviroq Merger and the effects of the
Enviroq Merger on the Stockholders. Stockholders are urged to read these
materials carefully. Copies of Enviroq's Annual Report on Form 10-KSB, as
amended, with respect to fiscal year ended March 28, 1998 and Enviroq's
Quarterly Report on Form 10-QSB, as amended, with respect to fiscal quarter
ended June 27, 1998, filed with the Securities and Exchange Commission (the
"Commission") are also enclosed.
The Reorganization is subject to the approval by the Stockholders of
the Enviroq Merger. At the Special Meeting, you will be asked to adopt the
Merger Agreement. Adoption of the Merger Agreement will require the affirmative
vote of a majority of the outstanding shares of Enviroq Stock entitled to vote
thereon. Certain principal stockholders of Enviroq who own between them an
aggregate of 552,875 shares of Enviroq Stock, representing approximately 54.77%
of the shares of Enviroq Stock, have executed a stock agreement (the "Stock
Agreement") with the shareholders of IAM and CRC, pursuant to which the
principal stockholders have agreed, among other matters, to vote the shares of
Enviroq Stock owned by the principal stockholders in favor of the adoption of
the Merger Agreement. If the principal stockholders vote in favor of the
adoption of the Merger Agreement, the Enviroq Merger will be approved at the
Special Meeting. However, if you want Enviroq to redeem 42.698013% of the
shares of Enviroq Stock tendered by you, you must complete, execute and return
to Enviroq the Redemption Letter of Transmittal accompanying this letter,
together with the other appropriate documents required to validly tender your
shares of Enviroq Stock. Stockholders should read carefully the Proxy
Statement/Prospectus and Offer to Redeem and the Redemption Materials relating
to the Redemption which accompany this letter to obtain more information on how
and when to tender your shares of Enviroq Stock in order to participate in the
Redemption.
You will also be asked to approve certain stock option plans of
Intrepid. The proposed stock option plans (the "Stock Option Plans") will
consist of an incentive stock option plan and a non-employee directors' stock
option plan and will provide the management of Intrepid and the Board of
Directors of Intrepid with incentives linked to the profitability of Intrepid
and increases in stockholder value. Approval of the Stock Option Plans will
require the affirmative vote of the majority of shares of Enviroq Stock present
in person or represented by proxy at the Special Meeting and entitled to vote
thereon. If the principal stockholders vote in favor of the Stock Option Plans,
the Stock Option Plans will be approved at the Special Meeting. Notwithstanding
approval by the Stockholders, the Stock Option Plans will only be implemented
if the Reorganization contemplated by the Merger Agreement is consummated.
Each of the proposals upon which you are being asked to vote is more
fully described in the accompanying Notice of Special Meeting and Proxy
Statement/Prospectus and Offer to Redeem. Please read these materials
carefully.
YOUR BOARD OF DIRECTORS HAS CAREFULLY REVIEWED AND CONSIDERED THE
TERMS AND CONDITIONS OF THE MATTERS TO BE VOTED UPON AND BELIEVES THEY ARE IN
THE BEST INTERESTS OF ENVIROQ AND ITS STOCKHOLDERS AND UNANIMOUSLY RECOMMENDS
THAT
<PAGE> 3
THE STOCKHOLDERS VOTE FOR PROPOSAL 1, FOR PROPOSAL 2, FOR PROPOSAL 3 AND FOR
PROPOSAL 4, EACH OF WHICH SUCH PROPOSALS IS DESCRIBED IN THE ATTACHED NOTICE OF
SPECIAL MEETING AND FURTHER DESCRIBED IN THE ENCLOSED PROXY STATE
MENT/PROSPECTUS AND OFFER TO REDEEM.
Whether you plan to attend the Special Meeting or not, please
complete, sign, date and return the enclosed form of proxy promptly so that
Enviroq may be assured of the presence of a quorum at the Special Meeting. If
you attend the Special Meeting and wish to vote your shares of Enviroq Stock
personally, you may revoke your proxy.
The Stockholders are entitled to dissent from the Enviroq Merger, as
described in the accompanying Proxy Statement/Prospectus and Offer to Redeem. A
Stockholder who wishes to dissent from the Enviroq Merger must not vote "FOR"
adoption of the Enviroq Merger and must comply with the other procedural
requirements described in the accompanying Proxy Statement/Prospectus and Offer
to Redeem. See "THE REORGANIZATION -- Rights of Dissent and Appraisal" in the
accompanying Proxy Statement/Prospectus and Offer to Redeem.
IF NO INSTRUCTIONS ARE INDICATED ON A SIGNED PROXY, SUCH PROXY (UNLESS
REVOKED) WILL BE VOTED "FOR" EACH OF THE PROPOSALS SET FORTH ON THE
ACCOMPANYING NOTICE OF SPECIAL MEETING.
We look forward to seeing you at the Special Meeting.
Sincerely yours,
ENVIROQ CORPORATION
William J. Long
President and Chief Executive Officer
<PAGE> 4
ENVIROQ CORPORATION
3918 MONTCLAIR ROAD, SUITE 206
BIRMINGHAM, ALABAMA 35213
----------------------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON MONDAY, DECEMBER 14, 1998
----------------------------------------
To the Stockholders of Enviroq Corporation ("Stockholders"):
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders of
Enviroq Corporation, a Delaware corporation ("Enviroq"), will be held on
Monday, December 14, 1998, at 9:00 a.m., local time, at the Mountain Brook Inn,
2800 Highway 280, Birmingham, Alabama and at any adjournment or postponement
thereof (the "Special Meeting"), to vote on the proposals set forth below.
1. Consideration of a proposal to: adopt that certain Agreement
and Plan of Reorganization, dated as of April 22, 1998, as
amended by that certain Amendment No. 1 to the Agreement and
Plan of Reorganization, dated as of August 27, 1998 and as
amended and restated on October 29, 1998 (as so amended and
restated, the "Merger Agreement"), between, among others,
Enviroq Corporation, a Delaware corporation ("Enviroq") and
Freedom Holdings of Alabama, Inc., a Delaware corporation
("Sub-1"), providing for the merger of Sub-1 with and into
Enviroq, with Enviroq being the surviving corporation (the
"Enviroq Merger"), and pursuant to and in connection with
such Enviroq Merger, (i) each Stockholder shall be given the
opportunity to have Enviroq redeem exactly 42.698013% of the
shares of common stock, par value $0.10 per share, of Enviroq
("Enviroq Stock") tendered by such Stockholder (the
"Redemption"), and
(a) in the case of a Stockholder who has elected to
participate in the Redemption, each share of Enviroq
Stock (other than shares of Enviroq Stock which are
held as treasury stock or in respect of which the
Stockholder of record has exercised rights of
dissent) tendered but not redeemed in the Redemption
shall be canceled and converted into the right to
receive in the Enviroq Merger, 1.745140 shares of
common stock, par value $0.01 per share ("Intrepid
Stock"), of Intrepid Capital Corporation, a Delaware
corporation ("Intrepid") and each share of Enviroq
Stock not tendered in the Redemption shall be
canceled and converted into the right to receive in
the Enviroq Merger one (1) share of Intrepid Stock
and $2.229098 in cash; and
(b) in the case of a Stockholder who elects not to
participate in the Redemption, each share of Enviroq
Stock (other than shares of Enviroq Stock which are
held as treasury stock or in respect of which the
Stockholder of record has exercised rights of
dissent) shall be canceled and converted into the
right to receive in the Enviroq Merger one (1) share
of Intrepid Stock and $2.229098 in cash.
2. Consideration of a proposal to approve the Incentive Stock
Option Plan of Intrepid, a copy of which is attached as Annex
E to the accompanying Proxy Statement/Prospectus and Offer to
Redeem.
3. Consideration of a proposal to approve the Non-Employee
Directors' Stock Option Plan of Intrepid, a copy of which is
attached as Annex F to the accompanying Proxy
Statement/Prospectus and Offer to Redeem.
4. To transact such other business as is incident to the conduct
of the Special Meeting.
The close of business on October 19, 1998 has been fixed as the record
date for the determination of the Stockholders entitled to notice of and to
vote at the Special Meeting and at any adjournment or postponement thereof. The
Special Meeting may be adjourned or postponed from time to time without notice
other than such notice as may
<PAGE> 5
be given at the meeting or any adjournment or postponement thereof, and any
business for which notice is hereby given may be transacted at any such
adjourned or postponed meeting.
If your shares of Enviroq Stock are held of record by a broker, bank
or other nominee and you wish to attend the Special Meeting, you must obtain a
letter from the broker, bank or other nominee confirming your beneficial
ownership of your shares of Enviroq Stock and bring it to the Special Meeting.
In order to vote your shares of Enviroq Stock at the Special Meeting, you must
obtain from the record holder of such shares of Enviroq Stock a proxy issued in
your name.
In accordance with the General Corporation Law of the State of
Delaware, a complete list of the holders of record of Enviroq Stock entitled to
vote at the Special Meeting will be open to the examination of any Stockholder,
for any purpose germane to the Special Meeting, during ordinary business hours,
for ten days preceding the Special Meeting at the principal executive offices
of Enviroq. The list shall also be produced and kept at the time and place of
the Special Meeting during the whole time thereof, and may be inspected by any
Stockholder who is present at the Special Meeting.
By Order of the Board of Directors,
WILLIAM J. LONG
President and Chief Executive Officer
Birmingham, Alabama
November 9, 1998
STOCKHOLDERS ARE INVITED TO ATTEND THE SPECIAL MEETING. WHETHER YOU
PLAN TO ATTEND THE SPECIAL MEETING OR NOT, PLEASE SIGN AND RETURN THE ENCLOSED
PROXY SO THAT ENVIROQ MAY BE ASSURED OF THE PRESENCE OF A QUORUM AT THE SPECIAL
MEETING. A SELF- ADDRESSED ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE. NO
POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES.
<PAGE> 6
PROXY STATEMENT/PROSPECTUS AND OFFER TO REDEEM
PROXY STATEMENT OF
ENVIROQ CORPORATION
FOR A SPECIAL MEETING OF ITS STOCKHOLDERS
TO BE HELD ON MONDAY, DECEMBER 14, 1998
AND
OFFER TO REDEEM
------------------------
THIS PROXY STATEMENT INCLUDES THE PROSPECTUS OF
INTREPID CAPITAL CORPORATION
RELATING TO UP TO 2,215,525 SHARES OF COMMON STOCK
(PAR VALUE $0.01 PER SHARE)
TO BE ISSUED IN CONNECTION WITH A REORGANIZATION AMONG
ENVIROQ CORPORATION, INTREPID CAPITAL CORPORATION, INSTITUTIONAL
ASSET MANAGEMENT, INC., CAPITAL RESEARCH CORPORATION AND OTHER ENTITIES.
------------------------
No person has been authorized to give any information or to make any
representations in connection with the Reorganization or the other matters
discussed in this Proxy Statement/Prospectus and Offer to Redeem, other than
those contained or incorporated by reference in this Proxy Statement/Prospectus
and Offer to Redeem, and if given or made, such information or representations
should not be relied upon as having been authorized by Enviroq, Intrepid, IAM
or CRC. This Proxy Statement/Prospectus and Offer to Redeem does not constitute
an offer to sell, or a solicitation of an offer to purchase, the securities
offered by this Proxy Statement/Prospectus and Offer to Redeem, or the
solicitation of a proxy, in any jurisdiction to or from any person to whom or
from whom it is unlawful to make such offer, solicitation of an offer or proxy
solicitation in such jurisdiction. Neither the delivery of this Proxy
Statement/Prospectus and Offer to Redeem nor any distribution of securities
pursuant to this Proxy Statement/Prospectus and Offer to Redeem shall, under
any circumstances, create any implication that there has been no change in the
affairs of Enviroq, Intrepid, IAM or CRC since the date of this Proxy
Statement/Prospectus and Offer to Redeem or that the information contained
herein is correct as of any time subsequent to its date.
All information contained in this Proxy Statement/Prospectus and Offer
to Redeem relating to Enviroq and its subsidiaries has been supplied by
Enviroq, all information relating to Intrepid and its subsidiaries has been
supplied by Intrepid and all information relating to IAM and CRC has been
supplied by IAM and CRC, respectively.
SEE "RISK FACTORS" ON PAGE 23 FOR CERTAIN ADDITIONAL FACTORS THAT
SHOULD BE CONSIDERED BY THE STOCKHOLDERS IN CONNECTION WITH THE ENVIROQ MERGER.
This Proxy Statement/Prospectus and Offer to Redeem and the
accompanying form of proxy are first being sent to the Stockholders on or about
November 9, 1998. This Proxy Statement/Prospectus and Offer to Redeem is also
accompanied by copies of Enviroq's Annual Report on Form 10-KSB, as amended,
with respect to the fiscal year ended March 28, 1998 and copies of Enviroq's
Quarterly Report on Form 10-QSB, as amended, with respect to the fiscal quarter
ended June 27, 1998.
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---------------------
THE SHARES OF INTREPID STOCK TO BE ISSUED IN THE REORGANIZATION 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
PROXY STATEMENT/PROSPECTUS AND OFFER TO PURCHASE.
ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
----------------------
The date of this Proxy Statement/Prospectus and Offer to Redeem is November
9, 1998
2
<PAGE> 8
TABLE OF CONTENTS
<TABLE>
<S> <C>
AVAILABLE INFORMATION ................................................................ 6
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE ...................................... 6
FORWARD-LOOKING INFORMATION .......................................................... 7
INTRODUCTION ......................................................................... 8
SUMMARY .............................................................................. 10
The Parties ................................................................. 10
The Special Meeting ......................................................... 11
The Reorganization .......................................................... 12
The Redemption .............................................................. 15
Material Federal Income Tax Consequences .................................... 16
Summary Historical and Pro Forma Data ....................................... 17
Comparative Market Prices and Dividends ..................................... 23
RISK FACTORS ......................................................................... 24
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION ............................... 30
THE SPECIAL MEETING .................................................................. 34
General ..................................................................... 34
Purpose of the Special Meeting .............................................. 35
Record Date; Shares Outstanding ............................................. 35
Voting at the Special Meeting ............................................... 35
Solicitation of Proxies ..................................................... 36
Effect of Abstentions and "Broker Non-Votes" ................................ 36
THE REORGANIZATION ................................................................... 37
General ..................................................................... 37
The Redemption .............................................................. 37
Conversion of Shares in the Reorganization .................................. 37
Fractional Interests ........................................................ 38
Exchange of Stock Certificates .............................................. 38
Approval of the Reorganization; The Stock Agreement ......................... 38
The Effective Time .......................................................... 39
Background to the Reorganization ............................................ 39
Reasons for the Reorganization .............................................. 41
Opinion of Financial Advisor ................................................ 44
The Voting Agreement ........................................................ 49
Interests of Certain Persons in the Reorganization .......................... 50
Approval of Stock Option Plans of Intrepid .................................. 50
No Solicitation of Alternative Proposals .................................... 51
Rights of Dissent and Appraisal ............................................. 51
Accounting Treatment ........................................................ 52
Restrictions on Sales of Intrepid Stock by Affiliates of Enviroq, IAM and CRC 53
THE REDEMPTION ....................................................................... 54
The Offer to Redeem ......................................................... 54
Terms of the Offer to Redeem; Expiration Date ............................... 55
Acceptance for Payment; Payment for Shares of Enviroq Stock ................. 56
Procedure for Tendering Shares of Enviroq Stock ............................. 57
Backup Withholding .......................................................... 58
Rights of Withdrawal ........................................................ 59
Extension of the Offer to Redeem; Amendments; Termination ................... 59
Source and Amount of Funds .................................................. 60
Transactions Concerning Shares of Enviroq Stock ............................. 60
Fees and Expenses ........................................................... 60
Miscellaneous ............................................................... 61
THE MERGER AGREEMENT ................................................................. 62
General ..................................................................... 62
Representations and Warranties .............................................. 62
</TABLE>
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<TABLE>
<S> <C>
Conduct of Business Prior to the Mergers ............................................ 62
Conditions to Obligation to Effect the Reorganization ............................... 63
Termination ......................................................................... 65
Termination Fees .................................................................... 66
Expenses ............................................................................ 66
Amendment and Waiver ................................................................ 66
MATERIAL FEDERAL INCOME TAX CONSEQUENCES ..................................................... 67
General ............................................................................. 67
Material Federal Income Tax Consequences of the Redemption .......................... 67
Material Federal Income Tax Consequences of the Enviroq Merger ...................... 68
DESCRIPTION OF INTREPID CAPITAL STOCK ........................................................ 69
General ............................................................................. 69
Dividends ........................................................................... 69
Voting Rights and Other Matters ..................................................... 69
Liquidation Rights .................................................................. 70
COMPARISON OF INTREPID STOCK, ENVIROQ STOCK,
IAM STOCK AND CRC STOCK ............................................................. 70
Dividends ........................................................................... 70
Voting Rights ....................................................................... 70
Business Combinations ............................................................... 71
Amendments to Corporate Charter and Bylaws .......................................... 71
The Board of Directors .............................................................. 71
Actions of Stockholders or Shareholders Without Meetings ............................ 72
Dissent and Appraisal Rights ........................................................ 72
Rights on Liquidation ............................................................... 73
Pre-emptive Rights .................................................................. 73
Reports to Stockholders and Shareholders; Not Margin Securities ..................... 73
SUPERVISION AND REGULATION ................................................................... 73
Intrepid ............................................................................ 73
Enviroq ............................................................................. 74
IAM ................................................................................. 74
CRC ................................................................................. 74
CERTAIN INFORMATION CONCERNING ENVIROQ ....................................................... 76
Description of the Business ......................................................... 76
CERTAIN INFORMATION CONCERNING IAM ........................................................... 76
Description of the Business ......................................................... 76
Description of Property ............................................................. 79
Legal Matters ....................................................................... 79
Management's Discussion and Analysis of Financial Condition and Results of Operations 79
CERTAIN INFORMATION CONCERNING CRC ........................................................... 85
Description of the Business ......................................................... 85
Description of Property ............................................................. 86
Legal Matters ....................................................................... 86
Management's Discussion and Analysis of Financial Condition and Results of Operations 86
CERTAIN INFORMATION CONCERNING INTREPID ...................................................... 92
General ............................................................................. 92
Directors and Officers of Intrepid .................................................. 92
Compensation of Executive Officers .................................................. 93
Description of Intrepid's Business .................................................. 94
Development of Intrepid's Business .................................................. 94
Description of Property ............................................................. 95
Legal Matters ....................................................................... 95
Management's Discussion and Analysis of Financial Condition and Results of Operations 95
Principal Stockholders of Intrepid .................................................. 95
Market Price and Dividends .......................................................... 96
OPINIONS ..................................................................................... 97
</TABLE>
4
<PAGE> 10
<TABLE>
<S> <C>
EXPERTS ........................................................................ 97
INDEMNIFICATION ................................................................ 97
OTHER MATTERS .................................................................. 97
PROPOSALS OF STOCKHOLDERS ...................................................... 98
INDEX TO FINANCIAL STATEMENTS .................................................. F-1
ANNEX A - AMENDED AND RESTATED AGREEMENT AND PLAN OF REORGANIZATION ............ A-1
ANNEX B - OPINION OF PORTER WHITE AS TO THE FAIRNESS OF THE REORGANIZATION ..... B-1
ANNEX C - OPINION OF DELOITTE & TOUCHE LLP ..................................... C-1
ANNEX D - SECTION 262 OF THE GENERAL CORPORATION LAW
OF THE STATE OF DELAWARE ............................................. D-1
ANNEX E - FORM OF INCENTIVE STOCK OPTION PLAN OF INTREPID ...................... E-1
ANNEX F - FORM OF NON-EMPLOYEE DIRECTOR OPTION PLAN OF INTREPID ................ F-1
</TABLE>
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<PAGE> 11
AVAILABLE INFORMATION
Enviroq 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 can be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the following
Regional Offices of the Commission: 7 World Trade Center, Suite 1300, New York,
New York 10048, and Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of such material can be obtained at prescribed
rates from the Public Reference Section of the Commission, 450 Fifth Street,
N.W., Washington, D.C. 20549. The Commission also maintains a site on the World
Wide Web at http://www.sec.gov that contains reports, proxy and information
statements and other information regarding registrants, such as Enviroq, that
file electronically with the Commission.
Intrepid has filed with the Commission a Registration Statement on
Form S-4 under the Securities Act of 1933, as amended (the "Securities Act"),
with respect to the shares of common stock, par value $0.01 per share, of
Intrepid ("Intrepid Stock") to be issued pursuant to the Merger Agreement. This
Proxy Statement/Prospectus and Offer to Redeem constitutes the prospectus of
Intrepid filed as part of the Registration Statement on Form S-4 and does not
contain all the information set forth in the Registration Statement and
exhibits thereto, certain portions of which have been omitted pursuant to the
rules and regulations of the Commission. Such Registration Statement on Form
S-4 and other information can be inspected and copied at the public reference
facilities maintained by the Commission at Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549 and at the following Regional
Offices of the Commission: 7 World Trade Center, Suite 1300, New York, New York
10048, and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661.
Shares of Intrepid Stock are not traded or listed on any national
securities exchange or market.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents of Enviroq which have been filed with the
Commission pursuant to the Exchange Act are incorporated by reference in this
Proxy Statement/Prospectus and Offer to Redeem:
(a) Annual Report on Form 10-KSB filed with the Commission on June
23, 1998 for fiscal year ended March 28, 1998;
(b) Current Report on Form 8-KSB filed with the Commission on
April 23, 1998;
(c) Amendment to Annual Report on Form 10-KSB/A filed with the
Commission on August 4, 1998 for fiscal year ended March 28, 1998;
(d) Quarterly Report on Form 10-QSB filed with the Commission on
August 11, 1998 for fiscal quarter ended June 27, 1998;
(e) Amendment to Annual Report on Form 10-KSB/A-1 filed with the
Commission on September 9, 1998 for fiscal year ended March 28, 1998;
(f) Amendment to Quarterly Report on Form 10-QSB/A filed with the
Commission on September 10, 1998 for fiscal quarter ended June 27, 1998;
(g) Current Report on Form 8-KSB filed with the Commission on
September 16, 1998; and
(h) Amendment to Annual Report Form 10-KSB/A-2 filed with the
Commission on October 7, 1998 for fiscal year ended March 28, 1998.
6
<PAGE> 12
All documents and reports filed by Enviroq pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act after the date of this Proxy
Statement/Prospectus and Offer to Redeem and prior to the date of the Special
Meeting shall be deemed to be incorporated by reference herein and to be a part
hereof from the date of filing of such reports and documents. Any statement
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Proxy Statement/Prospectus and Offer to Redeem to the
extent that a statement contained herein or in any other subsequently filed
document which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any statement so modified or superseded
shall not be deemed, except as so modified or superseded, to constitute a part
of this Proxy Statement/Prospectus and Offer to Redeem.
THIS PROXY STATEMENT/PROSPECTUS AND OFFER TO REDEEM INCORPORATES BY
REFERENCE DOCUMENTS RELATING TO ENVIROQ WHICH ARE NOT PRESENTED HEREIN OR
DELIVERED HEREWITH. THESE DOCUMENTS (NOT INCLUDING EXHIBITS TO SUCH DOCUMENTS
OTHER THAN EXHIBITS SPECIFICALLY INCORPORATED BY REFERENCE HEREIN) ARE
AVAILABLE WITHOUT CHARGE TO ANY PERSON, INCLUDING ANY BENEFICIAL OWNER OF
SHARES OF ENVIROQ STOCK, TO WHOM THIS PROXY STATEMENT/PROSPECTUS AND OFFER TO
REDEEM IS DELIVERED, UPON WRITTEN OR ORAL REQUEST. REQUESTS FOR SUCH DOCUMENTS
SHOULD BE DIRECTED TO WILLIAM J. LONG, ENVIROQ CORPORATION, 3918 MONTCLAIR
ROAD, SUITE 206, BIRMINGHAM, ALABAMA 35213, TELEPHONE NUMBER (205) 870-0588. IN
ORDER TO ENSURE TIMELY DELIVERY OF ANY REQUESTED DOCUMENT, REQUESTS SHOULD BE
MADE BY FIVE (5) BUSINESS DAYS PRIOR TO THE DATE OF THE SPECIAL MEETING.
FORWARD-LOOKING INFORMATION
With the exception of historical information contained in this Proxy
Statement/Prospectus and Offer to Redeem relating to Enviroq, certain matters
and statements discussed, made or incorporated by reference in this Proxy
Statement/Prospectus and Offer to Redeem with respect to Enviroq constitute
forward-looking statements. Wherever possible, these "forward-looking"
statements have been identified by words such as "anticipates", "believes",
"estimates", "expects", "intends", "projects" and other similar phrases. These
forward looking statements are based upon assumptions which are believed by
Enviroq to be reasonable; however, such statements are subject to risks and
uncertainties which could cause the actual results, performance and
achievements to differ materially from those expressed in, or implied or
contemplated by, these statements. Such assumptions, risks and uncertainties
include, without limitation, those assumptions, risks, and uncertainties
identified under the heading "RISK FACTORS" in this Proxy Statement/Prospectus
and Offer to Redeem. Enviroq assumes no obligation to publicly release any
revisions to the forward-looking statements contained herein to reflect events
or circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
7
<PAGE> 13
INTRODUCTION
This Proxy Statement/Prospectus and Offer to Redeem ("Proxy
Statement/Prospectus and Offer to Redeem") relates to a proposed reorganization
pursuant to an Agreement and Plan of Reorganization, dated as of April 22,
1998, as amended by Amendment No. 1 to the Agreement and Plan of
Reorganization, dated as of August 27, 1998 and as amended and restated on
October 29, 1998 (as so amended and restated, the "Merger Agreement"), by and
among Enviroq Corporation, a Delaware corporation ("Enviroq"), Intrepid Capital
Corporation, a newly formed Delaware corporation and wholly-owned subsidiary of
Enviroq ("Intrepid"), Freedom Holdings of Alabama, Inc., a Delaware corporation
("Sub-1"), Institutional Asset Management, Inc., a Florida corporation ("IAM"),
IAM Merger Sub, Inc., a Florida corporation ("Sub-2"), Capital Research
Corporation, a Florida corporation ("CRC"), and CRC Merger Sub, Inc., a Florida
corporation ("Sub-3"). Sub-1, Sub-2 and Sub-3, three wholly-owned subsidiaries
of Intrepid, and Intrepid are all newly formed companies formed for the
specific purpose of consummating the transactions contemplated in the Merger
Agreement.
Pursuant to the Merger Agreement, each of Sub-1, Sub-2 and Sub-3 will
merge with and into Enviroq, IAM and CRC, respectively, and in each case,
Enviroq, IAM and CRC shall be the surviving corporation (referred to herein as
the "Enviroq Merger", the "IAM Merger" and the "CRC Merger", respectively, and
collectively, the "Mergers"). The separate corporate existence of Sub-1, Sub-2
and Sub-3 will cease. As a result of the Mergers, Enviroq, IAM and CRC will
become wholly-owned subsidiaries of Intrepid (referred to herein as the
"Reorganization").
In connection with the Enviroq Merger, and immediately prior thereto,
each stockholder of Enviroq ("Stockholder") will be given the opportunity to
have Enviroq redeem exactly 42.698013% of the shares of issued and outstanding
common stock, par value $0.10 per share, of Enviroq ("Enviroq Stock") tendered
by such Stockholder for $5.220612 in cash per share of Enviroq Stock (referred
to herein as the "Redemption"). Stockholders may elect to participate in the
Redemption with fewer than all of the shares of Enviroq Stock owned by them,
but only 42.698013% of the shares of Enviroq Stock actually tendered by a
Stockholder will be redeemed in the Redemption. The Redemption will occur only
if all of the terms and conditions contained in the Merger Agreement (other
than the filing of the appropriate corporate documents to effect the Mergers,
which filings will occur promptly following the Redemption) are satisfied or
waived. Each Stockholder who elects to participate in the Redemption and who
does not dissent from the Enviroq Merger will, subject to the adoption of the
Merger Agreement by the Stockholders and the consummation of the
Reorganization, receive in the Reorganization (a) 1.745140 shares of common
stock, par value $0.01 per share, of Intrepid ("Intrepid Stock") for each share
of Enviroq Stock tendered by such Stockholder but not redeemed in the
Redemption and (b) one (1) share of Intrepid Stock and $2.229098 in cash for
each share of Enviroq Stock held by such Stockholder which was not tendered by
such Stockholder in the Redemption. If this would result in the issuance of a
fractional share of Intrepid Stock, the number of shares of Intrepid Stock to
be issued shall be rounded down to the nearest whole share of Intrepid Stock
and the Stockholder shall receive from Intrepid an amount in cash equal to the
fractional component resulting from the calculation referred to in the
preceding sentence multiplied by $2.99151457, rounded to the nearest whole
cent. Each Stockholder who elects not to participate in the Redemption will,
subject to the adoption of the Merger Agreement by the Stockholders and the
consummation of the Reorganization, receive in the Reorganization one share of
Intrepid Stock and $2.229098 in cash for each share of Enviroq Stock held by
such Stockholder (the "Non-Redeeming Stockholder Consideration").
The total consideration received in the Enviroq Merger by a
Stockholder who elects to participate in the Redemption will be equivalent on a
per share basis to the total consideration received in the Enviroq Merger by a
Stockholder who elects not to participate in the Redemption (or to participate
by tendering less than all of such Stockholder's shares of Enviroq Stock),
subject to any possible differences attributable to tax treatment. Each
Stockholder is being given the opportunity to have Enviroq redeem a portion of
the shares of Enviroq Stock owned by such Stockholder to enable the Stockholder
to apply a portion of such Stockholder's basis in such shares against the
capital gain which is realized by the Stockholder in the Reorganization thereby
reducing the gain recognized for federal income tax purposes by the Stockholder
in connection with the Reorganization and related transactions.
Each shareholder of IAM will receive in the Reorganization 1206.149
shares of Intrepid Stock for each issued and outstanding share of common stock,
par value $0.01 per share, of IAM ("IAM Stock"). Each shareholder of CRC
8
<PAGE> 14
will receive in the Reorganization 1206.149 shares of Intrepid Stock for each
issued and outstanding share of common stock, par value $0.01 per share, of CRC
("CRC Stock").
After the Reorganization, the former shareholders of IAM and CRC will
own approximately 54.44% of the outstanding shares of Intrepid Stock and the
former Stockholders will own approximately 45.56% of the outstanding shares of
Intrepid Stock (subject to adjustment as a result of the exercise of the
Stockholders' right to dissent).
This Proxy Statement/Prospectus and Offer to Redeem constitutes the
prospectus of Intrepid filed as part of a Registration Statement on Form S-4
(the "Registration Statement") with the Commission under the Securities Act,
relating to up to 2,215,525 shares of common stock, par value $0.01 per share,
of Intrepid ("Intrepid Stock"). This Proxy Statement/Prospectus and Offer to
Redeem also serves as the proxy statement of Enviroq relating to the
solicitation of proxies by its Board of Directors (the "Enviroq Board") for use
at a special meeting of the stockholders of Enviroq (the "Stockholders")
(including any adjournments or postponements thereof) (the "Special Meeting")
to be held at the Mountain Brook Inn, 2800 Highway 280, Birmingham, Alabama at
9:00 a.m., local time, on Monday, December 14, 1998. At the Special Meeting,
the Stockholders will consider and vote upon a proposal to adopt the Merger
Agreement and approve the other proposals. See "THE SPECIAL MEETING", "THE
REORGANIZATION" and "THE REDEMPTION".
The consummation of the Reorganization is subject, among other things,
to the adoption of the Merger Agreement by the affirmative vote of a majority
of the shares of Enviroq Stock present in person or represented by proxy at the
Special Meeting and entitled to vote thereon. Certain principal stockholders of
Enviroq (the "Principal Stockholders") who own between them an aggregate of
552,875 shares of Enviroq Stock, representing approximately 54.77% of the
shares of Enviroq Stock, have executed a stock agreement (the "Stock
Agreement") with certain principal shareholders of IAM and CRC (the "Principal
IAM/CRC Shareholders"), pursuant to which the Principal Stockholders have
agreed, among other matters, to vote the shares of Enviroq Stock owned by the
Principal Stockholders in favor of the adoption of the Merger Agreement. The
shareholders of IAM and CRC have approved the Merger Agreement and the IAM
Merger and CRC Merger, as the case may be. A copy of the Merger Agreement, as
amended, is attached hereto as Annex A. The Redemption will only occur if all
of the terms and conditions contained in the Merger Agreement are satisfied or
waived.
9
<PAGE> 15
SUMMARY
The following is a summary of certain information contained elsewhere
in this Proxy Statement/Prospectus and Offer to Redeem, including the Annexes
hereto, which are a part of this Proxy Statement/Prospectus and Offer to
Redeem. This Summary is not, and is not intended to be, complete in itself.
Reference is made to, and this Summary is qualified in its entirety by, the
more detailed information contained elsewhere in this Proxy
Statement/Prospectus and Offer to Redeem. Stockholders are encouraged to read
carefully all of the information contained in this Proxy Statement/Prospectus
and Offer to Redeem and in the Annexes hereto. Unless otherwise defined herein,
capitalized terms used in this Summary have the respective meanings ascribed to
them elsewhere in this Proxy Statement/Prospectus and Offer to Redeem.
THE PARTIES
Enviroq
Enviroq Corporation, a Delaware corporation ("Enviroq"), through its
subsidiaries, is currently principally engaged in the development,
commercialization, formulation and marketing of spray-applied resinous products
and in the treatment of municipal wastewater biosolids. Enviroq's operations
are conducted primarily through Sprayroq(R), Inc., a Florida corporation of
which Enviroq owns 50% of the outstanding capital stock ("Sprayroq"). Sprayroq
is engaged in the development, commercialization, manufacture and marketing of
spray-applied resinous materials. Enviroq also owns 100% of the outstanding
capital stock of Synox(R) Corporation, a Delaware corporation ("Synox"). Synox
has been engaged in the research, development and marketing of a process for
the treatment of municipal wastewater biosolids. During the fiscal year ended
March 30, 1996, management of Enviroq elected to minimize the activities of
Synox and to write off substantially all of the assets of Synox. As of March
28, 1998, all remaining assets of Synox have been fully depreciated.
Accordingly, during the fiscal year ended March 28, 1998, most of the income
and gross profit of Enviroq was attributable to the operations of Sprayroq. The
principal executive offices of Enviroq are located at 3918 Montclair Road,
Suite 206, Birmingham, Alabama 35213, and its telephone number is (205)
870-0588. See "AVAILABLE INFORMATION" and "INCORPORATION OF CERTAIN DOCUMENTS
BY REFERENCE".
IAM and CRC
Institutional Asset Management, Inc., a Florida corporation ("IAM"),
is principally engaged in the management of stock and bond portfolios for
public and private corporations, non-profit organizations, labor unions and
individuals. The principal executive offices of IAM are located at 50 North
Laura Street, Suite 3550, Jacksonville, Florida 32202, and its telephone number
is (904) 350-9999. See "CERTAIN INFORMATION CONCERNING IAM".
Capital Research Corporation, a Florida corporation ("CRC"), is a
broker-dealer registered with the National Association of Securities Dealers,
Inc. (the "NASD") offering custody and securities transactions primarily to
registered investment advisory firms, including IAM, through CRC's affiliation
with National Financial Service Corporation ("NFSC"), a subsidiary of Fidelity
Investments, Inc. The principal executive offices of CRC are located at 50
North Laura Street, Suite 3550, Jacksonville, Florida 32202, and its telephone
number is (904) 350-9999. See "CERTAIN INFORMATION CONCERNING CRC".
Each of IAM and CRC operates under its own name, with its own
investment philosophy and approach. Each conducts its own investment analysis,
portfolio selection, marketing and client services. During any given period,
investment results may vary between IAM and CRC. Client fees are set by IAM and
CRC based on each company's own judgment concerning the market for the services
it renders.
Intrepid
Intrepid Capital Corporation ("Intrepid") was incorporated in Delaware
on April 3, 1998 solely for the purpose of consummating the Reorganization and
the other transactions contemplated by the Merger Agreement. Intrepid has no
assets and no business and has carried on no activities which are not directly
related to its formation and its
10
<PAGE> 16
execution of the Merger Agreement. Its principal executive offices are located
at 3918 Montclair Road, Suite 206, Birmingham, Alabama 35213, and its telephone
number is (205) 870-0588. See "CERTAIN INFORMATION CONCERNING INTREPID".
THE SPECIAL MEETING
Purpose of the Special Meeting
At a special meeting of the Stockholders (the "Special Meeting"), the
Stockholders will be asked to consider and vote upon a proposal to adopt the
Merger Agreement, and proposals to approve certain proposed stock option plans
of Intrepid. The proposed stock option plans (the "Stock Option Plans") consist
of an incentive stock option plan (the "Incentive Stock Option Plan") and a
non-employee director's stock option plan (the "Non-Employee Director's Stock
Option Plan"). See "THE SPECIAL MEETING -- Purpose of the Special Meeting".
Time, Date and Place of the Special Meeting
The Special Meeting will be held on Monday, December 14, 1998 at 9:00
a.m., local time, at the Mountain Brook Inn, 2800 Highway 280, Birmingham,
Alabama. See "THE SPECIAL MEETING -- General".
Record Date
Stockholders of record at the close of business on October 19, 1998
(the "Record Date") are entitled to notice of and to vote at the Special
Meeting and at any adjournment or postponement thereof. As of the close of
business on the Record Date, there were 1,009,377 shares of common stock, par
value $0.10 per share, of Enviroq ("Enviroq Stock") issued and outstanding. See
"THE SPECIAL MEETING -- Record Date; Shares Outstanding".
Voting Rights
Each share of Enviroq Stock is entitled to one vote with respect to
all matters presented at the Special Meeting. See "THE SPECIAL MEETING --
Voting at the Special Meeting".
Quorum
A majority of the shares of Enviroq Stock present and entitled to
vote, in person or by proxy, at the Special Meeting shall constitute a quorum
for the transaction of business at the Special Meeting. See "THE SPECIAL
MEETING -- Voting at the Special Meeting".
Vote Required
Adoption of the Merger Agreement requires a majority of the
outstanding shares of Enviroq Stock entitled to vote thereon. Approval of the
Stock Option Plans requires the affirmative vote of a majority of the shares of
Enviroq Stock present in person or represented by proxy at the Special Meeting
and entitled to vote thereon. Consummation of the Reorganization is conditioned
upon, among other things, the approval of the Enviroq Merger by the
Stockholders. Certain Stockholders, who between them own, in the aggregate,
552,875 shares of Enviroq Stock, representing approximately 54.77% of the
shares of Enviroq Stock (the "Principal Stockholders"), have executed a stock
agreement (the "Stock Agreement") with the Principal IAM/CRC Shareholders,
pursuant to which such Principal Stockholders have agreed, subject to certain
conditions, to vote the shares of Enviroq Stock owned by such Principal
Stockholders in favor of the adoption of the Merger Agreement. Accordingly, it
is expected that the Merger Agreement will be adopted, and consequently, the
Redemption and the Enviroq Merger will be approved, at the Special Meeting. In
addition, if the Principal Stockholders vote in favor of the Stock Option
Plans, the Stock Option Plans will be approved at the Special Meeting. See "THE
SPECIAL MEETING -- Voting at the Special Meeting" and "THE REORGANIZATION --
General".
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<PAGE> 17
Share Ownership of Management
At the close of business on the Record Date, directors and executive
officers of Enviroq and their affiliates were the owners of an aggregate of
571,001 shares of Enviroq Stock (approximately 56.57% of the outstanding
shares). All directors and executive officers of Enviroq are expected to vote,
or cause to be voted, all shares over which they exercise voting control "FOR"
adoption of the Merger Agreement and "FOR" approval of the Stock Option Plans.
See "THE SPECIAL MEETING -- Record Date; Shares Outstanding".
Revocability of Proxy
Any Stockholder who executes and returns a proxy may revoke such proxy
at any time before it is voted by (i) filing with the Secretary of Enviroq at
or before the Special Meeting, a written notice of revocation bearing a later
date than the proxy, (ii) duly executing a subsequent proxy relating to the
same shares of Enviroq Stock and delivering it to the Secretary of Enviroq at
or before the Special Meeting, or (iii) attending the Special Meeting and
voting in person by ballot. Attendance at the Special Meeting will not in and
of itself constitute revocation of a proxy. See "THE SPECIAL MEETING -- Voting
at the Special Meeting".
THE REORGANIZATION
The Enviroq Merger
Upon the terms and subject to the conditions of the Merger Agreement,
Freedom Holdings of Alabama, Inc., a newly formed Delaware corporation and
wholly-owned subsidiary of Intrepid ("Sub-1"), will be merged with and into
Enviroq, with Enviroq being the surviving corporation (the "Enviroq Merger").
The separate corporate existence of Sub-1 shall cease. As a result of the
Enviroq Merger, Enviroq will become a wholly-owned subsidiary of Intrepid. See
"THE REORGANIZATION -- General".
Other Mergers Involved in the Reorganization
Simultaneously with the Enviroq Merger, IAM Merger Sub, Inc. ("Sub-2")
and CRC Merger Sub, Inc. ("Sub-3"), two other wholly-owned subsidiaries of
Intrepid, will be merged with and into IAM and CRC, respectively (the "IAM
Merger" and the "CRC Merger", respectively). In each instance, IAM and CRC
shall be the surviving corporations and the separate corporate existence of
Sub-2 and Sub-3 shall cease. As a result of the IAM Merger, the CRC Merger and
the Enviroq Merger, each of Enviroq, IAM and CRC shall become wholly-owned
subsidiaries of Intrepid (the "Reorganization"). Each of Intrepid, Sub-1, Sub-2
and Sub-3 are newly formed corporations, formed solely to effect the
transactions contemplated in the Merger Agreement. See "THE REORGANIZATION --
General".
Effective Time
The Reorganization will become effective (the "Effective Time") upon
the latest to occur of the execution and filing of a Certificate of Merger with
the Secretary of State of the State of Delaware with respect to the Enviroq
Merger and the execution and filing of Articles of Merger with the Secretary of
State of the State of Florida with respect to the IAM Merger and the CRC
Merger; provided, however, that the Reorganization shall not become effective
until after the completion of the Redemption (as defined herein). The
Reorganization will be effective on a date (the "Closing Date") to be specified
by the parties to the Merger Agreement, which will be no later than two (2)
business days after the satisfaction or waiver of the conditions set forth in
Articles 7 through 10 of the Merger Agreement. See "THE REORGANIZATION -- The
Effective Time" and "TERMS OF THE MERGER AGREEMENT -- Conditions to the
Mergers".
Background of the Reorganization
For a description of the background of the Reorganization, see "THE
REORGANIZATION -- Background to the Reorganization".
12
<PAGE> 18
Reasons for the Reorganization
Each of the Enviroq Board, the IAM Board and the CRC Board believes
that the Reorganization offers significant strategic and financial benefits to
Enviroq, IAM and CRC and to the Stockholders and the shareholders of IAM and
CRC as well as to each company's employees, customers and the communities in
which each company transacts business. These benefits include, among others,
the ability to diversify into unrelated areas of business, an increased ability
to expand and grow business opportunities, expanded management resources and
increased size and financial stability. See "THE REORGANIZATION -- Reasons for
the Reorganization".
Recommendation of the Enviroq Board
The Enviroq Board, based on certain factors described in more detail
below, including the opinion of Porter, White & Company, Inc. ("Porter White"),
financial advisor to Enviroq, which opinion was delivered to the Enviroq Board
on April 10, 1998 and confirmed in writing as of the date of this Proxy
Statement/Prospectus and Offer to Redeem (the "Fairness Opinion"), concluded
that the Enviroq Merger is fair to and in the best interests of Enviroq and the
Stockholders, unanimously approved the Merger Agreement and resolved to
recommend that the Stockholders approve the Enviroq Merger. A copy of the
Fairness Opinion is attached hereto as Annex B. The Stockholders are urged to
read the Fairness Opinion in its entirety for assumptions made, procedures
followed, other matters considered and limits of the review by Porter White.
The Enviroq Board has reviewed the terms and conditions of the Merger Agreement
and certain factors, including the Fairness Opinion. After consideration of
each of these factors, the Enviroq Board unanimously concluded that the Enviroq
Merger is in the best interests of the Stockholders and unanimously approved
the Merger Agreement and the terms and conditions of the Enviroq Merger.
THE ENVIROQ BOARD UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE IN
FAVOR OF ADOPTION OF THE MERGER AGREEMENT AT THE SPECIAL MEETING. IN
CONSIDERING THE RECOMMENDATION OF THE ENVIROQ BOARD WITH RESPECT TO THE ENVIROQ
MERGER, STOCKHOLDERS SHOULD BE AWARE THAT CERTAIN MEMBERS OF THE ENVIROQ BOARD
AND MANAGEMENT OF ENVIROQ HAVE CERTAIN INTERESTS IN THE REORGANIZATION THAT ARE
IN ADDITION TO THEIR INTERESTS AS STOCKHOLDERS. The Enviroq Board was aware of
these interests and considered them, among other matters, in approving the
Merger Agreement and in recommending the
Merger Agreement for adoption by the Stockholders. The Merger Agreement
provides that the Intrepid Board will, after the Effective Time, consist of
seven members. Such initial members of the Intrepid Board will include William
J. Long, the current President, Chief Executive Officer and a director of
Enviroq, and Thomas W. Brander, Michael X. Marinelli and Alexander P. Zechella,
all of whom currently serve as directors of Enviroq. In addition, after the
Effective Time, William J. Long will serve as Chief Operating Officer and as an
Executive Vice President of Intrepid. William J. Long will enter into an
employment agreement with Intrepid to become effective at the Effective Time,
pursuant to which Mr. Long may receive a bonus in addition to his salary and,
when eligible, other fringe benefits generally established for employees of
Intrepid. In addition, it is anticipated that Mr. Long may participate in the
Incentive Stock Option Plan to be adopted by Intrepid after the Effective Time.
Messrs. Brander, Marinelli and Zechella may also participate in the
Non-Employee Directors' Stock Option Plan, to be adopted by Intrepid after the
Effective Time.
Furthermore, after the Effective Time, Forrest Travis, the current
President of IAM and CRC, will serve as the President and Chief Executive
Officer of Intrepid and Mark F. Travis, son of Forrest Travis, will serve as
President of IAM and as an Executive Vice President of Intrepid. Messrs. Travis
and Travis will serve on the initial Intrepid Board and will enter into
employment agreements with Intrepid to become effective as of the Effective
Time, pursuant to which they may receive bonuses in addition to their salaries
and, when eligible, other fringe benefits generally established for employees
of Intrepid. It is also anticipated that Messrs. Travis and Travis may also
participate in the Incentive Stock Option Plan to be adopted by Intrepid after
the Effective Time.
See "THE REORGANIZATION -- Reasons for the Reorganization; -- Opinion
of Financial Advisor; and -- Interests of Certain Persons in The
Reorganization" and "CERTAIN INFORMATION CONCERNING INTREPID -- Compensation of
Executive Officers".
13
<PAGE> 19
Opinion of Financial Advisor
On April 10, 1998, Porter White delivered the Fairness Opinion to the
Enviroq Board to the effect that, as of that date and based upon the
assumptions made, matters considered and limits of review as set forth in such
opinion, the consideration to be received by each Stockholder pursuant to the
Enviroq Merger is fair to the Stockholders from a financial point of view. The
full text of the Fairness Opinion is attached as Annex B to this Proxy
Statement/Prospectus and Offer to Redeem. HOLDERS OF ENVIROQ STOCK ARE URGED
TO, AND SHOULD, READ THE FAIRNESS OPINION IN ITS ENTIRETY. See "THE
REORGANIZATION -- Opinion of Financial Advisor" and Annex B to this Proxy
Statement/Prospectus and Offer to Redeem.
The Voting Agreement
As a condition to the consummation of the Reorganization, the
Principal Stockholders and the Principal IAM/CRC Shareholders will execute a
voting agreement (the "Voting Agreement"), pursuant to which the Principal
Stockholders and the Principal IAM/CRC Shareholders will agree to vote all
shares of Intrepid Stock owned by them after the Effective Time to elect
certain persons to the Board of Directors of Intrepid (the "Intrepid Board")
after consummation of the Reorganization. In general, the Voting Agreement
provides each of the Principal Stockholders, as a group, and the Principal
IAM/CRC Shareholders, as a group, with representation on the Intrepid Board for
as long as the Voting Agreement remains in effect. Immediately after the
Effective Time, the Principal Stockholders and the Principal IAM/CRC
Shareholders will own, in the aggregate, approximately 79% of the issued and
outstanding shares of Intrepid Stock. The maximum number of members of the
Intrepid Board subject to designation by the Principal Stockholders and the
Principal IAM/CRC Shareholders is, in the aggregate, seven. The specific number
of members of the Intrepid Board designated by the Principal Stockholders, as a
group, and the Principal IAM/CRC Shareholders, as a group, will vary, depending
on the specific percentage of shares of Intrepid Stock owned by them viz-a-viz
other stockholders of Intrepid and viz-a-viz the other group.
Stock Option Plans
Pursuant to the Merger Agreement, Intrepid will adopt the Stock Option
Plans. Copies of both of the Stock Option Plans are attached to this Proxy
Statement/Prospectus and Offer to Redeem as Annexes E and F. Both Stock Option
Plans are designed to provide awards and incentives to the management and
non-employee directors of Intrepid based upon the achievement of individual,
group and corporate performance. The Stockholders are being asked to consider
and vote upon proposals to approve the Stock Option Plans at the Special
Meeting. See "THE REORGANIZATION -- Approval of Stock Option Plans of
Intrepid".
No Solicitation of Alternative Proposals
Pursuant to the Merger Agreement, Enviroq has agreed that prior to the
Effective Time, neither it, nor any of its subsidiaries, nor any of their
respective officers, directors, employees, agents or representatives, shall
initiate, solicit or encourage, directly or indirectly, any inquiries or the
making or implementation of any Alternative Proposal. Furthermore, Enviroq has
agreed that neither it, nor any of its subsidiaries, nor any of their
respective officers, directors, employees, agents or representatives shall
engage in any negotiations with, provide any confidential information or data
to, or have any discussions with, any person relating to an Alternative
Proposal or otherwise facilitate any effort or attempt to make or implement an
Alternative Proposal. An "Alternative Proposal" is defined as "any proposal or
offer (including any offer or proposal to the Stockholders) with respect to a
merger, acquisition, consolidation or similar transaction involving (i) all or
any significant portion of the assets of Enviroq and its subsidiaries taken as
a whole, (ii) fifteen percent (15%) or more of the outstanding shares of
Enviroq Stock or (iii) fifteen percent (15%) or more of the outstanding shares
of the capital stock of any subsidiary of Enviroq". See "THE REORGANIZATION --
No Solicitation of Alternative Proposals".
Rights of Dissent and Appraisal
If the Enviroq Merger is consummated, the Stockholders who (i) do not
vote in favor of the Enviroq Merger, and (ii) who otherwise comply with Section
262 of the General Corporation Law of the State of Delaware (the "DGCL")
relating to the exercise of dissenters' rights, will be entitled to statutory
appraisal rights for their shares of Enviroq Stock. Section 262 of the DGCL is
reprinted in its entirety as Annex D to this Proxy Statement/Prospectus
14
<PAGE> 20
and Offer to Redeem. A person having a beneficial interest in shares of Enviroq
Stock that is held of record in the name of another person, such as a broker or
nominee, must act promptly to cause the record holder to follow the steps
summarized herein and in a timely manner to perfect whatever dissenter's rights
the beneficial owner may have. THE PROVISIONS OF SECTION 262 OF THE DGCL ARE
TECHNICAL IN NATURE AND ARE COMPLEX. STOCKHOLDERS DESIRING TO EXERCISE
APPRAISAL RIGHTS AND OBTAIN APPRAISAL OF THE VALUE OF THE SHARES OF ENVIROQ
STOCK OWNED BY THEM ARE URGED TO CONSULT THEIR LEGAL COUNSEL FOR SPECIFIC
ADVICE REGARDING THE INTERPRETATION OF THE DGCL WITH RESPECT TO DISSENTERS'
RIGHTS. See "THE REORGANIZATION -- Dissent and Appraisal Rights" and Annex D to
this Proxy Statement/Prospectus and Offer to Redeem.
Accounting Treatment
It is intended that this transaction comprising the Mergers will be
accounted for as a purchase for accounting and financial reporting purposes
with IAM and CRC considered to be the acquiring enterprises and Enviroq as the
acquired company. Accordingly, the assets and liabilities of Enviroq will be
recorded at their fair values at the date of merger, while the assets and
liabilities of IAM and CRC will continue at historical cost. See "THE
REORGANIZATION -- Accounting Treatment".
THE REDEMPTION
The Offer to Redeem
Immediately prior to and in connection with the Enviroq Merger, each
Stockholder will be given the opportunity (the "Offer to Redeem") to have
Enviroq redeem exactly 42.698013% of the shares of Enviroq Stock tendered by
such Stockholder for $5.220612 in cash per share (the "Redemption"). The
Redemption will occur only if all of the conditions set forth in Articles 7
through 10 of the Merger Agreement (other than the filing of the appropriate
corporate documents to effect the Mergers, which filings will occur promptly
following the Redemption) are either satisfied or waived and the Mergers are
consummated. See "THE REDEMPTION -- The Offer to Redeem".
Terms of the Offer to Redeem; Expiration Date
Upon the terms and subject to the conditions of the Offer to Redeem,
Enviroq will, with respect to each Stockholder, accept, if applicable, for
payment and purchase that number of shares of Enviroq Stock equal to 42.698013%
of the total number of shares of Enviroq Stock tendered by such Stockholder
which have been validly tendered and not withdrawn by the Expiration Date. Such
payment shall be made promptly after the Expiration Date; provided, that the
conditions set forth in Articles 7 through 10 of the Merger Agreement (other
than the filing of the appropriate corporate documents to effect the Mergers,
which filings will occur promptly following the Redemption) shall have either
been satisfied or waived. In all cases, all questions as to the satisfaction or
waiver of the conditions will be determined by Enviroq, in its sole discretion,
which determination will be final and binding. The term "Expiration Date" shall
mean 9:00 a.m., Birmingham, Alabama time, on December 15, 1998, the day
following the Special Meeting, unless and until Enviroq, in its sole
discretion, shall have extended the period of time during which the Offer to
Redeem is open, in which event, the term "Expiration Date" shall mean the
latest time and date at which the Offer to Redeem, as so extended by Enviroq,
shall expire. Enviroq reserves the right, in its sole discretion, at any time
and from time to time, to (a) extend the period of time during which the Offer
to Redeem is open, or (b) amend the Offer to Redeem in any other respects.
However, since the terms of the Offer to Redeem are designed to ensure that a
Stockholder who elects to participate in the Redemption will receive in the
Enviroq Merger total consideration that is equivalent on a per share basis to
the total consideration received in the Enviroq Merger by a Stockholder who
elects not to participate in the Redemption, the terms of the Offer to Redeem
will only be amended if the terms of the Reorganization change. Furthermore, in
the event the terms of the Reorganization change, the terms of the Offer to
Redeem will only be amended to the extent necessary to ensure that the total
consideration received in the Enviroq Merger by Stockholders who elect to
participate in the Redemption remains equivalent on a per share basis viz-a-viz
the total consideration received in the Enviroq Merger by Stockholders who
elect not to participate in the Redemption. See "THE REDEMPTION -- Terms of
the Offer to Redeem; Expiration Date".
15
<PAGE> 21
Acceptance for Payment; Payment for Shares of Enviroq Stock
For the purposes of the Offer to Redeem, Enviroq will be deemed to
have accepted for payment and purchased shares of Enviroq Stock which are
tendered and not withdrawn as, if and when the Enviroq Board shall, in its
reasonable discretion, determine to accept shares of Enviroq Stock for payment
pursuant to the Offer to Redeem. Payment for shares of Enviroq Stock accepted
for payment pursuant to the Offer to Redeem will be made by Enviroq as soon as
practicable after such determination by the Enviroq Board. Under no
circumstances will interest be paid by Enviroq by reason of any delay in making
such payments. See "THE REDEMPTION -- Acceptance for Payment; Payment for
Shares of Enviroq Stock".
Rights of Withdrawal
Tenders of shares of Enviroq Stock made pursuant to the Offer to
Redeem are irrevocable, except that shares of Enviroq Stock tendered pursuant
to the Offer to Redeem may be withdrawn at any time prior to the Expiration
Date and, unless theretofore accepted for payment by Enviroq pursuant to the
Offer to Redeem, may be withdrawn at any time after January 8, 1999. See
"THE REDEMPTION -- Rights of Withdrawal".
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
Federal Income Tax Consequences of the Redemption
The distribution of cash by Enviroq to the Stockholders who elect to
redeem shares of Enviroq Stock in the Redemption will be characterized for
federal income tax purposes as a distribution in full payment in exchange for
their respective shares of Enviroq Stock. Any gain or loss realized by such
redeeming Stockholders in connection with the Redemption will be recognized for
federal income tax purposes as capital gain or loss pursuant to ss. 1001 of the
Internal Revenue Code of 1986, as amended (the "Code"), provided that the
shares of Enviroq Stock are held as a capital asset at the time the Redemption
is effected. See "MATERIAL FEDERAL INCOME TAX CONSEQUENCES -- Material Federal
Income Tax Consequences of the Redemption".
Federal Income Tax Consequences of the Enviroq Merger
The Enviroq Merger will be characterized for federal income tax
purposes as a transfer of property (i.e., shares of Enviroq Stock) to a
"controlled corporation" (i.e., Intrepid) within the meaning of ss. 351 of the
Code. No gain or loss will be recognized by the Stockholders for federal income
tax purposes in connection with their receipt of shares of Intrepid Stock in
the Enviroq Merger (except with respect to cash received in lieu of fractional
shares of Enviroq Stock). Stockholders will recognize gain, but not loss, in
connection with the Enviroq Merger to the extent of cash and the fair market
value of property (other than Intrepid Stock) received by them in the Enviroq
Merger.
Each Stockholder is urged to consult such Stockholder's tax advisors
as to the consequences of the Redemption and the Enviroq Merger to the
Stockholder under federal, state, local or any other applicable law after
taking into account the Stockholder's particular tax status and attributes. See
"MATERIAL FEDERAL INCOME TAX CONSEQUENCES -- Material Federal Income Tax
Consequences of the Enviroq Merger".
16
<PAGE> 22
SUMMARY HISTORICAL AND PRO FORMA DATA
The summary below sets forth selected historical financial and
selected unaudited pro forma financial data. The financial information should
be read in conjunction with (i) the historical consolidated financial
statements and related notes thereto of Enviroq, incorporated herein by
reference, (ii) the selected historical financial statements and related notes
thereto of IAM and CRC, and (iii) the unaudited pro forma consolidated
financial statements and related notes thereto of Intrepid included elsewhere
in this Proxy Statement/Prospectus and Offer to Redeem. See "INCORPORATION OF
CERTAIN DOCUMENTS BY REFERENCE", "FINANCIAL STATEMENTS OF IAM AND CRC", and
"UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION".
Summary Historical Financial Information
The selected historical financial data of Enviroq for the two (2)
years ended March 28, 1998 and March 29, 1997, set forth below, has been
derived from the audited financial statements of Enviroq. The selected
historical financial data of Enviroq for the three months ended June 27, 1998,
and June 28, 1997, set forth below, has been derived from unaudited financial
statements of Enviroq. The selected historical financial data of IAM for the
two (2) years ended December 31, 1997 and 1996 and the selected historical
financial data of CRC for the two (2) years ended December 31, 1997 and 1996,
set forth below, has been derived from audited financial statements. The
selected historical financial data of IAM and CRC for the six months ended June
30, 1998 and 1997, set forth below, has been derived from unaudited financial
statements of IAM and CRC, as the case may be. No selected financial data of
Intrepid has been included herein as Intrepid was incorporated on April 3, 1998
for the sole purpose of consummating the Reorganization and has no operating
history.
ENVIROQ
<TABLE>
<CAPTION>
Three Months Ended Fiscal Year Ended
------------------------------ ------------------------------
June 27, June 28, March 28, March 29,
1998 1997 1998 1997
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
Income Statement Data:
Operating Revenues $ 362,815 $ 313,486 $ 1,304,357 $ 1,338,807
Income (Loss) Before Taxes (84,812) (32,550) 94,348 (17,732)
Basic Net Income (Loss)
Per Share (1) (0.10) (0.03) 0.07 0.05 (2)
Cash Dividends Per Share -- -- -- --
Weighted Average Number of
Shares Outstanding 1,009,377 1,009,377 1,009,377 1,009,377
Balance Sheet Data:
Net Working Capital $ 2,725,712 $ 2,758,734 $ 2,820,106 $ 2,783,782
Total Assets 3,263,854 3,256,484 3,273,483 3,216,150
Long-Term Debt -- -- -- --
Stockholders' Equity 3,106,937 3,100,368 3,201,547 3,128,034
Book Value per Share 3.08 3.07 3.17 3.10
</TABLE>
- -----------------------
(1) Enviroq adopted FAS 128 in fiscal 1998 and retroactively restated net
income per share for fiscal 1997.
(2) Enviroq recognized an income tax benefit of approximately $71,800 for
fiscal year 1997 due to an operating loss carry back.
17
<PAGE> 23
IAM
<TABLE>
<CAPTION>
Six Months Ended Years Ended
June 30, December 31,
--------------------------- -------------------------
1998 1997 1997 1996
--------- ----------- ---------- ---------
<S> <C> <C> <C> <C>
Income Statement Data:
Operating Revenues $ 534,163 $ 443,777 $1,057,208 $ 923,134
Net Income Before Taxes (1) 66,166 106,677 343,104 53,048
Basic Net Income Per Share 132.33 329.35 686.21 106.10
Cash Dividends Per Share -- -- -- --
Weighted Average Number of
Shares Outstanding 500 500 500 500
Balance Sheet Data:
Net Working Capital (Deficit) $ (9,403) n/a $ 149,104 $ (7,620)
Total Assets 244,219 n/a 292,674 160,415
Long Term Debt 273,252 n/a 130,324 161,500
Stockholders' Equity (Deficit) (143,717) n/a 58,262 (137,925)
Book Value Per Share (287.43) n/a 116.52 (274.85)
</TABLE>
- ----------------
(1) IAM operated as a Subchapter S corporation for federal income tax
purposes. Consequently, no provision for income taxes was made since all
earnings and losses were passed through to IAM's shareholders.
CRC
<TABLE>
<CAPTION>
Six Months Ended Years Ended
June 30, December 31,
--------------------------- -------------------------
1998 1997 1997 1996
--------- ----------- ---------- ---------
<S> <C> <C> <C> <C>
Income Statement Data:
Operating Revenues $ 926,940 $ 425,303 $1,207,641 $ 307,940
Net Income (Loss) Before Taxes (1) 21,194 16,821 (207) 27,822
Basic Net Income (Loss) Per Share 42.39 33.64 (0.41) 55.64
Cash Dividends Per Share -- -- -- --
Weighted Average Number of
Shares Outstanding 500 500 500 500
Balance Sheet Data:
Net Working Capital $ 91,505 n/a $ 79,111 $ 104,846
Total Assets 192,497 n/a 222,939 114,783
Long Term Debt -- n/a -- --
Stockholders' Equity 96,801 n/a 81,407 104,846
Book Value Per Share 193.60 n/a 162.81 209.69
</TABLE>
- -----------------------
(1) CRC operated as a Subchapter S corporation for federal income tax
purposes. Consequently, no provision for income taxes was made since
all earnings and losses were passed through to its shareholders.
Recent Financial Results
Enviroq
For the fiscal quarter ended September 26, 1998, Enviroq expects to
report, on an unaudited basis, net income of approximately $16,000, an
approximate $(16,000), or (50)%, decrease from the second quarter of fiscal
1998 net income of approximately $32,000. Net income for the quarter, on an
unaudited basis, is expected to be $0.02 per basic and diluted share versus
$0.03 per basic and diluted share for the second quarter of 1998. The decrease
in net income for the second quarter of fiscal 1999 versus the same period of
fiscal 1998 is primarily attributable to non-recurring expenses in connection
with the proposed Reorganization, which offset increases in revenues and gross
profit.
IAM
For the three months ended September 30, 1998, IAM realized, on an
unaudited basis, net income of $30,154, an approximate $(38,122), or (56)%,
decrease over third quarter 1997 net income of $68,276. Net income for the
quarter, on an unaudited basis, was $60.31 per diluted share versus $136.55 per
diluted share for the third quarter of 1997. The decrease in net income for the
three months ended September 30, 1998 verses the same period of 1997 is
primarily attributable to one-time charges for unpaid salaries during fiscal
1997 and increased expenses associated with the hiring and integration of
additional sales, investment and administrative personnel.
CRC
For the three months ended September 30, 1998, CRC realized, on an
unaudited basis, a net loss of $(11,249), an approximate $(48,922), or (130)%,
decrease over third quarter 1997 net income of $37,673. Net loss for the
quarter, on an unaudited basis, was $(22.50) per diluted share versus $75.35
per diluted share for the third quarter of 1997. The net loss for the three
months ended September 30, 1998 verses net income for the same period of 1997
is primarily attributable to increased brokerage and clearing, compensation and
benefits, occupancy and equipment and professional and regulatory expenses
associated with CRC's operations during this period.
18
<PAGE> 24
Selected Pro Forma Financial Data
The following table sets forth selected unaudited pro forma
consolidated financial information of Intrepid for the fiscal year ended
December 31, 1997 and for the six months ended June 30, 1998, which are
presented to reflect the estimated impact of the Reorganization and the
Mergers. The statement of income data reflects the effects of the
Reorganization and the Mergers as though the transaction had occurred at the
beginning of the periods presented, and the balance sheet data assumes that the
Reorganization and the Mergers had occurred at the applicable balance sheet
date presented. The unaudited pro forma consolidated financial information does
not reflect any cost savings or increases anticipated by Intrepid as a result
of the Reorganization and the Mergers, although the balance sheet data does
reflect non-recurring, direct costs of the Reorganization and the Mergers of
approximately $2,325,000 that are expected to result from the Redemption, along
with expenses relating primarily to investment banking, legal and accounting
fees, arising out of the Reorganization and the Mergers.
Pro forma per share amounts are based on the number of shares
anticipated to be issued to the Stockholders and the shareholders of IAM and
CRC following the Reorganization.
The selected unaudited pro forma consolidated financial statements are
not necessarily indicative of actual or future financial position or results of
operations that would have or will occur had the Reorganization and the Mergers
been effective at the beginning of the earliest period presented nor of future
financial position or results of operations.
The selected unaudited pro forma consolidated financial statements
should be read in conjunction with the audited historical consolidated
financial statements of Enviroq, IAM, and CRC, including the notes thereto, and
the unaudited pro forma consolidated financial information, including the notes
thereto, incorporated by reference or appearing elsewhere herein. Certain
unaudited pro forma and historical financial statements of Enviroq have been
recast to conform to the calendar year ends of IAM and CRC. See "AVAILABLE
INFORMATION", "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE", "THE
REORGANIZATION -- Accounting Treatment", and "UNAUDITED PRO FORMA CONSOLIDATED
FINANCIAL INFORMATION".
19
<PAGE> 25
SELECTED UNAUDITED PRO FORMA CONSOLIDATED
FINANCIAL INFORMATION OF INTREPID
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, December 31,
Income Statement Data: 1998 1997
------------ -----------
<S> <C> <C>
Revenues (1)
Net revenues $ 1,936,731 $ 3,491,731
License revenues - 100,000
------------ -----------
Total revenues 1,936,731 3,591,731
Net income (36,305) 226,799
Basic net income per share (0.02) 0.10
Cash dividend per share - -
Weighted average number of
common shares outstanding 2,215,526 2,215,526
<CAPTION>
Balance Sheet Data: As of
June 30,
1998
------------
<S> <C>
Net working capital $ 491,515
Total assets $ 3,305,424
Long-term debt $ 236,057
Stockholders' equity $ 2,184,385
</TABLE>
(1) Net revenues include all revenues for IAM and CRC and, for Enviroq,
include revenues from sales of materials and support. Revenues from
license fees of Enviroq's Sprayroq subsidiary are provided separately.
20
<PAGE> 26
Comparative Per Share Data
Set forth below are historical earnings, cash dividends and book value
per common share data of Enviroq, IAM and CRC, and pro forma combined amounts
for Intrepid and equivalent pro forma amounts for Enviroq and IAM and CRC on a
combined basis. The historical financial statements of Enviroq have been recast
to conform to the calendar year ends of IAM and CRC. The historical earnings,
cash dividends, and book-value per share of Enviroq are set forth on page 17.
<TABLE>
<CAPTION>
As of and for the As of and for
Six Months Ended June 30, Years Ended December 31,
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Basic Net Income (Loss) Per Share:
Enviroq $ (0.13) $ 0.03 $ 0.02
IAM 132.33 686.21 106.10
CRC 42.39 (0.41) 55.64
IAM and CRC combined historical 174.72 685.80 161.74
Pro Forma (0.02) 0.10 n/a
Equivalent Pro Forma - Enviroq (0.02) 0.10 n/a
- IAM and CRC (1) (48.25) (241.23) n/a
Dividends Per Share:
Enviroq -- -- --
IAM -- -- --
CRC -- -- --
IAM and CRC combined historical -- -- --
Pro Forma -- -- --
Equivalent Pro Forma - Enviroq -- -- --
- IAM and CRC (1) -- -- --
Book Value Per Share:
Enviroq 3.08 3.21 3.09
IAM (287.43) 116.52 (274.85)
CRC 193.60 162.81 209.69
IAM and CRC combined historical (93.83) 279.33 (65.16)
Pro Forma .98 n/a n/a
Equivalent Pro Forma - Enviroq .98 n/a n/a
- IAM and CRC (1) 2,364.05 n/a n/a
</TABLE>
- --------------------------------
(1) IAM and CRC negotiated in concert and no determination of an
allocation of exchanged shares was contemplated. Thus, the equivalent
pro forma information was calculated on a combined basis for IAM and
CRC. Equivalent pro forma amounts are computed by multiplying the
exchange ratio of 2,412.298 by the pro forma amount. For comparability
to historical data, it was assumed that IAM and CRC received 1,206,149
shares of Intrepid in exchange for 500 shares outstanding of IAM Stock
and 500 shares outstanding of CRC Stock.
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<PAGE> 27
COMPARATIVE MARKET PRICES AND DIVIDENDS
Shares of Enviroq Stock are traded in the over-the-counter market and
bid and asked quotations may be found on the OTC Bulletin Board under the
symbol "ENVQ". The following table sets forth, for the periods indicated, the
high and low bid and asked prices of Enviroq Stock. The information set forth
below has been obtained from the OTC Bulletin Board and is believed to be
reliable. The reported high and low bid and asked quotations do not reflect
actual trades but are dealer prices without mark-ups, mark-downs or
commissions.
ENVIROQ
<TABLE>
<CAPTION>
Low Bid High Bid Low Asked High Asked
------- -------- --------- ----------
<S> <C> <C> <C> <C>
Fiscal Year 1997
First Quarter (1)......................................... N/A N/A N/A N/A
Second Quarter............................................ $ 1.25 $ 2.00 $ 2.00 $ 2.50
Third Quarter............................................. 0.63 1.63 1.00 2.50
Fourth Quarter............................................ 0.25 0.63 0.75 1.50
Fiscal Year 1998
First Quarter............................................. $ 0.64 $ 1.50 $ 1.50 $ 3.00
Second Quarter............................................ 0.75 1.00 1.25 3.00
Third Quarter............................................. 0.38 0.75 0.57 1.25
Fourth Quarter............................................ 0.50 0.75 0.88 1.50
Fiscal Year 1999
First Quarter............................................. $ 0.69 $ 3.50 $ 0.89 $ 5.00
Second Quarter ........................................... 1.86 3.25 2.06 4.00
Third Quarter (through November 4, 1998).................. 1.80 3.38 2.06 3.81
</TABLE>
Shares of IAM Stock and CRC Stock are not traded on any exchange, and
there is no established public trading market for either IAM Stock or CRC
Stock. There are no bid or asked prices available for shares of IAM Stock or
CRC Stock. Transactions in both IAM Stock and CRC Stock are infrequent and are
negotiated privately between persons involved in those transactions.
Additionally, neither IAM nor CRC have declared cash dividends during the past
three (3) fiscal years and past five (5) fiscal years, respectively.
- -------------------------
(1) Management has not been able to obtain any information with respect to
trades of the common stock of Enviroq that may have occurred from the
date of the Distribution, April 18, 1995 through August 15, 1996,
which would include all of the first quarter of fiscal year 1996.
22
<PAGE> 28
RISK FACTORS
CHANGE IN BUSINESS FOCUS
Enviroq is currently principally engaged in the development,
commercialization, formulation and marketing of spray-applied resinous
products. As a result of the Enviroq Merger and the Reorganization, the former
Stockholders will become stockholders of Intrepid. The revenues of Intrepid
will come not only from Enviroq, but also from IAM and CRC, which are in the
asset management and broker-dealer businesses, respectively. Such businesses
are materially different from the business sectors in which Enviroq currently
operates. There can be no assurance that the asset management and broker-dealer
businesses will not prove to be materially more risky than the business sectors
in which Enviroq currently operates. In addition, while it is anticipated that
Enviroq will continue to operate for an indefinite period of time in the
businesses of spray-applied resinous products and may, through its subsidiary
Synox, resume operations in the treatment of wastewater biosolids (although
there are no current plans to do so) (see "CERTAIN INFORMATION CONCERNING
ENVIROQ" and "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE"), Intrepid plans
to focus its growth on the asset management and broker-dealer businesses of IAM
and CRC, respectively, and to put a lesser emphasis on growth in Enviroq's
traditional business sectors. There can be no assurance that this change in
business focus will not have a material adverse effect on Intrepid and its
subsidiaries' business and results of operation.
COMPETITION
Enviroq's operations are primarily conducted through Sprayroq, Inc., a
Florida corporation of which Enviroq owns 50% of the outstanding capital stock
("Sprayroq"). Sprayroq is engaged in the development, commercialization,
manufacture and marketing of spray-applied resinous materials. Sprayroq faces
competition both directly from companies developing and marketing similar resin
products and indirectly from other technologies accomplishing the same results
in a different manner. Many of the products which compete with the products of
Sprayroq are less expensive, are also spray- applied and may offer similar
qualities, performance, and value. Sprayroq's products are not patented and are
only protected to the extent such products can be protected by know-how and
trade secrets. There can be no assurance that other competitors will not
develop products similar or superior to the products of Sprayroq.
IAM and CRC compete with other brokerage and investment adviser firms
and financial institutions. The broker-dealer and asset management businesses
are highly competitive, and the profitability of IAM and CRC depend principally
upon their ability to compete in the market areas in which their operations are
located. Many of such competitors may have greater financial and other
resources than IAM and CRC. No assurances can be given that IAM and CRC will
continue to be able to compete effectively in the future. In addition, various
legislative acts in recent years have led to increased competition among
financial institutions. There can be no assurance that the United States
Congress or state legislatures will not enact legislation that may further
increase competitive pressures on IAM and CRC. Competition from both financial
and nonfinancial institutions is expected to continue. See "CERTAIN INFORMATION
CONCERNING IAM -- Competition" and "CERTAIN INFORMATION CONCERNING CRC --
Competition".
NO DIVIDENDS
Intrepid intends to retain all available earnings to support the
growth and expansion of its business and those of its subsidiaries. Any
declaration of dividends by Intrepid after the Effective Time will depend,
among other things, upon the results of operations and financial condition of
Intrepid and its subsidiaries. In addition, capital requirements associated
with funding Intrepid's acquisitions of asset management businesses may impair
Intrepid's ability to pay dividends. The management of Intrepid is not
anticipating declaring or paying a dividend in the foreseeable future.
LOSS OF CONTROL
The Stockholders currently control Enviroq through their ability to
elect the Enviroq Board and their vote on various matters affecting Enviroq. As
a result of the Enviroq Merger, the former Stockholders will become
stockholders of Intrepid and will own approximately 45.56% of the issued and
outstanding shares of Intrepid Stock, and the former shareholders of IAM and
CRC will own, in the aggregate, approximately 54.44% of the issued and
outstanding shares of Intrepid Stock. Accordingly, as a result of the
Reorganization, the Stockholders will own less than a majority of the voting
23
<PAGE> 29
stock of Intrepid. Further, as a condition to the consummation of the
Reorganization, the Principal Stockholders and the Principal IAM/CRC
Shareholders will execute a voting agreement (the "Voting Agreement"). After
the Effective Time, the Principal Stockholders and the Principal IAM/CRC
Shareholders will own, in the aggregate, approximately 79% of the issued and
outstanding shares of Intrepid Stock. The Principal Stockholders and Principal
IAM/CRC Shareholders will vote all shares of Intrepid Stock owned by them after
the Effective Time to elect only persons to the Intrepid Board as shall be
designated by the Principal Stockholders and Principal IAM/CRC Shareholders
after consummation of the Reorganization. During any the period where the
Voting Agreement is in effect and the Principal Stockholders and the Principal
IAM/CRC Shareholders shall together own at least a majority of the shares of
outstanding Intrepid Stock, the Voting Agreement provides each of the Principal
Stockholders and the Principal IAM/CRC Shareholders representation on the
Intrepid Board for as long as the Voting Agreement remains in effect. The
maximum number of members of the Intrepid Board subject to designation by the
Principal Stockholders and the Principal IAM/CRC Shareholders is, in the
aggregate, seven. The initial Intrepid Board will consist of seven members. The
specific number of members of the Intrepid Board designated by the Principal
Stockholders, as a group, and the Principal IAM/CRC Shareholders, as a group,
will vary, depending on the specific percentage of shares of Intrepid Stock
owned by them viz-a-viz other stockholders of Intrepid and viz-a-viz the other
group. In the event that the Principal Stockholders and the Principal IAM/CRC
Shareholders come to own less than a majority of the outstanding shares of
Intrepid Stock, the Voting Agreement requires that the Principal Stockholders
and the Principal IAM/CRC Shareholders vote their shares of Intrepid Stock so
as to ensure, to the extent possible, that designees appointed by either the
Principal Stockholders or the Principal IAM/CRC Shareholders, depending upon
which group controls the largest number of shares, constitute at least a
majority of the Intrepid Board.
FUTURE BUSINESS OPPORTUNITIES
Intrepid intends to pursue a business model to increase its assets
under management involving both the internal growth of assets managed by
Intrepid and its subsidiaries as well as the acquisition of small to
medium-sized asset management companies. While certain aspects of this
particular business model have been implemented by others, such implementations
have typically involved the acquisition of asset management companies of a size
much larger than those targeted by Intrepid. There can be no assurance that 5.
suitable investment management firms in which to invest can be located; (i)
Intrepid will be able to negotiate agreements with such firms on acceptable
terms; (ii) the operating results of Intrepid or any of its affiliated firms
will be favorable; or (iii) such a strategy will be successful.
FUTURE CAPITAL REQUIREMENTS
While no specific investments or acquisitions have been identified as
of the date of this Proxy Statement/Prospectus and Offer to Redeem, Intrepid
intends to make investments in or acquire asset management firms which will
require additional capital resources. Although the management of Intrepid
believes that after the Effective Time the existing cash resources and cash
flow resulting from operations of Enviroq, IAM and CRC will be sufficient to
meet the anticipated working capital needs for normal operations of Intrepid,
Enviroq, IAM and CRC for the foreseeable future, these sources of capital are
not expected to be sufficient to fund such anticipated investments. Therefore,
Intrepid will likely need to raise capital through the issuance of additional
equity securities in private or public transactions or through the incurrence
of additional long-term or short-term indebtedness. Such activities could
result in dilution of existing equity positions, increased interest expense and
decreased net income. There can be no assurance that acceptable financing for
future investments can be obtained on suitable terms, if at all, or that such
acquisitions will be beneficial.
RELIANCE ON SHORT-TERM CONTRACTS
Substantially all of Intrepid's revenues will be derived indirectly
from its subsidiaries. Any subsidiary of Intrepid that is involved with the
asset management business will be subject to short-term contracts pursuant to
which clients of such subsidiaries may withdraw funds on account with such
subsidiaries upon short notice. Such investment management contracts are
typically terminable, without the payment of a penalty, by either party, by
giving thirty (30) days prior written notice of termination to the other party.
Upon termination, any fees paid by the client which have not yet been earned
are refunded to the client on a pro-rated basis as of the effective date of
termination. No assurance can be given that such short-term contracts, and the
revenues derived therefrom, will not be terminated.
24
<PAGE> 30
REGULATION AND SUPERVISION
The business of each of IAM and CRC is highly regulated, and the
failure of IAM or CRC (or of any affiliate acquired in the future) to comply
with such regulations could result in fines, suspensions of individual
employees or other sanctions, including revocation of registration as an
investment adviser, commodity trading advisor or broker-dealer. IAM is
registered with the Commission as an investment adviser under the Investment
Advisers Act of 1940, as amended (the "Investment Advisers Act"), and is
subject to the provisions of the Investment Advisers Act and the Commission's
regulations promulgated thereunder. The Investment Advisers Act imposes
numerous obligations on registered investment advisers, including fiduciary,
record keeping, operational and disclosure obligations. IAM is also subject to
regulation under the securities laws and fiduciary laws of certain states.
Intrepid expects to acquire or invest in other asset management firms, each of
which is likely to be subject to similar regulation. IAM, Intrepid or any asset
management firm acquired in the future may also act as advisers or sub-advisers
to mutual funds which are registered with the Commission under the Investment
Company Act of 1940, as amended (the "Investment Company Act"). As an adviser
or sub-adviser to a registered investment company, each such affiliate is
subject to requirements under the Investment Company Act and the regulations
promulgated thereunder by the Commission. IAM, Intrepid and any asset
management firm acquired in the future may be subject to the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), and to
regulations promulgated thereunder, insofar as they are "fiduciaries" under
ERISA with respect to certain of their clients. ERISA and certain applicable
provisions of the Code, impose certain duties on persons who are fiduciaries
under ERISA, and prohibit certain transactions involving the assets of each
ERISA plan which is a client of an affiliate and certain transactions by
fiduciaries and certain other related parties to such plans. IAM, Intrepid and
any asset management firm acquired in the future may be registered with the
Commodity Futures Trading Commission as a commodity trading advisor. CRC is
registered under the Exchange Act as a broker-dealer and is subject to
extensive regulation with respect to sales methods, trading practices, the use
and safekeeping of customers' funds and securities, capital structure, record
keeping and the conduct of its directors, officers and employees.
In addition, applicable law provides that the investment management
contracts under which IAM, Intrepid or any asset management firm acquired in
the future may manage assets for other parties either terminate automatically
if assigned, or are not assignable unless the applicable client consents to the
assignment. Assignment, as generally defined, includes direct assignments as
well as assignments which may be deemed to occur, under certain circumstances,
upon the direct or indirect transfer of a "controlling block" of the voting
securities of an asset management firm acquired by Intrepid. Moreover,
applicable law provides that all investment contracts with mutual fund clients
may be terminated by such clients, without penalty, upon no later than 60 days'
notice. Investment contracts with institutional and other clients are typically
terminable by the client, also without penalty, upon 30 days' notice.
CRC's business is, and the securities brokerage industry in general
is, subject to extensive regulation at federal and state levels. As a matter of
public policy, regulatory bodies such as the Commission and state securities
agencies are charged with safeguarding the integrity of the securities and
other financial markets and with protecting the interests of customers
participating in those markets. In addition, self-regulatory organizations,
such as the NASD, require strict compliance with their rules and regulations.
Failure to comply with any of these laws, rules or regulations, some of which
are subject to the uncertainties of interpretation, could result in a variety
of adverse consequences to CRC, including civil penalties, fines, suspension or
expulsion, any of which could have a material adverse effect upon CRC.
The laws and regulations, as well as governmental policies and
accounting principles, governing the financial services industry have changed
significantly over recent years and are expected to continue to do so. During
the last several years, Congress has considered numerous proposals that would
significantly alter the structure and regulation of the financial services
industry. CRC cannot predict which changes, if any, in laws or regulations, or
in governmental policies and accounting principles, will be adopted, but such
changes, if adopted, could materially adversely affect CRC's business and
results of operations. See "SUPERVISION AND REGULATION - CRC".
DEPENDENCE ON KEY PERSONNEL
Each of Enviroq, IAM, CRC is, and Intrepid will be, substantially
dependent on its key or senior management personnel whose continued service is
not guaranteed. The loss of the services of any of these key management
personnel could have a serious adverse impact on Intrepid or its subsidiaries,
particularly the ability to conduct contemplated business
25
<PAGE> 31
operations. This impact could result from the loss of personal contacts of such
individuals with potential customers and the related client relationships, as
well as the loss of special technical skills of certain of such individuals
with respect to the operations of the companies.
More particularly, Intrepid and its subsidiaries will be dependent on
the efforts of Forrest Travis, its President and Chief Executive Officer,
William J. Long, its Executive Vice President and Chief Operating Officer, and
Mark Travis, its Executive Vice President and President of IAM, as well as
other senior management personnel. Messrs. Forrest Travis and Long in
particular will play an important role in identifying suitable investment
opportunities for Intrepid and in structuring and negotiating the terms of
investments in investment management firms. Mr. Long plays an important role in
managing the operations of Enviroq and its subsidiaries. Messrs. Forrest Travis
and Mark Travis play important roles in attracting and managing assets for IAM,
as well as directing the operations of CRC. The loss of key management
personnel or an inability to attract, retain and motivate sufficient numbers of
qualified management personnel by Intrepid or any of its subsidiaries would
adversely affect Intrepid's business. The market for qualified management
personnel, particularly investment managers, is extremely competitive and is
increasingly characterized by frequent movement by investment managers among
different firms. In addition, individual investment managers have regular
direct contact with particular clients, which can lead to a strong client
relationship based on the client's trust in that individual manager. The loss
of a key investment manager could jeopardize relationships with a client and
lead to the loss of client accounts. Losses of such accounts could have a
material adverse effect on the results of operations and financial condition of
Intrepid and its subsidiaries. There can be no assurance that key management
personnel will remain with their respective firms.
POSSIBLE CHANGES IN ECONOMIC AND MARKET CONDITIONS
The performance of Intrepid and its subsidiaries may be adversely
affected by changes in economic and market conditions. Conditions in the
financial and securities markets will necessarily impact the performance of
Intrepid and its subsidiaries. The financial markets and businesses operating
in the securities industry are highly volatile and are directly affected by,
among other factors, domestic and foreign economic conditions and general
trends in business and finance, all of which are beyond the control of IAM, CRC
or Intrepid or any of its subsidiaries. There can be no assurance that future
market performance of IAM, CRC, Intrepid or any subsidiary of Intrepid acquired
in the future will be favorable or that growth in assets under management will
be sustained. There can also be no assurance that broader market performance
will be favorable in the future. Any decline in the financial markets or a lack
of sustained growth may result in a corresponding decline in performance by
Intrepid or its subsidiaries and may adversely affect assets under management
and/or fees, which would reduce cash flow to Intrepid.
In addition, the lack of additional licensees through which the
products of Sprayroq may be licensed and the development of other competitive
products, including resinous spray - applied products, are likely to impact the
performance of Enviroq and its subsidiary, Sprayroq. There can be no assurance
that future market performance of Enviroq and Sprayroq will be favorable or can
be sustained.
MANAGEMENT PRACTICES AND POLICIES OF INTREPID AND ITS SUBSIDIARIES
Each of IAM and CRC conducts its own marketing, client relations,
research and, with respect to IAM, portfolio management. After the
Reorganization, IAM will continue to set its own investment advisory fees and
manage its own business independently on a day-to-day basis. Investment
strategies employed and securities selected by IAM and CRC are separately
chosen by each of them, with the result that either IAM or CRC may be bullish
on the stock or bond market, while the other may be bearish. Intrepid itself
will not manage portfolio investments for clients and will not provide any
investment advisory or broker-dealer services to its subsidiaries or their
respective clients. Because of the inherent uncertainties associated with
efforts to integrate and manage the operations of Intrepid's independent
subsidiaries, there can be no assurance that Intrepid will be successful in
integrating and managing IAM's and CRC's independent business operations. See
"CERTAIN INFORMATION CONCERNING INTREPID - Development of Intrepid's Business".
RISKS ASSOCIATED WITH CONSOLIDATION STRATEGY
Since Intrepid has not yet identified specific acquisition candidates,
the Stockholders and the shareholders of IAM and CRC have no basis on which to
evaluate the possible merits or risks of the operations and prospects of future
26
<PAGE> 32
acquisition candidates. There can be no assurance that Intrepid will properly
ascertain or evaluate all of such risks. Management of Intrepid will have
virtually unrestricted flexibility in identifying and selecting prospective
acquisition candidates and broad discretion with respect to the specific
application of company funds and equity.
There can also be no assurance that Intrepid's assessment of
management of prospective acquisition candidates will prove to be correct.
Intrepid may enlist the assistance of other persons to assess the management of
acquisition candidates, but no such persons have been presently identified. In
addition, there can be no assurance that management of the acquired companies
will have the necessary skills to manage a company intending to implement an
aggressive acquisition program. Intrepid may also seek to recruit additional
managers to supplement the incumbent management of the acquired companies.
There can be no assurance that Intrepid will have the ability to recruit
additional managers with the skills necessary to enhance the management of the
acquired companies.
INTEGRATION OF ACQUISITIONS
Intrepid's business model contemplates an aggressive acquisition and
integration program. The costs of integration could have an adverse effect on
short-term operating results. Such costs could include severance payments to
employees of such acquired companies, restructuring charges associated with the
acquisitions and other expenses associated with a change of control. No
assurance can be given that Intrepid will be able to successfully integrate its
future acquisitions without substantial costs, delays or other problems.
There can be no assurance that Intrepid will be able to execute
successfully its strategy or anticipate all of the changing demands that
successive consolidation transactions will impose on its management personnel
and operational management information and financial systems. The integration
of newly acquired companies may also lead to diversion of management attention
from other ongoing business concerns. In addition, there can be no assurance
that the pace of acquisitions will not adversely affect Intrepid's efforts to
integrate acquisitions and manage those acquisitions profitably. Any or all of
these factors could have a material adverse effect on Intrepid's business,
financial condition or results of operations.
RISKS RELATED TO ACQUISITION FINANCING; ADDITIONAL DILUTION; LEVERAGE
Intrepid intends to use a significant portion of its resources for
acquisitions. The timing, size and success of Intrepid's acquisition efforts
and any associated capital commitments cannot be readily predicted. Intrepid
currently intends to finance future acquisitions with shares of Intrepid Stock,
cash, borrowed funds or a combination thereof. If the Intrepid Stock does not
maintain a sufficient market value, or if potential acquisition candidates are
otherwise unwilling to accept Intrepid Stock as part of the consideration for
the sale of their businesses, Intrepid may be required to use more of its cash
resources or more borrowed funds, in each case if available, in order to
initiate and maintain its acquisition program. If Intrepid does not have
sufficient cash resources, its growth could be limited unless it is able to
obtain additional capital through debt or equity financings. There can be no
assurance that Intrepid will be able to obtain any additional financing that it
may need for its acquisition program on terms that Intrepid deems acceptable.
To the extent Intrepid uses Intrepid Stock for all or a portion of the
consideration to be paid for future acquisitions, dilution may be experienced
by the Stockholders and the shareholders of IAM and CRC who receive shares of
Intrepid Stock in the Reorganization. Moreover, the issuance of additional
shares of Intrepid Stock may have a negative impact on earnings per share and
may negatively impact the market price of the Intrepid Stock.
Intrepid may borrow money to consummate acquisitions or assume or
refinance the indebtedness of acquired companies if Intrepid's management deems
it to be beneficial to Intrepid. Among the possible adverse effects of
borrowings are the following: (i) if Intrepid's operating revenues after the
acquisitions were to be insufficient to pay debt service, there would be a risk
of default and foreclosure on Intrepid's assets; (ii) if a loan agreement
contains covenants that require the maintenance of certain financial ratios or
reserves, and any such covenant were breached without a waiver or renegotiation
of the terms of that covenant, then the lender could have the right to
accelerate the payment of the indebtedness even if Intrepid has made all
principal and interest payments when due; (iii) if the terms of a loan did not
provide for amortization prior to maturity of the full amount borrowed and the
"balloon" payment could not be refinanced at maturity on acceptable terms,
Intrepid might be required to seek additional financing and, to the extent that
additional
27
<PAGE> 33
financing were not available on acceptable terms, to liquidate its assets; and
(iv) if the interest rate of a loan is variable, Intrepid would be subject to
interest rate fluctuations which could increase Intrepid's debt service
obligations.
YEAR 2000 COMPLIANCE
Each of Intrepid, Enviroq, IAM and CRC is conducting a comprehensive
review of its computer systems to identify the systems that could be affected
by the "Year 2000" issue and is developing an implementation plan to resolve
the issue. The Year 2000 issue is pervasive and complex, as virtually every
computer operation of Intrepid, Enviroq, IAM and CRC could be affected in some
way by the roll-over of the two-digit year value to "00". Computer systems that
do not properly recognize date-sensitive information could generate erroneous
data or cause a complete system failure. Each of Intrepid, Enviroq, IAM and CRC
believes that, with modification of existing computer systems, updates by
vendors and conversion to new software in the ordinary course of its business,
significant operational problems for its computer systems can be avoided.
However, if such modifications and conversions are not completed timely or
properly, or if computer systems of third parties are affected, the Year 2000
issue may have a material impact on the business and operations of Intrepid,
Enviroq, IAM and CRC. The costs of modifications and conversions are not
anticipated to be material but could principally represent a redeployment of
existing or otherwise planned resources. No assurance can be given that
Intrepid, Enviroq, IAM and CRC will successfully avoid any problems associated
with the Year 2000 issue. SEE "CERTAIN INFORMATION CONCERNING ENVIROQ -- Year
2000 Issue", "CERTAIN INFORMATION CONCERNING IAM -- Year 2000 Issue" and
"CERTAIN INFORMATION CONCERNING CRC -- Year 2000 Issue".
LACK OF SIGNIFICANT PUBLIC MARKET; LACK OF PRIOR PUBLIC MARKET
Enviroq Stock is traded from time to time on the over-the counter
market. Such trades have historically occurred sporadically, and a significant
market for the stock has not developed. To the extent that Enviroq Stock has
been traded, the exchange of Enviroq Stock for Intrepid Stock may favorably
impact the market for Intrepid Stock. There can be no assurance, however, that
such an exchange of shares will result in any significant market for Intrepid
Stock. Management intends to apply for a listing on the NASDAQ "Small Cap"
market at such time as Intrepid may qualify for such a listing. There can be no
assurance, however, that shares of Intrepid Stock will qualify for such a
listing, and that if shares of Intrepid Stock qualify such a listing, it will
be obtained.
There is no existing trading market for Intrepid Stock, and there can
be no assurance as to the establishment or continuity of any such market.
Moreover, even if a market does develop, there can be no assurance either as to
the price at which shares of Intrepid Stock will trade or that such price will
not be significantly below the book value per share of Intrepid Stock. The lack
of a prior public market, variations in equity market conditions, and the
shares eligible for future sale could adversely affect the market price of
Intrepid Stock.
28
<PAGE> 34
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following unaudited pro forma consolidated financial statements
set forth the pro forma balance sheet of Intrepid as of June 30, 1998, and the
pro forma statements of income of Intrepid for the year ended December 31, 1997
and the six month period ended June 30, 1998. The statements of income reflect
the effects of the Reorganization and the Mergers as though the transactions
had occurred at the beginning of the periods presented, and the balance sheet
assumes the Reorganization and related Mergers had occurred at the balance
sheet date presented. The unaudited pro forma consolidated financial statements
do not reflect any costs savings or increases anticipated by Enviroq as a
result of the Reorganization, although the balance sheet does reflect the
non-recurring, direct costs of the Reorganization, which are currently
estimated at approximately $75,000, as well as giving effect to the Redemption
prior to the Reorganization, which is approximately $2,250,000. Pro forma per
share amounts are based on the number of shares of Intrepid Stock anticipated
to be issued to the Stockholders and the shareholders of IAM and CRC following
the Reorganization.
The unaudited pro forma consolidated financial statements are based
upon the historical consolidated financial statements of Enviroq, IAM and CRC.
The transaction comprising the Mergers will be accounted as a purchase for
accounting and financial reporting purposes with IAM and CRC considered to be
the acquiring enterprises, and with Enviroq as the acquired company, based on
the fact that the shareholders of IAM and CRC consist of two related
individuals who are acting in concert as a control group, and subsequent to the
transaction such shareholders will retain the controlling interest in the new
entity. The two related shareholders of IAM and CRC are a father and son who
own 100% of the outstanding stock of IAM and CRC. Accordingly, the assets and
liabilities of Enviroq will be recorded at their fair values at the date of
merger, while the assets and liabilities of IAM and CRC will continue at
historical cost. Intrepid was formed with minimal initial capital as a
wholly-owned subsidiary of Enviroq on April 3, 1998 in anticipation of the
Reorganization and has no operating history. Therefore, Intrepid's historical
financial statements are not material and are not presented separately from
those of Enviroq.
The unaudited pro forma adjustments described in the accompanying
notes are based upon preliminary estimates and certain assumptions that the
management of each of Enviroq, IAM, CRC and Intrepid believe are reasonable.
The historical financial statements of Enviroq have been recast to conform to
the calendar year ends of IAM and CRC.
The unaudited pro forma consolidated financial statements are not
necessarily indicative of actual or future financial position or results of
operations that would have or will occur upon consummation of the
Reorganization and should be read in conjunction with the audited historical
consolidated financial statements, including the notes thereto, of Enviroq, IAM
and CRC. The audited consolidated financial statements of Enviroq, IAM and CRC
are contained elsewhere herein or incorporated by reference.
See "AVAILABLE INFORMATION", "INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE" and "THE REORGANIZATION - Accounting Treatment".
29
<PAGE> 35
INTREPID CAPITAL CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
SIX MONTHS ENDED JUNE 30, 1998
<TABLE>
<CAPTION>
Enviroq IAM CRC
Historical Historical Historical
(Six months (Six months (Six months
ended ended ended Pro Forma Pro Forma
June 30, 1998) June 30, 1998) June 30, 1998) Adjustments(1) Combined
-------------- -------------- -------------- ----------- --------
<S> <C> <C> <C> <C> <C>
REVENUES
Net revenues $ 587,628 $534,163 $926,940 $(112,000)(2) $1,936,731
License revenues -- -- -- -- --
---------- -------- -------- --------- ----------
Total revenues 587,628 534,163 926,940 (112,000) 1,936,731
COST OF REVENUES 263,473 -- -- -- 263,473
---------- -------- -------- --------- ----------
GROSS PROFIT 324,155 534,163 926,940 (112,000) 1,673,258
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 416,892 471,375 925,870 (112,000)(2) 1,702,137
NON-RECURRING MERGER EXPENSES 127,670 -- -- (127,670)(6) --
AMORTIZATION OF GOODWILL -- -- -- 21,285 (3) 21,285
---------- -------- -------- --------- ----------
PROFIT (LOSS) FROM
OPERATIONS (220,407) 62,788 1,070 106,385 (50,164)
OTHER INCOME, NET 86,501 3,378 20,124 (62,000)(6) 48,003
---------- -------- -------- --------- ----------
INCOME (LOSS) BEFORE
INCOME TAXES (133,906) 66,166 21,194 44,385 (2,161)
---------- -------- -------- --------- ----------
INCOME TAX (EXPENSE)
BENEFIT (1,270) -- -- (32,874)(5) (34,144)
---------- -------- -------- --------- ----------
NET INCOME (LOSS) $ (135,176) $ 66,166 $ 21,194 $ 11,511 $ (36,305)
========== ======== ======== ========= ==========
BASIC NET INCOME (LOSS)
PER SHARE $ (0.13) $ (0.02)
========== ==========
WEIGHTED AVERAGE SHARES
OUTSTANDING 1,009,377 2,215,526
========== ==========
</TABLE>
See accompanying notes to Unaudited Pro Forma Consolidated Financial Statements.
30
<PAGE> 36
INTREPID CAPITAL CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
JUNE 3, 1998
<TABLE>
<CAPTION>
Enviroq IAM CRC
Historical Historical Historical Pro Forma Pro Forma
June 30, 1998 June 30, 1998 June 30, 1998 Adjustments (1) Combined
------------- ------------- ------------- ----------- --------
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $2,536,387 $ 10,498 $124,576 $(2,325,000) (6) $ 346,461
Accounts receivable 115,344 -- 62,625 -- 177,969
Inventories 173,393 -- -- -- 173,393
Investment, Intrepid -- 131,978 -- -- 131,978
Refundable income taxes 37,622 -- -- -- 37,622
Prepaid expenses and
other assets 19,884 -- -- -- 19,884
---------- -------- -------- ----------- ----------
Total current assets 2,882,630 142,476 187,201 (2,325,000) 887,307
---------- -------- -------- ----------- ----------
NON-CURRENT ASSETS
Employee notes receivable 11,858 -- 3,000 -- 14,858
Other 10,040 2,379 -- (8,700) (2) 3,719
---------- -------- -- ----------- ----------
Total other assets 21,898 2,379 3,000 (8,700) 18,577
---------- -------- -------- ----------- ----------
PROPERTY, PLANT AND
EQUIPMENT:
Land 310,135 -- -- 1,300,000 (7) 1,610,135
Operating equipment 46,448 155,070 2,870 -- 204,388
Other equipment and vehicles 57,917 -- -- -- 57,917
---------- -------- -------- ----------- ----------
414,500 155,070 2,870 1,300,000 1,872,440
Less accum. depreciation (55,174) (55,706) (574) -- (111,454)
---------- -------- -------- ----------- ----------
Total property, plant and
equipment, net 359,326 99,364 2,296 1,300,000 1,760,986
Goodwill -- -- -- 638,554 (3) 638,554
---------- -------- -------- ----------- ----------
TOTAL ASSETS $3,263,854 $244,219 $192,497 $ (395,146) $3,305,424
========== ======== ======== =========== ==========
LIABILITIES AND
STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and
accrued expenses $ 65,037 $ 34,089 $ 2,377 $ -- $ 101,503
Other liabilities -- 82,311 40,634 (8,700) (2) 114,245
Salaries, wages, taxes 20,264 35,479 52,685 -- 108,428
Income taxes payable 71,616 -- - -- 71,616
---------- -------- -------- ----------- ----------
Total current liabilities 156,917 151,879 95,696 (8,700) 395,792
---------- -------- -------- ----------- ----------
LONG-TERM LIABILITIES:
Notes payable -- 236,057 -- -- 236,057
Deferred tax liability -- -- -- 489,190 (4) 489,190
---------- -------- -------- ----------- ----------
Total long-term liabilities -- 236,057 -- 489,190 725,247
---------- -------- -------- ----------- ----------
Total liabilities 156,917 387,936 95,696 480,490 1,121,039
---------- -------- -------- ----------- ----------
STOCKHOLDERS' EQUITY:
Common stock 10,094 5 12,500 (444) (8) 22,155
Additional paid-in capital 6,190,647 495 69,114 (3,968,996) (8) 2,291,260
Retained earnings
(Accumulated deficit) (3,093,804) (144,217) 15,187 3,093,804 (8) (129,030)
---------- -------- -------- ----------- ----------
Total stockholders' equity 3,106,837 (143,717) 96,801 (875,636) 2,184,385
---------- -------- -------- ----------- ----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $3,263,854 $244,219 $192,497 $ (395,146) $3,305,424
========== ======== ======== =========== ==========
</TABLE>
See accompanying notes to Unaudited Pro Forma Consolidated Financial Statements.
31
<PAGE> 37
INTREPID CAPITAL CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
Enviroq IAM CRC
Historical Historical Historical
(Year ended (Year ended (Year ended Pro Forma Pro Forma
Dec. 31, 1997) Dec. 31, 1997) Dec. 31, 1997) Adjustments (1) Combined
-------------- -------------- -------------- ----------- --------
<S> <C> <C> <C> <C> <C>
REVENUES
Net revenues $1,378,382 $1,057,208 $1,207,641 $(151,500) (2) $3,491,731
License revenues 100,000 -- -- -- 100,000
---------- ---------- ---------- --------- ----------
Total revenues 1,478,382 1,057,208 1,207,641 (151,500) 3,591,731
COST OF REVENUES 760,013 -- -- -- 760,013
---------- ---------- ---------- --------- ----------
GROSS PROFIT 718,369 1,057,208 1,207,641 (151,500) 2,831,718
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 740,094 716,449 1,222,021 (151,500) (2) 2,527,064
AMORTIZATION
OF GOODWILL -- -- -- 42,570 (3) 42,570
---------- ---------- ---------- --------- ----------
PROFIT (LOSS) FROM
OPERATIONS (21,725) 340,759 (14,380) (42,570) 262,084
OTHER INCOME 139,929 2,345 14,173 (113,000) (6) 43,447
---------- ---------- ---------- --------- ----------
INCOME (LOSS) BEFORE
INCOME TAXES 118,204 343,104 (207) (155,570) 305,531
---------- ---------- ---------- --------- ----------
INCOME TAX (EXPENSE)
BENEFIT 50,300 -- -- (129,032) (5) (78,732)
---------- ---------- ---------- --------- ----------
NET INCOME (LOSS) $ 168,504 $ 343,104 $ (207) $(284,602) $ 226,799
========== ========== ========== ========= ==========
BASIC NET INCOME
PER SHARE $ 0.17 $ 0.10
========== ==========
WEIGHTED AVERAGE
SHARES OUTSTANDING 1,009,377 2,215,526
========== ==========
</TABLE>
See accompanying notes to Unaudited Pro Forma Consolidated Financial Statements.
32
<PAGE> 38
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(l) The pro forma adjustments have been prepared to reflect the reverse
acquisition of Enviroq by IAM and CRC. The estimated purchase price
has been allocated to the assets and liabilities of Enviroq based on
their estimated fair market values. The estimated purchase price was
determined based on 1,009,377 shares of Enviroq Stock outstanding at
$2.23 per share, the average closing price of Enviroq as listed on the
OTC Bulletin Board system for a two week period surrounding April 23,
1998, which such period included the date the entities reached
agreement on the terms of the Mergers and the date the proposed
transaction was announced.
(2) Net revenues and sales, general and administrative expenses were
reduced by $112,000 for the six months ended June 30, 1998, and by
$151,500 for the year ended December 31, 1997, to reflect the
elimination of intercompany transactions between IAM and CRC. In
addition, all other intercompany balance sheet accounts between IAM
and CRC have been eliminated.
(3) Goodwill has been reflected for the excess of the estimated purchase
price over the fair value of the assets acquired less the fair value
of the liabilities assumed. Goodwill amortization is on a straight
line basis over 15 years.
(4) Deferred tax liability has been reflected for the pro forma adjustment
to land at a blended statutory rate of 37.63%.
(5) Adjustments to income tax expense reflects the impact on IAM and CRC's
income before taxes as a C corporation at a blended statutory rate of
37.63%.
(6) Cash is reduced by $2.25 million to reflect the amount expected to be
paid as part of the Redemption. The payment of cash will be accounted
for as a special distribution to shareholders prior to the merger.
Such amounts are to be paid from the cash on hand at Enviroq. Enviroq
has incurred approximately $128,000 of non-recurring direct costs of
reorganization in the six months ended June 30, 1998, which were
expensed as incurred. Since these costs are considered non-recurring,
they have been removed for purposes of pro forma net income. Enviroq
estimates an additional $75,000 will be expensed subsequent to June
30, 1998 related to non-recurring direct costs of reorganization for
which the pro forma cash balance has been adjusted. In addition,
interest income earned by Enviroq of $62,000 for the six months ended
June 30, 1998, and $113,000 for the year ended December 31, 1997,
associated with this cash has been removed for purposes of preparing
these pro forma statements.
(7) Land has been adjusted to estimated fair market value based on a
current pending contract for sale, net of selling costs.
(8) Adjustments are a result of the Redemption, the exchange of all common
stock outstanding for shares of Intrepid Stock, and the adjustment to
retained earnings (accumulated deficit) in accordance with purchase
accounting.
THE SPECIAL MEETING
GENERAL
This Proxy Statement/Prospectus and Offer to Redeem is being furnished
to the Stockholders in connection with the solicitation of proxies by the
Enviroq Board for use at the Special Meeting. Each copy of this Proxy
Statement/Prospectus and Offer to Redeem mailed to Stockholders is accompanied
by a form of proxy for use at the Special Meeting. The Special Meeting is
scheduled to be held on Monday, December 14, 1998 at 9:00 a.m., local time, at
the Mountain Brook Inn, 2800 Highway 280, Birmingham, Alabama.
33
<PAGE> 39
PURPOSE OF THE SPECIAL MEETING
At the Special Meeting, the Stockholders will be asked to consider and
vote upon: (i) a proposal to adopt the Merger Agreement, (ii) a proposal to
approve the Incentive Stock Option Plan; (iii) a proposal to approve the Non-
Employee Directors' Stock Option Plan; and (iv) a proposal to transact such
other business as is incident to the conduct of the Special Meeting.
The Enviroq Board, based upon certain factors, including the Fairness
Opinion, has concluded that the Enviroq Merger is fair to and in the best
interests of Enviroq and the Stockholders and has unanimously approved the
Merger Agreement, the Redemption and the Enviroq Merger. THE ENVIROQ BOARD
UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE IN FAVOR OF THE ADOPTION OF
THE MERGER AGREEMENT AT THE SPECIAL MEETING. CERTAIN DIRECTORS OF ENVIROQ MAY
BE DEEMED TO HAVE CERTAIN INTERESTS IN THE MERGER IN ADDITION TO THEIR
INTERESTS AS STOCKHOLDERS. SEE "THE REORGANIZATION -- Recommendation of the
Enviroq Board and Enviroq's Reasons for the Enviroq Merger; -- Opinion of
Financial Advisor; and -- Interests of Certain Persons in The Reorganization".
It is anticipated that a representative of Deloitte & Touche LLP
independent auditors of Enviroq, will be present at the Special Meeting, will
have an opportunity to make a statement and will respond to appropriate
questions.
RECORD DATE; SHARES OUTSTANDING
The close of business on October 19, 1998 has been fixed as the Record
Date for the determination of the Stockholders entitled to notice of and to vote
at the Special Meeting. On the Record Date, there were 1,009,377 shares of the
Enviroq Stock issued and outstanding held by approximately 354 Stockholders of
record. All directors and executive officers of Enviroq are expected to vote, or
cause to be voted, all shares of Enviroq Stock over which they exercise voting
control (an aggregate of 571,001 shares of Enviroq Stock or approximately 56.57%
of the outstanding shares of Enviroq Stock on the Record Date) "FOR" the
approval of the Merger Agreement, the Redemption and the Enviroq Merger. Subject
to the terms and conditions of the Stock Agreement, the Principal Stockholders,
who collectively own an aggregate of 552,875 shares of Enviroq Stock,
representing approximately 54.77% of the issued and outstanding shares of
Enviroq Stock, have agreed to vote such shares owned by them in favor of the
approval and adoption of the Merger Agreement and the transactions contemplated
therein. If the Principal Stockholders vote in favor of the adoption of the
Merger Agreement and in favor of the approval of the Stock Option Plans, the
Merger Agreement will be adopted and the Enviroq Merger and the Stock Option
Plans will all be approved at the Special Meeting.
VOTING AT THE SPECIAL MEETING
The presence, either in person or by proxy, of the holders of a
majority of the issued and outstanding shares of Enviroq Stock entitled to vote
at the Special Meeting is necessary to constitute a quorum at the Special
Meeting.
Each share of Enviroq Stock is entitled to one vote with respect to
all matters presented at the Special Meeting. Adoption of the Merger Agreement
requires the affirmative vote of a majority of the outstanding shares of
Enviroq Stock entitled to vote thereon. Approval of the Stock Option Plans
requires the affirmative vote of a majority of the shares of Enviroq Stock
entitled to vote thereon and present, either in person or by proxy, at the
Special Meeting.
The Principal Stockholders, who collectively own an aggregate of
552,875 shares of Enviroq Stock, representing approximately 54.77% of the
issued and outstanding shares of Enviroq Stock, have executed a stock agreement
(the "Stock Agreement") with the Principal IAM/CRC Shareholders, pursuant to
which the Principal Stockholders have agreed to vote the shares of Enviroq
Stock owned by the Principal Stockholders in favor of the adoption of the
Merger Agreement. Accordingly, it is expected that the Merger Agreement will be
adopted and the Redemption, the Enviroq Merger and the Stock Option Plans will
be approved at the Special Meeting. See "THE REORGANIZATION -- General".
Notwithstanding the agreement to vote the shares of Enviroq Stock owned by such
Principal Stockholders in favor of adoption of the Merger Agreement, no
Principal Stockholder who is a member of
34
<PAGE> 40
the Enviroq Board (or control person thereof) is obligated to vote the shares
of Enviroq Stock owned by such Principal Stockholder in favor of adoption of
the Merger Agreement if such Principal Stockholder, acting in his capacity as a
director (or control person thereof), determines in good faith, based on advice
of the Enviroq Board's outside counsel, that the failure to terminate the
Merger Agreement and the Reorganization would be reasonably likely to result in
a breach of such director's fiduciary duty to the Stockholders.
Proxies will be voted as specified by the Stockholders. If a
Stockholder does not return a signed proxy, such Stockholder's shares will not
be voted. Stockholders are urged to mark the boxes on the proxy to indicate how
their shares are to be voted. Each Stockholder shall be entitled to cast one
vote per share of Enviroq Stock on each matter to be voted upon at the Special
Meeting. If a Stockholder returns a signed proxy, but does not indicate how
such Stockholder's shares of Enviroq Stock are to be voted, the shares of
Enviroq Stock represented by the proxy will be voted "FOR" adoption of the
Merger Agreement and "FOR" approval of the Stock Option Plans. The proxy also
confers discretionary authority on the management of Enviroq to vote the shares
of Enviroq Stock represented thereby on any other matter that may properly come
before the Special Meeting, including, but not limited to, consideration of a
motion to adjourn or postpone the Special Meeting to another time and/or place.
A Stockholder wishing to exercise rights of dissent and appraisal must
not vote "FOR" adoption of the Merger Agreement. By doing so, such Stockholder
will be precluded from exercising any rights of dissent and appraisal to which
such Stockholder is otherwise entitled pursuant to Section 262 of the DGCL. See
"THE REORGANIZATION -- Rights of Dissent and Appraisal".
Returning a signed proxy will not affect a Stockholder's right to
attend the Special Meeting and vote in person. Any Stockholder who executes and
returns a proxy may revoke such proxy at any time before it is voted by (i)
filing with the Secretary of Enviroq, at or before the Special Meeting, a
written notice of revocation bearing a later date than the proxy, (ii) duly
executing a subsequent proxy relating to the same shares and delivering it to
the Secretary of Enviroq at or before the Special Meeting or (iii) attending
the Special Meeting and voting in person by ballot. Attendance at the Special
Meeting will not, in and of itself, constitute revocation of a proxy.
As of the date of this Proxy Statement/Prospectus and Offer to Redeem,
other than the proposals that the Stockholders consider and vote to adopt the
Merger Agreement and to approve the Stock Option Plans, the Enviroq Board is
not aware of any other matter to be presented for action by the Stockholders at
the Special Meeting. If, however, any other matters not now known are incident
to the conduct of and properly brought before the Special Meeting, the
management of Enviroq will vote the proxies upon such matters according to its
discretion and best judgment.
SOLICITATION OF PROXIES
This proxy solicitation is made by the Enviroq Board. Proxies will be
solicited through the mail. Additionally, proxies may be solicited by personal
interviews, telephone or facsimile transmission machines by directors, officers
and regular employees of Enviroq. Such directors, officers and regular
employees shall not receive special compensation therefor. In the event the
Reorganization is not consummated, Enviroq will pay one-half of the fees of
attorneys charged in connection with the preparation of this Proxy
Statement/Prospectus and Offer to Redeem and each of IAM and CRC will pay
one-quarter of such costs. Such attorney fees will be paid in their entirety by
Intrepid if the Reorganization is consummated. With respect to any other fees
and expenses, Enviroq, IAM and CRC are each responsible for their respective
fees and expenses relating to the Merger Agreement and the transactions
contemplated therein, including the cost of assembling, printing and mailing
this Proxy Statement/Prospectus and Offer to Redeem.
EFFECT OF ABSTENTIONS AND "BROKER NON-VOTES"
At the Special Meeting, abstentions and broker non-votes will be
counted for purposes of determining the presence or absence of a quorum. A
"broker non-vote" occurs with respect to a given proposal when a broker holding
shares of Enviroq Stock in street name returns an executed proxy (or voting
directions) which indicates that such broker does not have discretionary
authority to vote on such proposal.
35
<PAGE> 41
In determining whether the proposal to adopt the Merger Agreement has
received the requisite number of affirmative votes, abstentions and broker
non-votes will have the same effect as a vote against such proposal, because
adoption of the Merger Agreement requires the affirmative vote of a majority of
the outstanding shares of Enviroq Stock entitled to vote thereon. Abstentions
and broker non-votes will not affect the outcome of the vote with respect to
the proposals to approve the Stock Option Plans except to the extent that
abstentions and broker non-votes cause the total votes cast by shares of
Enviroq Stock present in person or by proxy at the Special Meeting and entitled
to vote thereon to be less than a majority.
THE REORGANIZATION
GENERAL
Pursuant to the Merger Agreement, Freedom Holdings of Alabama, Inc., a
Delaware corporation ("Sub-1"), will merge with and into Enviroq, with Enviroq
being the surviving corporation. Simultaneously with the Enviroq Merger, IAM
Merger Sub, Inc., a Florida corporation ("Sub-2"), and CRC Merger Sub, Inc., a
Florida corporation ("Sub-3"), will merge with and into IAM and CRC, with IAM
and CRC being the surviving corporations, respectively. Sub-1, Sub-2 and Sub-3
are all wholly-owned subsidiaries of Intrepid, which itself is a wholly-owned
subsidiary of Enviroq. Intrepid, Sub-1, Sub-2 and Sub-3 are all newly-formed
corporations, formed with the specific purpose of effecting the Mergers. As a
result of the Mergers, Enviroq, IAM and CRC will become wholly-owned
subsidiaries of Intrepid.
THE REDEMPTION
Immediately prior to and in connection with the Enviroq Merger, each
Stockholder will be given the opportunity to have Enviroq redeem exactly
42.698013% of the shares of Enviroq Stock tendered by such Stockholder for
$5.220612 in cash per share of Enviroq Stock. The Redemption will occur only if
all of the terms and conditions contained in the Merger Agreement are satisfied
or waived. Accompanying this Proxy Statement/Prospectus and Offer to Redeem are
a letter of transmittal and other documents (the "Redemption Materials") to be
used in connection with the Redemption. Each Stockholder who wishes to
participate in the Redemption must properly complete and return to the
Depositary, in accordance with the instructions contained therein, the letter
of transmittal contained in the Redemption Materials accompanying this Proxy
Statement/Prospectus and Offer to Redeem (the "Redemption Letter of
Transmittal") and any other documents required by the Redemption Materials.
Stockholders wishing to participate in the Redemption must tender to the
Depositary all of the stock certificates representing the total number of
shares of Enviroq Stock owned by the Stockholder that such Stockholder desires
Enviroq to redeem. As noted above, Enviroq will redeem only 42.698013% of the
shares of Enviroq Stock represented by the stock certificates actually tendered
by a Stockholder. All such duly completed Redemption Letters of Transmittal,
other documents and stock certificates evidencing shares of Enviroq Stock to be
redeemed must be received by the Depositary before the Expiration Date (as
defined herein). Redemption Letters of Transmittal, other documents and stock
certificates representing shares of Enviroq Stock to be redeemed which are
received by the Depositary after the Expiration Date will not be accepted by
Enviroq in connection with the Redemption. See "THE REDEMPTION". If any
tendered shares of Enviroq Stock are not accepted for payment pursuant to the
Offer to Redeem for any reason, or if stock certificates are submitted for more
shares of Enviroq Stock than are tendered, certificates representing all shares
of Enviroq Stock not purchased or tendered will not be returned to the
tendering Stockholder, and will be deemed surrendered, and will be exchanged
for stock certificates representing shares of Intrepid Stock in the Enviroq
Merger upon the consummation of the Enviroq Merger. Except with respect to a
Stockholder who perfects its right to dissent from the Enviroq Merger, no
certificates representing shares of Enviroq Stock not purchased or tendered in
the Redemption will be returned to the tendering Stockholder and the Redemption
Letter of Transmittal shall serve as the letter of transmittal in respect of
shares of Enviroq Stock exchanged in the Enviroq Merger. Any stock certificates
representing the shares of Enviroq Stock held by a Stockholder after such
Stockholder has elected to have Enviroq redeem 42.698013% of the shares of
Enviroq Stock held by such Stockholder will be returned to any Stockholder who
exercises such Stockholder's rights to dissent from the Enviroq Merger by
perfecting and not withdrawing a demand for payment of a fair value for such
shares of Enviroq Stock held by such Stockholder. See "-- Exchange of Stock
Certificates" and "-- Rights of Dissent and Appraisal".
36
<PAGE> 42
CONVERSION OF SHARES IN THE REORGANIZATION
Pursuant to the Enviroq Merger, each share of Enviroq Stock issued and
outstanding immediately prior to the Effective Time (except as otherwise
provided in the Merger Agreement) and (i) owned by a Stockholder who elects not
to participate in the Redemption or owned by a Stockholder who elects to
participate in the Redemption after such Redemption (i.e. shares of Enviroq
Stock not redeemed in the Redemption) will be converted into the right to
receive in the Reorganization one (1) share of Intrepid Stock and $2.229098 in
cash, or (ii) owned by a Stockholder who elects to participate in the
Redemption and which is redeemed in the Redemption will be converted into the
right to receive in the Reorganization 1.745140 shares of Intrepid Stock.
Pursuant to the IAM Merger and the CRC Merger, respectively, each share of IAM
Stock and CRC Stock issued and outstanding immediately prior to the Effective
Time (except as otherwise provided in the Merger Agreement) shall be converted
into the right to receive in the Reorganization 1206.149 shares of Intrepid
Stock for each issued and outstanding share of IAM Stock and for each issued
and outstanding share of CRC Stock, respectively. See "-- Exchange of Stock
Certificates".
The total consideration received in the Enviroq Merger by a
Stockholder who elects to participate in the Redemption will be equivalent on a
per share basis to the total consideration received in the Enviroq Merger by a
Stockholder who elects not to participate in the Redemption, subject to any
possible differences attributable to tax treatment. See "MATERIAL FEDERAL
INCOME TAX CONSEQUENCES".
After the Reorganization, the former shareholders of IAM and CRC will
own approximately 54.44% of the issued and outstanding shares of Intrepid Stock
and the former Stockholders will own approximately 45.56% of the issued and
outstanding shares of Intrepid Stock (subject to adjustments upon the exercise
of the Stockholders' right to dissent).
FRACTIONAL INTERESTS
Fractional interests of shares of Intrepid Stock will not be issued in
the Reorganization. The Stockholders and the shareholders of IAM and CRC will
be paid cash in lieu of such fractional interests.
EXCHANGE OF STOCK CERTIFICATES
As soon as practicable after the Effective Time, Enviroq will mail
transmittal instructions to each Stockholder who has elected not to participate
in the Redemption or who elected to participate in the Redemption by tendering
less than all of such Stockholders' shares of Enviroq Stock and who is a
Stockholder of record on the Record Date (provided, such Stockholder or record
holder did not vote in favor of the Enviroq Merger, and who otherwise complies
with Section 262 of the DGCL relating to the exercise of dissenters' rights)
outstanding at the Effective Time, advising such holder of the procedure for
surrendering such holder's certificates (each, "Old Certificates") which
immediately prior to the Effective Time represented certificates for shares of
Enviroq Stock (if such shares of Enviroq Stock were not previously redeemed)
that were canceled in the Enviroq Merger and became instead the right to
receive shares of Intrepid Stock. Holders of Old Certificates will not be
entitled to receive any payment of dividends or distributions on or payment for
any share with respect to their Old Certificates until such certificates have
been surrendered for certificates representing shares of Intrepid Stock.
Holders of shares of Enviroq Stock who either elect not to participate in the
Redemption or who elect to participate in the Redemption by tendering less than
all of such Stockholders' shares of Enviroq Stock should not submit their stock
certificates for exchange until a letter of transmittal and instruction are
received therefor. See "THE REDEMPTION -- Acceptance for Payment; Payment for
Shares of Enviroq Stock" and "-- Rights of Dissent and Appraisal".
APPROVAL OF THE REORGANIZATION; THE STOCK AGREEMENT
The shareholders of IAM and CRC have approved the Merger Agreement and
the transactions contemplated therein. The Stockholders will vote, inter alia,
on whether to adopt the Merger Agreement and the transactions contemplated
therein, at the Special Meeting.
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The Principal Stockholders, who collectively own an aggregate of
552,875 of the issued and outstanding shares of Enviroq Stock, representing
approximately 54.77% of the issued and outstanding shares of Enviroq Stock,
have executed a stock agreement (the "Stock Agreement") with the Principal
IAM/CRC Shareholders. Upon the terms and subject to certain conditions
contained in the Stock Agreement, the Principal Stockholders have agreed to
vote in favor of the Merger Agreement, the Enviroq Merger and the transactions
contemplated in the Merger Agreement. The Principal Stockholders shall not be
obliged in their capacity as a member of the Enviroq Board (or cause any member
of the Enviroq Board under its control), (a) to vote in favor of the Merger
Agreement, the Enviroq Merger and the transactions contemplated in the Merger
Agreement, or against any Alternative Proposal (as defined herein), or (b) to
refrain from voting to terminate the Merger Agreement, if such member of the
Enviroq Board determines in good faith, based on advice of the Enviroq Board's
outside counsel, that the failure to terminate the Merger Agreement and the
transactions contemplated therein would be reasonably likely to result in a
breach of such Enviroq Board member's fiduciary duty to the Stockholders.
THE EFFECTIVE TIME
The Reorganization will become effective upon the latest to occur of
the execution and filing of a Certificate of Merger with the Secretary of State
of the State of Delaware with respect to the Enviroq Merger or the execution
and filing of Articles of Merger with the Secretary of State of the State of
Florida with respect to the IAM Merger and the CRC Merger; provided, however,
that the Reorganization shall not become effective until after the completion
of the Redemption (the "Effective Time"). The Reorganization will be effective
on a date (the "Closing Date") to be specified by the parties to the Merger
Agreement, which will be no later than two (2) business days after satisfaction
or waiver of the conditions set forth in Articles 7 through 10 of the Merger
Agreement. See "TERMS OF THE MERGER AGREEMENT -- Conditions to Obligation to
Effect the Reorganization".
BACKGROUND TO THE REORGANIZATION
The Enviroq Board has, from time to time, reviewed Enviroq's strategic
planning alternatives, including the possibility of entering into a business
combination with another company or companies. On April 12, 1996, the Enviroq
Board unanimously determined that it would be in the best interests of the
Stockholders to explore potential mergers and acquisition possibilities and
opportunities. During the fiscal year beginning March 31, 1996, management of
Enviroq actively searched for potential merger and acquisition opportunities,
both in industries and markets similar to Enviroq's traditional businesses and
in industries and markets which were dissimilar from Enviroq's traditional
businesses, including the biotechnology, real estate and computer technology
businesses and markets. All of these potential opportunities were investigated
to various degrees. In some cases, the individuals or companies involved
decided to pursue other alternatives. In other cases, further investigation was
performed by the management of Enviroq, and in some cases, additional
information was provided with respect to that potential opportunity to the
Enviroq Board. With respect to each opportunity presented to the Enviroq Board,
the Enviroq Board determined, in its sole discretion, that none of the
opportunities presented would be in the best interest of the Stockholders.
Accordingly, since the commencement of negotiations with IAM and CRC, Enviroq
has not pursued other merger or acquisition opportunities with other companies
as the Enviroq Board identified the opportunity with IAM and CRC as the most
viable opportunity after reviewing a number of other opportunities.
During the first calendar quarter of 1997, IAM, CRC and their sole
shareholders, Messrs. Forrest and Mark F. Travis, in their continuing efforts
to maximize value, also considered the advisability of engaging in a strategic
combination or other form of reorganization with a publicly-traded company to
enhance shareholder value and liquidity. As part of this process, in March
1997, IAM and CRC, through Mr. Forrest Travis, President of IAM and CRC, and
Morgan Payne, President of Broadland Capital Partners, L.P., financial advisor
to IAM and CRC, concluded that a business combination and reorganization with
Enviroq would present greater strategic and financial opportunities for IAM and
CRC and their respective shareholders than currently realized.
During March, 1997, the management of Enviroq was informally contacted
by representatives of IAM and CRC concerning the possibility of a business
combination between Enviroq, IAM and CRC. Over the next few months, exploratory
discussions were conducted between William J. Long, President and Chief
Executive Officer of Enviroq, Forrest Travis and Morgan Payne.
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On August 27, 1997, Messrs. Forrest Travis, Payne and Long met to
exchange information and to discuss generally the businesses of Enviroq,
Sprayroq, IAM and CRC and the possibility of a business combination and
reorganization. Following this meeting, a proposed letter of intent was
circulated among the parties. The management of Enviroq presented the proposed
letter of intent to the Enviroq Board on September 12, 1997. The Enviroq Board
declined to authorize the execution of the letter of intent, but did authorize
the management of Enviroq to negotiate a definitive merger agreement with IAM
and CRC. During the Fall of 1997, the parties commenced due diligence
investigations with respect to the other parties involved in the proposed
combination. In particular, information concerning the businesses, properties,
financial condition and results of operation of Enviroq, IAM and CRC was
exchanged between the parties. Most of the information delivered by IAM and CRC
was of a non-public nature since neither IAM nor CRC is a publicly traded
company. Such information included disclosure of the information normally
disclosed in a due diligence investigation, including incorporation documents,
corporate governance documents, material contracts, pending litigation and all
applicable regulatory permits, licenses authorizations and applications. All of
the information exchanged by Enviroq was of a public nature, with the exception
of a pending contract for sale with respect to land owned by Enviroq in
Jacksonville, Florida. Following a meeting held in Atlanta, Georgia on
September 23, 1997, between William Long and Messrs. Travis and Payne, the
parties began negotiating a definitive merger agreement. Negotiations continued
with respect to the definitive merger agreement and related agreements,
including the Stock Agreement, during November and December of 1997. Such
negotiations were conducted between Messrs. William Long and Forrest Travis.
On January 5, 1998, Enviroq engaged the services of Porter White to
provide advice to the Enviroq Board and to investigate the fairness of the
proposed transaction from a financial point of view to the Stockholders.
During February, 1998, Mr. Long, together with Mr. Thomas Brander and
Mr. Charles Long (both members of the Enviroq Board), conducted various
meetings with Forrest Travis and Porter White to discuss the proposed
combination, and drafts of the proposed documentation, including the Merger
Agreement and the Stock Agreement. Drafts of the Merger Agreement, the Stock
Agreement and other information regarding the proposed combination were
distributed to the Enviroq Board on January 28, 1998. On February 10, 1998, at
a meeting of the Enviroq Board, the Enviroq Board reviewed the terms of the
Enviroq Merger, the Merger Agreement and the Stock Agreement. The terms of the
draft Merger Agreement reviewed by the Enviroq Board at this time did not
differ materially from the terms of the proposed letter of intent.
Representatives of Porter White and Bradley Arant Rose & White LLP, legal
counsel to Enviroq ("Bradley Arant"), were also present at the meeting. At that
meeting, Bradley Arant advised the Enviroq Board with respect to its legal
obligations and duties in connection with the transactions contemplated in the
Merger Agreement, including the Enviroq Merger and the Redemption. At the
conclusion of that meeting, the Enviroq Board unanimously decided to continue
discussions and negotiations with IAM and CRC, with William J. Long being
authorized to further negotiate and finalize the Merger Agreement, the Stock
Agreement and other required documents. On April 10, 1998, Porter White
delivered an opinion to the Enviroq Board that the Enviroq Merger was fair,
from a financial point of view, to the Stockholders. At the meeting of the
Enviroq Board held on April 14, 1998, the Enviroq Board unanimously approved
and authorized the execution and delivery of the Merger Agreement and the Stock
Agreement.
After the members of the IAM Board and the CRC Board considered the
proposed IAM Merger, the proposed CRC Merger, the Reorganization and the
transactions contemplated thereby, including the proposed consideration to be
paid to IAM's and CRC's shareholders, the IAM Board and the CRC Board, by
written consent in lieu of a special meeting thereof, dated April 13, 1998,
authorized IAM's and CRC's officers to execute the proposed Merger Agreement
and the Stock Agreement and to take all necessary actions to consummate the
proposed Mergers and the Reorganization, subject to the approval of the
shareholders of each of IAM and CRC. Also on April 13, 1998 the shareholders of
IAM and CRC approved the Mergers and the Reorganization and authorized the
appropriate officers of IAM and CRC to execute and deliver the Merger Agreement
and the Stock Agreement and to take all necessary actions to consummate the
Mergers and the Reorganization in accordance with the terms of the Merger
Agreement.
The Merger Agreement and the Stock Agreement were executed by Enviroq,
IAM, CRC, Intrepid and the other entities on April 22, 1998. The terms of the
Merger Agreement and the Stock Agreement as executed did not differ materially
from the terms of the proposed letter of intent or the draft Merger Agreement
or the draft Stock Agreement reviewed by the Enviroq Board on February 10,
1998. On August 27, 1998 Enviroq, IAM, CRC, Intrepid
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and the other entities executed Amendment No. 1 to the Agreement and Plan of
Reorganization, an amendment to the Merger Agreement which extended the
termination date before which the Mergers must be consummated from August 31,
1998 to October 31, 1998. On October 29, 1998 Enviroq, IAM, CRC, Intrepid and
the other entities amended and restated the Agreement and Plan of
Reorganization which, inter alia, extended the termination date from October
31, 1998 to December 31, 1998.
REASONS FOR THE REORGANIZATION
Enviroq's Reasons for the Enviroq Merger and the Reorganization
The Enviroq Board carefully considered the advisability of the Enviroq
Merger and the Reorganization and believes that the terms of the Merger
Agreement, the Enviroq Merger and the Reorganization are fair to, and in the
best interests of, the Stockholders. THE ENVIROQ BOARD UNANIMOUSLY APPROVED THE
MERGER AGREEMENT, THE ENVIROQ MERGER AND THE REORGANIZATION AND UNANIMOUSLY
RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" ADOPTION OF THE MERGER AGREEMENT.
SEE "THE REORGANIZATION -- INTERESTS OF CERTAIN PERSONS IN THE REORGANIZATION".
In considering whether to approve the Merger Agreement, the Enviroq
Merger and the Reorganization and recommend the adoption of the Merger
Agreement by the Stockholders, the Enviroq Board evaluated the future role of
Enviroq in the changing spray-applied resinous products and municipal
wastewater biosolid treatment markets. The Enviroq Board also considered the
following additional factors set forth below which constitute all of the
material factors considered by the Enviroq Board.
(i) The increasing requirements for capital to meet technological
demands;
(ii) the opportunity for the Stockholders to obtain value for their
largely illiquid holdings;
(iii) the value of the consideration offered to the Stockholders
relative to the book value of shares of Enviroq Stock;
(iv) that after the Enviroq Merger and the Reorganization, Intrepid
will have a greater diversification of revenue sources, and possess greater
managerial, operational and financial resources, than does Enviroq;
(v) the greater financial resources of Intrepid should permit an
acceleration of the development and expansion of new business and services;
(vi) the market capitalization and public stock distribution of
Intrepid will provide the Stockholders with increased liquidity and that, as a
result of the Enviroq Merger and the Reorganization, the Stockholders will
continue as shareholders of a larger, more diversified combined organization
having greater market and financial strength;
(vii) general economic and stock market conditions; and
(viii) the Fairness Opinion.
The Enviroq Board also considered a variety of inherent risks and
potentially negative factors in its deliberations concerning the Merger
Agreement. In the view of the Enviroq Board, these considerations did not
outweigh, individually or collectively, the advantages of the Enviroq Merger
and the Reorganization. In particular, the Enviroq Board considered the
following:
(i) the irreversible nature of the decision and the consequent
loss of independence;
(ii) the possible change in certain existing Enviroq corporate
policies and strategies following the Enviroq Merger and the Reorganization;
and
(iii) the other risks described above under "RISK FACTORS".
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Due to the wide variety of factors considered in connection with the
evaluation of the Enviroq Merger and the Reorganization, the Enviroq Board did
not find it practicable to, and did not quantify or otherwise attempt to assign
relative weights to, the specific factors considered in reaching its
determination. In addition, individual members of the Enviroq Board may have
given different weight to different factors.
On April 14, 1998, the Enviroq Board approved the Merger Agreement and
the transactions contemplated thereby and determined that the Enviroq Merger
and the Reorganization were fair to, and in the best interests of, Enviroq and
the Stockholders. AFTER CAREFUL CONSIDERATION, THE ENVIROQ BOARD UNANIMOUSLY
RECOMMENDS THAT THE STOCKHOLDERS VOTE IN FAVOR OF ADOPTION OF THE MERGER
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY. SEE "THE REORGANIZATION --
INTERESTS OF CERTAIN PERSONS IN THE REORGANIZATION".
IAM's Reasons for the IAM Merger and the Reorganization
The IAM Board carefully considered the advisability of the IAM Merger
and the Reorganization and believed that the terms of the Merger Agreement, the
IAM Merger and the Reorganization were in the best interests of IAM and its
shareholders. THE IAM BOARD UNANIMOUSLY APPROVED, ADOPTED AND RECOMMENDED THE
MERGER AGREEMENT, THE IAM MERGER AND THE REORGANIZATION TO THE SHAREHOLDERS OF
IAM, AND THE SHAREHOLDERS OF IAM UNANIMOUSLY APPROVED AND ADOPTED THE MERGER
AGREEMENT, THE IAM MERGER AND THE REORGANIZATION ON APRIL 13, 1998.
In considering whether to approve the IAM Merger and the
Reorganization and recommend the approval and adoption of the Merger Agreement
by IAM's shareholders, the IAM Board evaluated the future role of IAM in the
changing investment management and financial services environment. The IAM
Board also considered the following additional factors:
(i) the increasing requirements for capital to meet technological
demands;
(ii) the increased number of consolidating investment management
transactions and the opportunity for IAM's shareholders to obtain value for
their largely illiquid holdings;
(iii) the value of the consideration offered to IAM's shareholders
relative to the book value of shares of IAM Stock;
(iv) that after the IAM Merger and the Reorganization, Intrepid
will have a greater diversification of revenue sources, and possess greater
managerial, operational and financial resources, than does IAM;
(v) that after the IAM Merger and the Reorganization, Intrepid is
expected to achieve certain administrative efficiencies;
(vi) that after the IAM Merger and the Reorganization, Intrepid
should be able to achieve longer-term revenue enhancements and expense
efficiencies as a result of the combination of management resources and
operating assets and the integration and streamlining of certain management and
administrative functions;
(vii) the greater financial resources of Intrepid should permit an
acceleration of the development and expansion of new business and services;
(viii) the market capitalization and public stock distribution of
Intrepid will provide IAM's shareholders with increased liquidity and that, as
a result of the IAM Merger and the Reorganization, IAM's shareholders will
continue as shareholders of a larger, more diversified combined organization
having greater market and financial strength;
(ix) the financial terms of other recent business combinations in
the investment management and financial services industries; and
(x) general economic and stock market conditions.
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The IAM Board also considered a variety of inherent risks and
potentially negative factors in its deliberations concerning the Merger
Agreement. In the view of the IAM Board, these considerations did not outweigh,
individually or collectively, the advantages of the IAM Merger and the
Reorganization. In particular, the IAM Board considered the following:
(i) the irreversible nature of the decision and the consequent
loss of independence;
(ii) the possible change in certain existing IAM corporate policies
and strategies following the IAM Merger and the Reorganization; and
(iii) the other risks described above under "RISK FACTORS".
Due to the wide variety of factors considered in connection with the
evaluation of the IAM Merger and the Reorganization, the IAM Board did not find
it practicable to, and did not quantify or otherwise attempt to assign relative
weights to, the specific factors considered in reaching its determination. In
addition, individual members of the IAM Board may have given different weight
to different factors.
On April 13, 1998, the IAM Board approved the Merger Agreement and the
transactions contemplated thereby and determined that the IAM Merger and the
Reorganization were fair to, and in the best interests of, IAM and its
shareholders. AFTER CAREFUL CONSIDERATION, THE IAM BOARD UNANIMOUSLY
RECOMMENDED THAT THE SHAREHOLDERS OF IAM VOTE IN FAVOR OF THE MERGER AGREEMENT
AND THE TRANSACTIONS CONTEMPLATED THEREBY. The IAM Board did not engage a
financial advisor or obtain a fairness opinion in connection with its decision
to recommend that IAM's shareholders approve and adopt the Merger Agreement and
approve the IAM Merger and the Reorganization. As a result, IAM's shareholders
voted on the Merger Agreement, the IAM Merger and the Reorganization without an
opinion from an unaffiliated financial advisor that the IAM Merger and the
Reorganization were fair, from a financial point of view, to the shareholders
of IAM. The IAM Board considered each of the factors described above in
determining to proceed with the IAM Merger and the Reorganization without a
fairness opinion. The IAM Board did not believe that obtaining a fairness
opinion in connection with the IAM Merger and the Reorganization was necessary
because the IAM Board believed that it could evaluate the IAM Merger and the
Reorganization and make a recommendation to IAM's shareholders with respect to
the IAM Merger and the Reorganization without such opinion.
CRC's Reasons for the CRC Merger and the Reorganization
The CRC Board carefully considered the advisability of the CRC Merger
and the Reorganization and believed that the terms of the Merger Agreement, the
CRC Merger and the Reorganization were in the best interests of CRC and its
shareholders. THE CRC BOARD UNANIMOUSLY APPROVED, ADOPTED AND RECOMMENDED THE
MERGER AGREEMENT, THE CRC MERGER AND THE REORGANIZATION TO THE SHAREHOLDERS OF
CRC, AND THE SHAREHOLDERS OF CRC UNANIMOUSLY APPROVED AND ADOPTED THE MERGER
AGREEMENT, THE CRC MERGER AND THE REORGANIZATION ON APRIL 13, 1998.
In considering whether to approve the CRC Merger and the
Reorganization and recommend the approval and adoption of the Merger Agreement
by CRC's shareholders, the CRC Board evaluated the future role of CRC in the
changing broker-dealer and financial services environment. The CRC Board also
considered the following additional factors:
(i) the increasing requirements for capital to meet technological
demands;
(ii) the increased number of consolidating broker-dealer
transactions and the opportunity for CRC's shareholders to obtain value for
their largely illiquid holdings;
(iii) the value of the consideration offered to CRC's shareholders
relative to the book value of shares of CRC Stock;
(iv) that after the CRC Merger and the Reorganization, Intrepid
will have a greater diversification of revenue sources, and possess greater
managerial, operational and financial resources, than does CRC;
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(v) that after the CRC Merger and the Reorganization, Intrepid is
expected to achieve certain administrative efficiencies;
(vi) that after the CRC Merger and the Reorganization, Intrepid
should be able to achieve longer-term revenue enhancements and expense
efficiencies as a result of the combination of management resources and
operating assets and the integration and streamlining of certain management and
administrative functions;
(vii) the greater financial resources of Intrepid should permit an
acceleration of the development and expansion of new business and services;
(viii) the market capitalization and public stock distribution of
Intrepid will provide CRC's shareholders with increased liquidity and that, as
a result of the CRC Merger and the Reorganization, CRC's shareholders will
continue as shareholders of a larger, more diversified combined organization
having greater market and financial strength;
(ix) the financial terms of other recent business combinations in
the investment management, broker-dealer and financial services industries; and
(x) general economic and stock market conditions.
The CRC Board also considered a variety of inherent risks and
potentially negative factors in its deliberations concerning the Merger
Agreement. In the view of the CRC Board, these considerations did not outweigh,
individually or collectively, the advantages of the CRC Merger and the
Reorganization. In particular, the CRC Board considered the following:
(i) the irreversible nature of the decision and the consequent
loss of independence;
(ii) the possible change in certain existing CRC corporate policies
and strategies following the CRC Merger and the Reorganization; and
(iii) the other risks described above under "RISK FACTORS".
Due to the wide variety of factors considered in connection with the
evaluation of the CRC Merger and the Reorganization, the CRC Board did not find
it practicable to, and did not quantify or otherwise attempt to assign relative
weights to, the specific factors considered in reaching its determination. In
addition, individual members of the CRC Board may have given different weight
to different factors.
On April 13, 1998, the CRC Board approved the Merger Agreement and the
transactions contemplated thereby and determined that the CRC Merger and the
Reorganization were fair to, and in the best interests of, CRC and its
shareholders. AFTER CAREFUL CONSIDERATION, THE CRC BOARD UNANIMOUSLY
RECOMMENDED THAT THE SHAREHOLDERS OF CRC VOTE IN FAVOR OF THE MERGER AGREEMENT
AND THE TRANSACTIONS CONTEMPLATED THEREBY. The CRC Board did not engage a
financial advisor or obtain a fairness opinion in connection with its decision
to recommend that CRC's shareholders approve and adopt the Merger Agreement and
approve the CRC Merger and the Reorganization. As a result, CRC's shareholders
voted on the Merger Agreement, the CRC Merger and the Reorganization without an
opinion from an unaffiliated financial advisor that the CRC Merger and the
Reorganization were fair, from a financial point of view, to the shareholders
of CRC. The CRC Board considered each of the factors described above in
determining to proceed with the CRC Merger and the Reorganization without a
fairness opinion. The CRC Board did not believe that obtaining a fairness
opinion in connection with the CRC Merger and the Reorganization was necessary
because the CRC Board believed that it could evaluate the CRC Merger and the
Reorganization and make a recommendation to CRC's shareholders with respect to
the CRC Merger and the Reorganization without such opinion.
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OPINION OF FINANCIAL ADVISOR
Enviroq retained Porter White to act as its financial advisor in
connection with the Enviroq Merger and to render an opinion to the Enviroq
Board as to the fairness, from a financial point of view, of the Enviroq Merger
to the holders of Enviroq Stock. Porter White is a recognized investment
banking firm regularly engaged in the evaluation of businesses and their
securities in connection with mergers and acquisitions, private placements and
valuations for estate, corporate or other purposes. The Enviroq Board appointed
Porter White to serve as its financial advisor in connection with the Enviroq
Merger on the basis of its expertise and knowledge of Enviroq. Representatives
of Porter White participated in a meeting of the Enviroq Board on February 10,
1998, at which the Merger Agreement and the Enviroq Merger were considered. At
that meeting, Porter White issued a preliminary oral opinion that, as of such
date, the Enviroq Merger was fair from a financial point of view, to the
holders of shares of Enviroq Stock. A written opinion, dated April 10, 1998,
has been delivered to the Enviroq Board to the effect of that, as of such date,
the Enviroq Merger is fair, from a financial point of view, to the holders of
shares of Enviroq Stock. The oral opinion issued on February 10, 1998 and the
written opinion issued on April 10, 1998 did not differ in any material
respect.
The full text of the Fairness Opinion, dated as of April 10, 1998,
which sets forth certain assumptions made, matters considered and limitations
on review undertaken, is attached as Annex B to this Proxy Statement/Prospectus
and Offer to Redeem, is incorporated herein by reference, and should be read in
its entirety in connection with this Proxy Statement/Prospectus and Offer to
Redeem. The summary of the Fairness Opinion set forth in this Proxy
Statement/Prospectus and Offer to Redeem is qualified in its entirety by
reference to the Fairness Opinion. The Fairness Opinion is directed only to the
fairness, from a financial point of view, of the Enviroq Merger to the holders
of shares of Enviroq Stock and does not constitute a recommendation to any
Stockholder as to how such Stockholder should vote on the Enviroq Merger.
In arriving at its Fairness Opinion, Porter White performed and relied
upon the following:
(1) a review of certain publicly available business and financial
information relating to Enviroq that Porter White deemed to be relevant;
(2) a review of audited and unaudited financial statements of
Enviroq, IAM and CRC;
(3) discussions with the management of Enviroq and Intrepid
concerning the matters described in clauses (1) and (2) above, as well as the
businesses and prospects of Enviroq and Intrepid before and after giving effect
to the Enviroq Merger and the Reorganization;
(4) a review of the market prices and valuation multiples for
shares of Enviroq's Stock, comparing them with those of certain publicly traded
companies that Porter White deemed to be relevant;
(5) a review of the market prices and valuation multiples of
certain publicly traded companies that Porter White deemed to be relevant to
the businesses of IAM and CRC;
(6) a review of the results of operation of Enviroq, IAM and CRC,
comparing such results with those of certain publicly traded companies that
Porter White deemed to be relevant;
(7) participation in discussions with representatives of Enviroq,
Intrepid and Bradley Arant;
(8) a review of the unaudited pro forma combined financial
information of the Reorganization;
(9) a review of a draft of the Merger Agreement, dated March 27,
1998; and
(10) a review of such other financial studies and analyses as
Porter White deemed necessary, including an assessment of general economic,
market and monetary conditions.
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All of the information reviewed by Porter White in performing the
reviews specified above was provided to it by Enviroq. It is Porter White's
understanding that all of the information provided to it by Enviroq had been
circulated among the parties.
In arriving at its Fairness Opinion, Porter White conducted a merger
analysis as described below.
Description of Merger Analysis
The merger consideration to be received by the Stockholders includes a
cash distribution of approximately $2.23 per share and ownership of
approximately 45.5 % of Intrepid in the aggregate, after the Reorganization.
Although Porter White did not, and does not, project at what price shares of
Intrepid Stock will trade, Porter White estimated that the total consideration
to be received in the transaction (including the cash distribution of $2.23 per
share) will be between $3.19 per share to $3.50 per share. Shares of Enviroq
Stock have traded recently between $.50 and $1.00 per share and closed on
January 30, 1998 at $1.00 per share. Therefore, the value of the transaction
represented a significant increase in the value of shares of Enviroq Stock.
As Enviroq's financial advisor in connection with the proposed
Mergers, Porter White performed financial and comparative analyses. The
individual components of Intrepid (the merged company) were examined, as well
as the combined (post-merger) entity. Appropriate analyses were applied to
each. The specific components of the combined entity include: Enviroq and its
subsidiaries Sprayroq and Synox, its land and cash ($2.25 million of which is
to be distributed to current Stockholders as an integral part of the
transaction), CRC and IAM. The various analyses are briefly summarized below
and were the only financial and comparative analyses performed by Porter White.
Valuing the Components
The following paragraphs summarize the analysis of the specific
components of the proposed Mergers: Enviroq (Sprayroq, Enviroq, and land owned
by Enviroq), IAM and CRC.
Sprayroq. Three methods were used to value Sprayroq, of which Enviroq
owns 50 percent. The first method used to value Sprayroq was the discounted
cash flow method. Of importance to this analysis was the fact that Enviroq
holds a senior note of $747,000 that must be repaid with 100 percent of
Sprayroq's cash flow until the loan is satisfied, which is estimated to be in
2003. After repayment of the loan, Sprayroq will be unleveraged and Enviroq
will receive 50 percent of Sprayroq's cash flow thereafter.
Porter White used a discount rate of 20 percent, which it determined
to be a reasonable estimate of Sprayroq's cost of capital. Porter White
projected cash flow to the year 2005. The discounted cash flow analysis
indicated that the value of Enviroq's 50 percent interest in Sprayroq was
approximately $1.0 million.
A second method of valuing Sprayroq compared actual stock price data
and selected financial information for a peer group of companies comparable to
Sprayroq. The comparable companies are publicly traded companies in the same or
similar business as Sprayroq with market values of $5 to $250 million. The
Sprayroq peer group is comprised of Cerbco, Inc., Insituform (formerly an
affiliate company of Enviroq), Myr Group, Watson Group and Utilix Co.
Finally, price-to sales (revenue) and price-to-earnings (earnings)
multiples (based on groups of companies with the same SIC code - 1623) from the
Ibbotson Associates Cost of Capital Quarterly, 1997 Yearbook were used to
estimate Sprayroq's value.
With respect to the valuation of Sprayroq, the price-to-sales trading
multiple of all five of the companies comprising the Sprayroq peer group were
included in the valuation. The price-to-earnings trading multiple of four of
the companies of the peer group were included in the valuation. It should be
noted that negative earnings multiples were excluded from the analysis and,
wherever possible, the high, low, average and median values were considered.
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The analysis of Sprayroq's peer group (comparables) indicated that,
among other things, based on the market prices of the stock of similar
companies in such peer group as of February 2, 1998, and each company's
selected financial data, the relevant earnings multiple (P/E) was 24x. The
relevant revenue multiple was .40x. The Ibbotson Associates Cost of Capital
Quarterly, 1997 Yearbook indicated that the earnings multiple for the composite
group of companies in SIC Code 1623 was 81x; the relevant revenue multiples
were from .44x to .59x.
Using multiples of revenue, the 50 percent interest of Enviroq in
Sprayroq was valued at $1.05 million to $1.12 million; using multiples of
earnings, the 50 percent interest was valued at $2.9 million to $8.1 million.
The discounted cash flow analysis indicated Enviroq's 50 percent interest in
Sprayroq was valued at $1.0 million.
Porter White concluded from its three analyses of Sprayroq's value
that the most appropriate range for the 50 percent interest in Sprayroq was
from $1.0 million to $1.2 million.
CRC. To value CRC, multiples from Ibbotson Cost of Capital Quarterly,
1997 Yearbook (for a group of companies with the same SIC code: 6211) and
comparable company analyses were used. To qualify as a peer company of CRC,
comparable companies had market values of $5 million to $250 million and were
traded publicly in the same business as CRC. The peer companies for CRC were:
Advest Group Inc., Atlanta Sosnoff Capital CP, First Albany Companies,
International Assets Holding Corp., Kinnard Investments Inc., Fronteer
Financial Holdings, LTD, Ryan Beck & Co., Inc., Scott & Stringfellow Financial,
Sherwood Group Inc., Kent Financial Services, JW Charles Financial Services,
Paulson Capital Corp., Zeigler Companies Inc., Hoenig Group Inc., Interstate
Johnson Lane Inc., Marleau Lemire, National Discount Brokers, Seibert Financial
Corp., First Montauk Financial Corp, Kirlin Holding Corp., Meyerson & Company,
Inc., JB Oxford Holdings, Inc., GKN Holding Corp., Southwest Securities Group,
Global Equity Corp., Fahnestock Vinre Holdings, Eastbrokers Internationals, CM
Oliver Co., Maxcor Financial Group, and Banc Stock Group.
Two of the methods for valuing Sprayroq - the comparable company
analysis and the Ibbotson multiples analysis - were used to value CRC. With
respect to the valuation of CRC, the price-to-sales trading multiple of all
thirty of the companies comprising the CRC peer group were included in the
valuation. The price-to-earnings trading multiple of twenty-four of the
companies of the peer group were included in the valuation.
The analysis of CRC's peer group indicated that the relevant earnings
multiple was 17.5x; the relevant peer group revenue multiple was .75 x. The
relevant Ibbotson earnings multiple was between 10.5x and 15.9x; the relevant
Ibbotson revenue multiples were between .73x and .98x. Using these multiples of
revenue, CRC's estimated value was from $0.8 million to $1.1 million. Using
multiples of earnings, CRC is valued at $0.25 million to $0.4 million.
Porter White concluded that the most appropriate value for CRC was
approximately $0.6 million.
IAM. The analysis of IAM's value was similar to that used for valuing
CRC: comparable company analysis and Ibbotson multiples analysis. The peer
companies for IAM were: Stifel Financial Corp., U.S. Global Investors, Inc.,
Pilgrim American Capital, Jordan American Holdings, Atalanta Sosnoff Capital
CP, Allied Capital Advisers, Acacia Research Corp., Pioneer Group Inc., Duff &
Phelps Funds, Eaton Vance Corp., and United Asset Management Corp. These
companies are in the same business as IAM and have market values ranging from
$5 to $250 million and are publicly traded.
Two of the methods for valuing Sprayroq- the comparable company
analysis and the Ibbotson multiple analysis- were used to value IAM. With
respect to the valuation of IAM, the price-to-sales trading multiple of all
eleven of the companies comprising the IAM peer group were included in the
valuation. The price-to-earnings trading multiple of eight of the companies of
the peer group were included in the valuation.
The analysis of IAM's peers indicated that a relevant earnings
multiple was 16.6x; the average revenue multiple was 2.31x. The Ibbotson
earnings multiple was between 18.8 and 25.7. Ibbotson's relevant revenue
multiple was between 2.75x and 3.8x. Using the multiples of revenue, IAM's
estimated value was $2.1 million to $3.6 million. Using the earnings multiples,
IAM's estimated value was $2.6 million to $4.0 million.
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Porter White concluded that the most appropriate value for IAM was
$2.1 million to $3.1 million.
Enviroq. To value Enviroq, it was assumed that Synox will not generate
revenue; it will remain dormant. Therefore, Enviroq is an expense center with
negative earnings impact on the combined entities. To estimate the negative
value of Enviroq, earnings multiples of 7x, 10x and 12x were applied.
Porter White concluded from this analysis that Enviroq's negative
value was between $1.2 and $2.1 million.
Land. The value of Enviroq's unimproved land in Florida was based on a
1995 appraisal of $1.6 million and an offer price of $1.36 million made in
February, 1998. For the purposes of forming the Fairness Opinion, Porter White
used the more recent offer price of $1.36 million. Porter White then adjusted
the offer price for sales commissions and capital gains taxes, resulting in a
net value of approximately $904,000.
Other Merger Analyses & Considerations
The actual stock price trading range of Enviroq for the three months
ending January 31, 1998 was analyzed. The price of Enviroq's shares ranged from
$.50 to $1.00 per share during the time period studied, with relatively low
volume indicating a thin market. Historical stock price multiples of revenue,
book value and earnings of Enviroq were also examined. Historical trading
indicated a price-to-book multiple of .308x, a price-to-revenue multiple of
.664x and an earnings multiple of 5.7x.
Pro forma income statements and balance sheets were prepared for
Intrepid (the proposed merged entity), based on the annualized 9-months fiscal
year 1998 Enviroq financial statements, and financial statements from IAM and
CRC for the 12 months ending December 31, 1997. Adjustments were made to
reflect the transaction, including the proposed cash distribution.
Porter White also examined the liquidation value of Enviroq if the
merger were not consummated. Porter White concluded that Enviroq's liquidation
value would be from $3.82 per share to $10.84 per share. Porter White concluded
that it would be very unlikely that Enviroq could realize this value in an
actual liquidation without applying a significant marketability discount. When
such discounts are applied, the resulting liquidation value is near the value
of the planned merger, but with considerably more uncertainty in achieving the
value.
Even though Enviroq is publicly traded, the number of Stockholders and
the distribution of shares is limited. Therefore, Porter White concluded that
despite the public trading shares of Enviroq Stock, a discount for liquidity
should be applied to the value. Based on several factors affecting limited
marketability, the appropriate discount was determined to be 30 percent.
Finally, Porter White compared and evaluated all of the various
estimates of value previously outlined. To review, the methods employed were
historical trading multiples of Enviroq, multiples of publicly traded companies
deemed to be peers of Enviroq, CRC or IAM, multiples based on groups of
companies in similar SIC codes from Ibbotson Associates Cost of Capital
Quarterly, 1997 Yearbook, discounted cash flow (for Sprayroq only) and the
appraisal and recent offering price for land in Florida owned by Enviroq.
The resulting values discussed above reflect the combined entities
after the merger. To these values, the distribution of cash in the amount of
$2.23 per share was added. This adjusted amount - the cash distribution plus
the value of the entity after the Mergers - reflects the total value of the
transaction to the Stockholders.
This analysis indicated that the total value of the transaction,
including the distribution and the value of the combined entities after the
Mergers would be from $3.16 per share to $5.99 per share, but it was Porter
White's conclusion that the total value would likely be from $3.19 per share to
$3.50 per share. This compared to the recent trading range of shares of Enviroq
Stock of $0.50 to $1.00 per share. Hence, Porter White concluded that the
contemplated transaction was fair to the Stockholders from a financial point of
view.
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Note that no company used as a comparison in the above analyses was
identical to Enviroq (and its components), CRC, IAM or Intrepid after
consummation of the Reorganization. Accordingly, the analysis of the results of
the foregoing was not mathematical; rather, it involved considerations and
judgments concerning differences in financial market and operating
characteristics of the companies and other factors that could affect the public
trading volume and performance of the companies to which Enviroq, IAM or CRC
and Intrepid after consummation of the Reorganization are being compared.
In connection with its review, Porter White relied upon and assumed
the accuracy and completeness of all of the foregoing information provided to
it or publicly available, including representations and warranties of Enviroq,
IAM and CRC included in the Merger Agreement, and Porter White has not assumed
any responsibility for independent verification of such information. Porter
White also did not make an independent evaluation or appraisal of the assets or
liabilities of Enviroq, IAM or CRC.
In addition, after the parties to the Enviroq Merger reached a general
agreement with respect to the economic terms of the Merger Agreement and during
the course of its review prior to rendering the Fairness Opinion, Porter White
received copies of financial projections for IAM and CRC that were prepared by
the respective managements of each company. Neither IAM nor CRC publicly
discloses internal management projections of the type provided to Porter White
in connection with Porter White's analysis of the Enviroq Merger, and such
projections were not prepared with a view toward public disclosure. IAM and CRC
prepared the projections for general corporate modeling purposes to attempt to
show a relationship between hypothetical levels of business activity and
potential profitability. The projections were not prepared in accordance with
any accounting guidelines or standards for the preparation of projections and
were based on assumptions which are inherently uncertain and beyond the control
of management. After reviewing the projections, Porter White concluded that the
level of business activity assumed in the projections was unduly optimistic and
that actual results could vary significantly from the projected results set
forth therein. Accordingly, Porter White did not rely on the projections in
evaluating the fairness of the Enviroq Merger to the holders of Enviroq Stock,
and none of the parties utilized the projections in negotiating or evaluating
the terms of the Enviroq Merger.
In connection with rendering the Fairness Opinion, Porter White
performed the financial analyses described above. The preparation of a fairness
opinion involves various determinations as to the most appropriate and relevant
methods of financial analysis and the application of those methods to
particular circumstances and, therefore, such an opinion is not readily
susceptible to partial analysis or summary description. Moreover, the
evaluation of the fairness, from a financial point of view, of the Enviroq
Merger to the Stockholders was to some extent a subjective one based on the
experience and judgment of Porter White and not merely the result of
mathematical analysis of financial data. In performing its analysis, Porter
White made numerous assumptions with respect to industry performance, business
and economic conditions and other matters, many of which are beyond the control
of Enviroq, IAM or CRC. The analyses performed by Porter White are not
necessarily indicative of actual values or future results, which may be
significantly more or less favorable than suggested by such analyses.
Additionally, analyses relating to the values of businesses do not purport to
be the appraisals of or to reflect the prices at which businesses actually may
be sold. In rendering its opinion, Porter White assumed that, in the course of
obtaining any necessary approvals for the Enviroq Merger and the
Reorganization, no conditions will be imposed that will have a material adverse
effect on the contemplated benefits of the Reorganization, on a pro forma
basis, to Intrepid.
The Fairness Opinion is one of many factors taken into consideration
by the Enviroq Board in determining to approve the Merger Agreement and the
Enviroq Merger. The Fairness Opinion does not address the relative merits of
the Enviroq Merger as compared to any alternative business strategies that
might exist for Enviroq, nor does it address the effect of any other business
combination in which Enviroq may engage.
As compensation for Porter White's services, Enviroq agreed to pay
Porter White for the research and analysis undertaken by Porter White in
providing the Fairness Opinion at the normal hourly rates customarily charged
by the employees of Porter White assigned to undertake the analysis required to
provide the Fairness Opinion to Enviroq. The analyses performed by Porter White
were undertaken by employees of Porter White whose normal hourly rates are
$240, $200 and $175. In addition, Enviroq agreed to pay Porter White an
additional fee of $7,500 upon Porter White executing and delivering the
Fairness Opinion to Enviroq. Enviroq also agreed to reimburse Porter White for
its
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reasonable out-of-pocket expenses incurred in connection with providing the
Fairness Opinion to Enviroq. As of June 30, 1998, Enviroq has paid a total of
$25,709.79 in fees and expenses to Porter White. Since June 30, 1998, Porter
White has incurred but not billed an additional $5,165 in professional services
for Enviroq. Accordingly, it is anticipated that the total amount expected to
be paid to Porter White for its services will be approximately $31,000. Enviroq
has further agreed to indemnify Porter White against certain liabilities,
including certain liabilities under federal securities laws. The payment of the
above fees was not contingent upon Porter White rendering a favorable opinion
with respect to the Enviroq Merger.
Porter White has consented to the inclusion of the Fairness Opinion as
an Exhibit to this Proxy Statement/Prospectus and Offer to Redeem and to the
summary thereof and all references to Porter White and the Fairness Opinion
contained herein.
THE VOTING AGREEMENT
As a condition to the consummation of the Reorganization, the
Principal Stockholders and the Principal IAM/CRC Shareholders will execute the
Voting Agreement. The Principal Stockholders consist of William J. Long and
Marinelli Securities Associates who together hold 54.77% of the issued and
outstanding shares of Enviroq Stock, which will be converted in the Enviroq
Merger into approximately 552,975 shares of Intrepid Stock. The Principal
IAM/CRC Shareholders consist of Mark F. Travis and Forrest Travis who together
own 100% of the outstanding shares of IAM Stock and CRC Stock, which will be
converted in the IAM Merger and the CRC Merger into a total of 1,206,148 shares
of Intrepid Stock. After the Effective Time, the Principal Stockholders and the
Principal IAM/CRC Shareholders will own, in the aggregate, approximately 79% of
the issued and outstanding shares of Intrepid Stock. The Principal Stockholders
and the Principal IAM/CRC Shareholders will vote all shares of Intrepid Stock
owned by them after the Effective Time to elect only persons to the Intrepid
Board as shall be designated by the Principal Stockholders and the Principal
IAM/CRC Stockholders after consummation of the Reorganization. During any such
period where the Voting Agreement is in effect and the Principal Stockholders
and the Principal IAM/CRC Shareholders shall together own at least a majority
of the shares of outstanding Intrepid Stock, the Voting Agreement provides each
of the Principal Stockholders and the Principal IAM/CRC Shareholders
representation on the Intrepid Board for as long as the Voting Agreement
remains in effect. The maximum number of members of the Intrepid Board subject
to designation by the Principal Stockholders and the Principal IAM/CRC
Shareholders is, in the aggregate, seven. The initial Intrepid Board will
consist of seven members. The specific number of members of the Intrepid Board
designated by the Principal Stockholders, as a group, and the Principal IAM/CRC
Shareholders, as a group, will vary, depending on the specific percentage of
shares of Intrepid Stock owned by them viz-a-viz other stockholders of Intrepid
and viz-a- viz the other group. In the event that the Principal Stockholders
and the Principal IAM/CRC Shareholders come to own less than a majority of the
outstanding shares of Intrepid Stock, the Voting Agreement requires that the
Principal Stockholders and the Principal IAM/CRC Shareholders vote their shares
of Intrepid Stock so as to ensure, to the extent possible, that designees
appointed by either the Principal Stockholders or the Principal IAM/CRC
Shareholders, depending upon which group controls the largest number of shares,
constitute at least a majority of the Intrepid Board.
INTERESTS OF CERTAIN PERSONS IN THE REORGANIZATION
Certain members of the management of Enviroq and of the Enviroq Board
have interests in the Reorganization that are in addition to any interests they
may have as Stockholders generally. In addition, certain members of the
management of IAM and CRC and of the IAM Board and the CRC Board have interests
in the Reorganization that are in addition to any interests they may have as
shareholders generally of IAM and CRC. After the Effective Time, William J.
Long, current President and Chief Executive Officer of Enviroq, will serve as
the Chief Operating Officer and as an Executive Vice President of Intrepid. In
addition, William J. Long will serve as the interim Chief Financial Officer of
Intrepid until a successor is appointed. After the Effective Time, Forrest
Travis, the current President of IAM and CRC, will serve as President and Chief
Executive Officer of Intrepid and Mark F. Travis, son of Forrest Travis, will
serve as an Executive Vice President of Intrepid. As a condition to the
consummation of the Enviroq Merger and the Reorganization, the Merger Agreement
requires that Intrepid enter into an employment agreement with each of Mr. Long
and the Messrs. Travis. Pursuant to the employment agreements, Mr. Long, Mr.
Forrest Travis and Mr. Mark F. Travis will receive annual salaries of $130,000,
$200,000 and $150,000, respectively, may receive bonuses
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in addition to their salaries and, when eligible, may receive other fringe
benefits generally established for employees of Intrepid. Mr. Long, Mr. Forrest
Travis and Mr. Mark F. Travis currently receive salaries of $85,000, $194,394
and $157,620, respectively, from their respective employers.
It is also anticipated that after the Effective Time, Intrepid will
adopt the Incentive Stock Option Plan with respect to its executive officers.
Accordingly, it is anticipated that stock options may be granted to William J.
Long, Forrest Travis and Mark F. Travis pursuant to the Incentive Stock Option
Plan, although no specific determination as to the number of options to be
granted under the Incentive Stock Option Plan has been made. Furthermore, Mr.
Long and the Messrs. Travis have been appointed and will serve as initial
members of the Intrepid Board after the Effective Time. See "--Approval of
Stock Option Plans of Intrepid", and "CERTAIN INFORMATION CONCERNING
INTREPID--Directors and Officers of Intrepid", and "--Compensation of
Executive Officers."
In addition to William J. Long, Messrs. Thomas W. Brander, Michael X.
Marinelli and Alexander P. Zechella, three of the existing directors of
Enviroq, have been appointed as initial directors of Intrepid. In addition to
the Messrs. Travis, Mr. Morgan Payne, President of Broadland Capital Partners,
L.P., financial advisor to IAM and CRC, has been appointed as a member of the
initial Intrepid Board. It is anticipated that non-employee directors of
Intrepid will be paid $1,000 per quarter for a maximum of six meetings of the
Intrepid Board and committees of the Board. Further, it is anticipated that in
the event that additional meetings of the Intrepid Board are required, the
non-employee directors will be compensated at a rate of $1,000 per meeting. All
directors and officers will be reimbursed for travel expenses incurred in
connection with their attendance at meetings of the Intrepid Board. It is
further anticipated that after the Effective Time, Intrepid will adopt the
Non-Employee Directors' Stock Option Plan which will grant options in shares of
Intrepid Stock to members of the Intrepid Board who are not employees or
executive officers of Intrepid. Accordingly, it is anticipated that Messrs.
Brander, Marinelli, Zechella and Payne will participate in the Non-Employee
Directors' Stock Option Plan. However, no specific determination as to the
number of options to be granted thereunder has yet been made.
APPROVAL OF STOCK OPTION PLANS OF INTREPID
Pursuant to the terms of the Merger Agreement, Intrepid will, as soon
as practicable after the Effective Time, adopt the Incentive Stock Option Plan
and the Non-Employee Directors' Stock Option Plan (referred to herein
collectively as the "Stock Option Plans"). However, at the Special Meeting, the
Stockholders will be asked to consider and vote on proposals to approve the
Stock Option Plans. If the Principal Stockholders vote to approve the Stock
Option Plans at the Special Meeting, the Stock Option Plans will be approved.
NO SOLICITATION OF ALTERNATIVE PROPOSALS
Enviroq has agreed that prior to the Effective Time, neither it nor
any of its subsidiaries shall, nor shall it or any of its subsidiaries, permit
their respective officers, directors, employees, agents and representatives
(including any investment banker, attorney or accountant retained by it or any
of its subsidiaries) to, initiate, solicit or encourage, directly or
indirectly, any inquiries or the making or implementation of any proposal or
offer (including any proposal or offer to the Stockholders) with respect to a
merger, acquisition, consolidation or similar transaction involving, or
purchase of (i) all or any significant portion of the assets of Enviroq and its
subsidiaries taken as a whole, (ii) 15% or more of the outstanding shares of
Enviroq Stock or (iii) 15% or more of the outstanding shares of the capital
stock of any subsidiary of Enviroq (any such proposal or offer being
hereinafter referred to as an "Alternative Proposal") or engage in any
negotiations concerning, or provide any confidential information or data to, or
have any discussions with, any person relating to an Alternative Proposal
(excluding the Mergers and the Redemption contemplated by the Merger
Agreement), or otherwise facilitate any effort or attempt to make or implement
an Alternative Proposal. Enviroq has also agreed that it will notify IAM and
CRC immediately if any such inquiries or proposals are received by, any such
information is requested from, or any such negotiations or discussions are
sought to be initiated or continued with, it; provided, however, that nothing
contained in the Merger Agreement shall prohibit the Enviroq Board from (i)
furnishing information to, or entering into discussions or negotiations with,
any person that makes an unsolicited bona fide Alternative Proposal if, and
only to the extent that, (A) the Enviroq Board, based upon the advice of
outside legal counsel, determines in good faith that the failure to terminate
the Merger Agreement and the
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transactions contemplated thereby would be reasonably likely to result in a
breach of the directors' fiduciary duty to the Stockholders, (B) prior to
furnishing such information to, or entering into discussions or negotiations
with, such person, Enviroq provides written notice to IAM and CRC to the effect
that it is furnishing information to, or entering into discussions or
negotiations with, such person, and (C) Enviroq keeps IAM and CRC reasonably
informed of the status of any such discussions; and (ii) to the extent
applicable, complying with Rule 14e-2 promulgated under the Exchange Act with
regard to an Alternative Proposal. Nothing in the Merger Agreement (x) permits
Enviroq to terminate the Merger Agreement (except as specifically provided in
the Merger Agreement), (y) permits Enviroq to enter into any agreement with
respect to an Alternative Proposal for as long as the Merger Agreement remains
in effect (it being agreed that for as long as the Merger Agreement remains in
effect, Enviroq shall not enter into any agreement with any person that
provides for, or in any way facilitates, an Alternative Proposal (other than a
confidentiality agreement in customary form)), or (z) affects any other
obligation of Enviroq under the Merger Agreement.
RIGHTS OF DISSENT AND APPRAISAL
Under the DGCL, Stockholders will be entitled to dissenters' rights of
appraisal in connection with the Enviroq Merger.
Any Stockholder may dissent from the Enviroq Merger and receive in
cash the "fair value" as of the Effective Time of the shares of Enviroq Stock
held by such Stockholder pursuant to Section 262 of the DGCL, a copy of which
is attached as Annex D to this Proxy Statement/Prospectus and Offer to Redeem.
Such "fair value" is exclusive of any value resulting from the effectuation of
the Enviroq Merger but is inclusive of a fair rate of return thereon.
If a Stockholder wishes to dissent from the Enviroq Merger, such
Stockholder must file with Enviroq, prior to or at the Special Meeting and
prior to the taking of the vote with respect to the Merger Agreement and the
Enviroq Merger, a written demand for appraisal of such Stockholder's shares of
Enviroq Stock, and must not vote in favor of the Enviroq Merger. Such written
demand must be filed either by mail or in person with Enviroq at its offices
located at 3918 Montclair Road, Suite 206, Birmingham, Alabama 35213,
Attention: Secretary. A vote against, or abstention with respect to voting on,
the Merger Agreement and the Enviroq Merger, in person or by proxy, does not
constitute such a demand. Only a Stockholder is entitled to assert appraisal
rights to the shares of Enviroq Stock registered in such Stockholder's name.
Such appraisal rights may be asserted with respect to all or less than all of
the shares of Enviroq Stock held of record by such Stockholder. If the shares
of Enviroq Stock are owned of record by more than one person, such as a joint
tenancy or a tenancy in common, the written demand should be executed by or for
all joint holders. An authorized agent may execute the demand for appraisal for
a Stockholder, but the agent must identify the Stockholder or Stockholders and
disclose the fact that, in executing such demand, the agent is acting as an
agent of the Stockholder.
A Stockholder who holds shares of Enviroq Stock as a nominee for the
beneficial owner may exercise appraisal rights with respect to the shares of
Enviroq Stock held for one or more beneficial owners while not exercising such
rights for the other beneficial owners, and in such case, the written demand
should set forth the number of shares of Enviroq Stock covered by it. If there
are no number of shares of Enviroq Stock expressly mentioned in the written
demand, the demand will be presumed to cover all shares of Enviroq Stock held
in the name of the Stockholder.
Within ten days after the Effective Time, Enviroq shall notify each
Stockholder who has complied with the provisions of Section 262 of the DGCL and
has not voted in favor of or consented to the Enviroq Merger of the date that
the Enviroq Merger became effective. If the dissenting Stockholder and Enviroq
are unable to reach agreement as to the "fair value" of the shares of Enviroq
Stock within 120 days after the Effective Time of the Enviroq Merger, Enviroq
or the dissenting Stockholder may file a petition in the Court of Chancery
demanding a determination of the value of the shares of Enviroq Stock.
Notwithstanding the foregoing, at any time within sixty days of the Effective
Time, a Stockholder shall have the right to withdraw his demand for appraisal
and to accept the terms offered in the Merger Agreement with respect to the
Enviroq Merger. Within 120 days after the Effective Time, any Stockholder who
has complied with the requirement for exercise of appraisal rights is entitled,
upon written request to Enviroq, to receive from Enviroq a statement setting
forth the aggregate number of shares of Enviroq Stock not voted in favor of the
Enviroq Merger and with respect to which demands for appraisal have been made
and the aggregate number of holders of dissenting shares of Enviroq Stock. Such
statement must be mailed within ten days after the written
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request therefor has been received by Enviroq. After determining the
Stockholders entitled to an appraisal, the Court of Chancery will appraise the
shares, determining their "fair value", exclusive of any element of value
arising from the effectuation or expectation of the Enviroq Merger, together
with a fair rate of interest, if any, to be paid on the amount determined to be
the "fair value". In determining the "fair value", the Delaware Court of
Chancery will take into account all relevant factors.
THE COST OF THE PROCEEDINGS MAY BE DETERMINED BY THE COURT OF CHANCERY
AND TAXED TO THE PARTIES AS THE COURT DEEMS EQUITABLE UNDER THE CIRCUMSTANCES.
From and after the Effective Time, no Stockholder who has demanded his
appraisal rights shall be entitled to vote his shares of Enviroq Stock (or the
shares of Intrepid Stock which such shares represent the right to receive in
the Enviroq Merger) for any purpose or to receive payment of dividends or other
distributions on the shares of Enviroq Stock (or on the shares of Intrepid
Stock which such shares represent the right to receive in the Enviroq Merger).
If no petition for an appraisal is filed within the time provided by Section
262 or if a Stockholder delivers to Enviroq a written withdrawal of his demand
for an appraisal and acceptance of the Enviroq Merger, either within 60 days
after the Effective Time or thereafter with the written approval of Enviroq,
then the right of such Stockholder to an appraisal will cease.
Dissenting Stockholders are urged to consult their legal counsel for
specific advice regarding the interpretation of the DGCL with respect to
dissenters' rights.
Any communication by Stockholders not necessary under the foregoing
shall be mailed or hand delivered to Enviroq at the address specified in the
second paragraph of this section.
Any Stockholder receiving cash as a result of the exercise of
dissenters' rights will be deemed, in effect, to have sold his or her shares of
Enviroq Stock, with the tax consequences applicable to a sale. See "MATERIAL
FEDERAL INCOME TAX CONSEQUENCES".
THE SUMMARY SET FORTH ABOVE DOES NOT PURPORT TO BE A COMPLETE
STATEMENT OF THE PROVISIONS OF THE DGCL RELATING TO THE RIGHTS OF DISSENTING
STOCKHOLDERS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE APPLICABLE
SECTION OF THE DGCL WHICH IS INCLUDED AS ANNEX D TO THIS PROXY
STATEMENT/PROSPECTUS AND OFFER TO REDEEM. ANY STOCKHOLDER INTENDING TO EXERCISE
DISSENTERS' RIGHTS IS URGED TO REVIEW CAREFULLY ANNEX D SO AS TO BE IN STRICT
COMPLIANCE WITH THE PROVISIONS OF THE DGCL.
ACCOUNTING TREATMENT
This transaction comprising the Mergers will be accounted for as a
purchase for accounting and financial reporting purposes with IAM and CRC
considered to be the acquiring enterprises and Enviroq as the acquired company.
Accordingly, the assets and liabilities of Enviroq will be recorded at their
fair values at the date of merger, while the assets and liabilities of IAM and
CRC will continue at historical cost.
RESTRICTIONS ON SALES OF INTREPID STOCK BY AFFILIATES OF ENVIROQ, IAM AND CRC
All shares of Intrepid Stock received by holders of Enviroq Stock, IAM
Stock and CRC Stock will be freely transferrable, except that shares of Enviroq
Stock received by persons who are deemed to be "affiliates" (as such term is
defined under the Securities Act) of Enviroq, IAM or CRC prior to the
Reorganization may be resold by them only in transactions permitted by the
resale provisions of Rule 145 promulgated under the Securities Act (or Rule
144, in the case of such persons who become affiliates of Intrepid) or as
otherwise permitted under the Securities Act. Persons who may be deemed to be
affiliates of Enviroq, IAM, CRC or Intrepid generally include individuals or
entities that control, are controlled by, or are under common control with,
such party and may include certain officers and directors of such party as well
as principal stockholders of such party. The Merger Agreement requires each
party to the Merger Agreement to execute and deliver to Intrepid a letter
identifying all persons who are or may be deemed to be, at the
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time the Merger Agreement is submitted for approval to the Stockholders,
"affiliates" of such party for the purposes of Rule 145 promulgated pursuant to
the Securities Act. The Merger Agreement further requires each party to the
Merger Agreement to use its best efforts to cause each of these persons who are
or may be deemed to be an affiliate of such party to execute and deliver to
Intrepid on or prior to the Closing Date a written agreement to the effect that
such affiliate will not offer or sell or otherwise dispose of (i) any shares of
Enviroq Stock, IAM Stock, CRC Stock or Intrepid Stock during the period
beginning 30 days prior to the Effective Time and continuing until such time as
results covering at least 30 days of post-Effective Time operations of Intrepid
have been published, or (ii) any of the shares of Intrepid Stock issued to such
affiliate in or pursuant to the Reorganization in violation of the Securities
Act or the rules and regulations promulgated by the Commission thereunder.
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THE REDEMPTION
THIS SECTION OF THE PROXY STATEMENT/PROSPECTUS AND OFFER TO REDEEM AND
THE RELATED LETTER OF TRANSMITTAL ACCOMPANYING IT CONTAIN IMPORTANT INFORMATION
WHICH SHOULD BE READ IN ITS ENTIRETY BEFORE ANY DECISION IS MADE WITH RESPECT
TO THE OFFER TO REDEEM.
THE OFFER TO REDEEM
Enviroq is offering to purchase and redeem (the "Redemption") exactly
42.698013% of the issued and outstanding shares of Enviroq Stock tendered by
each Stockholder for $5.220612 in cash per share (the "Offer to Redeem"). If
you elect to participate in the Redemption and do not dissent from the Enviroq
Merger, subject to the approval of the Enviroq Merger by the Stockholders and
the consummation of the Reorganization, you will receive 1.745140 shares of
common stock of Intrepid ("Intrepid Stock") for each share of Enviroq Stock
tendered but not redeemed in the Redemption. If you elect not to participate in
the Redemption and you do not dissent from the Enviroq Merger, subject to the
approval of the Enviroq Merger by the Stockholders and the consummation of the
Reorganization, you will receive one share of Intrepid Stock and $2.229098 in
cash for each share of Enviroq Stock held by you which was not tendered in the
Redemption. The total consideration received in the Enviroq Merger by a
Stockholder who elects to participate in the Redemption will be equivalent on a
per share basis to the total consideration received in the Enviroq Merger by a
Stockholder who elects not to participate in the Redemption (or to participate
by tendering less than all of such Stockholder's shares of Enviroq Stock),
subject to any possible differences attributable to tax treatment.
The Offer to Redeem is being made in connection with the Reorganization
and affords the Stockholders with an opportunity to liquidate a portion of their
investment in Enviroq. In addition, the Offer to Redeem will afford Stockholders
electing to participate in the Redemption the opportunity to apply a portion of
such Stockholder's basis in the shares of Enviroq Stock redeemed in the
Redemption against the capital gain which is realized by the Stockholder in the
Reorganization thereby reducing the gain recognized for federal income tax
purposes by the Stockholder with respect to the subsequent exchange of shares of
Enviroq Stock in the Reorganization, to the extent described below in "MATERIAL
FEDERAL INCOME TAX CONSEQUENCES". The Offer to Redeem will be made to all
Stockholders. If any director, officer or affiliate of Enviroq is also a
Stockholder, and such director, officer or affiliate elects to participate in
the Redemption, Enviroq shall purchase and redeem such director's, officer's or
affiliate's shares of Enviroq Stock upon the same terms and subject to the
conditions set forth herein. The Redemption will occur immediately prior to and
in connection with the Enviroq Merger and will only occur if all of the
conditions set forth in Articles 7 through 10 of the Merger Agreement (other
than the filing of the appropriate corporate documents to effect the Mergers,
which filings will occur promptly following the Redemption) are either satisfied
or waived and the Mergers are consummated. Accordingly, Enviroq will not be
required to accept for payment or pay for shares of Enviroq Stock tendered, and
may terminate the Offer to Redeem and may postpone the acceptance for payment of
or the payment for shares of Enviroq Stock tendered, if (i) all of the
conditions set forth in Articles 7 through 10 of the Merger Agreement (other
than the filing of the appropriate corporate documents to effect the Mergers,
which filings will occur promptly following the Redemption) are not satisfied or
waived; or (ii) at any time on or after the date of this Offer to Redeem, and at
any time prior to the time of payment for any such shares of Enviroq Stock
(whether or not any shares of Enviroq Stock have theretofore been accepted for
payment or paid for pursuant to the Offer to Redeem), the Merger Agreement shall
terminate in accordance with its terms. Neither Enviroq nor the Enviroq Board
makes any recommendation to any Stockholder as to whether to tender or refrain
from tendering shares of Enviroq Stock held by such Stockholder. Each
Stockholder must make his or her own decision whether to have Enviroq redeem
shares of Enviroq Stock owned by such Stockholder. The officers and directors of
Enviroq may participate in the Offer to Redeem on the same basis as other
Stockholders. All shares of Enviroq Stock redeemed in the Offer to Redeem shall
be held in the treasury of Enviroq and, pursuant to the Enviroq Merger, will be
canceled and retired. Enviroq has engaged the services of American Stock
Transfer and Trust Company, New York, New York, to act as Depositary ("the
Depositary") in connection with the Offer to Redeem. Enviroq will pay all
charges and expenses incurred by the Depositary in connection with the Offer to
Redeem. See "-- Fees and Expenses".
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TERMS OF THE OFFER TO REDEEM; EXPIRATION DATE
Upon the terms and subject to the conditions set forth in this Proxy
Statement/Prospectus and Offer to Redeem, Enviroq will accept and pay for
42.689013% of the shares of Enviroq Stock validly tendered by each Stockholder
by the Expiration Date and not withdrawn in accordance with the terms and
provisions of this Proxy Statement/Prospectus and Offer to Redeem. The term
"Expiration Date" shall mean 9:00 a.m., Birmingham, Alabama time, on Tuesday,
December 15, 1998, the day following the Special Meeting, unless and until
Enviroq, in its reasonable discretion, shall have extended the period of time
during which the Offer to Redeem is open, in which event the term "Expiration
Date" shall mean the latest time and date at which the Offer to Redeem, as so
extended by Enviroq, shall expire.
Subject to the applicable rules and regulations of the Commission,
Enviroq reserves the right, in its sole discretion, at any time and from time
to time to (a) extend the period of time during which the Offer to Redeem is
open, and thereby delay acceptance for payment of and the payment for any
shares of Enviroq Stock, by giving oral or written notice of such extension to
the Depositary, and (b) amend the Offer to Redeem in any other respect by
giving oral or written notice of such amendment to the Depositary. During any
such extension, all shares of Enviroq Stock previously tendered and not
properly withdrawn will remain subject to the Offer to Redeem, subject to the
rights of withdrawal as provided herein. UNDER NO CIRCUMSTANCES WILL INTEREST
BE PAID BY ENVIROQ BY REASON OF ANY DELAY IN MAKING PAYMENT FOR TENDERED SHARES
OF ENVIROQ STOCK.
If, by the Expiration Date, all of the conditions set forth in
Articles 7 through 10 of the Merger Agreement (other than the filing of the
appropriate corporate documents to effect the Mergers, which filings will occur
promptly following the Redemption) have not been satisfied or waived, Enviroq
reserves the right (but shall not be obligated), subject to the applicable
rules and regulations of the Commission, to (a) terminate the Offer to Redeem
and not accept for payment or pay for any shares of Enviroq Stock and return
all tendered shares of Enviroq Stock to tendering Stockholders, (b) extend the
Offer to Redeem and, subject to the rights to withdraw shares of Enviroq Stock,
retain the shares of Enviroq Stock that have been tendered during the period or
periods for which the Offer to Redeem is extended or (c) amend the Offer to
Redeem.
There can be no assurance that Enviroq will exercise its right to
extend the Offer to Redeem. Any extension, amendment or termination will be
followed as promptly as practicable by public announcement thereof. In the case
of an extension, the announcement will be issued no later than 8:00 a.m.,
Birmingham, Alabama time, on the next business day after the previously
scheduled Expiration Date. Subject to applicable law and without limiting the
manner in which Enviroq may choose to make any public announcement, Enviroq
will not have any obligation to publish, advertise or otherwise communicate any
such public announcement other than by making a release to the Dow Jones News
Service or a comparable national news service.
If Enviroq extends the Offer to Redeem or is delayed in its acceptance
for payment of or payment for the shares of Enviroq Stock (whether before or
after its acceptance for payment of shares of Enviroq Stock) or is unable to
pay for the shares of Enviroq Stock pursuant to the Offer to Redeem for any
reason, then, without prejudice to Enviroq's rights under the Offer to Redeem,
the Depositary may retain tendered shares of Enviroq Stock, and such shares of
Enviroq Stock may not be withdrawn except to the extent of the withdrawal
rights as set forth herein.
Since the terms of the Offer to Redeem are designed to ensure that a
Stockholder who elects to participate in the Redemption will receive in the
Enviroq Merger total consideration that is equivalent on a per share basis to
the total consideration received in the Enviroq Merger by a Stockholder who
elects not to participate in the Redemption, the terms of the Offer to redeem
will only be amended if the terms of the Reorganization change. Furthermore, in
the event the terms of the Reorganization change, the terms of the Offer to
Redeem will only be amended to the extent required to ensure that the total
consideration received in the Enviroq Merger by the Stockholders who elect to
participate in the Redemption remains equivalent viz-a-viz the total
consideration received in the Enviroq Merger by Stockholders who elect not to
participate in the Redemption.
If Enviroq makes a change in the terms of the Offer to Redeem or the
information concerning the Offer to Redeem to ensure the equivalent treatment
of the Stockholders in the Enviroq Merger, the Depositary or Enviroq (whose
addresses are set forth in this Proxy Statement/Prospectus and Offer to Redeem,
see "-- Procedure for Tendering
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Shares of Enviroq Stock") will, in the event such change is material,
disseminate additional tender offer materials (including, if applicable, this
Proxy Statement/Prospectus and Offer to Redeem and other proxy solicitation
materials) revised to give effect to such change and will extend the Offer to
Redeem to the Stockholders. The minimum period during which the Offer to Redeem
must remain open following a material change in the terms of the Offer to
Redeem or information concerning the Offer to Redeem, other than a change in
price or a change in the percentage of shares of Enviroq Stock sought, will
depend upon the facts and circumstances then existing, including the relative
materiality of the changed terms or information. With respect to a change in
price or a change in the percentage of shares of Enviroq Stock sought, a
minimum period of ten (10) business days is required for adequate
dissemination.
ACCEPTANCE FOR PAYMENT; PAYMENT FOR SHARES OF ENVIROQ STOCK
Upon the terms and subject to the conditions of the Offer to Redeem,
Enviroq will, with respect to each Stockholder, accept, if applicable, for
payment and pay for that number of shares of Enviroq Stock as are equal to
42.698013% of the total number of shares of Enviroq Stock tendered by such
Stockholder which have been validly tendered and not withdrawn by the
Expiration Date (including shares of Enviroq Stock validly tendered and not
withdrawn during any extension of the Offer to Redeem) promptly after the
Expiration Date, provided, always, that all of the conditions set forth in
Articles 7 through 10 of the Merger Agreement (other than the filing of the
appropriate corporate documents to effect the Mergers, which filings will occur
promptly following the Redemption) shall have either been satisfied or waived.
All questions as to the satisfaction or waiver of the conditions will be
determined by Enviroq, in its reasonable discretion, which determination will
be final and binding. Enviroq expressly reserves the right, in its sole
discretion, to delay acceptance for payment of or payment for shares of Enviroq
Stock in order to comply in whole or in part with any applicable law.
For purposes of the Offer to Redeem, Enviroq will be deemed to have
accepted for payment and purchased shares of Enviroq Stock which are tendered
and not withdrawn as, if and when Enviroq gives oral or written notice to the
Depositary of Enviroq's acceptance of such shares of Enviroq Stock for payment
pursuant to the Offer to Redeem. Payment for shares of Enviroq Stock accepted
for payment pursuant to the Offer to Redeem will be made by deposit of the
aggregate purchase price therefor with the Depositary, which will act as an
agent for the tendering Stockholders for the purpose of receiving the payment
from Enviroq and transmitting payment to such tendering Stockholders. Upon
deposit of funds with the Depositary for the purpose of making payments to
tendering Stockholders, Enviroq's obligation to make such payment shall be
satisfied and tendering Stockholders must, therefore, look solely to the
Depositary for payment of amounts owed to them by reason of the acceptance for
payment of shares of Enviroq Stock pursuant to the Offer to Redeem. If, for any
reason whatsoever, acceptance for payment of, or payment for, any shares of
Enviroq Stock tendered pursuant to the Offer to Redeem is delayed, or Enviroq
is unable to accept for payment or pay for shares of Enviroq Stock tendered
pursuant to the Offer to Redeem, then, without prejudice to Enviroq's right set
forth herein, the Depositary may, nevertheless, retain any tendered shares of
Enviroq Stock and such shares of Enviroq Stock may not be withdrawn except to
the extent that the tendering Stockholder is entitled to duly exercise such
Stockholder's withdrawal rights as described herein. In all cases, payment for
shares of Enviroq Stock accepted for payment pursuant to the Offer to Redeem
will be made only after timely receipt by the Depositary of stock certificates
for (or a timely Book-Entry Confirmation, as defined herein, with respect to)
such shares of Enviroq Stock, a properly completed and signed Redemption Letter
of Transmittal and any other required documents. Payment for shares of Enviroq
Stock tendered and purchased during an extension of the Offer to Redeem will,
subject to the terms of such extension, be made as promptly as practicable
after such shares of Enviroq Stock are purchased. Under no circumstances will
interest be paid by Enviroq by reason of any delay in making such payment.
If any tendered shares of Enviroq Stock are not accepted for payment
pursuant to the Offer to Redeem for any reason, or if stock certificates are
submitted for more shares of Enviroq Stock than are tendered, certificates
representing all shares of Enviroq Stock not purchased or tendered in the
Redemption will not be returned to the tendering Stockholder, and will be
deemed surrendered, and will be exchanged for stock certificates representing
shares of Intrepid Stock in the Enviroq Merger upon the consummation of the
Enviroq Merger. The Redemption Letter of Transmittal shall also serve as the
letter of transmittal to be used in connection with the Enviroq Merger. Except
with respect to a Stockholder who perfects its rights to dissent from the
Enviroq Merger, no certificates representing shares of Enviroq Stock not
purchased or tendered in the Redemption will be returned to the tendering
Stockholder and the Redemption Letter of Transmittal shall serve as the letter
of transmittal in respect of shares of Enviroq Stock exchanged
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in the Enviroq Merger. Any stock certificates representing the shares of
Enviroq Stock held by a Stockholder after such Stockholder has elected to have
Enviroq redeem 42.698013% of the shares of Enviroq Stock held by such
Stockholder will be returned to any Stockholder who exercises such
Stockholder's rights to dissent from the Enviroq Merger by perfecting and not
withdrawing a demand for payment of a fair value for such shares of Enviroq
Stock held by such Stockholder.
If, prior to the Expiration Date, Enviroq shall increase the purchase
price offered to holders of the shares of Enviroq Stock pursuant to the Offer
to Redeem, such increased price shall be paid to all holders of shares of
Enviroq Stock which have been previously accepted for payment pursuant to the
Offer to Redeem.
PROCEDURE FOR TENDERING SHARES OF ENVIROQ STOCK
Valid Tender
For a Stockholder to validly tender shares of Enviroq Stock pursuant
to the Offer to Redeem, (a) in the case of physical delivery of stock
certificates for shares of Enviroq Stock, a properly completed and signed
Redemption Letter of Transmittal, together with any required signature
guarantees and any other required documents, must be received by the Depositary
at one of its addresses set forth below prior to the Expiration Date, and stock
certificates for tendered shares of Enviroq Stock must be received by the
Depositary at one of such addresses prior to the Expiration Date, or (b) in the
case of a book-entry transfer of shares of Enviroq Stock, an Agent's Message
(as defined below) and a properly completed and signed Redemption Letter of
Transmittal, together with any required signature guarantees and any other
required documents, must be received by the Depositary at one of its addresses
set forth below prior to the Expiration Date.
The Depositary will establish accounts with respect to the shares of
Enviroq Stock at The Depositary Trust Company and the Philadelphia Depositary
Trust Company (the "Book-Entry Transfer Facilities") for purposes of the Offer
to Redeem within two business days after the date of this Proxy
Statement/Prospectus and Offer to Redeem. Any financial institution that is a
participant in any of the Book-Entry Transfer Facilities' systems may make
book-entry delivery of shares of Enviroq Stock by causing a Book-Entry Transfer
Facility to transfer such shares of Enviroq Stock into the Depositary's account
in accordance with such Book-Entry Transfer Facility's procedures for such
transfer. However, although delivery of shares of Enviroq Stock may be effected
through book-entry transfer into the Depositary's account at a Book-Entry
Transfer Facility, the Redemption Letter of Transmittal, properly completed and
signed, with any required signature guarantees, and an Agent's Message, and any
other required documents, must, in each case, be transmitted to, and received
by, the Depositary at one of its addresses set forth below prior to the
Expiration Date. The confirmation of a book-entry transfer of shares of Enviroq
Stock into the Depositary's account at a Book-Entry Transfer Facility as
described above is referred to herein as a "Book-Entry Confirmation." DELIVERY
OF DOCUMENTS TO A BOOK-ENTRY TRANSFER FACILITY IN ACCORDANCE WITH SUCH
BOOK-ENTRY TRANSFER FACILITY'S PROCEDURES DOES NOT CONSTITUTE DELIVERY TO THE
DEPOSITARY.
The term "Agent's Message" means a message transmitted by a Book-Entry
Transfer Facility to, and received by, the Depositary and forming a part of a
Book-Entry Confirmation, that states that such Book-Entry Transfer Facility has
received an express acknowledgment from the participant in such Book-Entry
Transfer Facility tendering the shares of Enviroq Stock that such participant
has received and agrees to be bound by the terms of the Redemption Letter of
Transmittal and that Enviroq may enforce such agreement against the
participant.
THE METHOD OF DELIVERY OF SHARES OF ENVIROQ STOCK, THE REDEMPTION
LETTER OF TRANSMITTAL AND ANY OTHER REQUIRED DOCUMENTS, INCLUDING DELIVERY
THROUGH ANY BOOK-ENTRY TRANSFER FACILITY, IS AT THE ELECTION AND RISK OF THE
TENDERING STOCKHOLDER. SHARES OF ENVIROQ STOCK WILL BE DEEMED DELIVERED ONLY
WHEN ACTUALLY RECEIVED BY THE DEPOSITARY (INCLUDING, IN THE CASE OF A
BOOK-ENTRY TRANSFER, BY BOOK-ENTRY CONFIRMATION). IF DELIVERY IS BY MAIL,
REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS
RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY
DELIVERY.
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The Redemption Letter of Transmittal and stock certificates for shares
of Enviroq Stock and any other required documents should be sent or delivered
by each Stockholder or such Stockholder's broker, dealer, bank, trust company
or other nominee to the Depositary at the addresses set forth below:
THE DEPOSITARY:
By Mail, By Courier or By Hand:
American Stock Transfer and Trust Company
40 Wall Street, 46th Floor
New York, New York 10005
Signature Guarantees
A signature guarantee is not required on the Redemption Letter of
Transmittal (a) if the Redemption Letter of Transmittal is signed by the
registered holder(s) (which term includes any participant in any of the
Book-Entry Transfer Facilities' systems whose name appears on a security
position listing as the owner of the shares of Enviroq Stock) of the shares of
Enviroq Stock tendered therewith and such registered holder has not completed
either the box entitled "Special Delivery Instructions" or the box entitled
"Special Payment Instructions" on the Redemption Letter of Transmittal or (b)
if such shares of Enviroq Stock are tendered for the account of a financial
institution (including most commercial banks, savings and loan associations and
brokerage houses) that is a participant in the Security Transfer Agents
Medallion Program, the New York Stock Exchange Medallion Signature Guarantee
Program or the Stock Exchange Medallion Program (an "Eligible Institution"). In
all other cases, all signatures on the Redemption Letter of Transmittal must be
guaranteed by an Eligible Institution. See the Instructions to the Redemption
Letter of Transmittal. If stock certificates for tendered shares of Enviroq
Stock are registered in the name of a person other than the signer of the
Redemption Letter of Transmittal, or if payment is to be made or stock
certificates for shares of Enviroq Stock not tendered or not accepted for
payment are to be returned to a person other than the registered holder of the
stock certificates surrendered, the tendered stock certificates must be
endorsed or accompanied by appropriate stock powers, in either case signed
exactly as the name or names of the registered holders or owners appear on the
stock certificates, with the signatures on the stock certificates or stock
powers guaranteed by an Eligible Institution. See Instructions 2 and 4 to the
Redemption Letter of Transmittal.
Method of Delivery
The method of delivery of certificates for shares of Enviroq Stock and
all other required documents is at the election and risk of the tendering
Stockholder. If delivery is by mail, it is recommended that documents be sent
by registered mail, properly insured, with return receipt requested. Delivery
will be deemed made only when actually received by the Depositary. In all
cases, sufficient time should be allowed to ensure timely delivery.
Determination of Validity
All questions as to the number of shares of Enviroq Stock to be
accepted, and the validity, form, eligibility (including time of receipt),
acceptance and withdrawal of any tender of shares of Enviroq Stock will be
determined by Enviroq, in its sole discretion, which determination will be
final and binding. Enviroq reserves the absolute right to reject any or all
tenders determined by it not to be in proper form or the acceptance for payment
of or payment for which may, in the opinion of Enviroq's counsel, be unlawful.
Enviroq also reserves the absolute right to waive any defect or irregularity in
the tender of any shares of Enviroq Stock of any particular Stockholder,
whether or not similar defects or irregularities are waived in the case of
other Stockholders. No tender of shares of Enviroq Stock will be deemed to have
been validly made until all defects or irregularities relating thereto have
been cured or waived. None of Enviroq, the Depositary or any other person shall
be under any duty to give notification of any defects or irregularities in
tenders or in any notice of withdrawal. None of Enviroq, the Depositary or any
other person shall incur any liability for failure to give any such
notification. Enviroq's interpretation of the terms and conditions of the Offer
to Redeem (including the Redemption Letter of Transmittal and the instructions
thereto) will be final and binding.
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BACKUP WITHHOLDING
In order to avoid "backup withholding" of federal income tax on
payments of cash pursuant to the Offer to Redeem, a Stockholder (or other
payee) surrendering shares of Enviroq Stock in the Offer to Redeem must, unless
an exemption applies, provide the Depositary with such Stockholder's correct
taxpayer identification number ("TIN") on a Substitute Form W-9 and certify
under penalty of perjury that such TIN is correct and that such Stockholder is
not subject to backup withholding. If a Stockholder or payee does not provide
such Stockholder's or payee's correct TIN or fails to provide the
certifications described above, the Internal Revenue Service (the "IRS") may
impose a penalty on such Stockholder or payee and payment of cash to such
Stockholder or payee pursuant to the Offer to Redeem may be subject to backup
withholding of 31%. All Stockholders surrendering shares of Enviroq Stock
pursuant to the Offer to Redeem should complete and sign the main signature
form and the Substitute Form W-9 included as part of the Redemption Letter of
Transmittal to provide the information and certification necessary to avoid
backup withholding (unless an applicable exemption exists and is proved in a
manner satisfactory to the Depositary). Certain Stockholders (including, among
others, all corporations and certain foreign individuals and entities) are not
subject to backup withholding. Noncorporate foreign Stockholders should
complete and sign the main signature form and a Form W-8, Certificate of
Foreign Status in order to avoid backup withholding. See Instruction 10 to the
Letter of Transmittal. See "MATERIAL FEDERAL INCOME TAX CONSEQUENCES".
RIGHTS OF WITHDRAWAL
Except as otherwise herein, tenders of shares of Enviroq Stock made
pursuant to the Offer to Redeem are irrevocable, except that shares of Enviroq
Stock tendered pursuant to the Offer to Redeem may be withdrawn at any time
prior to the Expiration Date and, unless theretofore accepted for payment by
Enviroq pursuant to the Offer to Redeem, may be withdrawn at any time after
January 8, 1999.
If Enviroq extends the Offer to Redeem, is delayed in its acceptance
for payment of shares of Enviroq Stock, or is unable to accept for payment
shares of Enviroq Stock tendered pursuant to the Offer to Redeem for any
reason, then, without prejudice to Enviroq's other rights under the Offer to
Redeem, the Depositary may, nevertheless, on behalf of Enviroq retain tendered
shares of Enviroq Stock until the expiration or termination of the Offer to
Redeem, and such shares of Enviroq Stock may not be withdrawn except to the
extent that tendering Stockholders are entitled to withdrawal rights as set
forth herein. Any such delay will be by an extension of the Offer to Redeem to
the extent required by law.
For a withdrawal to be effective, a written, telegraphic, telex or
facsimile notice of withdrawal must be received in a timely manner by the
Depositary at the addresses set forth in this Proxy Statement/Prospectus and
Offer to Redeem. Any notice of withdrawal must specify the name of the person
who tendered the shares of Enviroq Stock, the number of shares of Enviroq Stock
to be withdrawn and the names in which the stock certificates representing such
shares of Enviroq Stock are registered, if different from that of the person
tendering such shares of Enviroq Stock. If the stock certificates representing
tendered shares of Enviroq Stock have been delivered or otherwise identified to
the Depositary, the serial numbers shown on the particular stock certificates
evidencing the shares of Enviroq Stock to be withdrawn and a signed notice of
withdrawal must be submitted to the Depositary before the Depositary will
physically release the stock certificates representing the shares of Enviroq
Stock to be withdrawn. Unless such stock certificates have been tendered by an
Eligible Institution, the signatures on the notice of withdrawal must be
guaranteed by an Eligible Institution. If shares of Enviroq Stock have been
delivered pursuant to the procedures for book-entry transfer, any notice of
withdrawal also must specify the name and number of the account at the
appropriate Book-Entry Transfer facility to be credited with withdrawn shares
of Enviroq Stock and otherwise comply with such Book-Entry Transfer Facility's
procedures. All questions as to the form and validity (including time of
receipt) of any notice of withdrawal will be determined by Enviroq, in its sole
discretion, which determination shall be final and binding. None of Enviroq,
the Depositary, nor any other person, shall be under any duty to give
notification of any defect or irregularity in any notice of withdrawal or incur
any liability for failure to give any such notification. Withdrawals made in
accordance with these provisions may not be rescinded and any shares of Enviroq
Stock properly withdrawn shall not be deemed to be validly tendered for
purposes of the Offer to Redeem. Withdrawn shares of Enviroq Stock may be
retendered at any subsequent time prior to the Expiration Date by following the
procedures set forth herein.
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EXTENSION OF THE OFFER TO REDEEM; AMENDMENTS; TERMINATION
Enviroq expressly reserves the right, in its sole discretion, at any
time and from time to time to extend the period of time during which the Offer
to Redeem is open, including, but not limited to, if the Special Meeting is
adjourned or postponed, by giving oral or written notice of such extension to
the Depositary. In addition, Enviroq also reserves the right to terminate the
Offer to Redeem and not accept for payment or pay for any shares of Enviroq
Stock not therefore accepted for payment or paid for, or to postpone acceptance
for payment or payment for shares of Enviroq Stock, if all of the conditions
set forth in Articles 7 through 10 of the Merger Agreement (other than the
filing of the appropriate corporate documents to effect the Mergers, which
filings will occur promptly following the Redemption) are not satisfied or
waived by or on the scheduled Expiration Date or if the Merger Agreement is
terminated in accordance with its terms. Enviroq may also, in its sole
discretion, at any time and from time to time, amend the Offer to Redeem in any
respect by giving oral or written notice of such amendment to the Depositary.
There can be no assurance that Enviroq will exercise its right to extend or
amend the Offer to Redeem.
Any extension of the period during which the Offer to Redeem is open,
delay in acceptance or payment, termination or amendment of the Offer to Redeem
will be followed, as promptly as practicable, by public announcement thereof,
such announcement in the case of an extension to be issued not later than 8:00
a.m., Birmingham, Alabama time, on the next business day after the previously
scheduled Expiration Date.
If Enviroq shall decide to change the consideration offered in the
Offer to Redeem to be paid to holders of shares of Enviroq Stock and, if at the
time notice of such change is first published, sent or given to the holders of
shares of Enviroq Stock, the then applicable Expiration Date shall occur prior
to the expiration of a period ending on the tenth business day from and
including the date that such notice is first so published, sent or given, then
the Offer to Redeem shall be extended until the expiration of such period of
ten business days. For purposes of the Offer to Redeem, a "business day" shall
mean any day other than a Saturday, Sunday or federal holiday, and consists of
the time period from 12:01 a.m. through 12:00 Midnight, Eastern time.
If Enviroq makes a change in the terms of the Offer to Redeem or the
information concerning the Offer to Redeem to ensure the equivalent treatment
of the Stockholders in the Enviroq Merger, Enviroq will, in the event such
change is material, disseminate additional tender offer materials (including,
if applicable, this Proxy Statement/Prospectus and Offer to Redeem and other
proxy solicitation materials) revised to give effect to such change and will
extend the Offer to Redeem. The minimum period during which the Offer to Redeem
must remain open following a material change in the terms of the Offer to
Redeem or information concerning the Offer to Redeem, other than a change in
consideration to be paid or a change in the percentage of shares of Enviroq
Stock sought, will depend on the facts and circumstances, including the
relative materiality of the terms and information changes.
If Enviroq extends the Offer to Redeem, or if Enviroq (whether before
or after its acceptance for payment of shares of Enviroq Stock) is delayed in
its payment for shares of Enviroq Stock or is unable to pay for shares of
Enviroq Stock pursuant to the Offer to Redeem for any reason, then without
prejudice to Enviroq's rights under the Offer to Redeem, Enviroq may retain
tendered shares of Enviroq Stock, and those shares of Enviroq Stock may not be
withdrawn except to the extent tendering Stockholders are entitled to
withdrawal rights as described herein.
SOURCE AND AMOUNT OF FUNDS
The total amount of funds required by Enviroq to purchase shares of
Enviroq Stock pursuant to the Offer to Redeem, including paying related fees
and expenses, is estimated to be approximately $2,250,000. All of the funds
required to pay for the Offer to Redeem will be paid out of available cash of
Enviroq.
TRANSACTIONS CONCERNING SHARES OF ENVIROQ STOCK
Neither Enviroq nor, to the knowledge of Enviroq, any of its executive
officers, directors or controlling persons or any affiliate or subsidiary of
any of the foregoing, has engaged in any transaction involving shares of
Enviroq Stock during the 40 business days prior to the filing of this Proxy
Statement/Prospectus and Offer to Redeem.
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FEES AND EXPENSES
No person has been retained, employed, or will be compensated, by
Enviroq to make solicitations or recommendations in connection with the Offer to
Redeem. Enviroq has retained the services of American Stock Transfer and Trust
Company, New York, New York, to act as the Depositary and has agreed to pay the
Depositary's expenses for acting in such capacity. Enviroq will pay all charges
and expenses incurred by the Depositary in connection with the Offer to Redeem.
MISCELLANEOUS
The Offer to Redeem is not being made to (nor will tenders be accepted
from or on behalf of) holders of shares of Enviroq Stock in any jurisdiction in
which the making of the Offer to Redeem or the acceptance thereof would not be
in compliance with the securities, Blue Sky or any other laws of such
jurisdiction. However, Enviroq may, in its sole discretion, take such action as
it may deem necessary to make the Offer to Redeem in any such jurisdiction and
extend the Offer to Redeem to holders of shares of Enviroq Stock in such
jurisdiction. Enviroq is not currently aware of any states in which holders of
the shares of Enviroq Stock should be excluded. In any jurisdiction the
securities or Blue Sky laws of which require the Offer to Redeem to be made by
a licensed broker or dealer, the Offer to Redeem shall be deemed to be made on
behalf of Enviroq by brokers or dealers that are licensed under the laws of
such jurisdiction.
No person has been authorized to give any information or make any
representation on behalf of Enviroq other than as contained in this Proxy
Statement/Prospectus and Offer to Redeem and the Redemption Letter of
Transmittal and, if given or made, such information or representation must not
be relied upon as having been authorized by Enviroq.
Enviroq has filed with the Commission Schedule 13e-4 pursuant to Rule
13e-4 under the Exchange Act, together with exhibits, furnishing certain
additional information with respect to the Offer to Redeem, and may file
amendments thereto. The Schedule 13e-4 and any amendments thereto, including
exhibits, should be available for inspection and copying at the offices of the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street N.W., Washington,
D.C. 20549. The Commission also maintains a web site that contains reports,
proxy and information statements filed electronically with the Commission. The
address of this web site is http://www.sec.gov. Copies of such material can be
obtained from the Commission's Public Reference Section, Room 1024, Judiciary
Plaza, 450 Fifth Street N.W., Washington, D.C. 20549 upon payment of prescribed
rates.
Questions or requests for assistance or additional copies of this
Proxy Statement/Prospectus and Offer to Redeem and the Redemption Letter of
Transmittal may be directed to the Depositary at the addresses listed above or
by telephone to (718) 921-8217, or to Enviroq at the addresses listed herein or
by telephone to (205) 870-0588. Stockholders may also contact their brokers,
dealers, commercial banks, trust companies or such other person as they may
choose for assistance concerning the Offer to Redeem.
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THE MERGER AGREEMENT
The following is a summary of the material provisions of the Merger
Agreement that are not discussed in more detail elsewhere in this Proxy
Statement/Prospectus and Offer to Redeem. A copy of the Merger Agreement, as
amended is attached as Annex A to this Proxy Statement/Prospectus and Offer to
Redeem and each is incorporated herein by reference. The summary of the Merger
Agreement set forth in this Proxy Statement/Prospectus and Offer to Redeem is
qualified in its entirety by reference to the Merger Agreement.
GENERAL
The Merger Agreement provides that, following the approval of the
Merger Agreement and the Enviroq Merger by the Stockholders, and the
satisfaction or waiver of the other conditions to the Mergers, including
obtaining any requisite regulatory approvals and the consummation of the
Redemption, Sub-1, Sub-2 and Sub-3 will be merged with and into Enviroq, IAM
and CRC, respectively, with Enviroq, IAM and CRC being the surviving
corporations, respectively, and resulting in each of Enviroq, IAM and CRC
becoming wholly owned subsidiaries of Intrepid.
If the Stockholders approve the Enviroq Merger, and the other
conditions to the Mergers are satisfied or waived, the closing of the
Reorganization (the "Closing") will take place as soon as practicable following
the satisfaction or waiver of the conditions set forth in the Merger Agreement.
In no event shall the Closing take place later than two business days after
satisfaction or waiver of such conditions, unless otherwise mutually agreed to
by the parties to the Merger Agreement (the "Closing Date").
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains customary representations and warranties
by each of Enviroq, IAM and CRC relating to, among other things and subject to
certain qualifications, (a) their respective organizations, the organizations
of their respective subsidiaries and similar corporate matters; (b) their
respective capital structures; (c) the authorization, execution, delivery,
performance and enforceability of the Merger Agreement and related matters; (d)
their compliance with applicable laws and agreements; (e) reports and financial
statements filed with the Commission or other regulatory authorities and the
accuracy of information contained therein; (f) the absence of any material
adverse effect on their business, assets, financial condition, result of
operations or prospects; (g) the absence of adverse material claims, suits,
actions or proceedings, and other litigation issues; (h) the accuracy of
information supplied by each of Enviroq, IAM and CRC for use in the
Registration Statement of which this Proxy Statement/Prospectus and Offer to
Redeem forms a part; (i) certain tax matters; (j) retirement and other employee
benefit plans and matters relating to ERISA; (k) compliance with all applicable
material environmental laws, possession of all material environmental, health
and safety permits and other environmental issues; (l) any agreements to act as
a guarantor for any other person; (m) labor matters; (n) the adequacy of their
insurance coverage; (o) the collectibility of promissory notes and accounts
receivable; (p) material contracts and agreements to which they are a party;
(q) the merchantability and fitness for the purpose for which inventory was
procured or manufactured with respect to all inventory of the parties; (r)
title and condition of real and personal assets, including all tangible assets;
(s) intellectual property rights; (t) the absence of any obligation to pay fees
or commissions to any broker, finder or agent with respect to the transactions
contemplated by the Merger Agreement; (u) the adequacy and completeness of
information provided in all financial statements; (v) undisclosed liabilities;
(w) events subsequent to their most recent fiscal year end; and (x) with
respect to IAM and CRC, that neither IAM nor CRC is engaged or proposes to
engage in any business which would cause such company to fall within the
definition of, or otherwise cause it deemed to be, an "investment company" as
defined in the Investment Company Act.
The Merger Agreement provides that none of the representations and
warranties contained in the Merger Agreement shall survive the Effective Time,
except all such covenants and agreements which by their terms contemplate
performance after the Effective Time, shall survive the Effective Time.
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CONDUCT OF BUSINESS PRIOR TO THE MERGERS
Pursuant to the Merger Agreement, each of Enviroq, IAM and CRC has
agreed to, and in the case of Enviroq, Enviroq has agreed to cause its
subsidiaries to: (1) take all actions and do all things consistent with the
ordinary course of business; (2) use its best efforts to maintain and preserve
intact its business organization, employees, goodwill with customers and
advantageous business relationships and retain the services of its officers and
key employees; and (3) except as required by law or regulation, take no action
which would adversely affect or delay the ability of any party to the Merger
Agreement to obtain any consent from any regulatory authority or any other
approvals required for the consummation of the transactions contemplated by the
Merger Agreement or to perform its covenants and agreements under the Merger
Agreement. Enviroq is specifically permitted to redeem shares of Enviroq Stock
in the Redemption. Furthermore, pursuant to the Merger Agreement, each of
Enviroq, IAM and CRC has agreed that during the period from the date of the
Merger Agreement until the Effective Time, except as expressly permitted by the
Merger Agreement or as all parties to the Merger Agreement otherwise consent in
writing, it will (and each of its subsidiaries will), subject to certain
exceptions specified therein, among other things: not (a) change, delete or add
any provision of or to its certificate or articles of incorporation or bylaws
or to the certificate or articles of incorporation or bylaws of any of their
respective subsidiaries; (b) change the number of shares of its authorized,
issued or outstanding capital stock, including any issuance, purchase,
redemption, split, combination or reclassification thereof; issue or grant any
option, warrant, call, commitment, subscription right; enter into any agreement
to purchase relating to its authorized, issued or outstanding capital stock; or
declare, set aside or pay any dividend or other distribution with respect to
its outstanding capital stock (although Enviroq is permitted to redeem shares
of Enviroq Stock in the Redemption); (c) incur any material liabilities or
material obligations (other than deposit liabilities and short-term borrowings
in the ordinary course of business), whether directly or by way of guaranty,
including any obligation for borrowed money, or whether evidenced by any note,
bond, debenture, or similar instrument, except in the ordinary course of
business (although Enviroq shall be permitted to incur liabilities to the
holders of shares of Enviroq Stock in connection with the Redemption); (d) make
any capital expenditures individually in excess of $25,000, or in the aggregate
in excess of $50,000, excluding (i) binding commitments existing on the date of
the Merger Agreement and disclosed in a Disclosure Schedule delivered pursuant
to the Merger Agreement and (ii) expenditures necessary to maintain existing
assets in good repair; (e) sell, transfer, convey or otherwise dispose of any
real property or interest therein having a book value in excess of or in
exchange for consideration in excess of $10,000; (f) pay any bonuses to any
executive officer except pursuant to the terms of an enforceable written
employment agreement; (g) enter into any new, or amend in any respect any
existing, employment, consulting, non-competition or independent contractor
agreement with any person; (h) alter the terms of any existing incentive bonus
or commission plan; (i) adopt any new or amend in any material respect any
existing employee benefit plan, except as may be required by law; (j) grant any
general increase in compensation to its employees as a class or to its officers
except for non-executive officers in the ordinary course of business and
consistent with past practices and policies or except in accordance with the
terms of an enforceable written agreement; (k) grant any material increases in
fees or other increases in compensation or in other benefits to any of its
directors; (l) effect any change in any material respect in retirement benefits
to any class of employees or officers, except as required by law; or (m)
acquire any of the assets or equity securities of any person or acquire direct
or indirect control of any person, other than in connection with (i) any
internal reorganization or consolidation involving existing subsidiaries which
has been approved in advance in writing by Enviroq, IAM and CRC, (ii) any such
acquisition of assets in the ordinary course of business, or (iii) the creation
of new subsidiaries organized to conduct and continue activities not otherwise
permitted by the Merger Agreement.
CONDITIONS TO OBLIGATION TO EFFECT THE REORGANIZATION
Mutual Conditions
The respective obligation of each of the parties to the Merger
Agreement to effect the Mergers is subject to, among others, the following
conditions: (a) the Enviroq Merger shall have been approved by the requisite
vote of the Stockholders; (b) all necessary consents of any regulatory
authority shall have been obtained and all notice and waiting periods required
by law to pass after receipt of such consent shall have passed, and all
conditions to the consummation of the Mergers set forth in such consent shall
have been satisfied; (c) Intrepid shall have received all federal and state
securities laws or "blue sky" permits or other authorizations or confirmations
as to the availability of exemptions from registration requirements, as may be
necessary to issue shares of Intrepid Stock pursuant to the Merger Agreement;
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(d) there shall be no actual or threatened causes of action, investigations or
proceedings (i) challenging the validity or legality of the Merger Agreement or
the consummation of the transactions contemplated thereby, (ii) seeking damages
in connection with the transactions contemplated by the Merger Agreement, or
(iii) seeking to restrain or invalidate the transactions contemplated by the
Merger Agreement, which, in the reasonable judgment of Enviroq, IAM and CRC,
based upon advice of counsel, would have a material adverse effect with respect
to Enviroq, IAM or CRC, as the case may be; (e) this Proxy Statement/Prospectus
and Offer to Redeem shall have been filed with the Commission for review and
comment and shall have been authorized for mailing, either by notice from the
Commission or the lapse of time for review and comment by the Commission; (f)
the Registration Statement of which this Proxy Statement/Prospectus and Offer
to Redeem is a part shall have been declared effective, and no-stop order with
respect thereto shall be in effect and no proceedings for that purpose shall
have been initiated or, to the knowledge of all parties, threatened by the
Commission or any other regulatory authority; (g) there shall not be any action
taken, or any statute, rule, regulation or order enacted, entered, enforced or
deemed applicable to the Mergers by any regulatory authority which, in
connection with the grant of any consent by any regulatory authority, imposes,
in the judgment of the parties, any requirement which would have a material
adverse effect upon the parties, or any one of them, provided that no such term
or condition imposed by any regulatory authority in connection with the grant
of any consent by any regulatory authority shall be deemed to be a requirement
which would have a material adverse effect on any party unless it materially
differs from terms and conditions customarily imposed by any such entity in
connection with the acquisition of corporations under similar circumstances;
and (h) all consents of third parties required in connection with the
transactions contemplated hereby shall have been obtained, except where the
failure to obtain such consents, in the aggregate, would not reasonably be
expected to result in a material adverse effect on Enviroq, IAM or CRC, as the
case may be, provided that a party which has not used all reasonable efforts to
obtain a consent may not assert this condition with respect to such consent.
Conditions to the Obligation of Enviroq to Consummate the Enviroq Merger
The obligations of Enviroq to consummate the Enviroq Merger are
subject to the fulfillment of each of the following conditions, unless waived:
(a) the representations and warranties of IAM and CRC set forth in the Merger
Agreement and in any certificate or document delivered pursuant thereto shall
be true and correct in all material respects; (b) IAM and CRC shall have
performed all covenants, obligations and agreements required to be performed by
them under the Merger Agreement prior to the Effective Time; (c) each of the
other parties to the Merger Agreement shall have delivered to Enviroq a
certificate dated as of the Closing Date as to the satisfaction of the matters
described in clauses (a) and (b) of this paragraph; (d) all of the conditions
to the consummation of the IAM Merger and the CRC Merger shall have been
satisfied or waived in accordance with the terms of the Merger Agreement, and
the Mergers shall be consummated substantially contemporaneously; (e) there
shall have been no determination by Enviroq that any fact, event or condition
exists, or has occurred that, in the judgment of Enviroq, (i) would be
materially adverse to the interests of Enviroq, individually or on a
consolidated basis, or (ii) would render the Enviroq Merger or the other
transactions contemplated by the Merger Agreement impracticable because of any
state of war, national emergency, banking moratorium or general suspension of
trading on NASDAQ, the New York Stock Exchange, Inc. or other national
securities exchange; (f) Intrepid shall have entered into an Employment
Agreement with William J. Long; (g) prior to the Closing Date, all loans from
IAM or CRC to shareholders or affiliates of IAM or CRC, shall have been repaid,
and all loans to IAM or CRC from shareholders or affiliates of IAM or CRC shall
have been repaid; (h) the Principal IAM/CRC Shareholders shall have executed
the Voting Agreement; (i) all rights with respect to shares of IAM Stock and
CRC Stock issuable pursuant to the exercise of stock options granted under any
IAM or CRC stock option plans, whether or not exercisable, shall have been
terminated and any holder thereof shall have executed an appropriate instrument
of cancellation; (j) Intrepid shall have received the resignations, effective
as of the Closing, of each director and officer of IAM and CRC, other than
those whom shall have been agreed upon by the parties as specified in writing
at least thirty (30) days prior to the Closing, and other than Forrest Travis
and Mark F. Travis; and (k) clients which together own at least 85% of the
assets managed by IAM as of the Closing shall have executed and delivered to
IAM that consent to assignment required to be sent by IAM to all of its clients
pursuant to the Merger Agreement.
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Conditions to the Obligation of IAM to Consummate the IAM Merger
The obligations of IAM to consummate the IAM Merger are subject to the
fulfillment of each of the following conditions, unless waived: (a) the
representations and warranties of Enviroq set forth in the Merger Agreement and
in any certificate or document delivered pursuant thereto shall be true and
correct in all material respects; (b) Enviroq shall have performed all
covenants, obligations and agreements required to be performed by it under the
Merger Agreement prior to the Effective Time; (c) each of the other parties to
the Merger Agreement shall have delivered to IAM a certificate dated as of the
Closing Date as to the satisfaction of the matters described in clauses (a) and
(b) of this paragraph; (d) the holders of not more than seven and one-half
percent (7 1/2%) of the outstanding shares of Enviroq Stock shall have elected
to exercise their right to dissent from the Enviroq Merger and demand payment in
cash for the fair or appraised value of their shares; (e) all of the conditions
to the consummation of the Enviroq Merger and the CRC Merger shall have been
satisfied or waived in accordance with the terms of the Merger Agreement, and
the Mergers shall be consummated substantially contemporaneously; (f) there
shall have been no determination by IAM that any fact, event or condition
exists, or has occurred that, in the judgment of IAM, (i) would be materially
adverse to the interests of IAM, individually or on a consolidated basis, or
(ii) would render the IAM Merger or the other transactions contemplated by the
Merger Agreement impracticable because of any state of war, national emergency,
banking moratorium or general suspension of trading on NASDAQ, the New York
Stock Exchange, Inc. or other national securities exchange; (g) Intrepid shall
have entered into an Employment Agreement with each of Forrest Travis and Mark
F. Travis; (h) the Stock Agreement shall have remained in full force and effect
through the Effective Time; (i) the Principal Stockholders shall have executed
the Voting Agreement; (j) all rights with respect to shares of Enviroq Stock
issuable pursuant to the exercise of stock options granted under any Enviroq
stock option plan, whether or not exercisable, shall have been terminated and
any holder thereof shall have executed an appropriate instrument of
cancellation; and (k) Intrepid shall have received the resignations, effective
as of the Closing, of each director and officer of Enviroq, other than those
whom shall have been agreed upon by the parties as specified in writing at least
thirty (30) days prior to the Closing, and other than William J. Long.
Conditions to the Obligation of CRC to Consummate the CRC Merger
The obligations of CRC to consummate the CRC Merger are subject to the
fulfillment of each of the following conditions, unless waived: (a) the
representations and warranties of Enviroq set forth in the Merger Agreement and
in any certificate or document delivered pursuant thereto shall be true and
correct in all material respects; (b) Enviroq shall have performed all
covenants, obligations and agreements required to be performed by it under the
Merger Agreement prior to the Effective Time; (c) each of the other parties to
the Merger Agreement shall have delivered to CRC a certificate dated as of the
Closing Date as to the satisfaction of the matters described in clauses (a) and
(b) of this paragraph; (d) the holders of not more than seven and one-half
percent (7 1/2%) of the outstanding shares of Enviroq Stock shall have elected
to exercise their right to dissent from the Enviroq Merger and demand payment in
cash for the fair or appraised value of their shares; (e) all of the conditions
to the consummation of the Enviroq Merger and the IAM Merger shall have been
satisfied or waived in accordance with the terms of the Merger Agreement, and
the Mergers shall be consummated substantially contemporaneously; (f) there
shall have been no determination by CRC that any fact, event or condition
exists, or has occurred that, in the judgment of CRC, (i) would be materially
adverse to the interests of CRC, individually or on a consolidated basis, or
(ii) would render the CRC Merger or the other transactions contemplated by the
Merger Agreement impracticable because of any state of war, national emergency,
banking moratorium or general suspension of trading on NASDAQ, the New York
Stock Exchange, Inc. or other national securities exchange; (g) Intrepid shall
have entered into an Employment Agreement with each of Forrest Travis and Mark
F. Travis; (h) the Stock Agreement shall have remained in full force and effect
through the Effective Time; (i) the Principal Stockholders shall have executed
the Voting Agreement; (j) all rights with respect to shares of Enviroq Stock
issuable pursuant to the exercise of stock options granted under any Enviroq
stock option plans, whether or not exercisable, shall have been terminated and
any holder thereof shall have executed an appropriate instrument of
cancellation; and (k) Intrepid shall have received the resignations, effective
as of the Closing, of each director and officer of Enviroq, other than those
whom shall have been agreed upon by the parties as specified in writing at least
thirty (30) days prior to the Closing, and other than William J. Long.
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TERMINATION
The Merger Agreement may be terminated at any time prior to the
Closing: (a) by the mutual written consent duly authorized by the Enviroq Board,
the IAM Board and the CRC Board at any time prior to the Effective Time; (b) by
Enviroq at any time prior to the Effective Time, if there has been a material
breach of a representation, warranty, covenant, or agreement of IAM or CRC and
such breach has not been cured or is incapable of being cured within 15 days of
notice of such breach; (c) by IAM at any time prior to the Effective Time, if
there has been a material breach of a representation, warranty, covenant, or
agreement of Enviroq and such breach has not been cured or is incapable of being
cured within 15 days of notice of such breach; (d) by CRC at any time prior to
the Effective Time, if there has been a material breach of a representation,
warranty, covenant or agreement of Enviroq and such breach has not been cured or
is incapable of being cured within 15 days of notice of such breach; (e) if the
Closing has not occurred by December 31, 1998, unless extended by mutual written
consent duly authorized by the Enviroq Board, the IAM Board and the CRC Board;
(f) by Enviroq if the Enviroq Board, as advised by outside counsel, determines
in good faith that the failure to terminate the Merger Agreement and the
transactions contemplated therein would be reasonably likely to result in a
breach of the directors' fiduciary duty to the Stockholders; or (g) by Enviroq,
IAM or CRC if at the Special Meeting (including any adjournment or postponement
thereof) the requisite vote of the Stockholders to approve the Enviroq Merger
and the other transactions contemplated in the Merger Agreement shall not have
been obtained.
TERMINATION FEES
The Merger Agreement provides that in the event that any person shall
have made an Alternative Proposal for Enviroq and thereafter (i) the Merger
Agreement is terminated by Enviroq based on a determination by the Enviroq
Board, as advised by outside counsel, in good faith that the failure to
terminate the Merger Agreement and the transactions contemplated therein would
be reasonably likely to result in a breach of the directors' fiduciary duty to
the Stockholders or (ii) the Merger Agreement is terminated by IAM or CRC due to
a breach of the Merger Agreement by Enviroq (and neither IAM nor CRC is in
breach of the Merger Agreement) and, in the case of clause (ii) only, a
definitive agreement with respect to such Alternative Proposal is executed
within one (1) year after such termination and such transaction is thereafter
consummated, Enviroq will pay IAM and CRC an aggregate fee of $250,000, which
amount shall be payable on the date Enviroq publicly announces that it is
terminating the Merger Agreement or otherwise within two (2) business days after
consummation of such transaction pursuant to an Alternative Proposal. An
Alternative Proposal is defined as any proposal or offer with respect to a
merger, acquisition, consolidation or other transaction involving, or the
purchase of, (i) all or any significant portion of the assets of Enviroq and its
subsidiaries taken as a whole, (ii) fifteen percent (15%) or more of the
outstanding shares of Enviroq Stock, or (iii) fifteen percent (15%) or more of
the outstanding shares of the capital stock of any subsidiary of Enviroq.
The Merger Agreement further provides that in the event the Merger
Agreement is terminated by Enviroq due to IAM's or CRC's breach of the Merger
Agreement (and Enviroq is not in breach of the Merger Agreement), and either IAM
or CRC, within one (1) year after such termination, executes a definitive
agreement with respect to a transaction that would meet the definition of an
Alternative Proposal if the term "IAM or CRC" was substituted instead of the
term "Enviroq" in such definition and IAM and CRC thereafter consummates such
transaction, then IAM or CRC shall pay Enviroq an aggregate fee of $250,000
within two (2) business days after consummation of such transaction.
The Merger Agreement further provides that if any party should fail to
pay a termination fee when due, in addition to payment of such amount, the
defaulting party will pay the costs and expenses (including attorneys' fees)
incurred in connection with any action to collect payment, together with
interest on the amount of the termination fee at the rate of twelve percent
(12%) per annum.
EXPENSES
Except for expenses relating to the organization of Intrepid, Sub-1,
Sub-2 and Sub-3 and any fees and expenses payable upon a termination of the
Merger Agreement, each of the parties to the Merger Agreement shall be
responsible for its own expenses incurred in connection with the negotiation of
the Merger Agreement and the consummation of the transactions contemplated
thereby, including all expenses incurred in connection with the
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preparation of this Proxy Statement/Prospectus and Offer to Redeem, paying agent
charges, attorneys' fees and disbursements, accounting fees and disbursements,
investment banking fees and disbursements, and printing costs. If the Mergers
are consummated, Intrepid will pay all of the fees and expenses of Bradley Arant
(the "Registration Attorney"). If the Mergers are not consummated, Enviroq will
pay one-half of the fees and expenses of the Registration Attorney, and IAM and
CRC will each pay one-fourth of the fees and expenses of the Registration
Attorney. Enviroq (and its subsidiaries), IAM and CRC agree to engage the
Registration Attorney to prepare and file all registration statements with the
Commission as well as any related filings, including any "blue sky" filings with
applicable states. The Merger Agreement specifically authorizes the Registration
Attorney to engage the accounting firm of Deloitte & Touche LLP, to assist it
with such filings. See "-- Termination Fees".
AMENDMENT AND WAIVER
The Merger Agreement may be amended at any time prior to the Effective
Time by the parties to the Merger Agreement with prior authorization of their
respective boards of directors. However, any amendment effected subsequent to
the approval by the Stockholders of the Enviroq Merger will be subject to the
restrictions contained in the DGCL. No amendment of any provision of the Merger
Agreement shall be valid unless the same is in writing and signed by all of the
parties to the Merger Agreement. At any time prior to the Effective Time, any of
the parties to the Merger Agreement may extend the time for the performance of
any of the obligations or other acts of the other parties thereto, waive any
inaccuracies in the representations and warranties contained therein or any
document delivered pursuant thereto, and waive compliance with any of the
agreements or conditions contained in the Merger Agreement to the extent
permitted by law. No waiver by any party pursuant to the Merger Agreement of any
default, misrepresentation, or breach of warranty or covenant thereunder,
whether intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation or breach of warranty or covenant under the Merger
Agreement or affect in any way or any rights arising by virtue of any prior or
subsequent such occurrence.
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MATERIAL FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following discussion is a summary of the material federal income
tax consequences of the Redemption and the Enviroq Merger to holders of shares
of Enviroq Stock. The discussion applies only to holders of shares of Enviroq
Stock who hold such shares of Enviroq Stock as a capital asset, and may not
apply to special situations, such as holders of shares of Enviroq Stock, if any,
who received their shares of Enviroq Stock upon the exercise of employee stock
options or otherwise as compensation and holders that are insurance companies,
securities dealers, financial institutions or foreign persons.
THE TAX CONSEQUENCES OF THE OFFER TO REDEEM AND THE ENVIROQ MERGER MAY
VARY DEPENDING UPON THE PARTICULAR CIRCUMSTANCES OF THE STOCKHOLDERS. EACH
HOLDER OF SHARES OF ENVIROQ STOCK IS URGED TO CONSULT SUCH STOCKHOLDER'S OWN TAX
ADVISOR AS TO THE STATE, LOCAL, FOREIGN OR OTHER TAX CONSEQUENCES ARISING OUT OF
THE REDEMPTION AND THE ENVIROQ MERGER TO SUCH STOCKHOLDER.
None of Enviroq, Intrepid or Sub-1 has requested or will receive an
advance ruling from the IRS as to any of the federal income tax consequences of
the Redemption and the Enviroq Merger to holders of shares of Enviroq Stock or
of any of the federal income tax consequences of the Redemption and the Enviroq
Merger to Enviroq, Intrepid or Sub-1. Deloitte & Touche LLP has provided to the
Enviroq Board an opinion as to certain of the federal income tax consequences of
the Redemption and the Enviroq Merger to the holders of shares of Enviroq Stock.
The opinion of Deloitte & Touche LLP (the "Deloitte Opinion") is based entirely
upon the Code, regulations now in effect thereunder, current administrative
rulings and practice, and judicial authority, all of which are subject to
change, possibly with retroactive effect. Deloitte & Touche LLP has consented to
the inclusion of the Deloitte Opinion as an Annex to this Proxy
Statement/Prospectus and Offer to Redeem and to the summary thereof and all
references to Deloitte & Touche LLP and the Deloitte Opinion contained herein.
The full text of the Deloitte Opinion is attached as Annex C to this Proxy
Statement/Prospectus and Offer to Redeem, is incorporated herein by reference,
and should be read in its entirety in connection with this Proxy
Statement/Prospectus and Offer to Redeem. The discussion of the Deloitte Opinion
set forth below is qualified in its entirety by reference to Annex C of this
Proxy Statement/Prospectus and Offer to Redeem. The management of Enviroq has
represented to Deloitte & Touche LLP that Intrepid has no plan or intention to
redeem or otherwise reacquire the shares of Intrepid Stock issued in the Enviroq
Merger.
Unlike a ruling from the IRS, an opinion is not binding on the IRS and
there can be no assurance, and none is hereby given, that the IRS will not take
a position contrary to one or more positions reflected in the Deloitte Opinion
or that the positions stated in the Deloitte Opinion will be upheld by the
courts if challenged by the IRS.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE REDEMPTION
In the Deloitte Opinion, the distribution of cash by Enviroq to the
Stockholders who elect to participate in the Redemption will be characterized
for federal income tax purposes as a distribution in full payment in exchange
for their respective shares of Enviroq Stock. Any gain or loss realized by such
redeeming Stockholders in connection with the Redemption will be recognized for
federal income tax purposes as capital gain or loss pursuant to ss. 1001 of the
Code, provided that the shares of Enviroq Stock are held as a capital asset at
the time the Redemption is effected.
In general, a Stockholder who receives cash pursuant to the Offer to
Redeem in exchange for such Stockholder's shares of Enviroq Stock will recognize
gain or loss for federal income tax purposes an amount equal to the difference
between the amount of cash received and the Stockholder's tax basis in the
shares of Enviroq Stock redeemed. If the Stockholder holds shares of Enviroq
Stock as a capital asset at the time of the Redemption, such gain or loss will
be long-term or short-term capital gain or loss depending on the length of the
holding period for such shares of Enviroq Stock redeemed.
The Taxpayer Relief Act of 1997 (P.L. 105-34) established several
different tax rates for capital gains on the sale of securities which are held
as capital assets, which rates are based on the length of time the securities
have been
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held. The following holding periods and tax rates apply to securities sold after
July 28, 1997: (i) capital assets held less than 12 months ("short-term gains")
are taxed at ordinary income rates; (ii) capital assets held more than 12
months, but less than 18 months ("mid-term gains") are taxed at a maximum rate
of 28 percent for individuals in higher income brackets and at 15 percent for
individuals in lower income brackets; and (iii) capital assets held for more
than 18 months ("long-term gains") are taxed at 20 percent for individuals in
the higher income brackets and at 10 percent for individuals in lower income
brackets. It should be noted that Congress is currently considering changes to
the tax rates and holding periods relating to capital gains. If approved, such
changes may be effective as of the date of the Redemption.
Capital gains of corporations are taxable at the same rates as ordinary
income.
Capital losses of noncorporate taxpayers may be deducted only against
capital gains and a limited amount ($3,000 per year) of ordinary income.
The law currently is uncertain regarding the proper method of computing
the net capital gains and losses of taxpayers, and of netting of capital gains
and losses so as to determine the amount of capital gain which is subject to the
three rates described in the preceding paragraph. Members of Congress have
indicated that a technical corrections bill or other action by the legislature
may be required to clarify such treatment. In the absence of a technical
corrections act or other clarification from Congress, guidance cannot be
provided with regard to whether a taxpayer should net short-term gains or losses
against mid-term gains or losses and long-term gains or losses, or the order in
which a taxpayer should offset gains with losses if a taxpayer has gains or
losses in more than one category.
The receipt by a Stockholder of cash pursuant to the Offer to Redeem
may be subject to "backup" withholding of 31% of the cash received unless the
Stockholder provides his or her correct taxpayer identification number on the
Substitute Form W-9 included with the Redemption Letter of Transmittal enclosed
with this Proxy Statement/Prospectus and Offer to Redeem or is eligible for an
exemption from this requirement. Exempt persons (including, among others, all
corporations) will not be subject to backup withholding provided that they
indicate their exempt status on Form W-9. See "THE REDEMPTION -- Backup
Withholding" and the Redemption Letter of Transmittal enclosed with this Proxy
Statement/Prospectus and Offer to Redeem.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE ENVIROQ MERGER
In the Deloitte Opinion, the following federal income tax consequences
to the holders of shares of Enviroq Stock will result from the Enviroq Merger.
(i) The Enviroq Merger will be characterized for federal
income tax purposes as a transfer of property (i.e., shares of Enviroq
Stock) to a "controlled corporation" (i.e., Intrepid) within the
meaning of ss. 351 of the Code. No gain or loss will be recognized by
the Stockholders for federal income tax purposes in connection with
their receipt of shares of Intrepid Stock in the Enviroq Merger (except
with respect to cash received in lieu of fractional shares of Enviroq
Stock). Stockholders will recognize gain, if any, but not loss, in
connection with the Enviroq Merger to the extent of cash and the fair
market value of property (other than shares of Intrepid Stock) received
by them in the Enviroq Merger.
(ii) No gain or loss will be recognized by the Stockholders
upon their receipt of shares of Intrepid Stock solely in exchange for
their shares of Enviroq Stock.
(iii) Gain, if any, but not loss will be recognized by the
Stockholders to the extent of the cash and fair market value of
property (other than shares of Intrepid Stock) received by them in the
Enviroq Merger.
(iv) The basis of the shares of Intrepid Stock to be received
by the Stockholders will be equal to the basis of the shares of Enviroq
Stock surrendered in exchange therefor reduced by the amount of cash
and the fair market value of property (other than shares of Intrepid
Stock) received
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by such Stockholders, and increased by the amount of any gain
recognized by such Stockholders in the Enviroq Merger.
(v) The holding period of the shares of Intrepid Stock to be
received by each Stockholder in the Enviroq Merger will be the holding
period of the shares of Enviroq Stock surrendered by each such
Stockholder in exchange therefor, provided that the shares of Enviroq
Stock were held as a capital asset.
(vi) The payment of cash by Intrepid to the Stockholders in
lieu of issuing a fractional share interest in Intrepid Stock will be
treated as if the fractional share actually was issued as part of the
Enviroq Merger and then was redeemed by Intrepid. This cash payment
will be treated as having been received as a distribution in full
payment in exchange for the fractional share interest of Intrepid Stock
redeemed. Generally, any gain or loss recognized upon such exchange
will be a capital gain or loss.
No opinion is expressed as to the federal tax treatment of the
transaction under any other provisions of the Code and regulations, or about the
tax treatment of any conditions existing at the time of, or effects resulting
from, the transaction that are not specifically covered by the Deloitte Opinion.
DESCRIPTION OF INTREPID CAPITAL STOCK
GENERAL
Following consummation of the Reorganization, the authorized stock of
Intrepid will consist of 15,000,000 shares of Intrepid Stock. The following
summary description of the stock of Intrepid is qualified in its entirety by
reference to the Certificate of Incorporation of Intrepid which will be in
effect following the consummation of the Reorganization, a copy of which is
annexed as Exhibit 3(a) to this Proxy Statement/Prospectus and Offer to Redeem
(the "Certificate of Incorporation") and to the applicable provisions of the
DGCL.
DIVIDENDS
Following consummation of the Reorganization, holders of shares of
Intrepid Stock will be entitled to receive dividends when, as and if declared by
the Intrepid Board from funds legally available therefor. Under Delaware law,
cash dividends may only be paid (a) out of "surplus", which consists of the
excess of the net assets of the corporation over its capital; or (b) if there is
no surplus, out of the net profits for the fiscal year in which the dividend is
declared, net profits for the immediately preceding fiscal year, or net profits
for both of such years. Due to the fact that following consummation of the
Reorganization Intrepid will act as a holding company for Enviroq, IAM and CRC
and will not have any independent operations of its own, the ability of Intrepid
to pay dividends will be limited by the ability of Enviroq, IAM and CRC to pay
dividends to Intrepid. Following consummation of the Reorganization, there will
be certain limitations on the payment of dividends by Enviroq, IAM and CRC to
Intrepid.
VOTING RIGHTS AND OTHER MATTERS
The holders of shares of Intrepid Stock are entitled to one vote per
share on all matters brought before the stockholders. The holders of shares of
Intrepid Stock do not have the right to cumulate their shares of Intrepid Stock
in the election of directors of Intrepid.
Shares of Intrepid Stock do not have any conversion rights, nor are
there any redemption or sinking fund provisions available therefor. Holders of
shares of Intrepid Stock are not entitled to any pre-emptive rights to subscribe
for any additional shares of Intrepid Stock or for any other securities which
may be issued.
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LIQUIDATION RIGHTS
Upon liquidation, dissolution or winding up of Intrepid, the assets
legally available for distribution to stockholders of Intrepid will be
distributable, subject to the rights of the holders of any then outstanding
series of preferred stock, ratably among the holders of the shares of Intrepid
Stock at the time outstanding. No shares of Intrepid Stock will be subject to
redemption.
COMPARISON OF INTREPID STOCK, ENVIROQ STOCK,
IAM STOCK AND CRC STOCK
The rights of Intrepid stockholders are governed by the Certificate of
Incorporation of Intrepid, as amended, the Bylaws of Intrepid and the laws of
the State of Delaware. The rights of the Stockholders are governed by the
Certificate of Incorporation of Enviroq, the Bylaws of Enviroq and the laws of
the State of Delaware. The rights of IAM shareholders are governed by the
Articles of Incorporation of IAM, the Bylaws of IAM and the laws of the State of
Florida. The rights of the CRC shareholders are governed by the Articles of
Incorporation of CRC, the Bylaws of CRC and the laws of the State of Florida.
After the Effective Time, the rights of the Stockholders, IAM
shareholders and CRC shareholders who become holders of Intrepid Stock will be
governed by the Certificate of Incorporation of Intrepid, as amended, the Bylaws
of Intrepid and the laws of the State of Delaware. The following summary of the
rights of the holders of Intrepid Stock, the holders of Enviroq Stock, the
holders of IAM Stock and the holders of CRC Stock is qualified in its entirety
by reference to the Certificate of Incorporation and Bylaws of Intrepid, the
Certificate of Incorporation and Bylaws of Enviroq, the Articles of
Incorporation and Bylaws of IAM, the Articles of Incorporation and Bylaws of
CRC, the DGCL, and the Florida Business Corporation Act of the State of Florida
(the "FBCA").
DIVIDENDS
The sources of funds for payments of dividends by Intrepid and Enviroq
are their subsidiaries. The sources of funds for payments of dividends by IAM
and CRC is from funds legally available therefor. The DGCL provides that,
subject to any restrictions in the corporation's certificate of incorporation,
dividends may be declared from the corporation's surplus or, if there is no
surplus, from its net profits for the fiscal year in which the dividend is
declared and the preceding fiscal year. Dividends may not be declared, however,
if the corporation's capital has been diminished to an amount less than the
aggregate amount of all capital represented by the issued and outstanding stock
of all classes having a preference upon the distribution of assets or if a
reduction in capital would leave the assets of the corporation remaining after
such reduction insufficient to pay any debts of the corporation for which
payment has not otherwise been provided. The FBCA provides that a corporation
may not make distributions to its shareholders if, after giving effect to the
distribution, (i) the corporation would not be able to pay its debts as they
became due in the usual course of business, or (ii) the corporation's total
assets would be less than the sum of its total liabilities plus (unless the
articles of incorporation permit otherwise) the amount that would be needed, if
the corporation were to be dissolved at the time of the distribution, to satisfy
the preferential rights upon dissolution of shareholders whose preferential
rights are superior to those receiving the distribution.
VOTING RIGHTS
All voting rights of Intrepid, Enviroq, IAM and CRC are vested in the
holders of shares of Intrepid Stock, Enviroq Stock, IAM Stock and CRC Stock,
respectively, with the holder of each of such share being entitled to one vote.
The holders of Intrepid Stock, Enviroq Stock, IAM Stock and CRC Stock do not
have the right to cumulate their votes in the election of directors.
BUSINESS COMBINATIONS
Intrepid and Enviroq are subject to Section 203 of the DGCL. That
section generally provides that a corporation may not engage in a business
combination, except with extraordinary corporate approval, with any person
deemed to be an "interested stockholder" for a period of three years following
the date that the stockholder became an
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interested stockholder. An "interested stockholder" is defined as any person who
directly or indirectly owns 15% or more of the outstanding voting stock of the
corporation within the three-year period beginning immediately prior to the date
on which such determination is made. The extraordinary corporate approval must
consist of Board approval prior to the time the person became an interested
stockholder or approval of the transaction by the Board of Directors and at
least two-thirds of the outstanding voting stock which is not owned by the
interested stockholder; in the absence of such approval, the interested
stockholder must own at least 85% of the voting stock of the corporation.
IAM and CRC are subject to Section 607.0901 of the FBCA. That section
generally provides that a business combination with any person deemed to be an
"interested shareholder" must be approved by the affirmative vote of the holders
of two-thirds of the voting shares other than the shares beneficially owned by
the interested shareholder unless any of the following conditions apply to the
transaction: (i) the transaction has been approved by a majority of the
disinterested directors; (ii) the corporation has not had more than 300
shareholders of record at any time during the three years preceding the
announcement of such transaction; (iii) the interested shareholder has been a
beneficial owner of at least 80% of the corporation's outstanding voting shares
for at least five years preceding the announcement of such transaction; (iv) the
interested shareholder is the beneficial owner of at least 90% of the
outstanding voting shares of the corporation, exclusive of shares acquired
directly from the corporation in a transaction not approved by a majority of
disinterested directors; (v) the corporation is an investment company registered
under the Investment Company Act of 1940, as amended; or (vi) consideration will
be paid to holders of each class or series of voting shares of the corporation
and certain conditions concerning the consideration received are met. An
"interested shareholder" is defined as any person who directly or indirectly
owns more than 10% of the outstanding voting shares of a corporation. IAM and
CRC are also subject to Section 607.0902 of the FBCA. That section generally
provides that, in the event a person acquires shares in a corporation giving
that person certain levels of voting control of the corporation, such person's
shares will have the same voting rights as other shareholders' shares only to
the extent granted by resolution approved by the shareholders of the
corporation.
The effect of the business combination and affiliated transactions
provisions, respectively, is to make more difficult the acquisition of a
majority control of a corporation or the use of its assets to finance such an
acquisition.
AMENDMENTS TO CORPORATE CHARTER AND BYLAWS
Any decision to be made by the stockholders of Intrepid with respect to
changes to the charter of Intrepid will be subject to the voting restrictions
contained in the Voting Agreement.
The Bylaws of Intrepid may be amended by the affirmative vote of a
majority of all the directors then holding office at any meeting of the Intrepid
Board if notice of the proposed amendment is contained in the notice of the
meeting. The Bylaws of Enviroq may be amended by the Directors and the
Stockholders. The Bylaws of CRC may be amended by the unanimous vote of all
members of the Board of Directors or by a majority vote of the Directors
present, at a meeting, regular or special, if notice of the proposed amendment
and of the time and place of the meeting has been given in writing to each
member of the Board of Directors at least ten days before such meeting is held.
The Bylaws of IAM may be amended by the Board of Directors or shareholders of
IAM in accordance with the FBCA.
THE BOARD OF DIRECTORS
The Bylaws of each of Intrepid, Enviroq, IAM and CRC provide that the
entire Board of Directors of Intrepid, Enviroq, IAM or CRC is to be elected by
majority vote of the shares entitled to vote at an annual meeting of
shareholders at which such election is to occur. Directors so elected serve for
a term of one (1) year and until their successors shall be elected and shall
qualify.
Both the DGCL and the FBCA provide (unless otherwise provided in a
corporation's charter or bylaws), that a director, or the entire Board of
directors, may be removed by the shareholders with or without cause by vote of
the holders of a majority of the shares of capital stock of the corporation then
entitled to vote on the election of directors. The Bylaws of each of Intrepid,
Enviroq, IAM and CRC provide that directors may be removed with or without cause
by a majority of the votes entitled to be cast in the election of directors.
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The Bylaws of each of Intrepid, Enviroq, IAM and CRC provide that
vacancies on their respective board of directors may be filled until the next
annual meeting of the shareholders by a vote of not less than 50% of the
directors remaining in office.
Notwithstanding any of the foregoing, any decision to be made by the
stockholders of Intrepid with respect to the Intrepid Board will be subject to
the Voting Agreement. As a condition to the consummation of the Reorganization,
the Principal Stockholders and the Principal IAM/CRC Shareholders executed the
Voting Agreement pursuant to which the Principal Stockholders and the Principal
IAM/CRC Shareholders agreed to vote all shares of Intrepid Stock owned by them
after the Effective Time to elect certain persons to the Intrepid Board after
consummation of the Reorganization. In general, the Voting Agreement provides
the Principal Stockholders, as a group, and the Principal IAM/CRC Shareholders,
as a group, representation on the Intrepid Board for as long as the Voting
Agreement remains in effect. Immediately after the Effective Time, the Principal
Stockholders and the Principal IAM/CRC Shareholders will own approximately 79%
of the issued and outstanding shares of Intrepid Stock. The maximum number of
members of the Intrepid Board subject to designation by the Principal
Stockholders and the Principal IAM/CRC Shareholders is, in the aggregate, seven.
The specific number of members of the Intrepid Board designated by the Principal
Stockholders, as a group, and the Principal IAM/CRC Shareholders, as a group,
will vary, depending on the specific percentage of shares of Intrepid Stock
owned by them viz-a-viz of the stockholders of Intrepid and viz-a- viz the other
group.
ACTIONS OF STOCKHOLDERS OR SHAREHOLDERS WITHOUT MEETINGS
Under the DGCL (unless otherwise provided in a corporation's charter),
any action required or permitted to be taken by the stockholders of a
corporation may be taken without a meeting and without a stockholder vote if a
written consent is signed by the holders of the shares of outstanding stock
having the requisite number of votes that would be necessary to authorize such
action at a meeting of stockholders at which all shares entitled to vote thereon
were present and voted. Under the Bylaws of Intrepid and Enviroq, action by
written consent of the stockholders of Intrepid and the Stockholders is
permitted. Under the FBCA, any action required or permitted to be taken by the
shareholders of a corporation may be taken without a meeting and without a
shareholder vote if a written consent is signed by all of the holders of the
outstanding capital stock of the corporation.
DISSENT AND APPRAISAL RIGHTS
A shareholder of IAM and CRC has dissent and appraisal rights pursuant
to Section 607.1301 et seq. of the FBCA (the "Florida Dissent Provisions") in
the event of any of the following corporate actions: (i) consummation of a plan
of merger to which the corporation is a party if shareholder approval is
required; (ii) consummation of a plan of share exchange to which the corporation
is a party if shareholder approval is required; (iii) consummation of a sale or
exchange of all or substantially all of the property of the corporation if
shareholder vote is required; (iv) any amendment of the articles of
incorporation if the shareholder is entitled to vote on the amendment and if
such amendment would adversely affect such shareholder by: (1) altering or
abolishing any preemptive rights attached to any of its shares; (2) altering or
abolishing the voting rights pertaining to any of its shares, except as such
rights may be affected by the voting rights of new shares then being authorized
of any existing or new class or series of shares; (3) effecting an exchange,
cancellation, or reclassification of any of its shares, when such exchange,
cancellation, or reclassification would alter or abolish its voting rights or
alter its percentage of equity in the corporation, or effecting a reduction or
cancellation of accrued dividends or other arrearages in respect to such shares;
(4) reducing the stated redemption price of any of its redeemable shares,
altering or abolishing any provision relating to any sinking fund for the
redemption or purchase of any of its shares, or making any of its shares subject
to redemption when they are not otherwise redeemable; (5) making noncumulative,
in whole or in part, dividends of any of its preferred shares which had
theretofore been cumulative; (6) reducing the stated dividend preference of any
of its preferred shares; or (7) reducing any stated preferential amount payable
on any of its preferred shares upon voluntary or involuntary liquidation; and
(v) any corporate action taken pursuant to a shareholder vote to the extent that
the voting or nonvoting shareholders of the corporation, if any, are entitled to
dissent pursuant to the articles of incorporation and (vi) approval of a
control-share acquisition as provided in Section 607.0902 of the FBCA. A
stockholder of Intrepid and a Stockholder has similar dissent and appraisal
rights pursuant to Section 262 of the DGCL (the "Delaware Dissent
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Provisions"), but only in the event of a merger or consolidation. See "THE
REORGANIZATION -- Rights of Dissent and Appraisal".
RIGHTS ON LIQUIDATION
In the event of liquidation, the holders of Intrepid Stock, Enviroq
Stock, IAM Stock and CRC Stock will be entitled to receive pro rata any assets
distributable to such stockholders or shareholders with respect to the shares
held by them, after payment of indebtedness, such preferential amounts as may be
required to be paid to the holders of any preferred stock then outstanding or
issued by any such corporation and such other payments as are prescribed by the
FBCA or the DGCL, as applicable.
PRE-EMPTIVE RIGHTS
The holders of Intrepid Stock, Enviroq Stock, IAM Stock and CRC Stock
do not have any pre-emptive rights to purchase additional shares of any class of
securities, including common stock, of Intrepid, Enviroq, IAM or CRC,
respectively, which may hereafter be issued.
REPORTS TO STOCKHOLDERS AND SHAREHOLDERS; NOT MARGIN SECURITIES
Enviroq stock is registered under the Exchange Act, and therefore,
Enviroq is required to provide annual reports containing audited financial
statements to the Stockholders and to file other reports with the Commission and
solicit proxies in accordance with the rules of the Commission.
Following the consummation of the Reorganization, Intrepid Stock will
be registered under the Exchange Act, and, therefore, Intrepid will be required
to provide annual reports containing audited financial statements to
stockholders and to file other reports with the Commission and solicit proxies
in accordance with the rules of the Commission.
Although IAM and CRC are not registered under the Exchange Act, the
FBCA requires that IAM and CRC provide to the shareholders of IAM and CRC annual
financial statements that include a balance sheet as of the end of the fiscal
year, an income statement for that year, and a statement of cash flows for that
year. If the financial statements are prepared for IAM or CRC on the basis of
generally accepted accounting principles, the annual financial statements also
must be prepared on that basis. If the annual financial statements are reported
upon by a public accountant, the report of such public accountant must accompany
the financial statements. In addition to requiring financial statements, the
FBCA requires that, if IAM or CRC indemnifies or advances expenses to a
director, officer, employee, or agent, otherwise than by court order or action
by the shareholders or by an insurance carrier pursuant to insurance maintained
by IAM or CRC, IAM or CRC, as the case may be, must report the indemnification
or advance in writing to the shareholders with or before the notice of the
shareholders' next meeting, and, if IAM or CRC issues or authorizes the issuance
of shares for promises to render services in the future, IAM or CRC must report
in writing to the shareholders the number of shares authorized or issued, and
the consideration received by IAM or CRC, with or before the notice of the next
shareholders' meeting.
The Enviroq Stock, the IAM Stock and the CRC Stock do not presently
constitute, and after the Redemption and the Reorganization, it is anticipated
that the Intrepid Stock will not constitute, "margin securities" under the
rules of the Federal Reserve Board.
SUPERVISION AND REGULATION
INTREPID
Intrepid is incorporated under the laws of the State of Delaware. After
the Effective Time, shares of Intrepid Stock will be registered pursuant to the
Exchange Act. Accordingly, Intrepid will be subject to the regular reporting
requirements set forth in the Exchange Act and will be subject to applicable
regulation and supervision by the Commission. It is also anticipated that shares
of Intrepid Stock will be registered on the NASDAQ-Small Cap Market at such time
as Intrepid complies with all applicable requirements for such registration. Due
to the fact that Intrepid will not, after the Reorganization, be engaged in the
rendering of investment advisory services, its activities as a holding company
will not constitute it an "investment adviser", as such term is defined in the
Investment Advisers Act
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and state advisers acts. Accordingly, Intrepid will not,
after the Reorganization, be registered under the Investment Advisers Act or any
state advisers acts.
ENVIROQ
Enviroq is incorporated pursuant to the laws of the State of Delaware.
Accordingly, Enviroq is, and will after the Effective Time continue to be,
regulated by the laws of the State of Delaware. Shares of Enviroq Stock are
registered pursuant to the Exchange Act. Enviroq is currently subject to the
reporting requirements set forth in the Exchange Act and is subject to
applicable regulation and supervision by the Commission. After the Effective
Time, Enviroq will cease to be subject to such reporting requirements and to be
regulated by the Commission (other than indirectly as a subsidiary of a company
registered pursuant to the Exchange Act).
IAM
IAM is incorporated pursuant to the laws of the State of Florida.
Because IAM is engaged in the business of providing investment advisory services
to a number of clients, IAM is registered under the Investment Advisers Act and
under applicable state investment advisers acts. Registrations, reporting,
maintenance of books and records, custodial arrangements and other compliance
procedures required pursuant to these laws and regulations promulgated
thereunder are maintained by IAM. In addition, any associated person of IAM
providing investment advice to clients will be required to have passed the
NASD's Series 7 examination for general securities representatives.
IAM is also subject to ERISA and to U.S. Department of Labor
regulations promulgated thereunder, insofar as IAM is a "fiduciary" under ERISA
with respect to its clients.
The laws and regulations applicable to IAM and its operations generally
grant supervisory agencies and bodies broad administrative powers, including the
power to limit or restrict IAM from carrying on its business in the event that
it fails to comply with such laws and regulations. Possible sanctions that may
be imposed in the event of such noncompliance include the suspension of
individual employees, limitations on IAM's engaging in business for specified
periods of time, revocation of IAM's registration as an investment adviser,
censures and fines.
Every investment advisory contract between a registered investment
adviser and its client must expressly provide that it may not be assigned by the
investment adviser without the consent of the client. Under the Investment
Advisers Act, an investment advisory contract of IAM is deemed to have been
assigned when there is a "change in control" of IAM, either directly or
indirectly, as through a sale of a "controlling block" of IAM's voting
securities. Thus, a change of control of IAM will take place when it is acquired
by Intrepid. Prior to the acquisition of IAM by Intrepid, IAM is required to
obtain the written consent of IAM clients owning an aggregate total of 85% of
the assets under management to the assignment of their advisory contracts which
results from the IAM Merger and the Reorganization. The IAM Merger and the
Reorganization is expressly conditioned on obtaining such consents.
Supervision and regulation of IAM required by current laws and
regulations will continue after the Effective Time of the IAM Merger and the
Reorganization. All registrations, reporting, maintenance of books and records
and compliance procedures required by the foregoing laws and regulations will
continue to be maintained independently by IAM.
IAM believes that it is currently in compliance with all state and
federal regulations and regulatory authorities, and its most recent audit met
all applicable regulatory requirements. IAM also has in place an ongoing
internal compliance program supported by regulators, external consultants,
accountants and attorneys.
CRC
CRC is incorporated pursuant to the laws of the State of Florida. CRC
is registered as a broker-dealer with the Commission under the Exchange Act and,
where applicable, under various state securities laws, and is further regulated
by the rules of the NASD.
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CRC is also required by federal law to belong to the Securities
Investment Protection Corporation (the "SIPC"), which provides, in the event of
the liquidation of a broker-dealer, protection for securities held in customer
accounts of up to $500,000 per customer, subject to a limitation of $100,000 on
claims for cash balances. The SIPC is funded through assessments levied on
registered broker-dealers. Stocks, bonds, mutual funds and money market funds
are considered securities and are protected on a share basis for the purposes of
SIPC protection. SIPC protection does not apply to fluctuations in the market
value of securities.
Margin lending arranged by CRC is subject to the margin rules of the
Board of Governors of the Federal Reserve System and the NASD. Under such rules,
broker-dealers are limited in the amount they may lend in connection with
certain purchases and short sales of securities and are also required to impose
certain maintenance requirements on the amount of securities and cash held in
margin accounts. In addition, those rules govern the amount of margin customers
must provide and maintain in writing uncovered options.
As a registered broker-dealer, CRC is subject to the Commission's Rule
15c3-1, the Net Capital Rule (the "Net Capital Rule"), which has also been
adopted by the NASD. The Net Capital Rule specifies minimum net capital
requirements for all registered broker-dealers and is designed to measure
financial integrity and liquidity. Failure to maintain the required regulatory
net capital may subject a firm to suspension or expulsion by the NASD, certain
punitive actions by the Commission and, ultimately, may require a firm's
liquidation.
Regulatory net capital is defined as net worth (assets minus
liabilities), plus qualifying subordinated borrowings, less certain deductions
that result from excluding assets that are not readily convertible into cash and
from conservatively valuing certain other assets. These deductions include
charges that discount the value of firm security positions to reflect the
possibility of adverse changes in market value prior to disposition.
The Net Capital Rule requires notice of equity capital withdrawals to
be provided to the Commission prior to and subsequent to withdrawals exceeding
certain sizes. The Net Capital Rule also allows the Commission, under limited
circumstances, to restrict a broker-dealer from withdrawing equity capital for
up to 20 business days.
CRC falls within the provisions of Rule 15c3-l(a)(2)(iv) promulgated by
the Commission. CRC is subject to the minimum net capital requirements
applicable to brokers or dealers that introduce customer accounts and receive
securities, which requires that CRC maintain minimum net capital, as defined, of
not less than $50,000. As of December 31, 1997 and 1996, CRC had net capital of
$107,000 and $83,000, respectively, which exceeds the net capital requirements
of $50,000 under Rule 15c3-l(a)(2)(iv). CRC is not subject to Commission Rule
15c3-3, which regulates a broker-dealer's custody of customer securities, and
claims exemption from the reserve requirement under Section 15c3-3(k)(2)(ii).
CRC maintains net capital in excess of the Commission's Rule 17a-11 requirement
which would require CRC to give notice in the event that CRC's net capital falls
below certain levels.
Supervision and regulation of CRC required by current laws and
regulations will continue after the Effective Time of the CRC Merger and the
Reorganization. All registrations, reporting, maintenance of books and records
and compliance procedures required by the foregoing laws and regulations will
continue to be maintained independently by CRC.
CRC believes that it is currently in compliance with all state and
federal regulations and regulatory authorities, and its most recent audit met
all applicable regulatory requirements. CRC also has in place an ongoing
internal compliance program supported by regulators, external consultants,
accountants and attorneys.
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CERTAIN INFORMATION CONCERNING ENVIROQ
DESCRIPTION OF THE BUSINESS
Enviroq is principally engaged in the development, commercialization,
formulation and marketing of spray- applied resinous products, and in the
treatment of municipal wastewater biosolids. Enviroq's operations are conducted
primarily through Sprayroq(R), Inc., a Florida corporation of which Enviroq owns
50% of the outstanding capital stock ("Sprayroq"). Sprayroq is engaged in the
development, commercialization, manufacture and marketing of spray-applied
resinous materials. Enviroq also owns 100% of the outstanding capital stock of
Synox(R) Corporation, a Delaware corporation ("Synox"). Synox has been engaged
in the research, development and marketing of a process for the treatment of
municipal wastewater biosolids. During the fiscal year ended March 30, 1996,
management of Enviroq elected to minimize the activities of Synox and to write
off substantially all of the assets of Synox. As of March 28, 1998, all
remaining assets of Synox have been fully depreciated. Accordingly, during the
fiscal year ended March 28, 1998, most of the income and gross profit of Enviroq
was attributable to the operations of Sprayroq.
Year 2000 Issue
The management of Enviroq has made an assessment of the Year 2000
compliance status of Enviroq's computer hardware, computer network equipment,
and computer software. With respect to computer systems utilized within Enviroq,
management believes that all key systems are currently Year 2000 compliant and
should not pose significant operational problems, either to Enviroq or to third
parties. Enviroq relies on third party vendors for its key computer system
components and, as a function of routine upgrades of such systems, has received
assurance of Year 2000 compliance, consequently avoiding any expense directly
related to Year 2000 compliance. In addition, the management of Enviroq expects
to complete, by December 31, 1998, a survey with each key supplier and key
customer to further assess the extent of Year 2000 problems for such companies
and any potential impact upon Enviroq. Enviroq will evaluate the necessity of a
contingency plan after reviewing the results of the survey. Although it is not
possible to reasonably estimate the cost of compliance, based on management's
assessment, Enviroq believes that the cost to resolve any third party issues
will not have a material impact on earnings.
Despite these efforts, there can be no assurance that the systems of
other companies, organizations or governmental agencies upon which Enviroq
relies will be addressed successfully or in a timely manner. While Enviroq has
not identified any specific areas of risk, it is possible that Year 2000
problems, arising from sources beyond the control of Enviroq (including the
systems of suppliers and customers), or from general market Year 2000 problems
could result in a negative adverse impact on Enviroq and/or its operating
results.
Additional information concerning Enviroq and its subsidiaries is
included in the documents filed by Enviroq with the Commission which are
incorporated by reference herein. A copy of the Annual Report of Enviroq on Form
10-KSB, as amended, for fiscal year ended March 28, 1998 and a copy of the
Quarterly Report of Enviroq on Form 10- QSB, as amended, for fiscal quarter
ended June 27, 1998 accompany this Proxy Statement/Prospectus and Offer to
Redeem. See "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE".
Enviroq Consolidation of Accounts of Sprayroq
Enviroq has since the inception of Sprayroq consolidated the financial
statements of Sprayroq with those of Enviroq for financial reporting purposes.
Enviroq has done so because the Stockholder Agreement (the "Sprayroq Stockholder
Agreement") between Enviroq, Sprayroq, and Replico Development Company, Inc.
(the other 50% equity owner of Sprayroq) provides that during the time (the
"Loan Period") for which debt remains outstanding from Sprayroq to Enviroq
(which, at the current rate of earnings by Sprayroq, Enviroq estimates will not
occur prior to the end of the fiscal year ending in March 2000), Enviroq will
have certain rights with respect to Sprayroq, including, without limitation, (i)
providing the management of Sprayroq; (ii) designating three of the five
directors of Sprayroq; and (iii) voting (through a proxy from Replico)
approximately 66% of the outstanding shares of Sprayroq. Because of these
provisions, Enviroq has determined that it controls Sprayroq and accordingly has
included in its consolidated financial reports the accounts of Sprayroq. Enviroq
believes that generally accepted accounting principles permit
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Enviroq to continue such consolidation so long as Enviroq is deemed to be in
control of Sprayroq. According to the Sprayroq Stockholder Agreement, following
the Loan Period and until such time as Sprayroq accumulates an aggregate of
$2,000,000 in retained earnings (after giving effect to dividends paid to its
stockholders from such retained earnings), Enviroq will continue to have the
right to vote approximately 55% of the shares of Sprayroq and will continue to
have the right to designate three of the five directors of Sprayroq. Following
the Loan Period, therefore, Enviroq will continue to vote a majority of the
outstanding shares of Sprayroq and will be able to designate a majority of the
five Sprayroq directors. Generally accepted accounting principles are unclear,
however, regarding the ability of Enviroq to continue to consolidate the
accounts of Sprayroq following the Loan Period because of the changes in
Enviroq's rights under the Sprayroq Stockholder Agreement resulting from the
repayment of such debt. While Enviroq expects to be able to consolidate the
accounts of Sprayroq for the foreseeable future, there can be no assurance that
Enviroq will be able to do so following the Loan Period. Enviroq is not able to
determine the effect at this time on its financial statements were it to be
unable to consolidate the financial statements of Sprayroq with its financial
statements.
CERTAIN INFORMATION CONCERNING IAM
DESCRIPTION OF THE BUSINESS
IAM is an asset management company organized under the laws of the
State of Florida in 1994. IAM began operations on January 23, 1995 and provides
investment advisory and management services to individuals, for-profit and
non-profit corporations, labor unions and institutional clients. IAM is a
registered investment adviser under the Investment Advisers Act with clients in
several states in the southeast United States. IAM's principal offices are
located at 50 North Laura Street, Suite 3550, Jacksonville, Florida 32202. The
sole shareholders of IAM are Mark Travis, who owns 175 shares of IAM Common
Stock, and Forrest Travis, who owns 325 shares of IAM Common Stock.
IAM's advisory fees are based on the amount of assets under management.
Fee rates typically decline as account size increases. All of IAM's accounts are
billed 25 % of the annual fee in advance on a quarterly basis. The first billing
includes any fractional quarter and the next full quarter. Fees and other terms
are negotiable and will be discussed prior to any client initiating any
investment program with IAM.
The amount of assets under management (directly and in the hands of
outside managers) at IAM as of December 31, 1995, 1996 and 1997, and as of June
30, 1997 and 1998 are set forth in the following table:
<TABLE>
<CAPTION>
Assets Under
Date Management
---- ----------
<S> <C>
December 31, 1995 $ 63.0 million
December 31, 1996 $ 76.0 million
June 30, 1997 $ 62.0 million
December 31, 1997 $ 66.0 million
June 30, 1998 $111.0 million
</TABLE>
The decrease in assets under management from December 31, 1996 to December 31,
1997 was primarily due to the loss of one substantial client.
The assets of all of IAM's clients have generally been growing, with
the most rapid growth achieved by domestic equities. For fiscal year ended
December 31, 1997, no single client of IAM provided more than 11% of IAM's
consolidated revenues.
IAM manages assets across a diverse range of investment styles, asset
classes and client types, with significant participation in fast-growing
segments of the debt and equity markets. For the first six months of fiscal year
1998,
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investments in debt represented 39% of IAM's funds invested and investments in
equity securities represented 61% of IAM's funds invested.
IAM's Investment Strategy
IAM's strategy is to capitalize on growth opportunities for investment
management services in the institutional, corporate and private client markets.
IAM is responsible for developing and implementing its own investment
philosophy, business plans and management fees. IAM seeks to grow by expanding
the capabilities of its investment management services, increasing and focusing
its marketing efforts and selectively expanding its distribution channels.
(i) Asset Management Accounts IAM has developed an asset management
account program, which is custodied through either National Financial Services
Corporation ("NFSC") or Schwab Institutional, a division of Charles Schwab &
Co., Inc. ("Schwab"), that provides IAM's clients with the following:
- INVESTOR PROFILE - IAM consults with the client to obtain
detailed financial information and other pertinent data on an
investor profile worksheet to enable the client to determine
the appropriate investment guidelines, risk tolerance and
other factors that will assist in ascertaining the suitability
of the client's asset management account.
- PORTFOLIO MANAGEMENT SELECTION - IAM provides asset management
of client's funds. IAM seeks to diversify and manage the
client's portfolio, which includes, but is not limited to,
stocks, bonds, options and money market instruments.
Investments are determined based upon the client's investment
objectives, risk tolerance, net worth, net income and other
various suitability factors. IAM manages the client's accounts
on an individual basis. Further restrictions and guidelines
imposed by clients affect the composition and performance of
portfolios. For these reasons, performance of portfolios
within the same investment objective may differ and clients
should not expect that the performance of their portfolios
will be identical with the average client of the firm.
- PERFORMANCE EVALUATION AND MONITORING SERVICES - IAM will
furnish performance measurement services to its clients,
provided by both Schwab or NFSC and through internally
generated reports, in the form of quarterly performance
evaluation reports. The internal reports are intended to
inform clients as to how their investments have performed for
the selected period.
- DISCRETIONARY AUTHORITY - The client may grant IAM
discretionary authority to buy and sell securities. If the
client chooses to do so, the account may be managed on a
non-discretionary basis.
(ii) Schwab or NFSC Accounts IAM typically determines whether it is in
a client's best interests to maintain the asset management account at Schwab or
NFSC. In these instances, the client is instructed to open the account directly
with Schwab or NFSC. The client gives trading authorization of securities to be
bought and sold to IAM. Schwab or NFSC, as the case may be, executes the orders
and provides customer statements and confirmation. In addition, Schwab or NFSC
maintains custody of all account assets and performs all custodial functions,
including crediting of interest and dividends on account assets.
Schwab or NFSC may charge a transaction fee or commission on any
securities purchased or sold. Prior written authorization for the withdrawal of
quarterly fees is obtained from the client and written notification of the
quarterly fee is provided to the client prior to debiting the client's account.
If there is inadequate cash available to pay the quarterly fee, the client's
prior authorization will permit IAM to liquidate securities to pay the fee in
the following sequence:
1) from any or all Money Market Funds;
2) from any or all Fixed Income Funds; and
3) from any or all Equity Funds.
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The agreement may be terminated by either party, and the client is
entitled to a pro rata refund of any prepaid quarterly fees. Clients who
terminate the contract within five days of signing the contract shall be
provided a full refund.
(iii) Asset Management by External Portfolio Managers This service
presents an asset management account whereby IAM utilizes external portfolio
management to provide professional management of the account. IAM's management
fee consists of the same charges as outlined above and also includes a fee for
the external portfolio manager, which typically approximates 1% of assets under
management. Fees are normally fixed; however, they can be negotiated at the
discretion of IAM's management. Fees are charged quarterly in advance and are
refundable based upon the pro rata number of days remaining in the quarter. The
minimum dollar amount for opening an asset management account is $500,000,
unless an exception is made.
(iv) Solicitations of Money Managers IAM also enters into solicitation
agreements with various non-affiliated investment advisors to offer services to
IAM's clients. As a result of the agreements, compensation is provided to IAM in
exchange for introducing clients to the non-affiliated investment advisors.
Compensation to IAM is a percentage of the fee charged to the client by the
non-affiliated investment advisor for its services. These fees are usually
calculated as a percentage of assets under management. The solicitor
relationship of IAM with non-affiliated investment advisors is clearly
communicated to all clients in a disclosure statement provided by the
non-affiliated investment advisor. The fee for such solicitation services is
generally payable one quarter in advance of any services being provided by such
non-affiliated investment advisor. Should the contract be terminated prior to
the end of the quarter, the fee will be returned to the client on a prorated
basis.
Factors Affecting Institutional Investment Managers
(i) General Revenues in the institutional investment management
industry are determined primarily by fees based on assets under management.
Therefore, the principal determinant of growth in the industry is the growth of
institutional assets under management. In IAM's management's judgment, the major
factors which influence changes in institutional assets under management are:
(a) changes in the market value of securities; (b) net cash flow into or out of
existing accounts; (c) gains of new or losses of existing accounts by specific
firms or segments of the industry; and (d) the introduction of new products by
the industry or by particular firms.
In general, assets under management in the institutional segments of
the industry have increased steadily, primarily due to increased rates of
return, client retention, client acquisition, asset removals and asset
additions.
(ii) Competition IAM competes with a large number of investment
management firms, principally those engaged in the management of individual,
corporate and institutional accounts. In addition, IAM competes with affiliates
of securities broker-dealers, commercial banks, insurance companies and other
entities, many of which have substantially greater capital and other resources
and some of which offer a wider range of financial services.
Management believes that the most important factors affecting
competition in the investment management industry are the abilities and
reputations of investment managers, differences in the investment performance of
investment management firms, the development of new investment strategies,
access to channels of distribution, resources to invest in information
technologies and client service capabilities.
Barriers to entry are low, firms are relatively long-lived in the
investment management business, and a new investment management firm has low
capital requirements. Maintaining IAM requires only the continued involvement of
its professional personnel. See "Risk Factors -- Competition and -- Dependence
on Key Personnel".
Employees
One of IAM's employees also performs administrative services for CRC.
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DESCRIPTION OF PROPERTY
IAM leased 2,000 square feet of office facilities pursuant to a five
year lease with Barnett Banks, Inc., a Florida corporation. In addition, IAM is
also using, and intends to use for the same period as the lease, 1,978 square
feet of additional office space contiguous to the leased space. The lease
expires on November 30, 1999, unless extended by agreement of the parties.
Pursuant to the lease, IAM is required to pay monthly rent of $5,304 until the
expiration thereof. IAM's existing facilities are adequate for its current
operations, and it believes that additional facilities are readily available
should the business need arise.
LEGAL MATTERS
IAM is not subject to any legal proceedings.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
This discussion should be read in conjunction with the financial
statements and the notes thereto relating to IAM contained elsewhere in this
Proxy Statement/Prospectus and Offer to Redeem.
Statements in this "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and elsewhere in this document, as well as
oral statements that may be made by IAM or by officers, directors or employees
of IAM acting on IAM's behalf that are not statements of historical or current
fact involve risks and uncertainties and known and unknown factors that could
cause the actual results of IAM to be materially different from the historical
results or from any future results expressed or implied by such statements,
including, without limitation, changes in general economic and market
conditions, fluctuations in volume and prices of securities, changes and
prospects for changes in interest rates and demand for asset management and
investment advisory services, increases in competition within and without the
investment advisory business through broader service offerings or otherwise,
competition from electronic discount brokerage firms offering investment advice
and discounts on securities commissions, the prevalence of a flat fee investment
advisory environment, limited trading opportunities, increases in expenses and
changes in net capital or other regulatory requirements.
General
IAM's revenues (exclusive of "other income") have grown from $762,278
in fiscal year 1995 to $1,057,208 in fiscal year 1997, and assets under
management have grown from $63 million during fiscal year 1995 to $66 million
during fiscal year 1997.
IAM's largest expense category is compensation and benefits. Included
within this category are all compensation-related costs (payroll, benefits,
bonuses) for IAM's entire staff. Although this expense has increased in the past
due to the hiring of additional employees, IAM believes compensation expense
should decrease over time as a percentage of revenues, as IAM's asset base and
revenues derived therefrom expand to more efficiently utilize IAM's capacity.
Other operating expenses include facilities, legal and accounting, consulting,
communication expenses, registration expenses and others. Other operating
expenses are more fixed in nature and should decrease, over time, as a
percentage of revenues.
Expenses and losses recognized as a percentage of operating revenues
and other income have decreased for each full fiscal year since IAM's inception.
IAM has benefited from its growth in that expenses have not increased at the
same rate as revenues due to economies of scale. Since IAM has increased its
personnel to meet the growth of its operations, IAM's largest expense category
has been employee compensation and benefits. IAM started with 6 employees in
1995 and had 8 employees as of December 31, 1997. IAM expects its pre-tax
margins to increase over time as its revenues and assets under management grow
more rapidly than expenses. Despite increases in compensation and marketing
expenses in each period, the fixed components of total operating expenses
remained relatively constant.
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IAM's basic source of income is from investment advisory and management
services provided to its clients. Fees are typically based upon a percentage of
total funds under management. Management's plans for generating operating
profits in the future through continued growth and expansion of IAM's products
and services rely upon management's ability to bring additional assets under
IAM's management.
The investment advisory business is subject to various inherent risks
and contingencies, many of which are beyond IAM's ability to control. IAM's
revenues, like those of other firms in the securities fund management industry,
are directly related to the amount and stability of funds under management.
Variations in amounts of investment assets under management are the result of
local, regional, national and international economic, regulatory and political
conditions, broad trends in business and finance, and interest rate
fluctuations.
IAM's management believes that its computer systems will be year 2000
operable and fully tested by December 31, 1998. IAM's own systems are presently
being modified or replaced. IAM believes its cost for meeting this problem will
not be material.
Six Months Ended June 30, 1998 Compared to Six Months Ended June 30, 1997
For the six months ended June 30, 1998 compared to June 30, 1997, IAM
experienced increases in total operating revenues and total operating expenses.
IAM's management attributes the increase in revenues and expenses to increases
in IAM's assets under management and the increased costs associated with
additions to IAM's support staff and client services.
Total operating revenues for the first six months of fiscal year 1998
were $534,163, representing a 20% increase from $443,777 for the comparable
period of fiscal year 1997.
Fee revenues were $348,665 for the first six months of fiscal year 1998
(65% of operating revenues) compared to $338,337 for the first six months of
fiscal year 1997 (76% of operating revenue), representing a 3% increase over the
previous period. Assets under management as of June 30, 1998 totaled $111.0
million.
Outside manager income for the first six months of 1998 compared to the
same period in 1997 decreased $29,791, or 66%. This decrease can be directly
attributed to a decrease in the number of outside managers.
Management fees, which represent amounts recovered from CRC for its
share of rent, shared administrative employees and other common area
maintenance, increased to $112,000 for the six months ended June 30, 1998 from
$60,000 for the same period in 1997. Management fees increased because of a more
specific allocation of costs to CRC in 1998 than in 1997, which resulted in
higher charges to CRC.
Realized and unrealized gains on investment increased to $57,849 for
the six months ended June 30, 1998. This increase is attributable to gains on
IAM's investment in a limited partnership managed by IAM, as well as a
significant increase in IAM's share of the increase in value of the partnership
which was purchased after June 30, 1997. Realized and unrealized gains on
investments will be dependent on general market conditions and the favorable
performance of IAM's underlying assets.
Operating expenses for the first six months of fiscal year 1998
increased 68% from the same period of 1997 from $279,941 to $471,375.
Salaries and employee benefits at $285,429 and $72,627 comprise 61% and
26%, of total IAM's expenses for the first six months of fiscal years 1998 and
1997, respectively. This increase of 293% can be attributed to the addition of
two new employees, increased salaries and the increase in the amount of assets
now being managed. Salary and employee benefit expenses are likely to increase
incrementally in the event revenues increase and as and when more employees are
hired.
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During the six month period ended June 30, 1998, outside manager
expense totaled $15,649, compared to $45,440 for the same period of 1997. The
decrease of 66% (or $29,791) is attributed to a decrease in the number of
outside managers providing services to IAM and its clients.
Advertising and marketing expense increased $7,132, or 26%, to $34,382
for the six months ended June 30, 1998 compared to the same period of 1997,
primarily due to additional travel required for marketing purposes.
Professional and regulatory fee expense decreased $21,975 or 52% to
$20,646 for the six months ended June 30, 1998 compared to the same period of
1997, primarily due to a decrease in outside professional fees.
General and administrative expenses increased $8,988 from $56,081 in
the first six months of fiscal year 1997 to $65,069 in the first six months of
fiscal year 1998, due to an incremental increase in business operations from
1997 to 1998.
Interest expense increased $4,643, or 66%, to $11,692 for the six
months ended June 30, 1998 compared to the same period of 1997, primarily due to
a small amount of additional debt borrowed.
As a result of these factors, IAM reported net income of $66,166 for
the first six months of fiscal year 1998 versus net income of $164,677 for the
comparable period of 1997. IAM operated as a subchapter S corporation for
federal income tax purposes. Consequently, no provision for income taxes are
made since all earnings and losses are passed through to the individual
stockholders.
Twelve Months Ended December 31, 1997 Compared to Twelve Months Ended December
31, 1996
For the fiscal year ended December 31, 1997, IAM experienced an
increase in total operating revenues compared to the fiscal year ended December
31, 1996. IAM's management attributes the increase in revenues to increases in
assets managed directly by IAM rather than outside advisors or managers.
Total operating revenues for fiscal year 1997 were $1,057,208,
representing a 14% increase from total operating revenues of $923,134 for fiscal
year 1996.
Asset management fee revenues were $651,590 in fiscal year 1997 ( 62%
of operating revenues) compared to $644,158 for fiscal year 1996 (70% of
operating revenue), representing a 1% increase over the previous period. This
increase is primarily attributable to the increase in the amount of assets
managed directly by IAM after a reduction in the number of outside managers,
which resulted in an increase in the amount of asset management fees received by
IAM during this period. Assets under management (directly and in the hands of
outside managers) as of December 31, 1997 totaled $66 million compared to $76
million as of December 31, 1996.
Outside manager income for the fiscal year ended December 31, 1997
decreased $113,798, or approximately 55%, from $206,672 during the fiscal year
ended December 31, 1996 to $92,874 for the fiscal year ended December 31, 1997.
This decrease can be directly attributed to a decrease in the number of outside
managers.
Realized and unrealized gains on investment increased from $3,204 for
the fiscal year ended December 31, 1996 to $161,244 for the fiscal year ended
December 31, 1997, an increase of approximately 4,933% during fiscal year 1997.
This increase is attributable to gains on IAM's investment in a limited
partnership managed by the shareholders of IAM.
Operating expenses for the fiscal year ended December 31, 1997
decreased 18% from the same period of 1996, from $872,880 to $716,449.
Salaries and employee benefits at $340,374 and $323,925 comprise 39%
and 45%, respectively, of total expenses for fiscal years 1996 and 1997.
Salaries and employee benefits expenses decreased 5% compared to the same period
of 1996 primarily due to a decrease in the salaries payable to the President and
Vice President. The most
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significant expense item was gross wages. During fiscal year 1997, this expense
was $249,350, compared to $239,553 for the same period of 1996.
Outside manager expense for the fiscal year ended December 31, 1997
totaled $92,874 compared to $206,672 for the same period of 1996. The decrease
of $113,798, or 55%, is attributed to a decrease in the number of outside
managers.
Advertising and marketing expense decreased $22,353, or approximately
34%, to $44,252 for the fiscal year ended December 31, 1997 compared to the
fiscal year ended December 31, 1996, primarily due to a decrease in advertising.
Professional and regulatory fee expense decreased $3,209, or
approximately 6%, to $45,860 for the fiscal year ended December 31, 1997
compared to the fiscal year ended December 31, 1996, primarily due to a decrease
in outside professional services.
Operating and maintenance expense increased $5,184, or approximately
7%, to $81,803 for the fiscal year ended December 31, 1997 compared to the
fiscal year ended December 31, 1996, primarily due to increases in rent expense
during fiscal year 1997.
Interest expense declined $11,638, or approximately 45%, to $14,300 for
the fiscal year ended December 31, 1997 compared to the fiscal year ended
December 31, 1996, primarily due to a decrease in debt.
As a result of these factors, IAM reported net income of $343,104 for
fiscal year 1997, versus $53,048 for fiscal year 1996.
IAM places available cash in interest bearing demand money market
accounts, US Treasury Bonds and local government bonds. As of December 31, 1997,
IAM's cash and cash equivalents totaled $1,188, all of which is in checking
accounts.
As of December 31, 1997, IAM's current assets represented approximately
72% of total assets. Stockholders' equity as of December 31, 1997 was
approximately $58,262, an increase of $195,687, or 142%, since December 31,
1996. The increase is primarily attributable to a significant increase in
retained earnings.
Liquidity and Capital Resources
IAM's liquid assets consist primarily of cash and cash equivalents. The
levels of these assets are dependent upon IAM's operating, financing and
investing activities during any given period. Cash and cash equivalents as of
June 30, 1998 totaled $10,498. Cash and cash equivalents as of December 31,
1997, 1996, and 1995 consisted of the following:
<TABLE>
<CAPTION>
Current Amount
----------------------------------
Current Interest
Maturity Rate 1997 1996 1995
-------- --------- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Cash in checking Demand -- 1,188 30,810 16,735
Money Market Accounts Demand -- 0 0 0
----- ------ ------
1,188 30,810 16,735
</TABLE>
IAM's statements of financial condition reflect a liquid financial
position as cash and assets readily convertible to cash represent over 36%, 25%
and 61% of total assets as at December 31, 1997, 1996, and 1995, respectively.
As of December 31, 1997, IAM owned trading securities with a fair value of
$87,355, which represents an investment in
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Intrepid Capital, L.P. IAM has historically financed its growth in operations
and costs related to expansion of assets under management primarily with funds
generated from shareholder capital, long-term loans and lines of credit. IAM's
management believes that existing capital, when combined with the additional
funds generated from operations, will provide IAM with sufficient resources to
meet present cash and capital needs.
Analysis of Consolidated Cash Flows
IAM's growth in assets since January 23, 1995 has been primarily due to
an increase in cash provided by asset management fees. IAM has required cash for
financing activities in the fiscal years 1997, 1996, and 1995 of $(31,176),
$(9,255) and $128,145, respectively.
For fiscal year 1995, IAM had a $(159,537) negative cash flow position,
and operating activities required cash totaling $77,476, principally due to an
increase in short-term liabilities. Investing activities resulted in a use of
cash totaling $(235,622), principally from a net investment in short-term
investments totaling $(184,739). Financing activities resulted in cash totaling
$128,145. For fiscal year 1996, IAM generated net income of $53,048 and
operating activities required cash totaling $(78,924), principally due to a
decrease in short-term liabilities. Investing activities resulted in positive
cash flow totaling $102,254. Financing activities required the expenditure of
$(9,255) in cash from IAM.
For fiscal year 1997, IAM's operating activities generated net income
of $343,104 and net cash of $160,553. Investing activities required an
additional $(158, 999) in cash. $(31,176) was expended through IAM's financing
activities.
Seasonality and Inflation
IAM's business is relatively consistent and stable on a quarterly basis
and has not experienced any significant seasonal fluctuations since its
inception in January 1995. There can be no assurance, however, that IAM's
business will not be affected by seasonal fluctuations in the future.
The financial statements of IAM and accompanying notes appearing
elsewhere herein have been prepared in accordance with generally accepted
accounting principles, which require the measurement of financial position and
operating results in terms of historical dollars without considering the changes
in the relative purchasing power of money over time due to inflation.
Significant assets of IAM are monetary in nature. As a result, interest rates
may have a greater impact on IAM's performance than do the effects of the
general level of inflation. Interest rates do not necessarily move in the same
direction or to the same extent as the prices of goods and services.
IAM's assets are primarily liquid in nature (cash and cash equivalents,
current receivables and marketable securities) and, therefore, are not
significantly affected by inflation. IAM's management believes that the cost of
replacing furniture, equipment and leasehold improvements would not have a
material adverse effect on operations. However, the rate of inflation may have a
significant effect on employee communications and occupancy costs, which may or
may not be readily recoverable in the price of services offered by IAM.
Year 2000 Issue
As a result of certain computer programs being written using two digits
rather than four to define the applicable year, any of IAM's computer systems
that have date sensitive software may recognize a date using "00" as the year
1900 rather than the year 2000 (the so-called "Year 2000 Issue"). This could
result in a system failure or miscalculations causing disruptions, including,
among other things, a temporary inability to process transactions, send fee
invoices or engage in normal business activities.
IAM is in the process of evaluating its computer systems to determine
what modifications (if any) are necessary to make such systems compatible with
the year 2000 requirements. However, because many of IAM's computer systems have
been put into service within the last several years, IAM does not expect any
such modifications to have a material adverse effect on IAM's consolidated
results of operations, liquidity and capital resources.
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IAM intends to take all reasonable efforts to make information on the
year 2000 readiness of its operations available to its customers, although this
information may not reach all customers. Although IAM believes that it can
address year 2000 readiness issues related to its services, there may still be
disruptions and/or failures that are unforeseen.
IAM also intends to request assurances from its hardware and software
suppliers that they are addressing the Year 2000 Issue and that the products and
services procured or used by IAM will function properly or be available without
interruption in the year 2000. Nevertheless, it will be impossible for IAM to
fully assess the potential consequences if service interruptions occur or in
infrastructure areas such as utilities, communications, transportation, banking
and government. As a result, IAM also intends to develop a business continuity
plan to minimize the impact of such external events.
While IAM's efforts to address Year 2000 Issues will involve additional
costs and the time and effort of a number of IAM employees, IAM believes, based
on currently available information, that it will be able to manage its total
year 2000 transition without any material adverse effect on IAM's consolidated
results of operations, liquidity and capital resources.
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CERTAIN INFORMATION CONCERNING CRC
DESCRIPTION OF THE BUSINESS
General
CRC was organized in 1972 under the laws of the State of Florida as
"Victor A. Hughes Company". CRC's name was changed to Capital Research
Corporation in 1995. CRC is a registered broker-dealer and a member of the NASD
and SIPC. CRC operates a general securities business primarily to registered
investment advisers, including IAM, on a fully disclosed basis through NFSC and
Schwab, both clearing broker-dealers that carry all accounts and prepare and
maintain all of the books and records of CRC's customers. Approximately 80% of
CRC's transactions with investment advisers involve sales of equity securities.
CRC's principal executive offices are located at 50 North Laura Street, Suite
3550, Jacksonville, Florida 32202. The sole shareholders of CRC are Mark Travis,
who owns 175 shares of CRC Common Stock, and Forrest Travis, who owns 325 shares
of CRC Common Stock.
CRC's operations, in conjunction with NFSC and Schwab, include the
execution of orders, processing of transactions, receipt, identification and
delivery of funds and securities, custody of customer securities, internal
financial controls and compliance with regulatory and legal requirements.
CRC clears all of its securities transactions and posts its books and
records daily through NFSC. NFSC also provides CRC with back office support,
transaction processing services on all principal national securities exchanges
and access to many other financial services and products. CRC's agreement with
NFSC allows CRC to offer a range of products and services that is generally
offered only by firms that are larger or have more capital. CRC's data
processing is supplied by NFSC on a time-sharing basis to process orders,
reports, confirmations and statements as well as to maintain the general ledger
and files of clients, and other market data. Periodic reviews of controls are
conducted and administrative and operations personnel meet frequently with
management to review operating conditions. Operations personnel monitor
compliance with applicable laws, rules and regulations.
CRC is organized to meet the needs of its investment adviser clients
and their clients. CRC typically does not recommend particular securities to
clients. Recommendations to clients are determined by individual investment
adviser clients based upon their own research and analysis, and subject to
applicable NASD customer suitability standards. Most of CRC's personnel perform
fundamental (as opposed to technical) analysis. CRC's supervisory personnel
review trading activity to ensure compliance with applicable standards of
conduct.
CRC has experienced significant growth over the past five years, while
simultaneously expanding profitability. CRC had approximately 2,150 active
accounts as of December 31, 1997, an increase from approximately 1,181 active
accounts, or 82%, as of December 31, 1996. Trading volumes have increased at an
average annual rate of 180% from fiscal year 1995 through fiscal year 1997, and
net revenues and net income have grown at average annual rates of 290% and 68%,
respectively, over the same periods. These increases, along with CRC's ability
to decrease costs through the use of new technologies, have resulted in an
average return on equity over the same three-year period of 11%. Net revenues
for the fiscal year ended December 31, 1997 increased 290% over net revenues for
the fiscal year ended December 31, 1996. See "-- Management's Discussion and
Analysis of Financial Condition and Results of Operations".
Factors Affecting Broker-Dealers
(i) General Before 1975, all stock exchanges required brokers to charge
fixed minimum commissions for trades of listed stocks. Under pressure from
Congress, the Department of Justice and the Commission, these policies were
changed, which allowed for negotiated commissions and the unbundling of
investment services. These developments brought about the advent of the
lower-cost and discount brokerage firm, which could separate financial advisory
services from execution services and could execute trades at a lower cost than a
full-commission broker. Although investors have been able to use discount
brokerage services for years, various emerging trends make the modern investor
more likely to use discount brokerage services.
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First, the unbundling of brokerage services from other financial
services has permitted investors to pick and choose among various financial
service providers for specified services. As a result, firms like IAM have
emerged that provide the services provided by a full-commission broker on an "A
LA CARTE" basis. Firms like IAM specialize in investment advice, the provision
of financial information and financial planning. Other firms, like CRC,
specialize in providing lower-cost or discount securities brokerage services.
Second, investors are becoming more self-reliant and value conscious in
the pursuit of their financial goals. Investors are increasingly willing to
acquire the information about, and an understanding of, investment alternatives
and have become increasingly sophisticated and knowledgeable about investing.
Access to a broad range of financial information and advice has decreased the
necessity for full-service brokers. These investors make their own decisions
about their financial future and tend to seek greater value, often in the form
of lower transaction costs. As a result, the use of discount brokers and
directly marketed no-load mutual funds have increased in market share at the
expense of traditional providers charging a higher commission or sales load.
Finally, the growth in financial assets held by an individual is
accelerating. Large numbers of "baby boomers" are beginning to invest for their
children's education and for their own retirement. Additionally, it is estimated
that these individuals, many of whom have greater education, technical
capabilities and investment choices than their parents, as well as greater
access to information, will inherit a historically significant amount of assets
available for investing from the previous generation during the next decade.
This represents the largest absolute transference of wealth in history. The
convergence of these trends is creating a new marketplace for financial
services. It is also creating a new investor, who is self-reliant and value
oriented. CRC seeks to be a leading provider of financial services to this new
investor.
(ii) Competition CRC is engaged in a highly competitive business. With
respect to one or more aspects of its business, its competitors include member
organizations of the New York Stock Exchange, Inc. and other registered
securities exchanges in the United States, and other members of the NASD. Many
of these organizations have substantially greater personnel and financial
resources and more sales and brokerage offices than CRC. Discount brokerage
firms affiliated with commercial banks provide additional competition as well as
companies which provide electronic online trading. In many instances, CRC is
also competing directly for customer funds with investment opportunities offered
by the real estate, insurance, banking and savings and loans industries. See
"RISK FACTORS Competition".
Employees
One of CRC's employees also performs administrative services for IAM.
DESCRIPTION OF PROPERTY
CRC shares office space with IAM pursuant to IAM's lease with Barnett
Banks, Inc. CRC pays a portion of the office rent and other overhead charges of
IAM in connection with CRC's use of such space. CRC's existing facilities are
adequate for its current operations, and it believes that additional facilities
are readily available should the business need arise. See "CERTAIN INFORMATION
OF IAM - Description of Property".
LEGAL MATTERS
CRC is not subject to any legal proceedings.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
This discussion should be read in conjunction with CRC's audited
financial statements and the notes thereto contained elsewhere in this Proxy
Statement/Prospectus and Offer to Redeem.
Statements in this "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and elsewhere in this document as well as
oral statements that may be made by CRC or by officers, directors or
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employees of CRC acting on CRC's behalf that are not statements of historical or
current fact involve risks and uncertainties and known and unknown factors that
could cause the actual results of CRC to be materially different from the
historical results or from any future results expressed or implied by such
statements, including, without limitation, changes in general economic and
market conditions, fluctuations in volume and prices of securities, changes and
prospects for changes in interest rates and demand for brokerage and investment
banking services, increases in competition within and without the discount
brokerage business through broader service offerings or otherwise, competition
from electronic discount brokerage firms offering greater discounts on
commissions than CRC, the prevalence of a flat fee environment, a decline in
participation in equity or municipal finance underwritings, decreased ticket
volume in the discount brokerage division, limited trading opportunities,
increases in expenses and changes in net capital or other regulatory
requirements.
Business Environment
Market conditions during 1997 reflected a continuation of the 1996 bull
market characterized by record volumes and record high market levels. At the
same time, competition has continued to intensify both among all classes of
brokerage firms and within the discount brokerage business as well as from new
firms not previously in the discount brokerage business. Electronic trading
continues to grow as a retail discount market segment with some firms offering
very low flat rate trading execution fees that are difficult for any
conventional discount firm to meet. Many of the flat fee brokers, however,
impose charges for services such as mailing, transfers and handling exchanges
which CRC does not and also direct their executions to captive market makers.
Continued competition from ultra low cost, flat fee brokers and broader service
offerings from other discount brokers could also limit CRC's growth or even lead
to a decline in CRC's customer base which would adversely affect its results of
operations. Industry-wide changes in trading practices are expected to cause
continuing pressure on fees earned by discount brokers for the sale of order
flow.
CRC, like other securities firms, is directly affected by general
economic and market conditions, including fluctuations in volume and prices of
securities, changes and prospects for changes in interest rates and demand for
brokerage and investment banking services, all of which can affect CRC's
relative profitability. In periods of reduced market activity, profitability is
likely to be adversely affected because certain expenses, including salaries and
related costs, portions of communication costs and occupancy expenses, remain
relatively fixed. Accordingly, earnings for any period should not be considered
representative of any other period.
CRC believes, and its clearing brokers have represented to CRC, that
its computer systems will be year 2000 operable and fully tested by December 31,
1998. CRC's own systems are presently being modified or replaced. CRC believes
its cost for meeting this problem will not be material.
Six months ended June 30, 1998 Compared to Six Months Ended June 30, 1997
For the six months ended June 30, 1998 compared to June 30, 1997, CRC
experienced increases in total revenues and total expenses. CRC's management
attributes the increase in revenues and expenses during this period to increases
in the number and size of CRC's accounts, the amount of trading activity in
CRC's accounts during such period and the increased costs associated with
additions to CRC's staff and customer services.
Total revenues for the first six months of fiscal year 1998 were
$947,064, an increase of $518,848, or 121%, over the first six months of fiscal
year 1997. Trading revenues and interest and dividend revenues increased as
compared to the prior year's period.
Hedge fund fee revenues decreased to $0 for the six months ended June
30, 1998 from $13,517 for the six months ended June 30, 1997 (3% of commission
and fee revenues). Hedge fund fee revenues represent assets that were placed
with outside hedge fund managers in 1995 until May 1997 when the assets were
moved to other managers.
Bond trading revenues increased to $101,350 for the six months ended
June 30, 1998 (11% of commission and fee revenues) from $11,433 for the six
months ended June 30, 1997 (3% of commission and fee revenues). The 786%
increase over the previous period is primarily due to the activities of one
registered representative who focuses on bond trading and who commenced
employment with CRC in mid-1997.
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Trading revenues increased to $781,012 for the six months ended June
30, 1998 (84% of commission and fee revenues) from $373,410 for the six months
ended June 30, 1997 (88% of commission and fee revenues). The 109% increase over
the previous period is primarily due to an increase in the number of registered
representatives.
Commissions income increased $501,637, or 118%, to $926,940, primarily
due to the increased volume of trades and related services and increases in
commissions earned per trade.
12b-1 commissions increased to $12,301 for the six months ended June
30, 1998 (1% of commission and fee revenues) from $2,628 for the six months
ended June 30, 1997 (1% of commission and fee revenues). The 368% increase over
the previous period is primarily due to an increase in the number of registered
representatives.
Insurance commissions decreased to $2,084 for the six months ended June
30, 1998 (.2% of commission and fee revenues) from $13,357 for the six months
ended June 30, 1997 (3% of commission and fee revenues). The 84% decrease over
the previous period is primarily due to the activities of one registered
representative who focused only on insurance products in early fiscal year 1997.
Insurance/Variable Annuity commissions increased to $24,472 for the six
months ended June 30, 1998 (3% of commission and fee revenues) from $9,151 for
the six months ended June 30, 1997 (2% of commission and fee revenues). The 167%
increase over the previous period is primarily due to an increase in the number
of registered representatives.
Mutual fund commissions increased to $5,721 for the six months ended
June 30, 1998 (1% of commission and fee revenues) from $1,807 for the six months
ended June 30, 1997 (.4% of commission and fee revenues). The 217% increase over
the previous period is primarily due to an increase in the number of registered
representatives.
Interest and dividends increased $5,687, or 195%, to $8,600 for the
first six months of fiscal year 1998 primarily due to increased cash on hand.
Total expenses for the first six months of fiscal year 1998 were
$925,870, an increase of $514,475, or 125%, over the same period of 1997. This
increase is primarily attributable to a significant increase in trading volume
and the costs associated with such increases.
Employee compensation and benefit costs increased $208,552, or 83%, to
$459,071 for the first six months of fiscal year 1998 primarily due to an
increased number of registered representatives and sales volume increases.
Clearing and brokerage fees increased $253,065, or 336%, to $328,463
for the first six months of fiscal year 1998. Such costs increased due to a
higher volume of transactions in securities, or "tickets."
Occupancy costs increased $49,774, or 80%, to $112,000 from the six
months ended June 30, 1997 to the six months ended June 30, 1998, principally
due to increased rent and other occupancy expenses.
Other general and administrative expenses increased $1,612, or 28%, to
$7,294 from the six months ended June 30, 1997 to the six months ended June 30,
1998, primarily due to supplies and costs associated with increased volume.
Net income for the first six months of fiscal year 1998 was $21,194, an
increase of $4,373, or 26%, over the same period of fiscal year 1997.
CRC operates as a Subchapter S corporation for federal income tax
purposes. Consequently, no provision for income taxes are made since all
earnings and losses are passed through to the individual shareholders.
Twelve Months Ended December 31, 1997 Compared to Twelve Months Ended December
31, 1996
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For the fiscal year ended December 31, 1997, CRC experienced increases
in total revenues and total expenses compared to the fiscal year ended December
31, 1996. CRC's management attributes the increase in revenues and expenses
during this period to increases in the number and size of CRC's accounts, the
amount of trading activity in CRC's accounts during such period and the
increased costs associated with additions to CRC's staff and customer services.
Total revenues for 1997 were $1,221,814 an increase of $904,684 or,
285%, over 1996. Trading revenues and interest and dividend revenues increased
as compared to the prior year.
CTA fee revenues decreased to $0 for fiscal year ended December 31,
1997 (0% of commission and fee revenues) from $3,408 for fiscal year ended
December 31, 1997 (.3% of commission and fee revenues). These CTA fee revenues
resulted from futures trading activity that only occurred in fiscal year 1996.
Hedge fund fee revenues decreased to $13,517 for fiscal year ended
December 31, 1997 (1% of commission and fee revenues) from $18,046 for fiscal
year ended December 31, 1996 (6% of commission and fee revenues). Hedge fund fee
revenues resulted from assets that were placed with outside hedge fund managers
in 1995 until May 1997 when the assets were moved to other managers.
Bond trading revenues increased to $58,975 for fiscal year ended
December 31, 1997 (5% of commission and fee revenues) from $0 for fiscal year
ended December 31, 1996. The increase over the previous period is primarily due
to the activities of one registered representative who focused on bond trading
and who commenced employment with CRC in mid-1997.
Trading revenues increased to $1,094,234 for fiscal year ended December
31, 1997 (91% of commission and fee revenues) from $258,985 for fiscal year
ended December 31, 1996 (84% of commission and fee revenues). The 323% increase
over the previous period is primarily due to a significant increase in the
number of registered representatives.
Commission and fee income increased $899,701, or 292%, to $1,207,641
from the fiscal year ended December 31, 1996 to the fiscal year ended December
31, 1997, primarily due to the increased volume of trades and related services
and increases in commissions earned per trade.
12b-1 commissions increased to $8,832 for fiscal year ended December
31, 1997 (1% of commission and fee revenues) from $6,900 for fiscal year ended
December 31, 1996 (2% of commission and fee revenues). The 28% increase over the
previous period is primarily due to an increase in the number of registered
representatives.
Insurance commissions increased to $18,440 for fiscal year ended
December 31, 1997 (2% of commission and fee revenues) from $600 for fiscal year
ended December 31, 1996 (.2% of commission and fee revenues). The 2,973%
increase over the previous period is primarily due to the activities of one
registered representative who focused only on insurance products in early fiscal
year 1997.
Insurance/Variable Annuity commissions increased to $10,308 for fiscal
year ended December 31, 1997 (1% of commission and fee revenues) from $7,406 for
fiscal year ended December 31, 1996 (2% of commission and fee revenues). The 39%
increase over the previous period is primarily due to an increase in the number
of registered representatives.
Mutual fund commissions decreased to $3,335 for fiscal year ended
December 31, 1997 (.3% of commission and fee revenues) from $11,995 for fiscal
year ended December 31, 1996 (4% of commission and fee revenues). The 72%
decrease over the previous period is primarily due to a decrease in volume
during the period.
Interest and dividends increased $4,983, or 54%, to $14,173 from the
fiscal year ended December 31, 1996 to the fiscal year ended December 31, 1997,
primarily due to increased cash in hand.
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Total expenses for 1997 were $1,222,021, an increase of $932,713, or
322%, over 1996. This increase is primarily attributable to a significant
increase in trading volume and the costs associated therewith.
Employee compensation and benefits costs increased $529,781, or 503%,
to $635,063 from fiscal year ended December 31, 1996 to fiscal year ended
December 31, 1997, primarily due to an increased number of registered
representatives and volumes.
Clearing and brokerage fees increased $267,412, or 359%, to $341,849
from fiscal year ended December 31, 1996 to fiscal year ended December 31, 1997.
Such costs increased primarily due to a higher volume of tickets.
Occupancy costs increased $86,051, or 119%, to $158,463 from fiscal
year ended December 31, 1996 to the fiscal year ended December 31, 1997,
primarily due to increased rent and other occupancy costs.
Other general and administrative expenses decreased $1,160, or 11%, to
$9,277 from fiscal year ended December 31, 1996 to fiscal year ended December
31, 1997 primarily due to better management of financial resources.
Net losses for fiscal year 1997 were $(207) compared to net income of
$27,822 for fiscal year 1996. The net loss for fiscal year 1997 is primarily
attributable to the increased compensation and benefits expense, fee expense and
occupancy costs over the fiscal year 1996.
Liquidity and Capital Resources
CRC's assets are highly liquid, consisting generally of cash, money
market funds and securities freely salable in the open market. CRC's total
assets as of December 31, 1997 were $222,939, and $181,155, or 81%, of such
total assets were highly liquid.
CRC is subject to the net capital requirements of the Commission, the
NASD and other regulatory authorities. As of December 31, 1997, CRC's regulatory
net capital was $107,000, being $57,000 in excess of its minimum capital
requirement of $50,000. As of December 31, 1997, CRC had no trading securities.
CRC financed its growth in operations and costs related to expansion of assets
under its management primarily with funds generated from capital provided by its
officers and shareholders. Management of CRC believes that existing capital,
when combined with the additional funds generated from operations, will provide
CRC with sufficient resources to meet present cash and capital needs.
Seasonality and Inflation
CRC's business is relatively consistent and stable on a monthly basis
and has not experienced any significant seasonal fluctuations since its
inception. There can be no assurance, however, that CRC's business will not be
affected by seasonal fluctuations in the future.
The financial statements and accompanying notes appearing elsewhere
herein have been prepared in accordance with generally accepted accounting
principles, which require the measurement of financial position and operating
results in terms of historical dollars without considering the changes in the
relative purchasing power of money over time due to inflation. Significant
assets of CRC are monetary in nature. As a result, interest rates may have a
greater impact on CRC's performance than do the effects of the general level of
inflation. Interest rates do not necessarily move in the same direction or to
the same extent as the prices of goods and services.
CRC's assets are primarily liquid in nature (cash and cash equivalents,
current receivables and marketable securities) and, therefore, are not
significantly affected by inflation. CRC's management believes that the cost of
replacing furniture, equipment and leasehold improvements would not have a
material adverse effect on operations. However, the rate of inflation may have a
significant effect on employee communications and occupancy costs, which may not
be readily recoverable in the price of services offered by CRC.
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Year 2000 Issue
As a result of certain computer programs being written using two digits
rather than four to define the applicable year, any of CRC's computer systems
that have date sensitive software may recognize a date using "00" as the year
1900 rather than the year 2000 (the so-called "Year 2000 Issue"). This could
result in a system failure or miscalculations causing disruptions, including,
among other things, a temporary inability to process transactions, send fee
invoices or engage in normal business activities.
CRC is in the process of evaluating its computer systems to determine
what modifications (if any) are necessary to make such systems compatible with
the year 2000 requirements. However, because many of CRC's computer systems have
been put into service within the last several years, CRC does not expect any
such modifications to have a material adverse effect on CRC's consolidated
results of operations, liquidity and capital resources.
CRC intends to take all reasonable efforts to make information on the
year 2000 readiness of its operations available to its customers, although this
information may not reach all customers. Although CRC believes that it can
address year 2000 readiness issues related to its services, there may still be
disruptions and/or failures that are unforeseen.
CRC also intends to request assurances from its hardware and software
suppliers that they are addressing the Year 2000 Issue and that the products and
services procured or used by CRC will function properly or be available without
interruption in the year 2000. Nevertheless, it will be impossible for CRC to
fully assess the potential consequences if service interruptions occur or in
infrastructure areas such as utilities, communications, transportation, banking
and government. As a result, CRC also intends to develop a business continuity
plan to minimize the impact of such external events.
While CRC's efforts to address Year 2000 Issues will involve additional
costs and the time and effort of a number of CRC employees, CRC believes, based
on currently available information, that it will be able to manage its total
year 2000 transition without any material adverse effect on CRC's consolidated
results of operations, liquidity and capital resources.
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CERTAIN INFORMATION CONCERNING INTREPID
GENERAL
Intrepid, a Delaware corporation, was incorporated on April 3, 1998, to
effect the Reorganization. The principal executive offices of Intrepid are
presently located at 3918 Montclair Road, Suite 206, Birmingham, Alabama 35213
and Intrepid's current telephone number is (205) 870-0588. At the Effective
Time, the principal executive offices of Intrepid will be relocated to
Jacksonville, Florida.
DIRECTORS AND OFFICERS OF INTREPID
Pursuant to the Merger Agreement, the initial Intrepid Board shall
consist of seven (7) members. Details of the members of the initial Intrepid
Board and initial officers of Intrepid are set forth below. Subsequent members
of the board of directors of Intrepid shall be elected in accordance with the
terms and provisions of the Voting Agreement to be executed at the Effective
Time in connection with the consummation of the Reorganization. See "SUMMARY"
and "THE REORGANIZATION -- The Voting Agreement".
After consummation of the Reorganization, Forrest Travis will serve as
the President and Chief Executive Officer of Intrepid. William J. Long, the
current President and Chief Executive Officer of Enviroq, will serve as the
Chief Operating Officer and as an Executive Vice President of Intrepid. Mr. Long
will also serve as the Chief Financial Officer of Intrepid until a successor is
appointed. Mark F. Travis, son of Forrest Travis, will serve as an Executive
Vice President of Intrepid. As of the date of this Proxy Statement/Prospectus
and Offer to Redeem, no final determinations have been made as to any other
executive officer of Intrepid.
<TABLE>
<CAPTION>
Director Position and
Name Age Since (1) Offices with Intrepid (1)
- ---- --- ----- ---------------------
<S> <C> <C> <C>
Thomas W. Brander 49 September 2, 1998 Director
William J. Long 46 Incorporation Chief Operating Officer, Executive Vice
President and Director (2) (3)
Michael X. Marinelli 39 September 2, 1998 Director
Morgan Payne 55 September 2, 1998 Director
Mark F. Travis 36 September 2, 1998 Executive Vice President and Director (2)
Forrest Travis 59 September 2, 1998 President, Chief Executive Officer and
Director (2)
Alexander P. Zechella 77 September 2, 1998 Director
</TABLE>
- ---------------------
(1) William J. Long was appointed the sole director of Intrepid for the
purpose of incorporation. Messrs. Brander, Marinelli, Payne, Travis,
Travis and Zechella were appointed by the sole director of Intrepid on
September 2, 1998 and will serve along with Mr. Long after the
Effective Time if the Reorganization is consummated.
(2) If the Reorganization is consummated, Mr. Long will also serve as the
initial Chief Financial Officer of Intrepid until his successor is
appointed.
(3) Messrs. Long, Travis and Travis will be appointed to their respective
offices set forth above after the Effective Time.
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<PAGE> 100
Thomas W. Brander is currently retired, having retired in April 1998.
From 1988 until April 1998 Mr. Brander served as a Senior Vice President,
Management Information Systems and Communications of Compass Bankshares, Inc. in
Birmingham, Alabama. From 1987 until 1988, Mr. Brander served as a Vice
President - Management Consulting for American International Group in New York,
NY. From 1976 until 1987, Mr. Brander served as Vice President - General
Manager, Assistant Vice President - Commercial Loans, and Assistant Vice
President - Domestic Money Transfer with Citibank, N.A. in Sydney, Australia,
Atlanta, GA and New York, NY, respectively. Mr. Brander has been a director of
Enviroq since September, 1997.
William J. Long has been President, Chief Executive Officer and a
director of Enviroq since April, 1995. From October, 1984 to April, 1995, Mr.
Long was Vice President - Marketing and a director of a Delaware corporation
formally known as Enviroq Corporation ("Old Enviroq"). At the time of its
incorporation, Enviroq was a wholly-owned subsidiary of Old Enviroq. On April
18, 1995, Old Enviroq distributed all of the issued and outstanding capital
stock of Enviroq to the holders of the common stock of Old Enviroq. Since May
25, 1995, Mr. Long has been Chairman of the Board and a director of Sullivan,
Long & Hagerty, an Alabama corporation ("SLH"), a heavy construction contractor,
which is the parent of SCE, Incorporated, an Alabama corporation ("SCE"), a
heavy construction contractor. Prior to October, 1995, Mr. Long had been Chief
Executive Officer of SCE and SLH. Prior to May 25, 1995, Mr. Long had been a
director and Senior Vice President of SCE, and a director and Senior Vice
President of SLH for over five years.
Michael X. Marinelli is, and has been, an associate with the
Washington, D.C. law firm of Baker & Botts since 1989. He graduated from
Catholic University Law School in 1989. Mr. Marinelli served as Assistant
Secretary of Old Enviroq from January, 1987 to July, 1987. He served as Special
Assistant to the General Manager of Instituform East, Inc., from February, 1986
to August, 1986. From October, 1985 to February, 1986, Mr. Marinelli served as
an assistant to the President of Old Enviroq, and from October, 1984 to October,
1995 he was a sales representative for old Enviroq. He has served as a director
of Enviroq since April, 1995. Prior to April, 1995, Mr. Marinelli had served as
a director of Old Enviroq since October, 1984.
Morgan Payne has been President of Broadland Capital Partners, L.P., a
financial advisory limited partnership, since 1990.
Mark F. Travis has been Vice President of IAM since its inception in
January, 1995 and Vice President of CRC since June, 1995. From June, 1984 to
January, 1995, Mr. Travis was a Vice President of Smith Barney, Inc. in
Jacksonville, Florida. Mr. Travis was also a member of the Chairman's Council
and the AIPC. Mr. Travis received his Bachelor of Arts in Economics from the
University of Georgia in 1984 and currently holds NASD Series 3, 7, 24, 63 and
65 licenses. Mark F. Travis is the son of Forrest Travis.
Forrest Travis has been President of IAM since its inception in
January, 1995 and President of CRC since June, 1995. From December, 1980 to
January, 1995, Mr. Travis was a Senior Vice President and a Director of the
Consulting Group of Smith Barney, Inc. in Jacksonville, Florida. Mr. Travis was
also a member of Smith Barney's Directors Council and Futures Council and a
founder and board member of the AIPC. Mr. Travis received his bachelors degree
from The Georgia Institute of Technology and currently holds NASD Series 2, 3,
4, 7, 24, 27, 53, 63 and 65 licenses. Forrest Travis is the father of Mark F.
Travis.
Alexander P. Zechella served from September, 1983 to April, 1984, as
Chairman of Charter Oil Company and Executive Vice President of the Charter
Company ("Charter"). From April, 1984 until his retirement in December, 1985,
Mr. Zechella served as President, Chief Executive Officer and Chief Operating
Officer of Charter. Mr. Zechella has served as a director of Enviroq since
April, 1995. Prior to April, 1995, he had served as a director of Old Enviroq
since April, 1987.
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<PAGE> 101
COMPENSATION OF EXECUTIVE OFFICERS
Intrepid does not currently pay any compensation to any officer or
employee. It is not anticipated that Intrepid will pay any compensation to any
officer or employee of Intrepid before the Effective Time. After the Effective
Time, William J. Long, current President and Chief Executive Officer of Enviroq,
will serve as the Chief Operating Officer and as an Executive Vice President of
Intrepid. In addition, Mr. Long will serve as the interim Chief Financial
Officer of Intrepid until a successor is appointed. After the Effective Time,
Forrest Travis, the current President of IAM and CRC, will serve as President
and Chief Executive Officer of Intrepid and Mark F. Travis, son of Forrest
Travis, will serve as an Executive Vice President of Intrepid. As a condition to
the consummation of the Enviroq Merger and the Reorganization, the Merger
Agreement requires that Intrepid enter into an employment agreement with each of
Mr. Long and the Messrs. Travis. Pursuant to the employment agreements, Mr.
Long, Mr. Forrest Travis and Mr. Mark F. Travis will receive annual salaries of
$130,000, $200,000 and $150,000, respectively, may receive bonuses in addition
to their salaries and, when eligible, may receive other fringe benefits
generally established for employees of Intrepid.
It is anticipated that as soon as practicable after the Effective Time,
Intrepid will adopt the Stock Option Plans. The Stock Option Plans are designed
to provide Intrepid with the ability to provide incentives to certain key
management personnel and to the Intrepid Board which are linked to the
profitability of Intrepid's business and increases in stockholder value and to
aid Intrepid in attracting, obtaining, retaining and motivating experienced
management and outside directors, respectively. The maximum number of shares of
Intrepid Stock available under each stock option plan is 100,000 shares of
Intrepid Stock. The Stock Option Plans will be administered by a committee of
the Intrepid Board (the "Committee"). The price of options to be issued under
the Incentive Stock Option Plan will generally be equal to 100% of the fair
market value of the shares of Intrepid Stock at the time of the grant of the
options. However, if options are granted under the Incentive Stock Option Plan
to an optionee who holds more than 10% of the combined voting power or value of
all classes of stock of Intrepid at the date of such grant, the price of the
options so granted will be equal to 110% of the fair market value of the shares
of Intrepid Stock at the time of the grant of the options. Options granted
pursuant to the Non-Employee Directors' Stock Option Plan will be granted at a
price not less than 85% of the fair market value of the shares of Intrepid Stock
at the date of such grant. All options granted pursuant to the Stock Option
Plans must be exercised prior to the expiration of a ten year and five year
period, respectively, from the date of the grant of the options. All options not
exercised by such date will be void. In addition, notwithstanding the above,
absent a change in control of Intrepid, all options granted pursuant to the
Non-Employee Directors Stock Option Plan will terminate upon the discontinuance
of the option holder's service as a director of Intrepid for any reason except
death or disability. Options granted pursuant to the Incentive Stock Option Plan
may be exercised at a maximum rate of 25% in the first twelve (12) months after
grant and 25% in each successive twelve (12) month period thereafter. To the
extent not exercised, a holder of options granted pursuant to the Incentive
Stock Option Plan may accumulate such options and exercise such options, in
whole or in part, in any subsequent period; provided, always, that such options
be exercised no later than the expiration of the ten (10) year period from the
date such option was granted. The option price and number of shares of Intrepid
Stock subject to such options granted pursuant to the Stock Option Plans will be
adjusted for stock splits, stock dividends or other similar changes in the
capital structure of Intrepid. As of the date of this Proxy Statement/Prospectus
and Offer to Redeem, no determinations have been made with respect to specific
grants of stock options to any executive officer, director or employee of
Intrepid, although Messrs. Travis, Travis and Mr. Long may be awarded stock
options under the Stock Option Plans. See "THE REORGANIZATION -- Interests of
Certain Persons in the Reorganization and -- Approval of Stock Option Plans of
Intrepid".
DESCRIPTION OF INTREPID'S BUSINESS
Intrepid was incorporated on April 3, 1998. Prior to the Effective
Time, Intrepid will have no assets and will conduct no operations. After the
Effective Time, Intrepid will be a holding company and initially its assets will
principally consist of its ownership of all the issued and outstanding shares of
capital stock of Enviroq, IAM and CRC. Initially the business of Intrepid will
be conducted through its three wholly-owned subsidiaries. For a description of
the business, operations, products, services and competitive conditions of each
Intrepid's then wholly-owned subsidiaries, Enviroq, IAM and CRC, see "CERTAIN
INFORMATION CONCERNING ENVIROQ -- Description of Business", "CERTAIN INFORMATION
CONCERNING IAM -- Description of Business" and "CERTAIN INFORMATION CONCERNING
CRC -- Description of Business", respectively. Thereafter Intrepid will be
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<PAGE> 102
principally engaged in the business of acquiring small to mid-sized asset
management firms. See "-- Development of Intrepid's Business".
DEVELOPMENT OF INTREPID'S BUSINESS
After the Effective Time, Intrepid intends to grow and develop both
through the internal growth of the assets under its management and control and
as a result of the acquisition of additional asset management firms. It is
anticipated that Intrepid will continue to own Enviroq, IAM and CRC and that
after the Effective Time Enviroq, IAM and CRC will continue to operate on
substantially the same manner as presently conducted. The management of Intrepid
anticipates that at some point in the future the two (2) subsidiaries in which
Enviroq has an equity interest will be divested. The management of Intrepid has
identified a number of small to mid-sized asset management firms as potential
acquisition candidates. The management of Intrepid believes that significant
opportunities exist for the future growth of Intrepid through acquisitions of
equity interests in small to mid-sized investment management firms. The
management of Intrepid estimates that there are several hundred firms in the
United States in this category (which is generally defined as investment
management firms with assets under management of between $300 million and $2
billion). Management believes that attractive opportunities for acquisition of
these firms will become available as the owners of these firms begin to approach
retirement age and seek alternatives for ownership succession. Management of
Intrepid envisions that Intrepid will acquire such investment management firms
by acquiring a percentage of the equity ownership of such firms. Such
acquisitions will likely be made in exchange for Intrepid Stock. It is
anticipated that the current owners of such investment management firms would
retain some ownership interest in such investment management firms,
consequently, maintaining or having a strong incentive to continue to contribute
to the growth of such firms. Management anticipates that the current principals
of each such firm would retain autonomy over the day to day operations of that
firm, including decisions regarding personnel, compensation and investment
strategy. Each such firm would enter into revenue sharing agreements which would
provide, among other things, for a certain percentage of the revenues of such
firms to be retained by the firm to pay its operating expenses, with the
remaining percentage of revenue to be paid to Intrepid. Management believes that
as the network of such firms would grow, the diversity and experience of
Intrepid as reflected through its subsidiaries and investment strategies will
offer each such investment management firm additional opportunities for growth.
In addition, economies of scale and improvements in quality should be realized
in several areas, including research, information technology, marketing and
advertising stock. The potential growth of such firms will provide the existing
owners of such firms an additional opportunity to receive additional value in
the future for their remaining interest in such firms.
DESCRIPTION OF PROPERTY
Intrepid does not own any real property. After the Effective Time, it
is anticipated that Intrepid will not own any real property other than
indirectly through its subsidiaries. For a description of the properties that
will initially be held by Intrepid after the Effective Time by this indirect
manner, see "CERTAIN INFORMATION CONCERNING ENVIROQ -- Description of Property".
LEGAL MATTERS
Intrepid is not subject to any legal proceedings.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Intrepid was incorporated on April 3, 1998. It has no assets, other
than its nominal stock ownership in Sub-1, Sub-2 and Sub-3, three wholly-owned
subsidiaries established with the sole purpose of effecting the Reorganization.
Intrepid has not conducted any operations. Accordingly, no discussion and
analysis of Intrepid's results of operations is appropriate.
Intrepid has incurred no debt or liability.
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<PAGE> 103
PRINCIPAL STOCKHOLDERS OF INTREPID
Intrepid is authorized under its Certificate of Incorporation to issue
15,000,000 shares of Intrepid Stock. Immediately prior to the Effective Time,
Intrepid will have issued and outstanding 100 shares of Intrepid Stock, all of
which will be owned by Enviroq Corporation, whose address is 3918 Montclair
Road, Suite 206, Birmingham, Alabama 35213. No other persons will own
beneficially any of the outstanding shares of Intrepid Stock at such time.
The following table sets forth pro forma information as expected to be
in effect immediately following the Effective Time if the Reorganization is
consummated, based upon ownership of Enviroq Stock, IAM Stock and CRC Stock as
of June 4, 1998, with respect to the beneficial ownership of Intrepid Stock by
(i) each person who will at such time be the beneficial owner of more than 5% of
the outstanding shares of Intrepid Stock, (ii) each person who is expected to be
a director of Intrepid, (iii) each person who is expected to be an executive
officer of Intrepid, and (iv) all persons who are expected to be executive
officers and directors of Intrepid as a group:
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
BENEFICIAL PERCENT OF
NAME OF BENEFICIAL OWNER OWNERSHIP OWNERSHIP
- ------------------------ ----------- -----------
<S> <C> C>
William J. Long (1)................................................ 263,389 11.9%
Marinelli Securities Associates (2)................................ 294,900 13.3%
2100 North Dixie Highway
Fort Lauderdale, Florida 33305
Antonio M. Marinelli (2)........................................... 299,559 13.5%
Michael X. Marinelli (2)........................................... 295,420 13.3%
Mark F. Travis ................................................. 422,152 19.1%
Forrest Travis ................................................. 783,996 35.4%
Alexander P. Zechella.............................................. 4,221 *
1000 Vicar's Landing Way, #F-109
Ponte Vedra Beach, Florida 32088
All directors and executive officers of ........................... 1,773,837 80.1%
Intrepid as a group (7 persons)
</TABLE>
- ---------------------
* Indicates less than 1% beneficial ownership
(1) William J. Long is currently the record owner of 257,975 shares of
Enviroq Stock. Also includes an aggregate of 3,040 shares of Enviroq
Stock owned of record by William J. Long's wife and children, and 2,374
shares of Enviroq Stock owned by Long Enterprises, Inc., of which
William J. Long is a director, executive officer, and controlling
shareholder. Mr. Long has pledged 257,706 shares of Enviroq Stock to
First Commercial Bank as security for a loan.
(2) Marinelli Securities Associates ("MSA") is a Florida general
partnership and is the record owner of 294,900 shares of Enviroq Stock.
The partners of MSA are Micam Industries, Inc. ("Micam") (41.16%),
Estate of Orlando M. Marinelli (7.65%), Antonio M. Marinelli (7.65%),
Phyllis Marinelli (7.65%), Michelle Marinelli (7.06%), Kim Vreeland
(7.06%), Michael X. Marinelli (7.06%), and Michael J. Marinelli
(7.06%). Michael X. Marinelli, a director of Intrepid, is a partner in
MSA. Accordingly, the shares owned by MSA may be deemed to be
beneficially owned by each of them. The address of each of the
above-named partners is the same as the address of MSA. Antonio M.
Marinelli is the record owner of 4,659 shares of Enviroq Stock.
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<PAGE> 104
Michael X. Marinelli is the record owner of 120 shares of Enviroq
Stock. The shares listed for Michael X. Marinelli also include 400
shares of Enviroq Stock owned of record by his sons.
MARKET PRICE AND DIVIDENDS
Prior to the Effective Time, there will be no established trading
market for Intrepid Stock. As of June 30, 1998, all of the issued and
outstanding shares of Intrepid Stock was held by Enviroq. After the Effective
Time, it is anticipated that Intrepid Stock will be traded in the over-the
counter market. After the Effective Time, Intrepid intends to apply for listing
of the shares of Intrepid Stock on the NASDAQ Small Cap Market, at such time as
Intrepid may satisfy the criteria qualifying it to apply for such a listing.
However, there can be no assurance that such a listing will be obtained and
there can be no assurance that a trading market for Intrepid Stock will develop.
It is anticipated that all available earnings will be retained to
support the growth and expansion of Intrepid's business and to help build its
assets. No dividends have been declared or paid by Intrepid since the date of
its incorporation. At the effective time, the dividend policy of Intrepid will
be determined upon evaluation from time to time by the Intrepid Board of
Intrepid's results of operation, financial condition, capital requirements and
such other considerations as the Intrepid Board considers relevant in accordance
with applicable laws. Accordingly, no determination has been made as to the
likely date of a dividend payment to holders of Intrepid Stock after the
Effective Time.
OPINIONS
Certain legal matters with respect to the shares of Intrepid Stock
offered hereby (including the validity thereof) will be passed upon for Intrepid
by Bradley Arant Rose & White LLP, Birmingham, Alabama.
Certain tax matters in connection with the Redemption and the
Reorganization as discussed under "MATERIAL FEDERAL INCOME TAX CONSEQUENCES"
have been passed upon by Deloitte & Touche LLP.
EXPERTS
The consolidated financial statements incorporated in this Proxy
Statement/Prospectus and Offer to Redeem by reference from the Enviroq Annual
Report on Form 10-KSB, as amended, for the year ended March 28, 1998 have been
audited by Deloitte & Touche LLP, independent auditors, as stated in their
report, which is incorporated herein by reference, and have been so incorporated
in reliance on the report of such firm given upon their authority as experts in
accounting and auditing.
The financial statements of IAM as of December 31, 1997 and 1996, and
for the years then ended have been included herein and in the Registration
Statement in reliance upon the report of KPMG Peat Marwick LLP, independent
certified public accountants, appearing elsewhere herein, and upon the authority
of said firm as experts in accounting and auditing.
The financial statements of CRC as of December 31, 1997 and 1996, and
for the years then ended have been included herein and in the Registration
Statement in reliance upon the report of KPMG Peat Marwick LLP, independent
certified public accountants, appearing elsewhere herein, and upon the authority
of said firm as experts in accounting and auditing.
INDEMNIFICATION
Intrepid's Bylaws contain provisions which require Intrepid to
indemnify its officers, directors, employees or agents to the fullest extent
permitted by law. Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers or persons controlling
Intrepid pursuant to the foregoing provisions, Intrepid
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<PAGE> 105
has been informed that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is therefor
unenforceable.
OTHER MATTERS
As of the date of this Proxy Statement/Prospectus and Offer to Redeem,
the Enviroq Board knows of no other matters to be presented for action by
Stockholders at the Special Meeting. If, however, no other matters not now known
are properly brought before the Special Meeting, the management of Enviroq will
vote upon the same according to their discretion and best judgment.
PROPOSALS OF STOCKHOLDERS
If the Enviroq Merger is consummated, no further annual meetings will
be held. If the Enviroq Merger is not consummated, an annual meeting will be
held on April 6, 1999, and in connection with such meeting Stockholder proposals
intended to be considered for inclusion in Enviroq's Proxy Statement/Prospectus
and Offer to Redeem for presentation at the annual meeting of Enviroq must have
been received by Enviroq by December 31, 1998.
<PAGE> 106
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
INSTITUTIONAL ASSET MANAGEMENT, INC...............................................................................F-2
Audited Financial Statements
Report of Independent Certified Public Accountants........................................................F-3
Balance Sheets as of December 31, 1997 and 1996...........................................................F-4
Statements of Operations for the Years Ended December 31, 1997 and 1996...................................F-5
Statements of Changes in Stockholders' Equity for the Years Ended
December 31, 1997 and 1996........................................................................F-6
Statements of Cash Flows for the Years Ended December 31, 1997 and 1996...................................F-7
Notes to Financial Statements.............................................................................F-8
Unaudited Financial Statements
Balance Sheet as of June 30, 1998..........................................................................F-12
Statement of Operations for the Six Month
Period Ended June 30, 1998........................................................................F-13
Statement of Cash Flows for the Six Month
Period Ended June 30, 1998........................................................................F-14
Notes to Unaudited Financial Statements....................................................................F-15
CAPITAL RESEARCH CORPORATION......................................................................................F-16
Audited Financial Statements
Report of Independent Certified Public Accountants.........................................................F-17
Statements of Financial Condition as of December 31, 1997 and 1996.........................................F-18
Statements of Income (Loss) for the Years Ended December 31, 1997 and 1996.................................F-19
Statements of Changes in Stockholders' Equity for the Years Ended
December 31, 1997 and 1996...............................................................F-20
Statements of Cash Flows for the Years Ended December 31, 1997 and 1996....................................F-21
Notes to Financial Statements..............................................................................F-22
Unaudited Financial Statements
Statement of Financial Condition as of June 30, 1998.......................................................F-24
Statement of Income for the Six Month
Period Ended June 30, 1998...............................................................F-25
Statement of Cash Flows for the Six Month
Period Ended June 30, 1998...............................................................F-26
Notes to Unaudited Financial Statements....................................................................F-27
</TABLE>
F-1
<PAGE> 107
INSTITUTIONAL ASSET MANAGEMENT, INC.
Financial Statements
December 31, 1997 and 1996
(With Independent Auditors' Report Thereon)
F-2
<PAGE> 108
Independent Auditors' Report
The Board of Directors
Institutional Asset Management, Inc.:
We have audited the accompanying balance sheets of Institutional Asset
Management, Inc. as of December 31, 1997 and 1996, and the related statements of
operations, changes in stockholders' equity and cash flows for the years then
ended. 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 Institutional Asset Management,
Inc. as of December 31, 1997 and 1996, and the results of its operations and its
cash flows for the years then ended in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Jacksonville, Florida
February 23, 1998
F-3
<PAGE> 109
INSTITUTIONAL ASSET MANAGEMENT, INC.
Balance Sheets
December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1998
-------- ---------
<S> <C> <C>
Assets
Cash and cash equivalents $ 1,188 $ 30,810
Investment, at fair value 87,355 33,204
Distribution receivable 119,560 -
Furniture, fixtures and equipment, net of accumulated
depreciation of $55,146 in 1997 and $32,483 in 1996 83,003 94,084
Prepaid and other assets 1,568 2,317
-------- ---------
Total assets $292,674 $ 160,415
======== =========
Liabilities and Stockholders' Equity (Deficit)
Notes payable $130,324 $ 161,500
Accounts payable and accrued expenses 58,999 71,634
Other liabilities 45,089 64,706
-------- ---------
Total liabilities 234,412 297,840
======== =========
Stockholders' equity (deficit):
Common stock, par value $.01. Authorized 1,000
shares; issued and outstanding 500 shares $ 5 $ 5
Additional paid-in capital 495 495
Retained earnings (accumulated deficit) 57,762 (137,925)
-------- ---------
Total stockholders' equity (deficit) 58,262 (137,425)
Commitments (note 5)
$292,674 $ 160,415
======== =========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE> 110
INSTITUTIONAL ASSET MANAGEMENT, INC.
Statements of Operations
Years Ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Revenues:
Asset management fees $ 651,590 $ 644,158
Outside manager income 92,874 206,672
Management fees 151,500 69,100
Realized and unrealized gains on investment, net 161,244 3,204
Other 2,345 2,794
---------- ---------
Total revenues 1,059,553 925,928
---------- ---------
Expenses:
Salaries and employee benefits 323,925 340,374
Outside manager expense 92,874 206,672
Advertising and marketing 44,252 66,605
Professional and regulatory fees 45,860 48,889
Operating and maintenance 81,803 76,619
General and administrative 90,023 86,502
Depreciation and amortization 23,412 21,281
Interest expense 14,300 25,938
---------- ---------
Total expenses 716,449 872,880
---------- ---------
Net income $ 343,104 $ 53,048
========== =========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE> 111
INSTITUTIONAL ASSET MANAGEMENT, INC.
Statements of Changes in Stockholders' Equity
Years Ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
Retained
Additional earnings
Common paid-in (accumulated
stock capital deficit) Total
------- ---------- ------------ ---------
<S> <C> <C> <C> <C>
Balance at December 31, 1995 $ 5 $ 495 $ (178,004) $(177,504)
Distributions - - (12,969) (12,969)
Net income - - 53,048 53,048
------- ---------- ------------ ---------
Balance at December 31, 1996 5 495 (137,925) (137,425)
Distributions - - (147,417) (147,417)
Net income - - 343,104 343,104
------- ---------- ------------ ---------
Balance at December 31, 1997 $ 5 $ 495 $ 57,762 $ 58,262
======= ========== ============ =========
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE> 112
INSTITUTIONAL ASSET MANAGEMENT, INC.
Statements of Cash Flows
Years ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 343,104 $ 53,048
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 23,412 21,281
Purchases of investment (40,000) (30,000)
Distributions from investment 27,533 -
Unrealized gain on investment (161,244) (3,204)
Change in assets and liabilities:
Decrease in prepaid and other assets - 596
Decrease in accounts payable and accrued expenses (12,635) (166,642)
Increase (decrease) in other liabilities (19,617) 45,997
--------- ---------
Net cash provided by (used in) operating activities 160,553 (78,924)
--------- ---------
Cash flows from investing activities:
Purchase of furniture, fixtures and equipment (11,582) (20,016)
Due to stockholders - 135,239
--------- ---------
Net cash provided by (used in) investing activities (11,582) 115,223
--------- ---------
Cash flows from financing activities:
Proceeds from notes payable - 148,000
Principal payments on notes payable (31,176) (67,500)
Proceeds from line of credit - 10,000
Payments on line of credit - (99,100)
Distributions (147,417) (12,969)
Payment of deferred loan costs - (655)
--------- ---------
Net cash used in financing activities (178,593) (22,224)
--------- ---------
Net (decrease) increase in cash and cash equivalents (29,622) 14,075
Cash and cash equivalents at beginning of year 30,810 16,735
Cash and cash equivalents at end of year $ 1,188 $ 30,810
========= =========
Supplemental disclosure of cash flow information -
cash paid during the year for interest $ 14,822 $ 25,711
========= =========
Supplemental disclosure of non-cash transactions:
Accrued distribution receivable $ 119,560 $ -
========= =========
</TABLE>
See accompanying notes to financial statements
F-7
<PAGE> 113
INSTITUTIONAL ASSET MANAGEMENT, INC.
Notes to Financial Statements
December 31, 1997 and 1996
(1) Summary of Significant Accounting Policies and Operations
(a) Operations
Institutional Asset Management, Inc. (the Company) was formed
to provide investment consulting and investment management to
individuals and corporations. The Company, which is based in
Jacksonville, Florida, began providing services to customers
during January 1995.
The Company has received authority to act as an investment
manager in several states to be able to meet the needs of its
customers, the majority of which are located in the
southeastern United States.
(b) Furniture, Fixtures and Equipment
Furniture, fixtures and equipment are carried at cost, less
accumulated depreciation. Depreciation is calculated on the
straight-line method over the estimated useful lives of the
underlying assets, which ranges from three to seven years.
Significant additions or improvements extending the useful
life are capitalized, while normal maintenance and repairs are
charged to expense as incurred.
(c) Asset Management Fees
The Company earns an asset management fee from each of its
customers based on the outstanding balance of assets under
management. The fee is calculated quarterly based on a
percentage (usually 1% annually) of the individual customers
account balance at the beginning of the period. All customers
are billed on the first day of the quarter and the Company
earns this fee ratably such that by the end of the reporting
period, no deferred income remains.
(d) Outside Manager Income and Expense
The Company engages third party asset managers, which act on
its behalf, to assist in investment consulting and investment
management services. The Company pays the third party asset
managers a percentage of the fee it receives from the
customers to which the third party asset manager provided
service. The Company does not retain any of the income
characterized as outside manager income. Rather, the Company
pays all amounts of such income to its outside managers, which
is reflected in outside manager expense. The Company collects
this fee from its customers on behalf of the third party asset
managers and passes through the entire amount as payment for
services rendered.
F-8
<PAGE> 114
INSTITUTIONAL ASSET MANAGEMENT, INC.
Notes to Financial Statements
(1) Summary of Significant Accounting Policies and Operations, continued
(e) Deferred Costs
The Company has deferred costs incurred in the formation of
the business (organizational costs) and costs associated with
obtaining financing (loan costs). Organizational costs are
being amortized on a straight line basis over a five year
period, while loan costs are amortized over the term of the
underlying financing. Deferred costs are included in prepaid
and other assets on the accompanying balance sheets.
(f) Income Taxes
The Company is a Sub-Chapter S Corporation, as defined in the
Internal Revenue Code of 1986. Accordingly, no provision for
income taxes is reflected in the accompanying financial
statements as the Federal income taxes of the Company are the
responsibility of the individual stockholders.
(g) Cash and Cash Equivalents
For the purposes of the statement of cash flows, any
instruments which have an original maturity of ninety days or
less when purchased are considered cash equivalents.
(h) Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires the
Company's 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.
(2) Investment
During 1996, the Company purchased an investment in Intrepid Capital,
L.P. for $30,000. During 1997, the investment was adjusted for
additional contributions of $40,000, realized and unrealized gains of
$161,244, and distributions of $147,093, of which $119,560 has yet to
be received. The Company has classified this investment as a trading
security and it is carried at fair value. Unrealized holding gains and
losses are included in the accompanying statement of operations.
F-9
<PAGE> 115
INSTITUTIONAL ASSET MANAGEMENT, INC.
Notes to Financial Statements
(3) Notes Payable
The notes payable at December 31, 1997 and 1996 consist of the
following:
<TABLE>
<CAPTION>
1997 1996
--------- ----------
<S> <C> <C>
Note payable to a bank, due in monthly installments of
$1,500, plus interest at the Prime rate plus 1%
(9.50% at December 31, 1997), secured with the
assignment of the stockholders life insurance
policies as well as their personal property,
maturing May 2000 $ 43,500 $ 61,500
Note payable to a bank, monthly installments of $833 including
principal and interest at the Prime rate plus 1%, (9.50% at
December 31, 1997), secured by furniture, fixtures and
equipment and the personal guaranty of the stockholders,
maturing January 1999 40,829 50,000
Note payable to a bank, monthly installments of $1,389 including
principal and interest at the Prime rate plus 1%, (9.50% at
December 31, 1997), secured by furniture, fixtures and
equipment and the personal guaranty of the stockholders,
maturing January 2001 45,995 50,000
--------- ----------
$ 130,324 $ 161,500
========= ==========
</TABLE>
Principal maturities on the notes payable are as follows:
<TABLE>
<CAPTION>
Year ending
December 31, Amount
------------ ---------
<S> <C>
1998 $ 37,367
1999 51,889
2000 14,659
2001 26,409
---------
$ 130,324
=========
</TABLE>
F-10
<PAGE> 116
INSTITUTIONAL ASSET MANAGEMENT, INC.
Notes to Financial Statements
(4) Related Party Transactions
The Company received management fees from Capital Research Corporation,
an affiliate of the Company, of $151,500 and $69,100 for the years
ended December 31, 1997 and 1996, for various administrative functions
performed by the Company and for its proportionate share of office
expenses.
In addition, the Company performs certain asset management functions
for the Intrepid Capital, L.P. During 1997 and 1996, the Company
received $30,330 and $4,293, respectively, for such services.
(5) Commitments
The Company has entered into lease agreements for office space which
expire in 1999. Leases are accounted for as operating leases with
rental payments recorded on a straight-line basis over the term of the
lease regardless of when payments are due. The future minimum rental
obligations under the leases are as follows:
<TABLE>
<CAPTION>
Year ending December 31, Amount
------------------------ ----------
<S> <C>
1998 67,788
1999 62,139
----------
$ 129,927
==========
</TABLE>
Rent expense for the years ended December 31, 1997 and 1996 was $44,796
and $44,886, respectively. Rent expense has been adjusted to reflect
the effects of recording rent on a straight-line basis.
F-11
<PAGE> 117
INSTITUTIONAL ASSET MANAGEMENT, INC.
Balance Sheet
June 30, 1998
(unaudited)
<TABLE>
Assets
<S> <C>
Cash and cash equivalents $ 10,498
Investment, at fair value 131,978
Furniture, fixtures and equipment, net of accumulated depreciation 99,364
Prepaid and other assets 2,379
---------
Total assets $ 244,219
=========
Liabilities and Stockholders' Equity
Notes payable 273,252
Accounts payable and accrued expenses 63,375
Other liabilities 51,309
---------
Total liabilities 387,936
---------
Stockholders' equity (deficit):
Common stock 5
Additional capital 495
Accumulated deficit (144,217)
---------
Total stockholders' equity (deficit) (143,717)
---------
$ 244,219
=========
</TABLE>
See accompanying notes to unaudited financial statements.
F-12
<PAGE> 118
INSTITUTIONAL ASSET MANAGEMENT, INC.
Statements of Operations
Six months ended June 30, 1998 and 1997
(unaudited)
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Revenues:
Asset management fees $348,665 $338,337
Outside manager income 15,649 45,440
Management fees 112,000 60,000
Realized and unrealized gains on investment, net 57,849 -
Other 3,378 841
-------- --------
Total revenues 537,541 444,618
-------- --------
Expenses:
Salaries and employee benefits 285,429 72,627
Outside manager expense 15,649 45,440
Advertising and marketing 34,382 27,250
Professional and regulatory fees 20,646 42,621
Operating and maintenance 38,508 28,873
General and administrative 65,069 56,081
Interest expense 11,692 7,049
-------- --------
Total expenses 471,375 279,941
-------- --------
Net income $ 66,166 $164,677
======== ========
</TABLE>
See accompanying notes to unaudited financial statements.
F-13
<PAGE> 119
INSTITUTIONAL ASSET MANAGEMENT, INC.
Statements of Cash Flows
Six months ended June 30, 1998 and 1997
(unaudited)
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 66,166 $ 164,677
Adjustments to reconcile net income to net cash
provided by operating activities:
Purchases of investment (20,000) (20,000)
Distributions from investment 119,560 -
Unrealized gain on investment (24,623) -
Change in assets and liabilities:
Increase in prepaid and other assets (811) (26,666)
Increase (decrease) in accounts payable and accrued expenses 4,376 (31,826)
Increase in other liabilities 6,220 148,410
--------- ---------
Net cash provided by operating activities 150,888 234,595
--------- ---------
Cash flows from investing activities:
Purchase of furniture, fixtures and equipment (16,361) (4,047)
--------- ---------
Cash flows from financing activities:
Proceeds from notes payable 169,626 -
Distributions to shareholders (268,145) (240,672)
Principal payments on notes payable (26,698) (13,738)
--------- ---------
Net cash provided by (used in) financing activities (125,217) (254,410)
--------- ---------
Net increase (decrease) in cash and cash equivalents 9,310 (23,862)
Cash and cash equivalents at beginning of period 1,188 30,810
--------- ---------
Cash and cash equivalents at end of period $ 10,498 $ 6,948
========= =========
</TABLE>
See accompanying notes to unaudited financial statements.
F-14
<PAGE> 120
INSTITUTIONAL ASSET MANAGEMENT, INC.
Notes to Unaudited Financial Statements
June 30, 1998
(1) Organization and Basis of Presentation
Institutional Asset Management, Inc. (the Company) was formed to
provide investment consulting and investment management to individuals
and corporations. The Company, which is based in Jacksonville, Florida,
began providing services to customers during January 1995.
The Company has received authority to act as an investment manager in
several states to be able to meet the needs of its customers, the
majority of which are located in the southeastern United States.
The interim financial information included herein is unaudited. Certain
information and footnote disclosures normally included in the financial
statements have been condensed or omitted pursuant to rules and
regulations of the Securities and Exchange Commission (SEC), although
the Company believes that the disclosures made are adequate to make the
information presented not misleading. These financial statements should
be read in conjunction with the Company's financial statements and
related notes as of and for the year ended December 31, 1997. In the
opinion of management, such unaudited information reflects all
adjustments, consisting of normal recurring accruals and other
adjustments necessary for a fair presentation of unaudited information.
The result of operations for such interim periods are not necessarily
indicative of results for the full year.
F-15
<PAGE> 121
CAPITAL RESEARCH CORPORATION
Financial Statements
December 31, 1997 and 1996
(With Independent Auditors' Report Thereon)
F-16
<PAGE> 122
Independent Auditors' Report
The Board of Directors
Capital Research Corporation:
We have audited the accompanying statements of financial condition
of Capital Research Corporation as of December 31, 1997 and 1996,
and the related statements of income (loss), changes in
stockholders' equity, and cash flows for the years then ended.
These financial statements are the responsibility of the
Corporation'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
Capital Research Corporation as of December 31, 1997 and 1996 and
the results of its operations and its cash flows for the years
then ended in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Jacksonville, Florida
February 23, 1998
F-17
<PAGE> 123
CAPITAL RESEARCH CORPORATION
Statements of Financial Condition
December 31, 1997 and 1996
<TABLE>
<CAPTION>
Assets 1997 1996
--------- --------
<S> <C> <C>
Cash and cash equivalents $ 181,155 $102,025
Accounts receivable 35,488 12,758
Fixed assets, net of accumulated depreciation of $574 2,296 -
Other assets 4,000 -
--------- --------
$ 222,939 $114,783
========= ========
Liabilities and Stockholders' Equity
Accounts payable and other liabilities $ 141,532 $ 9,937
--------- --------
Stockholders' equity:
Common stock, par value $25; 1,000 shares
authorized, 500 shares issued and outstanding 12,500 12,500
Additional paid-in capital 69,114 92,346
Accumulated deficit (207) -
--------- --------
Total stockholders' equity 81,407 104,846
--------- --------
Total liabilities and stockholders' equity $ 222,939 $114,783
========= ========
</TABLE>
See accompanying notes to financial statements.
F-18
<PAGE> 124
CAPITAL RESEARCH CORPORATION
Statements of Income (Loss)
Years ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
----------- --------
<S> <C> <C>
Revenues:
Commissions $ 1,207,641 $307,940
Interest 14,173 9,190
----------- --------
Total revenues 1,221,814 317,130
----------- --------
Expenses:
Employee compensation and benefits 635,063 105,282
Brokerage and clearing 341,849 74,437
Occupancy and equipment 158,463 72,412
Professional and regulatory fees 77,369 26,740
General and administrative 9,277 10,437
----------- --------
Total expenses 1,222,021 289,308
----------- --------
Net income (loss) $ (207) $ 27,822
=========== ========
</TABLE>
See accompanying notes to financial statements.
F-19
<PAGE> 125
CAPITAL RESEARCH CORPORATION
Statements of Changes in Stockholders' Equity
Years ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
Additional
Common Paid-in Accumulated
Stock Capital Deficit Total
------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Balance at December 31, 1995 $12,500 $ 101,947 $ (2,893) $ 111,554
Distributions - (9,601) (24,929) (34,530)
Net Income - - 27,822 27,822
------- ---------- ---------- ---------
Balance at December 31, 1996 12,500 92,346 - 104,846
Distributions - (23,232) - (23,232)
Net Loss - - (207) (207)
------- ---------- ---------- ---------
Balance at December 31, 1997 $12,500 $ 69,114 $ (207) $ 81,407
======= ========== ========== =========
</TABLE>
See accompanying notes to financial statements.
F-20
<PAGE> 126
CAPITAL RESEARCH CORPORATION
Statements of Cash Flows
Years ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (207) $ 27,822
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation 574 -
Change in assets and liabilities:
Increase in accounts receivable (22,730) (12,758)
Increase in other assets (4,000) -
Increase in accounts payable and other liabilities 131,595 5,076
--------- ---------
Net cash provided by operating activities 105,232 20,140
--------- ---------
Cash flows from investing activities- purchase of fixed assets (2,870) -
--------- ---------
Cash flows from financing activities - capital distributions (23,232) (34,530)
--------- ---------
Net increase (decrease) in cash and cash equivalents 79,130 (14,390)
--------- ---------
Cash and cash equivalents at beginning of the year 102,025 116,415
--------- ---------
Cash and cash equivalents at end of the year $ 181,155 $ 102,025
========= =========
</TABLE>
See accompanying notes to financial statements.
F-21
<PAGE> 127
CAPITAL RESEARCH CORPORATION
Notes to Financial Statements
December 31, 1997
(1) Summary of Significant Accounting Policies and Operations
(a) Organization
Capital Research Corporation (the Company) was incorporated in
the State of Florida on July 19, 1972 as a registered
broker/dealer with the Securities and Exchange Commission and
is a member of the National Association of Securities Dealers,
Inc. (NASD).
The Company is approved by the NASD to conduct general
securities business on a fully-disclosed basis through a
clearing broker/dealer, which carries all accounts and
prepares and maintains all books and records for the Company's
customers.
(b) Furniture, Fixtures and Equipment
Furniture, fixtures and equipment are carried at cost, less
accumulated depreciation. Depreciation is calculated on the
straight-line method over the estimated useful lives of the
underlying assets, which ranges from three to seven years.
(c) Income Taxes
The Company operates as a Subchapter S Corporation for Federal
income tax purposes thus, no provision for income taxes is
made in the financial statements, since all earnings and
losses are passed through to the individual stockholders.
(d) Commission Revenue
Commissions are earned on securities transactions with a
clearing broker/dealer initiated on behalf of customers.
Additional commissions are also earned on transactions with
mutual funds and variable annuities and are received directly
from the related fund or issuer. All commission revenue is
recognized as income when earned. All accounts receivable
represent amounts due from National Financial Service
Corporation, the Company's clearing broker/dealer, and
represent monies earned but not yet remitted to the Company.
(e) Cash and Cash Equivalents
For the purposes of the statement of cash flows, any
instrument which has an original maturity of ninety days or
less when purchased is considered a cash equivalent.
F-22
<PAGE> 128
CAPITAL RESEARCH CORPORATION
Notes to Financial Statements
(1) Summary of Significant Accounting Policies and Operations, continued
(f) Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires the
Company's 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.
(2) Related Party Transaction
The Company leases its main office space from an affiliate and pays a
monthly fee for its proportionate share of rent, utilities, telephone,
etc. For the years ended December 31, 1997 and 1996, such expenses
totaled approximately $151,500 and $69,100, respectively, and are
included in occupancy and equipment on the accompanying financial
statements.
(3) Net Capital Requirements
The Company is subject to the Securities and Exchange Commission's
Uniform Net Capital Rule (Rule 15c3-1) which requires the maintenance
of minimum net capital and requires that the ratio of aggregate
indebtedness to net capital, both as defined, shall not exceed 15 to 1.
At December 31, 1997, the Company has net capital of $75,111 which is
$25,111 in excess of its required capital of $50,000.
(4) Subordinated Claims
As of December 31, 1997 and 1996, the Company had no liabilities which
were subordinate to the claims of general creditors.
F-23
<PAGE> 129
CAPITAL RESEARCH CORPORATION
Statement of Financial Condition
June 30, 1998
(unaudited)
<TABLE>
<CAPTION>
Assets
<S> <C>
Cash and cash equivalents $124,576
Accounts receivable 62,625
Fixed assets, net of accumulated depreciation 2,296
Other assets 3,000
--------
$192,497
========
Liabilities and Stockholders' Equity
Accounts payable and other liabilities $ 95,696
--------
Stockholders' equity:
Common stock 12,500
Additional paid-in capital 69,114
Retained earnings 15,187
--------
Total stockholders' equity 96,801
--------
Total liabilities and stockholders' equity $192,497
========
</TABLE>
See accompanying notes to unaudited financial statements.
F-24
<PAGE> 130
CAPITAL RESEARCH CORPORATION
Statements of Income
Six months ended June 30, 1998 and 1997
(unaudited)
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Revenues:
Commissions $926,940 $425,303
Other 20,124 2,913
-------- --------
Total revenues 947,064 428,216
-------- --------
Expenses:
Employee compensation and benefits 459,071 250,519
Brokerage and clearing 328,463 75,398
Occupancy and equipment 112,000 62,226
Professional and regulatory fees 19,042 17,570
General and administrative 7,294 5,682
-------- --------
Total expenses 925,870 411,395
-------- --------
Net income $ 21,194 $ 16,821
======== ========
</TABLE>
See accompanying notes to unaudited financial statements.
F-25
<PAGE> 131
CAPITAL RESEARCH CORPORATION
Statements of Cash Flows
Six months ended June 30, 1998
(unaudited)
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 21,194 $ 16,821
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Change in assets and liabilities:
(Increase) decrease in accounts receivable (27,137) 60
Decrease in other assets 1,000 -
(Decrease) in accounts payable and other liabilities (45,836) (8,781)
--------- ---------
Net cash (used in) provided operating activities (50,779) 8,100
--------- ---------
Cash flows from investing activities - capital expenditures - (2,870)
--------- ---------
Cash flows from financing activities - capital distributions (5,800) (2,902)
--------- ---------
Net (decrease) increase in cash and cash equivalents (56,579) 2,328
Cash and cash equivalents at beginning of the period 181,155 102,025
--------- ---------
Cash and cash equivalents at end of the period $ 124,576 $ 104,353
========= =========
</TABLE>
See accompanying notes to unaudited financial statements.
F-26
<PAGE> 132
CAPITAL RESEARCH CORPORATION
Notes to Unaudited Financial Statements
June 30, 1998
(1) Organization and Basis of Presentation
Capital Research Corporation (the Company) was incorporated in the
State of Florida on July 19, 1972 as a registered broker/dealer with
the Securities and Exchange Commission and is a member of the National
Association of Securities Dealers, Inc. (NASD).
The Company is approved by the NASD to conduct general securities
business on a fully-disclosed basis through a clearing broker/dealer,
which carries all accounts and prepares and maintains all books and
records for the Company's customers.
The interim financial information included herein is unaudited. Certain
information and footnote disclosures normally included in the financial
statements have been condensed or omitted pursuant to rules and
regulations of the Securities and Exchange Commission (SEC), although
the Company believes that the disclosures made are adequate to make the
information presented not misleading. These financial statements should
be read in conjunction with the Company's financial statements and
related notes as of and for the year ended December 31, 1997. In the
opinion of management, such unaudited information reflects all
adjustments, consisting of normal recurring accruals and other
adjustments necessary for a fair presentation of unaudited information.
The result of operations for such interim periods are not necessarily
indicative of results for the full year.
F-27
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ANNEX A
- --------------------------------------------------------------------------------
AMENDED AND RESTATED
AGREEMENT AND PLAN OF REORGANIZATION
by and among
INTREPID CAPITAL CORPORATION,
ENVIROQ CORPORATION,
FREEDOM HOLDINGS OF ALABAMA, INC.,
INSTITUTIONAL ASSET MANAGEMENT, INC.,
IAM MERGER SUB, INC.,
CAPITAL RESEARCH CORPORATION,
and
CRC MERGER SUB, INC.
- --------------------------------------------------------------------------------
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TABLE OF CONTENTS
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ARTICLE 1
DEFINITIONS
Section 1.1 "Action"...........................................................................A-2
Section 1.2 "Adverse Consequences".............................................................A-2
Section 1.3 "Affiliate"........................................................................A-2
Section 1.4 "Broker-Dealer"....................................................................A-2
Section 1.5 "Broker-Dealer Filings"............................................................A-2
Section 1.6 "Business Day".....................................................................A-2
Section 1.7 "Alternative Proposal".............................................................A-2
Section 1.8 "Closing"..........................................................................A-2
Section 1.9 "Closing Date".....................................................................A-2
Section 1.10 "Code".............................................................................A-2
Section 1.11 "Confidential Information".........................................................A-2
Section 1.12 "Consent"..........................................................................A-2
Section 1.13 "Controlled Group Liability".......................................................A-2
Section 1.14 "CRC"..............................................................................A-2
Section 1.15 "CRC Consideration"................................................................A-2
Section 1.16 "CRC Merger".......................................................................A-2
Section 1.17 "CRC Stock"........................................................................A-3
Section 1.18 "CRC Surviving Corporation"........................................................A-3
Section 1.19 "Delaware General Corporation Law".................................................A-3
Section 1.20 "Dissent Provisions"...............................................................A-3
Section 1.21 "Dissenting Stockholder"...........................................................A-3
Section 1.22 "Effective Time"...................................................................A-3
Section 1.23 "Employee Benefit Plan"............................................................A-3
Section 1.24 "Employee Pension Benefit Plan"....................................................A-3
Section 1.25 "Employee Welfare Benefit Plan"....................................................A-3
Section 1.26 "Environmental, Health, and Safety Laws"...........................................A-3
Section 1.27 "Enviroq"..........................................................................A-3
Section 1.28 "Enviroq Financial Statements".....................................................A-3
Section 1.29 "Enviroq Intellectual Property Rights".............................................A-3
Section 1.30 "Enviroq Merger"...................................................................A-3
Section 1.31 "Enviroq Most Recent Financial Statements".........................................A-3
Section 1.32 "Enviroq Most Recent Fiscal Month End".............................................A-3
Section 1.33 "Enviroq Most Recent Fiscal Year End"..............................................A-3
Section 1.34 "Enviroq Plans"....................................................................A-3
Section 1.35 "Enviroq SEC Documents"............................................................A-4
Section 1.36 "Enviroq Stock"....................................................................A-4
Section 1.37 "Enviroq Surviving Corporation"....................................................A-4
Section 1.38 "ERISA"............................................................................A-4
Section 1.39 "ERISA Affiliate"..................................................................A-4
Section 1.40 "Exchange Act".....................................................................A-4
Section 1.41 "Extremely Hazardous Substance"....................................................A-4
Section 1.42 "Fiduciary"........................................................................A-4
Section 1.43 "GAAP".............................................................................A-4
Section 1.44 "IAM"..............................................................................A-4
Section 1.45 "IAM/CRC Regulatory Documents".....................................................A-4
Section 1.46 "IAM and CRC Intellectual Property Rights".........................................A-4
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Section 1.47 "IAM Consideration".................................................................A-4
Section 1.48 "IAM/CRC Financial Statements"......................................................A-4
Section 1.49 "IAM/CRC Most Recent Financial Statements"..........................................A-4
Section 1.50 "IAM/CRC Most Recent Fiscal Month End"..............................................A-4
Section 1.51 "IAM/CRC Most Recent Fiscal Year End"...............................................A-4
Section 1.52 "IAM/CRC Plans".....................................................................A-4
Section 1.53 "IAM/CRC Regulatory Documents"......................................................A-5
Section 1.54 "IAM Merger"........................................................................A-5
Section 1.55 "IAM Stock".........................................................................A-5
Section 1.56 "IAM Surviving Corporation".........................................................A-5
Section 1.57 "Indemnified Party or Parties"......................................................A-5
Section 1.58 "Intellectual Property".............................................................A-5
Section 1.59 "Investment Advisor Filings"........................................................A-5
Section 1.60 "Investment Company Act"............................................................A-5
Section 1.61 "Knowledge".........................................................................A-5
Section 1.62 "Losses"............................................................................A-5
Section 1.63 "Mergers"...........................................................................A-5
Section 1.64 "Material Adverse Effect"...........................................................A-5
Section 1.65 "Merger Consideration"..............................................................A-5
Section 1.66 "Merger Letter of Transmittal"......................................................A-5
Section 1.67 "Multi-employer Plan"...............................................................A-5
Section 1.68 "Multiple Employer Plan"............................................................A-6
Section 1.69 "NewCo".............................................................................A-6
Section 1.70 "NewCo Stock".......................................................................A-6
Section 1.71 "NewCo Subs"........................................................................A-6
Section 1.72 "Non-Redeeming Enviroq Stockholder".................................................A-6
Section 1.73 "Non-Redeeming Enviroq Stockholder Cash Consideration"..............................A-6
Section 1.74 "Non-Redeeming Enviroq Stockholder Consideration"...................................A-6
Section 1.75 "Non-Redeeming Enviroq Stockholder Stock Consideration".............................A-6
Section 1.76 "Ordinary Course of Business".......................................................A-6
Section 1.77 "PBGC"..............................................................................A-6
Section 1.78 "Parties"...........................................................................A-6
Section 1.79 "Party".............................................................................A-6
Section 1.80 "Paying Agent"......................................................................A-6
Section 1.81 "Person"............................................................................A-6
Section 1.82 "Prohibited Transaction"............................................................A-6
Section 1.83 "Proxy Statement"...................................................................A-6
Section 1.84 "Qualified Enviroq Plan"............................................................A-6
Section 1.85 "Qualified IAM/CRC Plan"............................................................A-6
Section 1.86 "Redeemed Shares"...................................................................A-7
Section 1.87 "Redeeming Enviroq Stockholder" ....................................................A-7
Section 1.88 "Redeeming Enviroq Stockholder Consideration".......................................A-7
Section 1.89 "Redemption"........................................................................A-7
Section 1.90 "Redemption Expiration Date" .......................................................A-7
Section 1.91 "Redemption Letter of Transmittal" .................................................A-7
Section 1.92 "Redemption Materials"..............................................................A-7
Section 1.93 "Redemption Offer"..................................................................A-7
Section 1.94 "Redemption Price"..................................................................A-7
Section 1.95 [Omitted]...........................................................................A-7
Section 1.96 "Registered Investment Adviser".....................................................A-7
Section 1.97 "Registration Attorney".............................................................A-7
Section 1.98 "Registration Statement"............................................................A-7
Section 1.99 "Regulatory Authority"..............................................................A-7
Section 1.100 "Reportable Event"..................................................................A-7
Section 1.101 "SEC"...............................................................................A-7
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Section 1.102 "Securities Act"......................................................................A-8
Section 1.103 "Security Interest"...................................................................A-8
Section 1.104 "Stock Agreement".....................................................................A-8
Section 1.105 "Sub-1"...............................................................................A-8
Section 1.106 "Sub-1 Stock".........................................................................A-8
Section 1.107 "Sub-2"...............................................................................A-8
Section 1.108 "Sub-2 Stock".........................................................................A-8
Section 1.109 "Sub-3"...............................................................................A-8
Section 1.110 "Sub-3 Stock".........................................................................A-8
Section 1.111 "Subsidiary"..........................................................................A-8
Section 1.112 "Surviving Corporations"..............................................................A-8
Section 1.113 "Tax Returns".........................................................................A-8
Section 1.114 "Taxes"...............................................................................A-8
Section 1.115 "Third-Party Intellectual Property Rights"............................................A-9
Section 1.116 "Valid Acceptance"....................................................................A-9
Section 1.117 "Voting Agreement"....................................................................A-9
ARTICLE 2
THE MERGERS
Section 2.1 The Mergers...........................................................................A-9
Section 2.2 The Effective Time and the Closing Date...............................................A-9
Section 2.3 Effect of the Mergers.................................................................A-9
Section 2.4 Certificate or Articles of Incorporation and Bylaws...................................A-9
Section 2.5 Directors and Officers................................................................A-10
Section 2.6 NewCo Board Composition...............................................................A-10
ARTICLE 3
CONVERSION OF STOCK
Section 3.1 Conversion of Sub-1 Stock and Enviroq Stock...........................................A-10
Section 3.2 Conversion of Sub-2 and IAM Stock.....................................................A-10
Section 3.3 Conversion of Sub-3 and CRC Stock.....................................................A-11
Section 3.4 Rights of Dissent of Enviroq Stockholders.............................................A-11
Section 3.5 Stock Options and Related Matters.....................................................A-11
Section 3.6 Shares of NewCo Stock Owned by Enviroq................................................A-12
A
ARTICLE 4
PAYMENT OF THE REDEMPTION PRICE AND MERGER CONSIDERATION
Section 4.1 Payment of the Redemption Price and the Non-Redeeming Enviroq Stockholder Cash
Consideration.......................................................................A-12
Section 4.2 Payment of the Non-Redeeming Enviroq Stockholder Stock Consideration, the Redeeming
Enviroq Stockholder Consideration, the IAM Consideration and the CRC Consideration..A-12
Section 4.3 Lost Certificates.....................................................................A-13
Section 4.4 Payment to Another Person.............................................................A-13
Section 4.5 Right to Receive the Merger Consideration Only........................................A-13
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ARTICLE 5
COVENANTS AND AGREEMENTS
Section 5.1 Conduct of the Business...............................................................A-14
Section 5.2 Access to Books and Records...........................................................A-15
Section 5.3 Approval of Stockholders of Enviroq...................................................A-15
Section 5.4 Preparation of Proxy Statement and Registration Statement.............................A-15
Section 5.5 Exemption Under Anti-Takeover Statutes................................................A-15
Section 5.6 Alternative Proposals.................................................................A-16
Section 5.7 Affiliates............................................................................A-16
Section 5.8 Redemption of Certain Shares of Enviroq Stock.........................................A-16
Section 5.9 Consent of IAM Clients................................................................A-17
ARTICLE 6
ADDITIONAL COVENANTS AND AGREEMENTS
Section 6.1 Best Efforts; Cooperation.............................................................A-18
Section 6.2 Regulatory Matters....................................................................A-18
Section 6.3 Indemnification Regarding the Registration Statement and Proxy Statement..............A-18
Section 6.4 Notice of Developments................................................................A-18
Section 6.5 Notices and Consents..................................................................A-18
Section 6.6 Payment of the Merger Consideration...................................................A-19
Section 6.7 Repayment of Loans....................................................................A-19
Section 6.8 Indemnity.............................................................................A-19
ARTICLE 7
MUTUAL CONDITIONS TO CLOSING
Section 7.1 Shareholder Approval..................................................................A-19
Section 7.2 Regulatory Approvals..................................................................A-20
Section 7.3 Litigation............................................................................A-20
Section 7.4 Proxy Statement.......................................................................A-20
Section 7.5 Registration Statement................................................................A-20
Section 7.6 Material Condition....................................................................A-20
Section 7.7 Consents..............................................................................A-20
ARTICLE 8
CONDITIONS TO THE OBLIGATIONS OF ENVIROQ
Section 8.1 Representations and Warranties........................................................A-20
Section 8.2 Performance of Obligations............................................................A-20
Section 8.3 Certificate Representing Satisfaction of Conditions...................................A-21
Section 8.4 Consummation of the IAM Merger and the CRC Merger.....................................A-21
Section 8.5 Absence of Adverse Facts..............................................................A-21
Section 8.6 Employment Agreement with William J. Long.............................................A-21
Section 8.7 Repayment of Loans....................................................................A-21
Section 8.8 Voting Agreement......................................................................A-21
Section 8.9 Stock Options.........................................................................A-21
Section 8.10 Resignations..........................................................................A-21
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Section 8.11 Consent to Assignment by IAM Clients..................................................A-21
ARTICLE 9
CONDITIONS TO THE OBLIGATIONS OF IAM
Section 9.1 Representations and Warranties........................................................A-21
Section 9.2 Performance of Obligations............................................................A-21
Section 9.3 Certificate Representing Satisfaction of Conditions...................................A-22
Section 9.4 Dissenters............................................................................A-22
Section 9.5 Consummation of the Enviroq Merger and the CRC Merger.................................A-22
Section 9.6 Absence of Adverse Facts..............................................................A-22
Section 9.7 Employment Agreements with Forrest Travis and Mark F. Travis..........................A-22
Section 9.8 Stock Agreement.......................................................................A-22
Section 9.9 Voting Agreement......................................................................A-22
Section 9.10 Stock Options.........................................................................A-22
Section 9.11 Resignations..........................................................................A-22
ARTICLE 10
CONDITIONS TO THE OBLIGATIONS OF CRC
Section 10.1 Representations and Warranties........................................................A-22
Section 10.2 Performance of Obligations............................................................A-22
Section 10.3 Certificate Representing Satisfaction of Conditions...................................A-23
Section 10.4 Dissenters............................................................................A-23
Section 10.5 Consummation of the Enviroq Merger and the IAM Merger.................................A-23
Section 10.6 Absence of Adverse Facts..............................................................A-23
Section 10.7 Employment Agreements with Forrest Travis and Mark F. Travis..........................A-23
Section 10.8 Stock Agreement.......................................................................A-23
Section 10.9 Voting Agreement......................................................................A-23
Section 10.10 Stock Options.........................................................................A-23
Section 10.11 Resignations..........................................................................A-23
ARTICLE 11
TERMINATION
SECTION 11.1 TERMINATION OF AGREEMENT..............................................................A-23
Section 11.2 Effect of Termination.................................................................A-24
Section 11.3 Confidentiality Upon Termination......................................................A-25
Section 11.4 Specific Performance..................................................................A-25
ARTICLE 12
REPRESENTATIONS AND WARRANTIES OF ENVIROQ
Section 12.1 Organization, Qualification, and Corporate Power; Authority...........................A-25
Section 12.2 Capitalization........................................................................A-26
Section 12.3 Non-contravention.....................................................................A-26
Section 12.4 Brokers' Fees.........................................................................A-26
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Section 12.5 Title to Assets.......................................................................A-26
Section 12.6 Subsidiaries..........................................................................A-26
Section 12.7 Financial Statements..................................................................A-27
Section 12.8 Enviroq SEC Documents.................................................................A-27
Section 12.9 Events Subsequent to Enviroq Most Recent Fiscal Year End..............................A-27
Section 12.10 Undisclosed Liabilities...............................................................A-29
Section 12.11 Legal Compliance......................................................................A-29
Section 12.12 Tax Matters...........................................................................A-29
Section 12.13 Real Property.........................................................................A-29
Section 12.14 Intellectual Property.................................................................A-31
Section 12.15 Tangible Assets.......................................................................A-31
Section 12.16 Inventory.............................................................................A-31
Section 12.17 Contracts.............................................................................A-31
Section 12.18 Notes and Accounts Receivable.........................................................A-32
Section 12.19 Insurance.............................................................................A-33
Section 12.20 Litigation............................................................................A-33
Section 12.21 Employees.............................................................................A-33
Section 12.22 Employee Benefits.....................................................................A-33
Section 12.23 Guaranties............................................................................A-34
Section 12.24 Environment, Health, and Safety.......................................................A-34
Section 12.25 Registration Statement and Proxy Statement............................................A-34
ARTICLE 13
REPRESENTATIONS AND WARRANTIES OF IAM AND CRC
Section 13.1 Organization, Qualification, and Corporate Power; Authority...........................A-34
Section 13.2 Capitalization........................................................................A-35
Section 13.3 Non-contravention.....................................................................A-35
Section 13.4 Brokers' Fees.........................................................................A-35
Section 13.5 Title to Assets.......................................................................A-35
Section 13.6 Subsidiaries..........................................................................A-37
Section 13.7 Financial Statements..................................................................A-37
Section 13.8 Events Subsequent to IAM/CRC Most Recent Fiscal Year End..............................A-37
Section 13.9 Undisclosed Liabilities...............................................................A-38
Section 13.10 Legal Compliance......................................................................A-38
Section 13.11 Tax Matters...........................................................................A-38
Section 13.12 Real Property.........................................................................A-39
Section 13.13 Intellectual Property.................................................................A-39
Section 13.14 Tangible Assets.......................................................................A-40
Section 13.15 Inventory.............................................................................A-40
Section 13.16 Contracts.............................................................................A-40
Section 13.17 Notes and Accounts Receivable.........................................................A-40
Section 13.18 Insurance.............................................................................A-41
Section 13.19 Litigation............................................................................A-41
Section 13.20 Employees.............................................................................A-41
Section 13.21 Employee Benefits.....................................................................A-41
Section 13.22 Guaranties............................................................................A-42
Section 13.23 Environment, Health, and Safety.......................................................A-42
Section 13.24 Registration Statement and Proxy Statement............................................A-43
Section 13.25 IAM and CRC Documents Filed With Various Regulatory Authorities.......................A-43
Section 13.26 No Investment Company Registration or Activities. ...................................A-43
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ARTICLE 14
REPRESENTATIONS AND WARRANTIES OF NEWCO, SUB-1, SUB-2 AND SUB-3
Section 14.1 Organization, Qualification, and Corporate Power; Authority...........................A-44
Section 14.2 Capitalization........................................................................A-44
Section 14.3 Non-contravention.....................................................................A-44
ARTICLE 15
GENERAL PROVISIONS
Section 15.1 Nonsurvival of Representations and Warranties.........................................A-45
Section 15.2 Press Releases and Public Announcements...............................................A-45
Section 15.3 No Third-Party Beneficiaries..........................................................A-45
Section 15.4 Entire Agreement......................................................................A-45
Section 15.5 Succession and Assignment.............................................................A-45
Section 15.6 Counterparts..........................................................................A-45
Section 15.7 Notices...............................................................................A-45
Section 15.8 Governing Law.........................................................................A-47
Section 15.9 Amendments and Waivers................................................................A-47
Section 15.10 Severability..........................................................................A-47
Section 15.11 Construction..........................................................................A-47
Section 15.12 Incorporation of Exhibits and Schedules...............................................A-47
Section 15.13 Transaction Costs.....................................................................A-47
</TABLE>
SCHEDULES
<TABLE>
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Schedule 9.9: Stockholders of Enviroq Executing the Voting Agreement
Schedule 12.1: Directors and Officers of Enviroq and its Subsidiaries
Schedule 12.2: Capitalization (Enviroq)
Schedule 12.3: Non-Contravention (Enviroq)
Schedule 12.5: Title to Assets (Enviroq and its Subsidiaries)
Schedule 12.6: Subsidiaries (Enviroq)
Schedule 12.7: Financial Statements (Enviroq)
Schedule 12.9: Subsequent Events (Enviroq)
Schedule 12.10: Undisclosed Liabilities (Enviroq)
Schedule 12.11: Legal Compliance (Enviroq)
Schedule 12.12: Tax Matters (Enviroq)
Schedule 12.13: Real Property (Enviroq)
Schedule 12.14: Intellectual Property (Enviroq)
</TABLE>
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Schedule 12.17: Contracts (Enviroq)
Schedule 12.18: Notes and Accounts Receivable (Enviroq)
Schedule 12.19: Insurance (Enviroq)
Schedule 12.20: Litigation (Enviroq)
Schedule 12.22: Employee Benefits (Enviroq)
Schedule 12.23: Guaranties (Enviroq)
Schedule 12.24: Environmental, Health, and Safety (Enviroq)
Schedule 13.1: Directors and Officers of IAM and CRC
Schedule 13.2: Capitalization (IAM/CRC)
Schedule 13.3: Non-Contravention (IAM/CRC)
Schedule 13.5: Title to Assets (IAM/CRC)
Schedule 13.7: Financial Statements (IAM/CRC)
Schedule 13.8: Subsequent Events (IAM/CRC)
Schedule 13.9: Undisclosed Liabilities (IAM/CRC)
Schedule 13.10: Legal Compliance (IAM/CRC)
Schedule 13.13: Intellectual Property (IAM/CRC)
Schedule 13.16: Contracts (IAM/CRC)
Schedule 13.17: Notes and Accounts Receivable (IAM/CRC)
Schedule 13.18: Insurance (IAM/CRC)
Schedule 13.19: Litigation (IAM/CRC)
Schedule 13.21: Employee Benefits (IAM/CRC)
Schedule 13.22: Guaranties (IAM/CRC)
Schedule 13.23: Environment, Health, and Safety (IAM/CRC)
Schedule 14.1: Directors and Officers of NewCo and the NewCo Subs
Schedule 14.2: Capitalization (NewCo and the NewCo Subs)
Schedule 14.3: Non-Contravention (NewCo and the NewCo Subs)
</TABLE>
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EXHIBITS
<TABLE>
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Exhibit A: Form of Incentive Stock Option Plan of NewCo
Exhibit B: Form of Non-Employee Directors' Stock Option Plan of NewCo
Exhibit C: Affiliate Agreement
Exhibit D: Employment Agreement (William J. Long)
Exhibit E: Voting Agreement
Exhibit F: Employment Agreement (Forrest Travis)
Exhibit G: Employment Agreement (Mark F. Travis)
</TABLE>
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AMENDED AND RESTATED
AGREEMENT AND PLAN OF REORGANIZATION
THIS AMENDED AND RESTATED AGREEMENT AND PLAN OF REORGANIZATION, dated
as of the ___ day of October, 1998, is entered into by and among Intrepid
Capital Corporation, a Delaware corporation ("NewCo"), Enviroq Corporation, a
Delaware corporation ("Enviroq"), Freedom Holdings of Alabama, Inc., a Delaware
corporation ("Sub-1"), Institutional Asset Management, Inc., a Florida
corporation ("IAM"), IAM Merger Sub, Inc., a Florida corporation ("Sub-2"),
Capital Research Corporation, a Florida corporation ("CRC") and CRC Merger Sub,
Inc., a Florida corporation ("Sub-3") and amends and restates the Agreement and
Plan of Reorganization entered into by and among NewCo, Enviroq, Sub-1, IAM,
Sub-2, CRC and Sub-3 on April 22, 1998 (as amended and restated, this
"Agreement").
RECITALS
1. NewCo is a newly formed Delaware corporation and is a wholly-owned
subsidiary of Enviroq.
2. NewCo owns all of the issued and outstanding capital stock of Sub-1,
Sub-2 and Sub-3.
3. Immediately prior to the consummation of the Enviroq Merger (as
defined below), Enviroq shall redeem a certain number of shares of its common
stock.
4. Sub-1, upon the terms and subject to the conditions of this
Agreement, will be merged with and into Enviroq (the "Enviroq Merger").
5. Sub-2, upon the terms and subject to the conditions of this
Agreement, will be merged with and into IAM (the "IAM Merger").
6. Sub-3, upon the terms and subject to the conditions of this
Agreement, will be merged with and into CRC (the "CRC Merger").
7. The respective boards of directors of Enviroq and Sub-1 deem it in
the best interests of Enviroq and Sub-1, respectively, and of their respective
stockholders that the Enviroq Merger be consummated.
8. The respective boards of directors of IAM and Sub-2 deem it in the
best interests of IAM and Sub-2, respectively, and their respective stockholders
that the IAM Merger be consummated.
9. The respective boards of directors of CRC and Sub-3 deem it in the
best interests of CRC and Sub-3, respectively, and their respective stockholders
that the CRC Merger be consummated.
10. The respective boards of directors of all of the Parties have
approved this Agreement, and the board of directors of Enviroq has directed that
this Agreement be submitted to its stockholders for approval and adoption. The
shareholders of Sub-1, Sub-2, Sub-3, IAM and CRC have approved this Agreement
prior to its execution.
11. Concurrently with the execution hereof, in order to induce IAM and
CRC to enter into this Agreement, certain stockholders of Enviroq are entering
into a stock agreement with IAM and CRC (the "Stock Agreement") providing for
certain voting and other restrictions with respect to the shares of Enviroq
Stock beneficially owned by them upon the terms and conditions specified
therein.
12. NewCo, the sole stockholder of Sub-1, Sub-2 and Sub-3, will
deliver, or cause to be delivered to the stockholders of Enviroq, IAM and CRC,
the consideration to be paid pursuant to the Enviroq Merger, the IAM Merger and
the CRC Merger, respectively, in accordance with the terms of this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
promises herein made, and in consideration of the warranties and covenants
herein contained, the Parties agree as follows:
A-1
<PAGE> 144
ARTICLE 1
DEFINITIONS
Capitalized terms used in this Agreement shall have the definitions set
forth in this Article 1.
SECTION 1.1 "ACTION" has the meaning set forth in Section 6.8 of this
Agreement.
SECTION 1.2 "ADVERSE CONSEQUENCES" means all actions, suits,
proceedings, hearings, investigations, charges, complaints, injunctions,
judgments, orders, decrees, rulings, dues, penalties, fines, reasonable amounts
paid in settlement, taxes, liens and Losses.
SECTION 1.3 "AFFILIATE" means with respect to each Party an officer or
director of such Party or any Person owning an equity interest of 10% or more of
such Party, any direct or indirect wholly owned subsidiary of such Party, any
other subsidiary owned directly or indirectly by a direct or indirect parent
company of such Party or any other Person in which such Party has at least a 10%
equity interest.
SECTION 1.4 "BROKER-DEALER" has the meaning set forth in Section 13.25
of this Agreement.
SECTION 1.5 "BROKER-DEALER FILINGS" has the meaning set forth in
Section 13.25 of this Agreement.
SECTION 1.6 "BUSINESS DAY" means each day on which national banks in
Birmingham, Alabama are open for business.
SECTION 1.7 "ALTERNATIVE PROPOSAL" has the meaning set forth in Section
5.6 of this Agreement.
SECTION 1.8 "CLOSING" has the meaning set forth in Section 2.2 of this
Agreement.
SECTION 1.9 "CLOSING DATE" has the meaning set forth in Section 2.2 of
this Agreement.
SECTION 1.10 "CODE" means the Internal Revenue Code of 1986, as
amended. All citations to the Code or to the regulations promulgated thereunder
shall include any amendments or any substitute or successor provisions thereto.
SECTION 1.11 "CONFIDENTIAL INFORMATION" means and includes, but is not
limited to, written data, reports, interpretations, analyses, trade secrets,
processes, drawings, photographs, records, specifications, designs, programs,
product development activities, software packages and related documentation,
technical know-how, concepts, theories, ideas, methods and procedures of
operation, business or marketing plans, proposals, financial information,
compiled data, communications, customer lists and data and equipment, as well as
the nature and results of a Party's development activities and all other
information and/or materials related to the business or activities of a Party,
but excluding such information that is (i) generally available to the public, or
(ii) available, or becomes available, to a Party on a non- confidential basis
prior to its disclosure from a Person authorized to disclose the same.
SECTION 1.12 "CONSENT" means a consent, approval or authorization,
waiver, clearance, exemption or similar affirmation by any Person pursuant to
any contract, permit, law, regulation or order.
SECTION 1.13 "CONTROLLED GROUP LIABILITY" has the meaning set forth in
Section 12.22 of this Agreement.
SECTION 1.14 "CRC" means Capital Research Corporation, a Florida
corporation.
SECTION 1.15 "CRC CONSIDERATION" means 1206.149 shares of NewCo Stock
per share of issued and outstanding CRC Stock.
SECTION 1.16 "CRC MERGER" has the meaning set forth in Recital 5 of
this Agreement.
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SECTION 1.17 "CRC STOCK" means any share of the common stock, par value
$25 per share, of CRC.
SECTION 1.18 "CRC SURVIVING CORPORATION" has the meaning set forth in
Section 2.1 of this Agreement.
SECTION 1.19 "DELAWARE GENERAL CORPORATION LAW" means Title 8 of the
Delaware Code, as amended.
SECTION 1.20 "DISSENT PROVISIONS" has the meaning set forth in Section
3.4 of this Agreement.
SECTION 1.21 "DISSENTING STOCKHOLDER" has the meaning set forth in
Section 3.4 of this Agreement.
SECTION 1.22 "EFFECTIVE TIME" has the meaning set forth in Section 2.2
of this Agreement.
SECTION 1.23 "EMPLOYEE BENEFIT PLAN" means any (a) non-qualified
deferred compensation or retirement plan or arrangement which is an Employee
Pension Benefit Plan, (b) qualified defined contribution retirement plan or
arrangement which is an Employee Pension Benefit Plan, (c) qualified defined
benefit retirement plan or arrangement which is an Employee Pension Benefit Plan
(including any Multi-employer Plan), or (d) Employee Welfare Benefit Plan (or
material fringe benefit plan or program).
SECTION 1.24 "EMPLOYEE PENSION BENEFIT PLAN" has the meaning set forth
in ERISA Section 3(2).
SECTION 1.25 "EMPLOYEE WELFARE BENEFIT PLAN" has the meaning set forth
in ERISA Section 3(l).
SECTION 1.26 "ENVIRONMENTAL, HEALTH, AND SAFETY LAWS" means the
Comprehensive Environmental Response, Compensation and Liability Act of 1980,
the Resource Conservation and Recovery Act of 1976, and the Occupational Safety
and Health Act of 1970, each as amended, together with all other laws (including
rules, regulations, codes, plans, injunctions, judgments, orders, decrees,
rulings and charges thereunder) of federal, state, local, and foreign
governments (and all agencies thereof) concerning pollution or protection of the
environment, public health and safety, or employee health and safety, including
laws relating to emissions, discharges, releases, or threatened releases of
pollutants, contaminants, or chemical, industrial, hazardous, or toxic materials
or waste into ambient air, surface water, ground water, or lands or otherwise
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport, or handling of pollutants, contaminants, or chemical,
industrial, hazardous, or toxic materials or waste.
SECTION 1.27 "ENVIROQ" means Enviroq Corporation, a Delaware
corporation.
SECTION 1.28 "ENVIROQ FINANCIAL STATEMENTS" has the meaning set forth
in Section 12.7 of this Agreement.
SECTION 1.29 "ENVIROQ INTELLECTUAL PROPERTY RIGHTS" has the meaning set
forth in Section 12.14(b) of this Agreement.
SECTION 1.30 "ENVIROQ MERGER" has the meaning set forth in Recital 3 of
this Agreement.
SECTION 1.31 "ENVIROQ MOST RECENT FINANCIAL STATEMENTS" has the meaning
set forth in Section 12.7 of this Agreement.
SECTION 1.32 "ENVIROQ MOST RECENT FISCAL MONTH END" has the meaning set
forth in Section 12.7 of this Agreement.
SECTION 1.33 "ENVIROQ MOST RECENT FISCAL YEAR END" has the meaning set
forth in Section 12.7 of this Agreement.
SECTION 1.34 "ENVIROQ PLANS" means all Employee Benefit Plans,
programs, policies, practices, and other arrangements providing benefits to any
employee or former employee or beneficiary or dependent thereof, whether or not
written, and whether covering one Person or more than one Person, sponsored or
maintained by Enviroq or any of its Subsidiaries or to which Enviroq or any of
its Subsidiaries contributes or is obligated to contribute. Without limiting
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the generality of the foregoing, the term "Enviroq Plans" includes all Employee
Welfare Benefit Plans and all Employee Pension Benefit Plans.
SECTION 1.35 "ENVIROQ SEC DOCUMENTS" has the meaning set forth in
Section 12.8 of this Agreement.
SECTION 1.36 "ENVIROQ STOCK" means any share of the common stock, par
value $0.01 per share, of Enviroq.
SECTION 1.37 "ENVIROQ SURVIVING CORPORATION" has the meaning set forth
in Section 2.1 of this Agreement.
SECTION 1.38 "ERISA" means the Employee Retirement Income Security Act
of 1974, as amended.
SECTION 1.39 "ERISA AFFILIATE" means, with respect to any entity, trade
or business, any other entity, trade or business that is a member of a group
described in Section 414(b), (c), (m) or (o) of the Code or Section 4001(b)(1)
of ERISA that includes the first entity, trade or business, or that is a member
of the same "controlled group" as the first entity, trade or business pursuant
to Section 4001(a)(14) of ERISA.
SECTION 1.40 "EXCHANGE ACT" means the Securities Exchange Act of 1934,
as amended, together with the rules and regulations promulgated thereunder,
including any amendments or any substitute or successor provisions, rules and
regulations thereto.
SECTION 1.41 "EXTREMELY HAZARDOUS SUBSTANCE" has the meaning set forth
in Section 302 of the Emergency Planning and Community Right to Know Act of
1986, as amended.
SECTION 1.42 "FIDUCIARY" has the meaning set forth in ERISA Section
3(21).
SECTION 1.43 "GAAP" means United States generally accepted accounting
principles as in effect from time to time.
SECTION 1.44 "IAM" means Institutional Asset Management, Inc., a
Florida corporation.
SECTION 1.45 "IAM/CRC REGULATORY DOCUMENTS" has the meaning set forth
in Section 13.25 of this Agreement.
SECTION 1.46 "IAM AND CRC INTELLECTUAL PROPERTY RIGHTS" has the meaning
set forth in Section 13.13 of this Agreement.
SECTION 1.47 "IAM CONSIDERATION" means 1206.149 shares of NewCo Stock
per share of issued and outstanding IAM Stock.
SECTION 1.48 "IAM/CRC FINANCIAL STATEMENTS" has the meaning set forth
in Section 13.7 of this Agreement.
SECTION 1.49 "IAM/CRC MOST RECENT FINANCIAL STATEMENTS" has the meaning
set forth in Section 13.7 of this Agreement.
SECTION 1.50 "IAM/CRC MOST RECENT FISCAL MONTH END" has the meaning set
forth in Section 13.7 of this Agreement.
SECTION 1.51 "IAM/CRC MOST RECENT FISCAL YEAR END" has the meaning set
forth in Section 13.7 of this Agreement.
SECTION 1.52 "IAM/CRC PLANS" means all Employee Benefit Plans,
programs, policies, practices, and other arrangements providing benefits to any
employee or former employee or beneficiary or dependent thereof, whether
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or not written, and whether covering one Person or more than one Person,
sponsored or maintained by IAM/CRC or to which IAM/CRC contributes or is
obligated to contribute. Without limiting the generality of the foregoing, the
term "IAM/CRC Plans" includes all Employee Welfare Benefit Plans and all
Employee Pension Benefit Plans.
SECTION 1.53 "IAM/CRC REGULATORY DOCUMENTS" has the meaning set forth
in Section 13.25 of this Agreement.
SECTION 1.54 "IAM MERGER" has the meaning set forth in Recital 4 of
this Agreement.
SECTION 1.55 "IAM STOCK" means any share of the common stock, par value
$0.01 per share, of IAM.
SECTION 1.56 "IAM SURVIVING CORPORATION" has the meaning set forth in
Section 2.1 of this Agreement.
SECTION 1.57 "INDEMNIFIED PARTY OR PARTIES" has the meaning set forth
in Section 6.8 of this Agreement.
SECTION 1.58 "INTELLECTUAL PROPERTY" means (a) all inventions (whether
patentable or unpatentable), all improvements thereto, and all patents, patent
applications, and patent disclosures, together with all reissuances,
continuations, continuations in part, revisions, extensions, and reexaminations
thereof, (b) all trademarks, service marks, trade drafts, logos, trade names,
and corporate names, together with all translations, adaptations, derivations,
and combinations thereof and including all goodwill associated therewith, and
all applications, registrations, and renewals in connection therewith, (c) all
copyrightable works, all copyrights, and all applications, registrations, and
renewals in connections therewith, (d) all mask works and all applications,
registrations, and renewals in connection therewith, (e) all trade secrets and
confidential business information (including ideas, research and development,
know-how, formulas, compositions, manufacturing and production processes and
techniques, technical data, designs, drawings, specifications, customer and
supplier list, pricing and cost information, and business and marketing plans
and proposals), (f) all computer software (including data and related
documentation), (g) all other proprietary rights, and (h) all copies and
tangible embodiments thereof in whatever form or medium.
SECTION 1.59 "INVESTMENT ADVISOR FILINGS" has the meaning set forth in
Section 13.25 of this Agreement.
SECTION 1.60 "INVESTMENT COMPANY ACT" has the meaning set forth in
Section 13.26 of this Agreement.
SECTION 1.61 "KNOWLEDGE" means either (a) that an individual is
actually aware of a particular fact or other matter or (b) a prudent individual
could be expected to discover or otherwise become aware of such fact or other
matter in the course of performing the duties which are normally performed by a
person acting in a similar capacity. A Person (other than an individual) will be
deemed to have "Knowledge" of a particular fact or other matter if any
individual who is serving, or who has at any time served, as director, officer,
partner, executor or trustee of such Person (or in any similar capacity) has, or
at any time had, knowledge of such fact or other matter.
SECTION 1.62 "LOSSES" means any and all claims, demands, losses, costs,
expenses, obligations, liabilities, damages, recoveries and deficiencies,
including interest, penalties and attorneys' fees and disbursements.
SECTION 1.63 "MERGERS" means the Enviroq Merger, the IAM Merger and the
CRC Merger.
SECTION 1.64 "MATERIAL ADVERSE EFFECT" means, with respect to any of
the Parties, an event, change or occurrence which, individually or together with
any other event, change or occurrence, has or could be expected to have a
material adverse effect on the financial position, business, assets, properties,
operations, results of operations or prospects of such Party and its
Subsidiaries, if any, considered on a consolidated basis.
SECTION 1.65 "MERGER CONSIDERATION" means the Non-Redeeming Enviroq
Stockholder Consideration, the Redeeming Enviroq Stockholder Consideration, the
IAM Consideration and the CRC Consideration.
SECTION 1.66 "MERGER LETTER OF TRANSMITTAL" has the meaning set forth
in Section 4.2 of this Agreement.
SECTION 1.67 "MULTI-EMPLOYER PLAN" has the meaning set forth in Section
3(37) of ERISA.
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SECTION 1.68 "MULTIPLE EMPLOYER PLAN" has the meaning set forth in
Section 4063 of ERISA.
SECTION 1.69 "NEWCO" shall mean Intrepid Capital Corporation, a
Delaware corporation.
SECTION 1.70 "NEWCO STOCK" means any share of the common stock, par
value $0.01 per share, of NewCo.
SECTION 1.71 "NEWCO SUBS" means Sub-1, Sub 2 and Sub-3.
SECTION 1.72 "NON-REDEEMING ENVIROQ STOCKHOLDER" shall mean each holder
of shares of Enviroq Stock other than a Redeeming Enviroq Stockholder.
SECTION 1.73 "NON-REDEEMING ENVIROQ STOCKHOLDER CASH CONSIDERATION"
means $2.22909775 per share of issued and outstanding Enviroq Stock owned by a
Non-Redeeming Enviroq Stockholder or owned by a Redeeming Enviroq Stockholder
that was not tendered for redemption in the Redemption, rounding to the nearest
whole cent.
SECTION 1.74 "NON-REDEEMING ENVIROQ STOCKHOLDER CONSIDERATION" means
the aggregate of the Non- Redeeming Enviroq Stockholder Stock Consideration and
the Non-Redeeming Enviroq Stockholder Cash Consideration.
SECTION 1.75 "NON-REDEEMING ENVIROQ STOCKHOLDER STOCK CONSIDERATION"
means one (1) share of NewCo Stock per share of issued and outstanding Enviroq
Stock owned by a Non-Redeeming Enviroq Stockholder or owned by a Redeeming
Enviroq Stockholder that was not tendered for redemption in the Redemption.
SECTION 1.76 "ORDINARY COURSE OF BUSINESS" means any action taken by a
Person only if:
(a) such action is consistent with the past practices of such
Person and is taken in the ordinary course of the normal day-to-day
operations of such Person; or
(b) such action is similar in nature and magnitude to actions
customarily taken, without any authorization by the board of directors
(or by any Person or group of Persons exercising similar authority), in
the ordinary course of the normal day-to-day operations of other
Persons that are in the same line of business as such Person.
SECTION 1.77 "PBGC" means the Pension Benefit Guaranty Corporation.
SECTION 1.78 "PARTIES" mean collectively, or any two or more of,
Enviroq, IAM, CRC, Sub-1, Sub-2, Sub-3 and NewCo.
SECTION 1.79 "PARTY" means any one of the Parties to this Agreement.
SECTION 1.80 "PAYING AGENT" means AmSouth Bank, a state banking
corporation, of Birmingham, Alabama or such other qualified transfer agent as
NewCo may designate.
SECTION 1.81 "PERSON" means an individual, a partnership, a
corporation, an association, a joint stock company, a trust, a joint venture, an
unincorporated organization or association, a limited liability company, a
limited liability partnership, or a governmental entity (or any department,
agency, or political subdivision thereof, including a Regulatory Authority).
SECTION 1.82 "PROHIBITED TRANSACTION" has the meaning set forth in
ERISA Section 406 and Code Section 4975.
SECTION 1.83 "PROXY STATEMENT" has the meaning set forth in Section 5.4
of this Agreement.
SECTION 1.84 "QUALIFIED ENVIROQ PLAN" has the meaning set forth in
Section 12.22 of this Agreement.
SECTION 1.85 "QUALIFIED IAM/CRC PLAN" has the meaning set forth in
Section 13.21 of this Agreement.
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SECTION 1.86 "REDEEMED SHARES" has the meaning set forth in Section
5.8(a) of this Agreement.
SECTION 1.87 "REDEEMING ENVIROQ STOCKHOLDER" shall mean each holder of
shares of Enviroq Stock who submitted a Valid Acceptance with respect to all or
part of such holder's shares of Enviroq Stock, and whose shares of Enviroq Stock
with respect to which such Valid Acceptance was submitted are redeemed, in part,
in the Redemption.
SECTION 1.88 "REDEEMING ENVIROQ STOCKHOLDER CONSIDERATION" means
1.74514041 shares of NewCo Stock per issued and outstanding share of Enviroq
Stock owned by a Redeeming Enviroq Stockholder that were tendered for redemption
in the Redemption after giving effect to, and excluding shares of such Redeeming
Enviroq Stockholder's Enviroq Stock redeemed in, the Redemption; provided,
however, if for any Redeeming Enviroq Stockholder the calculation of the number
of shares of NewCo Stock pursuant to first part of this sentence would result in
the issuance of a fractional share of NewCo Stock to such Redeeming Enviroq
Stockholder, then the number of shares of NewCo Stock issued to such Redeeming
Enviroq Stockholder shall be rounded down to the nearest whole share of NewCo
Stock and such Redeeming Enviroq Stockholder shall receive from NewCo an amount
in cash equal to the fractional component resulting from the calculation in the
first part of this sentence (which shall always be less than 1 but greater than
zero, if applicable) times $2.99151457, rounded to the nearest whole cent.
SECTION 1.89 "REDEMPTION" shall mean the making of the Redemption Offer
and the Valid Acceptance thereof by any of the holders of shares of Enviroq
Stock as of the Redemption Record Date; the payment of the Redemption Price to
any such holder of shares of Enviroq Stock who shall have submitted a Valid
Acceptance, upon the satisfaction or waiver of the conditions to the Redemption
contained in the Redemption Materials; the acquisition of the Redeemed Shares by
Enviroq with the result that such shares are held as treasury stock of Enviroq;
and all actions taken in connection with any of the foregoing.
SECTION 1.90 "REDEMPTION EXPIRATION DATE" has the meaning set forth in
Section 5.8(a) of this Agreement.
SECTION 1.91 "REDEMPTION LETTER OF TRANSMITTAL" has the meaning set
forth in Section 5.8(d) of this Agreement.
SECTION 1.92 "REDEMPTION MATERIALS" has the meaning set forth in
Section 5.8(a) of this Agreement.
SECTION 1.93 "REDEMPTION OFFER" has the meaning set forth in Section
5.8(a) of this Agreement.
SECTION 1.94 "REDEMPTION PRICE" has the meaning set forth in Section
5.8(a) of this Agreement.
SECTION 1.95 [OMITTED].
SECTION 1.96 "REGISTERED INVESTMENT ADVISER" has the meaning set forth
in Section 13.25 of this Agreement.
SECTION 1.97 "REGISTRATION ATTORNEY" means the law firm of Bradley
Arant Rose & White LLP, located in Birmingham, Alabama or other firm to which
the Parties agree.
SECTION 1.98 "REGISTRATION STATEMENT" has the meaning set forth in
Section 5.4 of this Agreement.
SECTION 1.99 "REGULATORY AUTHORITY" means, collectively, the Federal
Trade Commission, the United States Department of Justice, the SEC, the National
Association of Securities Dealers, Inc., and all national and state securities
exchanges and any other governmental or regulatory body, agency, instrumentality
or authority.
SECTION 1.100 "REPORTABLE EVENT" has the meaning set forth in ERISA
Section 4043.
SECTION 1.101 "SEC" means the Securities and Exchange Commission.
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SECTION 1.102 "SECURITIES ACT" means the Securities Act of 1933, as
amended, together with the rules and regulations promulgated thereunder,
including any amendments or any substitutes or successor provisions, rules and
regulations thereto.
SECTION 1.103 "SECURITY INTEREST" means any mortgage, pledge, lien,
encumbrance, charge, or other security interest, other than (a) mechanic's,
materialman's, and similar liens for work done on the property to the extent
that such liens arise in the Ordinary Course of Business and are not yet due and
payable, (b) liens for taxes not yet delinquent or for taxes that the taxpayer
is contesting in good faith through appropriate proceedings, (c) purchase money
liens and liens securing rental payments under capital lease arrangements, in
each case, where there exists no default in Enviroq's or any Subsidiary's
obligations with respect to the underlying agreements, and (d) other liens
arising in the Ordinary Course of Business and not incurred in connection with
the borrowing of money.
SECTION 1.104 "STOCK AGREEMENT" has the meaning set forth in Recital 11
of this Agreement.
SECTION 1.105 "SUB-1" means Freedom Holdings of Alabama, Inc., a
Delaware corporation.
SECTION 1.106 "SUB-1 STOCK" means any share of the common stock, par
value $0.01 per share, of Sub-1.
SECTION 1.107 "SUB-2" means IAM Merger Sub, Inc., a Florida
corporation.
SECTION 1.108 "SUB-2 STOCK" means any share of the common stock, par
value $0.01 per share, of Sub-2.
SECTION 1.109 "SUB-3" means CRC Merger Sub, Inc., a Florida
corporation.
SECTION 1.110 "SUB-3 STOCK" means any share of the common stock, par
value $0.01 per share, of Sub-3.
SECTION 1.111 "SUBSIDIARY" means any corporation with respect to which
a specified Person (or a Subsidiary thereof) owns (directly or indirectly) a
majority of the common stock or has the power to vote or direct the voting of
sufficient securities to elect a majority of the directors.
SECTION 1.112 "SURVIVING CORPORATIONS" means the Enviroq Surviving
Corporation, the IAM Surviving Corporation and the CRC Surviving Corporation.
SECTION 1.113 "TAX RETURNS" means, collectively, (a) all reports,
declarations, estimates, returns, information statements, and similar documents
relating to, or required to be filed in respect of any Taxes; and (b) all
information statements, returns, reports or similar documents required to be
filed with respect to payments to (or from) third parties or with respect to
transactions in which any Person or any Subsidiary thereof participates; and the
term "Tax Return" shall mean any one of the foregoing Tax Returns.
SECTION 1.114 "TAXES" means, collectively, (a) all net income, gross
income, gross receipts, sales, use, ad valorem, franchise, profits, license,
lease, service, service use, withholding, employment, payroll, excise,
severance, transfer, documentary, mortgage, registration, stamp, occupation,
environmental, premium, property, windfall, profits, customs, duties, and other
taxes, fees, assessments or charges of any kind whatever, including any
estimates thereof, together with any interest, penalties and other additions
with respect thereto, imposed by any federal, territorial, state, local or
foreign government; and (b) any penalties, interest, or other additions to tax
for the failure to collect, withhold, or pay over any of the foregoing, or to
accurately file any Tax Return; and the term "Tax" shall mean any one of the
foregoing Taxes. When used with reference to a specified Person (for example and
without limitation, "Taxes of Enviroq"), the terms "Taxes" and "Tax" shall
include only amounts of, or in respect of, Taxes for which such Person is, or
could become, liable in whole or part (including any obligation in connection
with a duty to collect, withhold, or pay over any Tax), any obligation to
contribute to the payment of any Taxes determined on a consolidated, combined,
or unitary basis, any liability as a transferee, or any liability as a result of
any express or implied obligation to indemnity or pay the Tax obligations of
another Person.
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SECTION 1.115 "THIRD-PARTY INTELLECTUAL PROPERTY RIGHTS" means, with
respect to each of Enviroq, IAM and CRC, all licenses, sublicenses and other
agreements as to which it is a party and pursuant to which it is authorized to
use any third-party patents, trademarks, service marks or copyrights.
SECTION 1.116 "VALID ACCEPTANCE" has the meaning set forth in Section
5.8(b) of this Agreement.
SECTION 1.117 "VOTING AGREEMENT" has the meaning set forth in Section
8.8 of this Agreement.
ARTICLE 2
THE MERGERS
SECTION 2.1 THE MERGERS. On the terms and subject to the conditions
contained in this Agreement, the Mergers will be consummated. Enviroq shall be
the corporation surviving the Enviroq Merger (the "Enviroq Surviving
Corporation"). IAM shall be the corporation surviving the IAM Merger (the "IAM
Surviving Corporation"). CRC shall be the corporation surviving the CRC Merger
(the "CRC Surviving Corporation").
SECTION 2.2 THE EFFECTIVE TIME AND THE CLOSING DATE. The Mergers shall
become effective on the date and at the time on which the latest of the
following actions has been completed: (i) the certificate of merger with respect
to the Enviroq Merger has been duly filed with the Secretary of State of the
State of Delaware; (ii) the articles of merger with respect to the IAM Merger
has been duly filed with the Secretary of State of the State of Florida; and
(iii) the articles of merger with respect to the CRC Merger has been duly filed
with the Secretary of State of the State of Florida (the "Effective Time");
provided, however, the Mergers shall not become effective until after the
Redemption (as generally set forth in Section 5.8) shall have been completed.
Upon the terms and subject to the conditions hereof, unless otherwise agreed
upon by the Parties, the closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Bradley Arant Rose
& White LLP, 2001 Park Place, Suite 1400, Birmingham, Alabama 35203- 2736,
commencing at 10:00 a.m. local time as soon as practicable following the
satisfaction or waiver of the conditions set forth in Articles 7 through 10, but
in no event later than two business days thereafter (the date of such being
referred to herein as the "Closing Date"), unless otherwise mutually agreed to
by the Parties.
SECTION 2.3 EFFECT OF THE MERGERS. At the Effective Time:
(a) the Enviroq Merger shall have the effects set forth in the
Delaware General Corporation Law; and
(b) the IAM Merger and the CRC Merger shall each have the
effects set forth in the Florida Business Corporation Act.
SECTION 2.4 CERTIFICATE OR ARTICLES OF INCORPORATION AND BYLAWS.
At the Effective Time:
(a) with respect to the Enviroq Merger, the certificate of
incorporation and bylaws of Enviroq, as in effect on the date hereof and
otherwise amended prior to the Effective Time, shall be the certificate of
incorporation and bylaws of the Enviroq Surviving Corporation until further
amended as provided therein and in accordance with applicable laws;
(b) with respect to the IAM Merger, the articles of
incorporation and bylaws of IAM, as in effect on the date hereof and otherwise
amended prior to the Effective Time, shall be the articles of incorporation and
bylaws of IAM Surviving Corporation until further amended as provided therein
and in accordance with applicable law; and
(c) with respect to the CRC Merger, the articles of
incorporation and bylaws of CRC, as in effect on the date hereof and otherwise
amended prior to the Effective Time, shall be the articles of incorporation and
bylaws of CRC Surviving Corporation until further amended as provided therein
and in accordance with applicable law.
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SECTION 2.5 DIRECTORS AND OFFICERS. From and after the Effective Time,
the directors and officers of each of Enviroq, IAM and CRC shall be the
directors and officers of each of Enviroq Surviving Corporation, IAM Surviving
Corporation and CRC Surviving Corporation, respectively to serve until such
Person's successor shall be elected and qualified, or until such Person dies,
resigns or is removed from office.
SECTION 2.6 NEWCO BOARD COMPOSITION. The initial board of directors of
NewCo shall consist of seven directors, which directors shall be Forrest Travis,
Mark F. Travis, Morgan Payne, William J. Long, Thomas W. Brander, Michael X.
Marinelli and Alexander M. Zechella. Subsequent boards of directors shall be
elected in accordance with the terms and provisions of the Voting Agreement so
long as such agreement remains in effect.
ARTICLE 3
CONVERSION OF STOCK
SECTION 3.1 CONVERSION OF SUB-1 STOCK AND ENVIROQ STOCK. Subject to the
terms and conditions of this Agreement, as of the Effective Time and by virtue
of the Enviroq Merger and without any further action on the part of the holder
of any Sub-1 Stock or Enviroq Stock:
(a) all shares of Enviroq Stock which are held by Enviroq as
treasury stock (including, without limitation, all Redeemed Shares) shall be
canceled and retired, and no consideration shall be paid or delivered in
exchange therefor;
(b) each share of Enviroq Stock outstanding immediately prior
to the Effective Time that is owned by a Non-Redeeming Enviroq Stockholder shall
be canceled and converted into the right to receive the Non-Redeeming Enviroq
Stockholder Consideration, and all outstanding certificates representing shares
of Enviroq Stock owned by a Non-Redeeming Enviroq Stockholder shall thereafter
represent solely the right to receive the Non-Redeeming Enviroq Stockholder
Consideration with respect to each such share of Enviroq Stock;
(c) (i) each share of Enviroq Stock outstanding immediately
prior to the Effective Time that is owned by a Redeeming Enviroq Stockholder and
that was tendered but not redeemed in the Redemption shall be canceled and
converted into the right to receive the Redeeming Enviroq Stockholder
Consideration, and all outstanding certificates representing such shares of
Enviroq Stock so tendered and not redeemed owned by a Redeeming Enviroq
Stockholder shall thereafter represent solely the right to receive the Redeeming
Enviroq Stockholder Consideration with respect to each such share of Enviroq
Stock; and
(ii) each share of Enviroq Stock outstanding immediately
prior to the Effective Time that is owned by a Redeeming Enviroq Stockholder and
that was not tendered for redemption in the Redemption shall be canceled and
converted into the right to receive the Non-Redeeming Enviroq Stockholder
Consideration, and all outstanding certificates representing such non-tendered
shares of Enviroq Stock owned by a Redeeming Enviroq Stockholder shall
thereafter represent solely the right to receive the Non-Redeeming Enviroq
Stockholder Consideration with respect to each such share of Enviroq Stock; and
(d) at the Effective Time, each share of Sub-1 Stock issued
and outstanding immediately prior to the Effective Time shall be converted into
one fully paid and nonassessable share of common stock, par value $0.01 per
share, of the Enviroq Surviving Corporation.
SECTION 3.2 CONVERSION OF SUB-2 AND IAM STOCK. Subject to the terms and
conditions of this Agreement, as of the Effective Time and by virtue of the IAM
Merger and without any further action on the part of the holder of any Sub-2
Stock or IAM Stock:
(a) all shares of IAM Stock which are held by IAM as treasury
stock, if any, shall be canceled and retired, and no consideration shall be paid
or delivered in exchange therefor;
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(b) each share of IAM Stock outstanding immediately prior to
the Effective Time shall be canceled and converted into the right to receive the
IAM Consideration, and all outstanding certificates representing shares of IAM
Stock shall thereafter represent solely the right to receive the IAM
Consideration with respect to each such share of IAM Stock; and
(c) at the Effective Time, each share of Sub-2 Stock issued
and outstanding immediately prior to the Effective Time shall be converted into
one fully paid and nonassessable share of common stock, par value $0.01 per
share, of the IAM Surviving Corporation.
SECTION 3.3 CONVERSION OF SUB-3 AND CRC STOCK. Subject to the terms and
conditions of this Agreement, as of the Effective Time and by virtue of the CRC
Merger and without any further action on the part of the holder of any Sub-3
Stock or CRC Stock:
(a) all shares of CRC Stock which are held by CRC as treasury
stock, if any, shall be canceled and retired, and no consideration shall be paid
or delivered in exchange therefor;
(b) each share of CRC Stock outstanding immediately prior to
the Effective Time shall be canceled and converted into the right to receive the
CRC Consideration, and all outstanding certificates representing shares of CRC
Stock shall thereafter represent solely the right to receive the CRC
Consideration with respect to each such share of CRC Stock; and
(c) at the Effective Time, each share of Sub-3 Stock issued
and outstanding immediately prior to the Effective Time shall be converted into
one fully paid and nonassessable share of common stock, par value $ 0.01 per
share, of the CRC Surviving Corporation.
SECTION 3.4 RIGHTS OF DISSENT OF ENVIROQ STOCKHOLDERS. Notwithstanding
anything in this Agreement to the contrary, each outstanding share of Enviroq
Stock the holder of which has demanded and perfected his demand for payment of
the "fair or appraised" value of such share in accordance with Section 262 of
the Delaware General Corporation Law (the "Dissent Provisions"), to the extent
applicable, and has not effectively withdrawn or lost such holder's right to
such appraisal (each such Person, a "Dissenting Stockholder"), and has not
redeemed such shares of Enviroq Stock in the Redemption, shall not be converted
into or represent a right to receive the Redeeming Enviroq Stockholder
Consideration or the Non-Redeeming Enviroq Stockholder Consideration payable in
the Enviroq Merger, but the holder thereof shall be entitled only to such rights
as are granted by the Dissent Provisions. Enviroq shall give NewCo and each
other Party prompt notice of any written notices of any intent to demand payment
and any written demands for payment received by Enviroq. Each Dissenting
Stockholder who becomes entitled, pursuant to the Dissent Provisions, to payment
of fair value of the Enviroq Stock held by such Dissenting Stockholder shall
receive payment therefor from NewCo (but only after the amount thereof shall
have been determined as required by the applicable Dissent Provisions) and all
of such Dissenting Stockholder's Enviroq Stock shall be canceled. Prior to the
Effective Time, Enviroq shall not, without the prior written consent of the
other Parties, voluntarily make any payment with respect to, or settle, offer to
settle or otherwise negotiate, any such demands. If any Dissenting Stockholder
shall have failed to perfect or shall have effectively withdrawn or lost such
right to demand payment of fair or appraised value, the Enviroq Stock held by
such Dissenting Stockholder shall thereupon be deemed to have been converted as
of the Effective Time into the right to receive the Redeeming Enviroq
Stockholder Consideration or the Non-Redeeming Enviroq Stockholder
Consideration, as applicable, to be paid in the Enviroq Merger as provided by
this Agreement. The shareholders of IAM and CRC have approved the IAM Merger and
the CRC Merger and therefore have no right to dissent under the Florida Business
Corporation Act.
SECTION 3.5 STOCK OPTIONS AND RELATED MATTERS. As of the Effective
Time, all rights with respect to Enviroq Stock, IAM Stock or CRC Stock issuable
pursuant to the exercise of stock options granted by Enviroq, IAM or CRC under
stock option plans of Enviroq, IAM or CRC, respectively, and held by each
participant thereunder, whether or not such options are then exercisable, shall
be terminated and canceled for no payment. Such holder of any options so
surrendered shall execute an appropriate instrument of cancellation pursuant to
which the rights held by such holder shall be canceled and terminated and the
options held by such holder shall be canceled and terminated and shall be of no
further force or effect. It is anticipated that as soon as practicable after the
Effective Time, NewCo will adopt
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an Incentive Stock Option Plan and a Non-Employee Directors' Stock Option Plan,
substantially in the form attached as EXHIBIT A and EXHIBIT B, respectively.
SECTION 3.6 SHARES OF NEWCO STOCK OWNED BY ENVIROQ. As of the Effective
Time, all shares of NewCo Stock owned by Enviroq shall be canceled and retired,
and no consideration shall be paid or delivered in exchange therefor.
ARTICLE 4
PAYMENT OF THE REDEMPTION PRICE AND MERGER CONSIDERATION
SECTION 4.1 PAYMENT OF THE REDEMPTION PRICE AND THE NON-REDEEMING
ENVIROQ STOCKHOLDER CASH CONSIDERATION.
(a) After the Redemption Expiration Date, but before the
Effective Time, Enviroq will transfer to the Paying Agent an amount equal to the
Redemption Price multiplied by the number of shares of Enviroq Stock to be
redeemed in the Redemption, plus any ancillary amount to cover rounding to the
nearest whole cent when paying the Redemption Price for each Redeeming Enviroq
Stockholder's Redeemed Shares, in order that the Paying Agent shall have
sufficient funds to pay, on behalf of Enviroq, the amount calculated pursuant to
this sentence for each Redeeming Enviroq Stockholder's Redeemed Shares.
Immediately after the Redemption has been completed, but before the Effective
Time, Enviroq shall notify the Paying Agent that the Redemption has occurred and
the Paying Agent shall issue checks to each Redeeming Enviroq Stockholder in the
amount calculated in the immediately preceding sentence for such Redeeming
Enviroq Stockholder's Redeemed Stock.
(b) Immediately after the Effective Time, the board of
directors of Enviroq Surviving Corporation shall declare, and the Enviroq
Surviving Corporation shall pay, a cash dividend to NewCo in an amount
sufficient to pay the Non-Redeeming Enviroq Stockholder Cash Consideration,
minus any amount that would otherwise be paid pursuant to the immediately
preceding clause in this sentence except for the fact that a holder of shares of
Enviroq Stock perfected and did not withdraw its demand for payment of "fair or
appraised" value pursuant to Section 3.4 of this Agreement, plus any ancillary
amount needed to pay to each Redeeming Enviroq Stockholder the cash payment, if
applicable, that is to be paid to each Redeeming Enviroq Stockholder pursuant to
the proviso found in the definition of "Redeeming Enviroq Stockholder
Consideration.". Immediately following this dividend, NewCo will furnish to the
Paying Agent the amount set forth in the immediately preceding sentence to
enable the Paying Agent to make full payment of the Non-Redeeming Enviroq
Stockholder Cash Consideration to the Non-Redeeming Enviroq Stockholders and the
Redeeming Enviroq Stockholders, as the case may be, and the cash portion of the
Redeeming Enviroq Stockholder Consideration to the Redeeming Enviroq
Stockholders, all amounts to be paid concurrently with and in the manner set
forth with respect to the Non-Redeeming Enviroq Stockholder Stock Consideration,
as described in Section 4.2(a).
SECTION 4.2 PAYMENT OF THE NON-REDEEMING ENVIROQ STOCKHOLDER STOCK
CONSIDERATION, THE REDEEMING ENVIROQ STOCKHOLDER
CONSIDERATION, THE IAM CONSIDERATION AND THE CRC
CONSIDERATION.
(a) The Paying Agent shall also serve as the exchange agent.
The Paying Agent may employ subagents in connection with performing its duties.
As promptly as practicable after the Effective Time, the Paying Agent shall send
or cause to be sent to each former holder of record of shares of Enviroq Stock,
IAM Stock and CRC Stock transmittal materials (the "Merger Letter of
Transmittal") for use in exchanging their certificates formerly representing
Enviroq Stock, IAM Stock and CRC Stock for the Merger Consideration provided for
in this Agreement. The Merger Letter of Transmittal will contain instructions
with respect to the surrender of certificates representing Enviroq Stock, IAM
Stock and CRC Stock and the receipt of the Merger Consideration contemplated by
this Agreement and will require each holder of shares of Enviroq Stock, IAM
Stock and CRC Stock to transfer good and marketable title to such shares of
Enviroq Stock, IAM Stock and CRC Stock to NewCo, free and clear of all liens,
claims and encumbrances. Upon receipt of properly completed Merger Letters of
Transmittal, the Paying Agent shall pay the appropriate Merger Consideration to
the stockholders of Enviroq, IAM and CRC, as appropriate. The Paying Agent
shall, as promptly as practicable after the Effective Time, send or cause to be
sent to each former holder of record of Enviroq Stock, IAM
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Stock and CRC Stock a Merger Letter of Transmittal and upon the proper execution
and return of such Merger Letter of Transmittal to the Paying Agent, the
appropriate Merger Consideration shall be promptly paid. In respect of a
Redeeming Enviroq Stockholder who is not a Dissenting Stockholder and who
tendered more shares of Enviroq Stock than were accepted for payment pursuant to
the Redemption or who submitted a certificate or certificates representing more
shares of Enviroq Stock than were tendered in the Redemption, certificates
representing shares of Enviroq stock not purchased or tendered in the Redemption
will be deemed surrendered pursuant to the Redemption Letter of Transmittal and
upon consummation of the Enviroq Merger will be exchanged for stock certificates
representing shares of Intrepid Stock. Amounts that would have been payable to
Dissenting Stockholders but for the fact of their dissent in accordance with the
provisions of Section 3.4 hereof, shall be handled in accordance with and in a
manner consistent with the Dissent Provisions.
(b) At the Effective Time, the stock transfer books of Enviroq
Stock, IAM Stock and CRC Stock shall be closed as to holders of Enviroq Stock,
IAM Stock and CRC Stock immediately prior to the Effective Time (but after the
Redemption has taken place), and no transfer of Enviroq Stock, IAM Stock and CRC
Stock by any such holder shall thereafter be made or recognized and each
outstanding certificate formerly representing Enviroq Stock, IAM Stock and CRC
Stock shall, without any action on the part of any holder thereof, no longer
represent Enviroq Stock, IAM Stock and CRC Stock. If, after the Effective Time,
certificates are properly presented to the Exchange Agent, such certificates
shall be exchanged for the Merger Consideration contemplated by this Agreement
into which the Enviroq Stock, IAM Stock and CRC Stock represented thereby were
converted in the Mergers.
SECTION 4.3 LOST CERTIFICATES. In the event that any holder of Enviroq
Stock, IAM Stock and CRC Stock is unable to deliver the certificate which
represents such holder's Enviroq Stock, IAM Stock or CRC Stock, NewCo (or
Enviroq, with respect to the Redemption), in the absence of actual notice that
any Enviroq Stock, IAM Stock or CRC Stock theretofore represented by any such
certificate has been acquired by a bona fide purchaser or, in the case of
Enviroq Stock, redeemed in the Redemption, may, in its sole discretion, deliver
to such holder the Merger Consideration (or the Redemption Price in respect of
such holder's Redeemed Shares) contemplated by this Agreement to which such
holder is entitled in accordance with the provisions of this Agreement, upon the
presentation of all of the following:
(a) an affidavit or other evidence to the reasonable
satisfaction of NewCo (or Enviroq, with respect to the Redemption) that any such
certificate has been lost, wrongfully taken or destroyed;
(b) such security or indemnity as may be reasonably requested
by NewCo (or Enviroq, with respect to the Redemption) to indemnify and hold
NewCo (or Enviroq, with respect to the Redemption) harmless; and
(c) evidence to the satisfaction of NewCo (or Enviroq, with
respect to the Redemption) that such holder is the owner of Enviroq Stock, IAM
Stock or CRC Stock theretofore represented by each certificate claimed by such
holder to be lost, wrongfully taken or destroyed and that such holder is the
Person who would be entitled to present each such certificate for exchange
pursuant to this Agreement.
SECTION 4.4 PAYMENT TO ANOTHER PERSON. In the event that the delivery
of any Merger Consideration contemplated by this Agreement is to be made to a
Person other than the Person in whose name any certificate representing Enviroq
Stock, IAM Stock or CRC Stock surrendered is registered, such certificate so
surrendered shall be properly endorsed (or accompanied by an appropriate
instrument of transfer), with the signature(s) appropriately guaranteed, and
otherwise in proper form for transfer, and the Person requesting such delivery
shall pay any transfer or other taxes required by reason of the delivery to a
Person other than the registered holder of such certificate surrendered or
establish to the satisfaction of NewCo that such tax has been paid or is not
applicable.
SECTION 4.5 RIGHT TO RECEIVE THE MERGER CONSIDERATION ONLY. Until
surrendered in accordance with the provisions of Section 4.2, each certificate
representing Enviroq Stock, IAM Stock and CRC Stock shall represent for all
purposes the right to receive the appropriate Merger Consideration contemplated
by this Agreement or, with respect to Enviroq stockholders, the right to receive
payment of the fair value of the shares in such amount as may be determined to
be due to a Dissenting Stockholder pursuant to the applicable Dissent
Provisions, and shall not represent the right to receive any other
consideration, including, without limitation, interest on any sum.
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ARTICLE 5
COVENANTS AND AGREEMENTS
SECTION 5.1 CONDUCT OF THE BUSINESS.
(a) During the period from the date of this Agreement to the
Effective Time, Enviroq, on the one hand, and IAM and CRC, on the other hand,
shall, and shall cause their respective direct or indirect Subsidiaries to, (i)
take all actions and do all things consistent with the Ordinary Course of
Business, (ii) use its best efforts to maintain and preserve intact its business
organization, employees, goodwill with customers and advantageous business
relationships and retain the services of its officers and key employees, and
(iii) except as required by law or regulation, take no action which would
adversely affect or delay the ability of any Party to obtain any Consent from
any Regulatory Authorities or other approvals required for the consummation of
the transactions contemplated hereby or to perform its covenants and agreements
under this Agreement; provided, however, Enviroq shall be permitted to redeem
shares of Enviroq Stock in the Redemption;
(b) During the period from the date of this Agreement to the
Effective Time, except as required by law or regulation and except as expressly
contemplated by this Agreement, each of Enviroq, on the one hand, and IAM and
CRC, on the other hand, shall not, and shall not permit of their respective
Subsidiaries, without the prior written consent of the other Parties, to:
(i) change, delete or add any provision of or to its
certificate or articles of incorporation or bylaws or of any of their respective
Subsidiaries;
(ii) change the number of shares of its authorized,
issued or outstanding capital stock, including any issuance, purchase,
redemption, split, combination or reclassification thereof; issue or grant any
option, warrant, call, commitment, subscription right; enter into any agreement
to purchase relating to its authorized, issued or outstanding capital stock; or
declare, set aside or pay any dividend or other distribution with respect to its
outstanding capital stock; provided, however, Enviroq shall be permitted to
redeem shares of Enviroq Stock in the Redemption;
(iii) incur any material liabilities or material
obligations (other than deposit liabilities and short-term borrowings in the
Ordinary Course of Business), whether directly or by way of guaranty, including
any obligation for borrowed money, or whether evidenced by any note, bond,
debenture, or similar instrument, except in the Ordinary Course of Business;
Enviroq shall be permitted to incur liabilities to the holders of Enviroq Stock
in connection with the Redemption;
(iv) make any capital expenditures individually in excess
of $25,000, or in the aggregate in excess of $50,000, excluding (a) binding
commitments existing on the date of this Agreement and disclosed in a Disclosure
Schedule delivered pursuant to this Agreement and (b) expenditures necessary to
maintain existing assets in good repair;
(v) sell, transfer, convey or otherwise dispose of any
real property or interest therein having a book value in excess of or in
exchange for consideration in excess of $10,000;
(vi) pay any bonuses to any executive officer except
pursuant to the terms of an enforceable written employment agreement; enter into
any new, or amend in any respect any existing, employment, consulting,
non-competition or independent contractor agreement with any Person; alter the
terms of any existing incentive bonus or commission plan; adopt any new or amend
in any material respect any existing Employee Benefit Plan, except as may be
required by law; grant any general increase in compensation to its employees as
a class or to its officers except for non-executive officers in the Ordinary
Course of Business and consistent with past practices and policies or except in
accordance with the terms of an enforceable written agreement; grant any
material increases in fees or other increases in compensation or in other
benefits to any of its directors; or effect any change in any material respect
in retirement benefits to any class of employees or officers, except as required
by law; or
(vii) acquire any of the assets or equity securities of
any Person or acquire direct or indirect control of any Person, other than in
connection with (a) any internal reorganization or consolidation involving
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existing Subsidiaries which has been approved in advance in writing by Enviroq,
IAM and CRC, (b) any such acquisition of assets in the Ordinary Course of
Business, or (c) the creation of new Subsidiaries organized to conduct and
continue activities not otherwise permitted by this Agreement.
SECTION 5.2 ACCESS TO BOOKS AND RECORDS. Each of the Parties will, and
will cause each of its Subsidiaries to, permit representatives of the other
Parties to have reasonable access at all reasonable times, and in a manner so as
not to interfere with the normal business operations, to all premises,
properties, personnel, books, records (including tax records), contracts, and
documents of or pertaining to each of the Parties and their Subsidiaries in
accordance with reasonable procedures required by the Parties that are designed
to minimize the impact on the Parties' business. Each of the Parties will treat
and hold as such any Confidential Information it receives from any of the
Parties and their Subsidiaries in the course of the reviews contemplated by this
Section, will not use any of the Confidential Information except in connection
with this Agreement, and, if this Agreement is terminated for any reason
whatsoever, agrees to return all tangible embodiments (and all copies thereof),
to whichever of the Parties that originally disclosed such embodiments, which
are in its possession.
SECTION 5.3 APPROVAL OF STOCKHOLDERS OF ENVIROQ. Enviroq will take all
steps necessary under applicable law and its certificate of incorporation and
bylaws to call, give notice of, convene and hold a meeting of its stockholders
for the purpose of approving this Agreement, the Enviroq Merger and for such
other purposes consistent with the complete performance of this Agreement as may
be necessary or desirable. Unless the board of directors of Enviroq determines
in good faith, based upon advice of its outside counsel, that the failure to
terminate this Agreement and the transactions contemplated hereby would be
reasonably likely to result in a breach of the directors' fiduciary duty to the
stockholders of Enviroq, the board of directors of Enviroq will recommend to its
stockholders the approval of this Agreement, the Enviroq Merger and the
transactions contemplated hereby and will use its best efforts to obtain the
necessary approvals by its stockholders of this Agreement, the Enviroq Merger
and the transactions contemplated hereby.
SECTION 5.4 PREPARATION OF PROXY STATEMENT AND REGISTRATION STATEMENT.
In connection with the meeting of its stockholders, Enviroq shall promptly
prepare a proxy statement for submission to its stockholders (the "Proxy
Statement"). Each of the other Parties shall promptly furnish Enviroq with all
information concerning its business and financial statements and affairs which,
in the reasonable judgment of Enviroq or its counsel, may be required or
appropriate for inclusion in the Proxy Statement and shall take such other
action as they may reasonably request in connection with the Proxy Statement.
Enviroq, IAM and CRC shall use reasonable efforts to cause NewCo to engage the
Registration Attorney to promptly prepare and file with the SEC, pursuant to the
Securities Act, a registration statement (which registration statement, in the
form it is declared effective under the Securities Act by the SEC, together with
any and all amendments or supplements thereto and all information incorporated
by reference therein, is referred to herein as the "Registration Statement")
with respect to the shares of NewCo Stock to be issued in connection with the
transactions described in this Agreement and shall use all reasonable efforts to
have the Registration Statement declared effective under the Securities Act by
the SEC as promptly as practicable. Each of the other Parties shall promptly
furnish NewCo with all information concerning its business and financial
statements and affairs which, in the reasonable judgment of NewCo, its counsel,
or the Registration Attorney may be required or appropriate for inclusion in the
Registration Statement. Each party shall take such other action as NewCo may
reasonably request in connection with the Registration Statement. Once the
Registration Statement has been declared effective, Enviroq shall thereafter
promptly mail to its stockholders the Proxy Statement in definitive form (as
amended or supplemented). Furthermore, each of Enviroq, IAM, CRC and NewCo shall
cooperate with respect to, and shall take such other reasonable actions required
to be taken under, any applicable state securities laws in connection with the
issuance of shares of NewCo Stock and the transactions contemplated by this
Agreement. In respect of the Proxy Statement, the Registration Statement and any
other filing with or statement made to any Regulatory Authority, Enviroq shall
provide, and is responsible for, all such information (including any omissions
of information) related to Enviroq, and IAM and CRC shall provide, and are
jointly and severally responsible for, all such information (including any
omissions of information) related to IAM and CRC.
SECTION 5.5 EXEMPTION UNDER ANTI-TAKEOVER STATUTES. Prior to the
Effective Time, each Party will use its best efforts to take all steps required
to exempt the transactions contemplated by this Agreement from any applicable
state anti-takeover law.
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SECTION 5.6 ALTERNATIVE PROPOSALS. Prior to the Effective Time, Enviroq
agrees (a) that neither it nor any of its Subsidiaries shall, nor shall it or
any of its Subsidiaries permit their respective officers, directors, employees,
agents and representatives (including any investment banker, attorney or
accountant retained by it or any of its Subsidiaries) to, initiate, solicit or
encourage, directly or indirectly, any inquiries or the making or implementation
of any proposal or offer (including any proposal or offer to its stockholders)
with respect to a merger, acquisition, consolidation or similar transaction
involving, or purchase of (i) all or any significant portion of the assets of
the Enviroq and its Subsidiaries taken as a whole, (ii) 15% or more of the
outstanding shares of Enviroq Stock or (iii) 15% or more of the outstanding
shares of the capital stock of any Subsidiary of Enviroq (any such proposal or
offer being hereinafter referred to as an "Alternative Proposal") or engage in
any negotiations concerning, or provide any confidential information or data to,
or have any discussions with, any Person relating to an Alternative Proposal
(excluding the Mergers and the Redemption contemplated by this Agreement), or
otherwise facilitate any effort or attempt to make or implement an Alternative
Proposal; and (b) that it will notify IAM and CRC immediately if any such
inquiries or proposals are received by, any such information is requested from,
or any such negotiations or discussions are sought to be initiated or continued
with, it; provided, however, that nothing contained in this Section 5.6 shall
prohibit the board of directors of Enviroq from (i) furnishing information to or
entering into discussions or negotiations with, any Person that makes an
unsolicited bona fide Alternative Proposal if, and only to the extent that, (A)
the board of directors of Enviroq, based upon the advice of outside counsel,
determines in good faith that the failure to terminate this Agreement and the
transactions contemplated hereby would be reasonably likely to result in a
breach of the directors' fiduciary duty to the stockholders of Enviroq, (B)
prior to furnishing such information to, or entering into discussions or
negotiations with, such Person, Enviroq provides written notice to IAM and CRC
to the effect that it is furnishing information to, or entering into discussions
or negotiations with, such Person, and (C) Enviroq keeps IAM and CRC reasonably
informed of the status of any such discussions; and (ii) to the extent
applicable, complying with Rule 14e-2 promulgated under the Exchange Act with
regard to an Alternative Proposal. Nothing in this Section 5.6 shall (x) permit
Enviroq to terminate this Agreement (except as specifically provided in Article
11 hereof), (y) permit Enviroq to enter into any agreement with respect to an
Alternative Proposal for as long as this Agreement remains in effect (it being
agreed that for as long as this Agreement remains in effect, Enviroq shall not
enter into any agreement with any Person that provides for, or in any way
facilitates, an Alternative Proposal (other than a confidentiality agreement in
customary form)), or (z) affect any other obligation of Enviroq under this
Agreement.
SECTION 5.7 AFFILIATES. Each party to this Agreement shall deliver to
NewCo a letter identifying all Persons who are, at the time this Agreement is
submitted for approval to the stockholders of Enviroq, "affiliates" of such
party for purposes of Rule 145 under the Securities Act. Each party shall use
its best efforts to cause each of its respective "affiliates" to deliver to
NewCo on or prior to the Closing Date a written agreement substantially in the
form attached as EXHIBIT C.
SECTION 5.8 REDEMPTION OF CERTAIN SHARES OF ENVIROQ STOCK.
(a) Offer. As soon as practicable after the date of this
Agreement, Enviroq shall make an offer ("Redemption Offer") to redeem up to
42.698013% of the issued and outstanding shares of Enviroq Stock at a price of
$5.22061144 per share of Enviroq Stock ("Redemption Stock"). The Redemption
Offer shall be made to all holders of record of shares of Enviroq Stock (other
than treasury shares and any shares of Enviroq Stock owned by Enviroq's
Subsidiaries). The Redemption Offer shall be subject to the same conditions
found in Articles 7, 8, 9 and 10 of this Agreement, and such other terms and
conditions which will be contained in the offer materials to be sent to such
holders in connection with the Redemption Offer ("Redemption Materials"), which
conditions can be waived in the sole discretion of Enviroq. The Redemption Offer
shall terminate automatically without further action by Enviroq if this
Agreement is terminated. Pursuant to the Redemption Offer, each holder of shares
of Enviroq Stock shall have the opportunity to have Enviroq redeem exactly
42.698013% of the shares of Enviroq Stock tendered by such holder. Stockholders
may elect to participate in the Redemption with respect to fewer than all of the
shares of Enviroq Stock owned by such holder of shares of Enviroq Stock, but
only 42.698013% of the shares of Enviroq Stock actually tendered by such holder
of shares of Enviroq Stock will be redeemed by Enviroq in the Redemption. In
determining the amount to be paid to each Redeeming Enviroq Stockholder,
rounding to the nearest whole cent shall be performed. Upon making of the
Redemption Offer, Enviroq shall set aside such amount of money as is sufficient
to pay the Redemption Price for all shares of Enviroq Stock redeemed pursuant to
the Redemption Offer ("Redeemed Shares"), plus any ancillary amount to cover
rounding to the nearest whole cent when paying the Redemption Price for each
Redeeming Enviroq Stockholder's Redeemed Shares.
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(b) Acceptance. In order to accept the Redemption Offer, a
holder of shares of Enviroq Stock must properly complete the letter of
transmittal and any other required forms included in the Redemption Materials
("Redemption Letter of Transmittal") and return the properly completed
Redemption Letter of Transmittal, together with the certificates evidencing the
shares of Enviroq Stock to be redeemed in the Redemption, to Enviroq. The
Redemption Letter of Transmittal will contain instructions with respect to the
surrender of certificates evidencing shares of Enviroq Stock and will require
each holder of shares of Enviroq Stock to transfer good and marketable title to
such shares of Enviroq Stock, free and clear of all liens, claims and
encumbrances. The Redemption Materials will establish a procedure to be followed
in the event that a holder has lost or had stolen the certificate(s) evidencing
the shares of Enviroq Stock so owned by such holder. A properly completed
Redemption Letter of Transmittal, together with the certificates evidencing
shares of Enviroq Stock to be redeemed in the Redemption (or alternative forms,
if such certificate(s) have been lost or stolen) must be received by Enviroq by
that certain date ("Redemption Expiration Date") as the board of directors of
Enviroq shall designate. After the Redemption Expiration Date, no further
Redemption Letters of Transmittal and certificates representing shares of
Enviroq Stock shall be accepted by Enviroq in connection with the Redemption.
Enviroq shall determine, in its sole discretion, whether a holder of Enviroq
Stock has properly completed and returned the Redemption Letter of Transmittal
together with certificates for the shares of Enviroq Stock being redeemed (or
alternative forms, if such certificate(s) have been lost or stolen), and
otherwise complied with the terms and conditions as shall be set forth in the
Redemption Materials (upon such affirmative determination by Enviroq, a "Valid
Acceptance").
(c) Timing. Subject to the terms and conditions contained in
Redemption Materials, the Redemption will occur immediately prior to the
Effective Time.
(d) Effect of Redemption. Immediately prior to the Effective
Time, each Redeeming Enviroq Stockholder shall be paid the Redemption Price in
respect of those shares of Enviroq Stock redeemed in the Redemption. Subject to
the right of dissent set forth in Section 3.4, all shares of Enviroq Stock owned
by a Redeeming Enviroq Stockholder that are tendered but not redeemed in the
Redemption shall be canceled and converted into the right to receive the
Redeeming Enviroq Stockholder Consideration as of the Effective Time as set
forth in Section 3.1(c)(i). Subject to the right of dissent set forth in Section
3.4, all shares of Enviroq Stock owned by a Redeeming Enviroq Stockholder that
are not tendered in the Redemption (that is, excluding all Redeemed Shares and
those shares of Enviroq Stock tendered but not redeemed in the Redemption) shall
be canceled and converted into the right to receive the Non-Redeeming Enviroq
Stockholder Consideration as of the Effective Time as set forth in Section
3.1(c)(ii). Subject to the right of dissent set forth in Section 3.4, all shares
of Enviroq Stock owned by a Non-Redeeming Enviroq Stockholder shall be canceled
and converted into the right to receive the Non-Redeeming Enviroq Stockholder
Consideration as of the Effective Time, as set forth in Section 3.1(b). As a
result of the Redemption, all Redeemed Shares shall become treasury stock of
Enviroq; at the Effective Time, such Redeemed Shares shall be canceled and
retired, and no consideration shall be paid or delivered in exchange therefor,
as set forth in Section 3.1(a).
(e) New Certificates. Immediately after the Redemption, but
before the Effective Time, Enviroq shall issue new certificates to a Redeeming
Enviroq Stockholder evidencing ownership of those shares of Enviroq Stock owned
by a Redeeming Enviroq Stockholder that are not redeemed in the Redemption only
if such Redeeming Enviroq Stockholder perfects and does not withdraw a demand
for payment of "fair or appraised" value pursuant to Section 3.4 of this
Agreement and only to the extent such Redeeming Enviroq Stockholder is required
to surrender certificates for such stock in connection with the exercise of
rights under the Dissent Provisions. Accordingly, unless a Redeeming Enviroq
Stockholder perfects and does not withdraw a demand for payment of the "fair and
appraised" value of such holder's shares of Enviroq Stock pursuant to Section
3.4 of this Agreement, certificates representing shares of Enviroq Stock not
purchased or tendered in the Redemption will be deemed surrendered pursuant to
the Redemption Letter of Transmittal and upon consummation of the Enviroq Merger
will be exchanged for share certificates representing shares of Intrepid Stock.
SECTION 5.9 CONSENT OF IAM CLIENTS. IAM shall promptly prepare and send
to all its clients a consent to assignment, whereby each client of IAM consents
to the change in control of IAM as required by Section 205(a)(2) of the
Investment Advisers Act. IAM shall use its best efforts to ensure that each of
its clients executes and delivers to IAM such consent prior to the scheduled
Effective Time.
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ARTICLE 6
ADDITIONAL COVENANTS AND AGREEMENTS
SECTION 6.1 BEST EFFORTS; COOPERATION. Subject to the terms and
conditions herein provided, each of the Parties agrees to use its best efforts
promptly to take, or cause to be taken, all actions and to do, or cause to be
done, all things necessary, proper or advisable under applicable laws and
regulations, or otherwise, including attempting to obtain all necessary
Consents, to consummate and make effective, as soon as practicable, the
transactions contemplated by this Agreement.
SECTION 6.2 REGULATORY MATTERS.
(a) Following the execution and delivery of this Agreement,
Enviroq, IAM and CRC shall cause to be prepared and filed all required
applications and filings with the Regulatory Authorities which are necessary or
contemplated for the obtaining of the Consents of the Regulatory Authorities and
the consummation of the Mergers. Such applications and filings shall be in such
form as may be prescribed by the respective Regulatory Authority and shall
contain such information as such Regulatory Authority may require. The Parties
hereto will cooperate with each other and use reasonable efforts to prepare and
execute all necessary documentation, to effect all necessary or contemplated
filings and to obtain all necessary or contemplated Consents of the Regulatory
Authorities and third parties which are necessary or contemplated to consummate
the transactions contemplated by this Agreement, including the stockholders of
Enviroq. Each of the Parties shall have the right to review and approve in
advance, which approval shall not be unreasonably withheld, any filing made
with, or written material submitted to, any Regulatory Authority in connection
with the transactions contemplated by this Agreement.
(b) Each Party will furnish the other Parties with all
information concerning itself, its Subsidiaries, directors, officers and
stockholders, as applicable, and such other matters as may be necessary or
advisable in connection with any statement or application made by or on behalf
of any such Party to any governmental body in connection with the transactions,
applications or filings contemplated by this Agreement. Upon request, the
Parties hereto will promptly furnish each other with copies of written
communications received by them or their respective Subsidiaries from, or
delivered by any of the foregoing to, any governmental body in respect of the
transactions contemplated hereby.
SECTION 6.3 INDEMNIFICATION REGARDING THE REGISTRATION STATEMENT AND
PROXY STATEMENT. Enviroq, with respect to IAM and CRC, and IAM and CRC, jointly
and severally with respect to Enviroq, agree to indemnify, defend and hold
harmless the other, their respective Subsidiaries, and each of their respective
present and former officers, directors, employees and agents, from and against
all losses, expenses, claims, damages or liabilities to which any of them may
become subject under applicable laws (including the Securities Act or the
Exchange Act), and will reimburse each of them for any legal, accounting or
other expenses reasonably incurred in connection with investigating or defending
any such actions, whether or not resulting in liability, insofar as such losses,
expenses, claims, damages or liabilities arise out of or are based upon any
untrue statement or alleged untrue statement of material fact provided by the
indemnifying Party and contained in the Proxy Statement or the Registration
Statement or arise out of or are based upon the omission or alleged omission by
the indemnifying Party to state therein a material fact necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
SECTION 6.4 NOTICE OF DEVELOPMENTS. Each of the Parties will give
prompt written notice to other Parties of any material adverse development that
causes or is likely to cause a material breach of any of its representations and
warranties contained in this Agreement. Such disclosure by any Party pursuant to
this Section shall be deemed to amend or supplement any disclosure contained in
the Schedules attached hereto to prevent or cure any misrepresentation, breach
of warranty, or breach of covenant.
SECTION 6.5 NOTICES AND CONSENTS. Each of the Parties will give any
notices (and will cause each of the Parties within their control to give any
notices) to third parties, and will use their reasonable efforts to obtain (and
will cause each of the Parties within their control to use their reasonable
efforts to obtain) any third-party consents that may be required to consummate
the transactions contemplated hereby.
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SECTION 6.6 PAYMENT OF THE MERGER CONSIDERATION. NewCo shall issue the
Redeeming Enviroq Stockholder Consideration, the Non-Redeeming Enviroq
Stockholder Consideration, the IAM Consideration and the CRC Consideration, as
and when the same shall be required to be issued pursuant to this Agreement.
SECTION 6.7 REPAYMENT OF LOANS. Prior to the Closing Date, IAM and CRC
shall repay all loans to stockholders or Affiliates of IAM and CRC, including
those loans shown on the IAM/CRC Most Recent Balance Sheet, and shall cause the
stockholders and Affiliates of IAM and CRC to repay all loans to IAM and CRC.
SECTION 6.8 INDEMNITY.
(a) From and after the Effective Time, NewCo shall indemnify,
defend and hold harmless to the fullest extent that Enviroq, IAM or CRC would
have been permitted under applicable law each Person who is now, or has been at
any time prior to the date hereof, an officer or director of Enviroq, IAM or CRC
(individually, an "Indemnified Party" and collectively, the "Indemnified
Parties"), against all losses, claims, damages, liabilities, costs or expenses
(including attorneys's fees), judgments, fines, penalties and amounts paid in
settlement in connection with any claim, action, suit, proceeding or
investigation arising out of or pertaining to acts or omissions, or alleged acts
or omissions, by them in their capacities as such occurring at or prior to the
Effective Time. In the event of any such claim, action, suit, proceeding or
investigation (an "Action"), (i) any Indemnified Party wishing to claim
indemnification shall promptly notify NewCo thereof, (ii) NewCo shall pay the
reasonable fees and expenses of counsel selected by the Indemnified Party, which
counsel shall be reasonably acceptable to NewCo, in advance of the final
disposition of any such Action to the full extent permitted by applicable law,
upon receipt of any undertaking required by applicable law, and (iii) NewCo will
cooperate in the defense of any such matter; provided, however, that NewCo shall
not be liable for any settlement effected without its written consent and
provided, further, that NewCo shall not be obligated pursuant to this Section to
pay the fees and disbursements of more than one counsel for all Indemnified
Parties in any single Action except to the extent that, in the opinion of
counsel for the Indemnified Parties, two or more of such Indemnified Parties
have conflicting interests in the outcome of such action.
(b) NewCo shall cause each of Enviroq, IAM and CRC to keep in
effect provisions of their respective certificate or articles of incorporation
and bylaws providing for exculpation of director and officer liability and its
indemnification of the Indemnified Parties to the fullest extent permitted under
Delaware or Florida law, as the case may be, which provisions shall not be
amended except as required by applicable law or except to make changes permitted
by law that would enlarge the Indemnified Parties' right of indemnification. For
six (6) years after the Effective Time, NewCo shall cause Enviroq Surviving
Corporation to, and Enviroq Surviving Corporation shall, use its good faith,
best efforts to provide officers' and directors' liability insurance covering
each director and officer of Enviroq who at the date of this Agreement and/or at
the Effective Time is covered by Enviroq's existing directors' and officers'
liability insurance with respect to actions and omissions occurring at or prior
to the Effective Time, on terms no less favorable than such insurance maintained
in effect by Enviroq on the date of this Agreement in terms of coverage and
amounts. NewCo and/or Enviroq Surviving Corporation shall, as soon as
practicable after the Effective Time, furnish upon request evidence that such
insurance has been purchased and paid in full.
(c) The provisions of this Section shall survive the
consummation of the Mergers and expressly are intended to benefit each of the
Indemnified Parties.
ARTICLE 7
MUTUAL CONDITIONS TO CLOSING
The obligations of the Parties to consummate the transactions provided
for herein shall be subject to the satisfaction of the following conditions,
unless waived as hereinafter provided for:
SECTION 7.1 SHAREHOLDER APPROVAL. The Enviroq Merger shall have been
approved by the requisite vote of the stockholders of Enviroq.
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SECTION 7.2 REGULATORY APPROVALS. All necessary Consents of the
Regulatory Authorities shall have been obtained and all notice and waiting
periods required by law to pass after receipt of such Consents shall have
passed, and all conditions to consummation of the Mergers set forth in such
Consents shall have been satisfied. NewCo shall have received all federal and
state securities laws, or "Blue Sky," permits or other authorizations or
confirmations as to the availability of exemptions from registration
requirements, as may be necessary to issue shares of NewCo Stock pursuant to
this Agreement.
SECTION 7.3 LITIGATION. There shall be no actual or threatened causes
of action, investigations or proceedings (a) challenging the validity or
legality of this Agreement or the consummation of the transactions contemplated
by this Agreement, (b) seeking damages in connection with the transactions
contemplated by this Agreement, or (c) seeking to restrain or invalidate the
transactions contemplated by this Agreement, which, in the case of (i) through
(iii), and in the reasonable judgment of Enviroq, IAM and CRC, based upon advice
of counsel, would have a Material Adverse Effect with respect to Enviroq, IAM or
CRC, as the case may be.
SECTION 7.4 PROXY STATEMENT. The Proxy Statement shall have been filed
with the SEC for review and comment and shall have been authorized for mailing,
either by notice from the SEC or the lapse of time for review and comment by the
SEC.
SECTION 7.5 REGISTRATION STATEMENT. The Registration Statement shall
have been declared effective, and no stop order with respect thereto shall be in
effect and no proceedings for that purpose shall have been initiated or, to the
knowledge of the Parties, threatened by the SEC or any other Regulatory
Authority.
SECTION 7.6 MATERIAL CONDITION. There shall not be any action taken, or
any statute, rule, regulation or order enacted, entered, enforced or deemed
applicable to the Mergers by any Regulatory Authority which, in connection with
the grant of any Consent by any Regulatory Authority, imposes, in the judgment
of the Parties, any requirement which would have a Material Adverse Effect upon
the Parties, or any one of them, provided that no such term or condition imposed
by any Regulatory Authority in connection with the grant of any Consent by any
Regulatory Authority shall be deemed to be a requirement which would have a
Material Adverse Effect on any Party unless it materially differs from terms and
conditions customarily imposed by any such entity in connection with the
acquisition of corporations under similar circumstances.
SECTION 7.7 CONSENTS. All Consents of third parties required in
connection with the transactions contemplated hereby shall have been obtained,
except where the failure to obtain such Consents, in the aggregate, would not
reasonably be expected to result in a Material Adverse Effect on Enviroq, IAM or
CRC, as the case may be, provided that a Party which has not used all reasonable
efforts to obtain a Consent may not assert this condition with respect to such
Consent.
ARTICLE 8
CONDITIONS TO THE OBLIGATIONS OF ENVIROQ
The obligations of Enviroq to consummate the Enviroq Merger are subject
to the fulfillment of each of the following conditions, unless waived as
hereinafter provided for:
SECTION 8.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of IAM and CRC set forth in this Agreement and in any certificate or
document delivered pursuant hereto shall be true and correct in all material
respects as of the date of this Agreement and as of all times up to and
including the Effective Time (as though made on and as of the Effective Time
except to the extent such representations and warranties are by their express
provisions made as of a specified date and except for changes therein
contemplated by this Agreement).
SECTION 8.2 PERFORMANCE OF OBLIGATIONS. IAM and CRC shall have
performed all covenants, obligations and agreements required to be performed by
them under this Agreement prior to the Effective Time.
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SECTION 8.3 CERTIFICATE REPRESENTING SATISFACTION OF CONDITIONS. All
other Parties shall each have delivered to Enviroq a certificate dated as of the
Closing Date as to the satisfaction of the matters described in Sections 8.1 and
8.2 hereof, and such certificates shall be deemed to constitute additional
representations, warranties, covenants, and agreements of the respective Parties
under this Agreement.
SECTION 8.4 CONSUMMATION OF THE IAM MERGER AND THE CRC MERGER. All of
the conditions to the consummation of the IAM Merger and the CRC Merger shall
have been satisfied or waived in accordance with the terms of this Agreement,
and all the Mergers shall be consummated substantially contemporaneously.
SECTION 8.5 ABSENCE OF ADVERSE FACTS. There shall have been no
determination by Enviroq that any fact, event or condition exists, or has
occurred that, in the judgment of Enviroq, (a) would be materially adverse to
the interests of Enviroq, individually or on a consolidated basis, or (b) would
render the Enviroq Merger or the other transactions contemplated by this
Agreement impracticable because of any state of war, national emergency, banking
moratorium or general suspension of trading on NASDAQ, the New York Stock
Exchange, Inc. or other national securities exchange.
SECTION 8.6 EMPLOYMENT AGREEMENT WITH WILLIAM J. LONG. NewCo shall have
entered into an Employment Agreement with William J. Long substantially in the
form attached hereto as EXHIBIT C.
SECTION 8.7 REPAYMENT OF LOANS. Prior to the Closing Date, all loans
from IAM or CRC to stockholders or Affiliates of IAM or CRC, shall have been
repaid, and all loans to IAM or CRC from stockholders or Affiliates of IAM or
CRC shall have been repaid.
SECTION 8.8 VOTING AGREEMENT. All of the shareholders of IAM and CRC
shall have executed the voting agreement substantially in the form attached
hereto as EXHIBIT E ("Voting Agreement").
SECTION 8.9 STOCK OPTIONS. All rights with respect to IAM Stock and CRC
Stock issuable pursuant to the exercise of stock options granted under any IAM
or CRC stock option plans, whether or not exercisable, shall have been
terminated and any holder thereof shall have executed an appropriate instrument
of cancellation.
SECTION 8.10 RESIGNATIONS. NewCo shall have received the resignations,
effective as of the Closing, of each director and officer of IAM and CRC, other
than those whom shall have been agreed upon by the Parties as specified in
writing at least thirty (30) days prior to the Closing, and other than Forrest
Travis, who shall serve as President and Chief Executive Officer of NewCo, and
Mark F. Travis, who shall serve as an Executive Vice President of NewCo.
SECTION 8.11 CONSENT TO ASSIGNMENT BY IAM CLIENTS. Clients which
together own at least 85% of the assets managed by IAM as of the Closing shall
have executed and delivered to IAM that consent to assignment required to be
sent by IAM to all of its clients pursuant to Section 5.9 of this Agreement.
ARTICLE 9
CONDITIONS TO THE OBLIGATIONS OF IAM
The obligations of IAM to consummate the IAM Merger are subject to the
fulfillment of each of the following conditions, unless waived as hereinafter
provided for:
SECTION 9.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Enviroq set forth in this Agreement and in any certificate or
document delivered pursuant hereto shall be true and correct in all material
respects as of the date of this Agreement and as of all times up to and
including the Effective Time (as though made on and as of the Effective Time
except to the extent such representations and warranties are by their express
provisions made as of a specified date and except for changes therein
contemplated by this Agreement).
SECTION 9.2 PERFORMANCE OF OBLIGATIONS. Enviroq shall have performed
all covenants, obligations and agreements required to be performed by it under
this Agreement prior to the Effective Time.
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SECTION 9.3 CERTIFICATE REPRESENTING SATISFACTION OF CONDITIONS. The
other Parties shall each have delivered to IAM a certificate dated as of the
Closing Date as to the satisfaction of the matters described in Sections 9.1 and
9.2 hereof, and such certificates shall be deemed to constitute additional
representations, warranties, covenants, and agreements of the other Parties
under this Agreement.
SECTION 9.4 DISSENTERS. The holders of not more than seven and one-half
percent (7 1/2%) of the outstanding shares of Enviroq Stock shall have elected
to exercise their right to dissent from the Enviroq Merger and demand payment in
cash pursuant to the Dissent Provisions.
SECTION 9.5 CONSUMMATION OF THE ENVIROQ MERGER AND THE CRC MERGER. All
of the conditions to the consummation of the Enviroq Merger and the CRC Merger
shall have been satisfied or waived in accordance with the terms of this
Agreement, and all of the Mergers shall be consummated substantially
contemporaneously.
SECTION 9.6 ABSENCE OF ADVERSE FACTS. There shall have been no
determination by IAM that any fact, event or condition exists, or as occurred
that, in the judgment of IAM, (a) would be materially adverse to the interests
of IAM, individually or on a consolidated basis, or (b) would render the IAM
Merger or the other transactions contemplated by this agreement impracticable
because of any state of war, national emergency, banking moratorium or general
suspension of trading on NASDAQ, the New York Stock Exchange, Inc. or other
national securities exchange.
SECTION 9.7 EMPLOYMENT AGREEMENTS WITH FORREST TRAVIS AND MARK F.
TRAVIS. NewCo shall have entered into an Employment Agreement with each of
Forrest Travis and Mark F. Travis substantially in the forms attached hereto as
EXHIBIT F and EXHIBIT G, respectively.
SECTION 9.8 STOCK AGREEMENT. The Stock Agreement shall have remained in
full force and effect through the Effective Time.
SECTION 9.9 VOTING AGREEMENT. The stockholders of Enviroq set forth on
Schedule 9.9 shall have executed the Voting Agreement.
SECTION 9.10 STOCK OPTIONS. All rights with respect to Enviroq Stock
issuable pursuant to the exercise of stock options granted under any Enviroq
stock option plan, whether or not exercisable, shall have been terminated and
any holder thereof shall have executed an appropriate instrument of
cancellation.
SECTION 9.11 RESIGNATIONS. NewCo shall have received the resignations,
effective as of the Closing, of each director and officer of Enviroq, other than
those whom shall have been agreed upon by the Parties as specified in writing at
least thirty (30) days prior to the Closing, and other than William J. Long who
will serve as Executive Vice President, Chief Operating Officer and Interim
Chief Financial Officer of NewCo.
ARTICLE 10
CONDITIONS TO THE OBLIGATIONS OF CRC
The obligations of CRC to consummate the CRC Merger are subject to the
fulfillment of each of the following conditions, unless waived as hereinafter
provided for:
SECTION 10.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Enviroq set forth in this Agreement and in any certificate or
document delivered pursuant hereto shall be true and correct in all material
respects as of the date of this Agreement and as of all times up to and
including the Effective Time (as though made on and as of the Effective Time
except to the extent such representations and warranties are by their express
provisions made as of a specified date and except for changes therein
contemplated by this Agreement).
SECTION 10.2 PERFORMANCE OF OBLIGATIONS. Enviroq shall have performed
all covenants, obligations and agreements required to be performed by it under
this Agreement prior to the Effective Time.
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SECTION 10.3 CERTIFICATE REPRESENTING SATISFACTION OF CONDITIONS. The
other Parties shall each have delivered to CRC a certificate dated as of the
Closing Date as to the satisfaction of the matters described in Sections 10.1
and 10.2 hereof, and such certificates shall be deemed to constitute additional
representations, warranties, covenants, and agreements of the other Parties
under this Agreement.
SECTION 10.4 DISSENTERS. The holders of not more than seven and
one-half percent (7 1/2%) of the outstanding shares of Enviroq Stock shall have
elected to exercise their right to dissent from the Enviroq Merger and demand
payment in cash for the fair or appraised value of their shares.
SECTION 10.5 CONSUMMATION OF THE ENVIROQ MERGER AND THE IAM MERGER. All
of the conditions to the consummation of the Enviroq Merger and the IAM Merger
shall have been satisfied or waived in accordance with the terms of this
Agreement, and all of the Mergers shall be consummated substantially
contemporaneously.
SECTION 10.6 ABSENCE OF ADVERSE FACTS. There shall have been no
determination by CRC that any fact, event or condition exists, or as occurred
that, in the judgment of CRC, (a) would be materially adverse to the interests
of CRC, individually or on a consolidated basis, or (b) would render the CRC
Merger or the other transactions contemplated by this agreement impracticable
because of any state of war, national emergency, banking moratorium or general
suspension of trading on NASDAQ, the New York Stock Exchange, Inc. or other
national securities exchange.
SECTION 10.7 EMPLOYMENT AGREEMENTS WITH FORREST TRAVIS AND MARK F.
TRAVIS. NewCo shall have entered into an Employment Agreement with each of
Forrest Travis and Mark F. Travis substantially in the form attached hereto as
EXHIBIT F and EXHIBIT G, respectively.
SECTION 10.8 STOCK AGREEMENT. The Stock Agreement shall have remained
in full force and effect through the Effective Time.
SECTION 10.9 VOTING AGREEMENT. The Stockholders of Enviroq set forth on
Schedule 9.9 shall have executed the Voting Agreement.
SECTION 10.10 STOCK OPTIONS. All rights with respect to Enviroq Stock
issuable pursuant to the exercise of stock options granted under any Enviroq
stock option plans, whether or not exercisable, shall have been terminated and
any holder thereof shall have executed an appropriate instrument of
cancellation.
SECTION 10.11 RESIGNATIONS. NewCo shall have received the resignations,
effective as of the Closing, of each director and officer of Enviroq, other than
those whom shall have been agreed upon by the Parties as specified in writing at
least thirty (30) days prior to the Closing, and other than William J. Long who
will serve as Executive Vice President, Chief Operating Officer and Interim
Chief Financial Officer of NewCo.
ARTICLE 11
TERMINATION
SECTION 11.1 TERMINATION OF AGREEMENT. This Agreement may be terminated
at any time prior to the Closing:
(a) by mutual written consent duly authorized by the boards of
directors of Enviroq, IAM and CRC at any time prior to the Effective Time; or
(b) by Enviroq at any time prior to the Effective Time, if
there has been a material breach of a representation, warranty, covenant, or
agreement of IAM or CRC and such breach has not been cured or is incapable of
being cured within 15 days of notice of such breach; or
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(c) by IAM at any time prior to the Effective Time, if there
has been a material breach of a representation, warranty, covenant, or agreement
of Enviroq and such breach has not been cured or is incapable of being cured
within 15 days of notice of such breach; or
(d) by CRC at anytime prior to the Effective Time, if there
has been a material breach of a representation, warranty, covenant or agreement
of Enviroq and such breach has not been cured or is incapable of being cured
within 15 days of notice of such breach; or
(e) if the Closing has not occurred by December 31, 1998,
unless extended by mutual written consent duly authorized by the boards of
directors of Enviroq, IAM and CRC (provided that the right to terminate this
Agreement under this Section shall not be available to any Party whose failure
to perform any material covenant or obligation or whose breach of a
representation or warranty under this Agreement has been the cause of or
resulted in the failure of the Closing to occur on or before such date); or
(f) by Enviroq if the board of directors of Enviroq, as
advised by outside counsel, determines in good faith that the failure to
terminate this Agreement and the transactions contemplated herein would be
reasonably likely to result in a breach of the directors' fiduciary duty to the
stockholders of Enviroq, provided that (i) Enviroq shall notify IAM and CRC
promptly of its intention to terminate this Agreement or enter into a definitive
agreement with respect to any Alternative Proposal, but in no event shall such
notice be given less than 48 hours prior to the public announcement of Enviroq's
termination of this Agreement, and (ii) Enviroq's ability to terminate this
Agreement pursuant to Section 11.1(f) is conditioned upon the prior payment by
it of any amounts owed by it pursuant to Section 11.2(a); or
(g) by Enviroq, IAM or CRC if at the meeting of Enviroq
Stockholders held for such purpose (including any adjournment or postponement
thereof) the requisite vote of the Enviroq Stockholders to approve the Enviroq
Merger shall not have been obtained.
SECTION 11.2 EFFECT OF TERMINATION.
(a) In the event that any Person shall have made an
Alternative Proposal for Enviroq and thereafter (i) this Agreement is terminated
pursuant to Section 11.1(f) or (ii) this Agreement is terminated pursuant to
Section 11.1(c) or 11.1(d) due to Enviroq's breach (and neither IAM or CRC is in
breach of this Agreement) and, in the case of this clause (ii) only, a
definitive agreement with respect to such Alternative Proposal is executed
within one year after such termination and such transaction is thereafter
consummated, then Enviroq shall pay IAM and CRC an aggregate fee of $250,000,
which amount shall be payable by wire transfer of same day funds either on the
date contemplated in the last clause of Section 11.1(f), if applicable, or
otherwise within two business days after the consummation of the transaction.
Enviroq acknowledges that the agreements contained in this Section 11.2(a) are
an integral part of the transactions contemplated in this Agreement and that,
without these agreements, IAM and CRC would not enter into this Agreement;
accordingly, if Enviroq fails to promptly pay the amount due pursuant to this
Section 11.2(a) and, in order to obtain such payment, IAM and CRC commence a
suit which results in a judgment against Enviroq for the fee set forth in this
Section 11.2(a), Enviroq shall pay to IAM and CRC their costs and expenses
(including attorneys' fees) in connection with such suit, together with interest
on the amount of such fee at the rate of 12% per annum.
(b) In the event that this Agreement is terminated by Enviroq
pursuant to Section 11.1(b) due to IAM's or CRC's breach (and Enviroq is not in
breach of this Agreement) and either IAM or CRC, within one year after such
termination, executes a definitive agreement with respect to a transaction which
would meet the definition of an Alternative Proposal if the term "IAM or CRC"
were substituted instead of the term "Enviroq" in such definition and IAM or CRC
thereafter consummates such transaction, then IAM or CRC shall pay Enviroq an
aggregate fee of $250,000, which amount shall be payable by wire transfer of
same day funds within two business days after consummation of the transaction.
IAM and CRC acknowledge that the agreements contained in this Section 11.2(b)
are an integral part of the transactions contemplated in this Agreement and
that, without these agreements, Enviroq would not enter into this Agreement;
accordingly, if IAM or CRC fails to promptly pay the amount due pursuant to this
Section 11.2(b) and, in order to obtain such payment, Enviroq commences a suit
which results in a judgment against IAM or CRC
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for the fee set forth in this Section 11.2(b), IAM or CRC shall pay to Enviroq
its costs and expenses (including attorneys' fees) in connection with such suit,
together with interest on the amount of such fee at the rate of 12% per annum.
(c) In the event of termination of this Agreement by Enviroq,
IAM or CRC as provided in Section 11.1, this Agreement shall forthwith become
void and have no effect, without any liability or obligation on the part of
Enviroq, IAM or CRC, other than any liability or obligation arising under the
provisions of Sections 11.2, 11.3 and 15.13; provided, however, that in no event
shall such termination relieve any Party of liability for any breach by such
Party of any of its representations, warranties, covenants and agreements set
forth herein.
SECTION 11.3 CONFIDENTIALITY UPON TERMINATION. In the event of any
termination of this Agreement for any reason, including any breach by any of the
Parties, except to the extent necessary to enforce its rights under this
Agreement, each Party shall treat as confidential and shall not disclose, or use
directly or indirectly for their benefit or any third party's benefit or to the
detriment of any other Party in any manner whatsoever, or permit others under
their control to disclose, or to use, Confidential Information concerning the
other Parties obtained pursuant to or in connection with the Mergers which is
not generally known to the trade or a matter of public knowledge.
SECTION 11.4 SPECIFIC PERFORMANCE. The Parties hereto agree that money
damages or other remedy at law would not be a sufficient or adequate remedy for
any breach or violation of, or a default under, this Agreement by them and that
in addition to all other remedies available to them, each of them shall be
entitled to the fullest extent permitted by law to an injunction restraining
such breach, violation or default or threatened breach, violation or default and
to any other equitable relief, including specific performance, without bond or
other security being required.
ARTICLE 12
REPRESENTATIONS AND WARRANTIES OF ENVIROQ
In order to induce IAM and CRC to enter into this Agreement, Enviroq
represents and warrants to IAM and CRC as follows:
SECTION 12.1 ORGANIZATION, QUALIFICATION, AND CORPORATE POWER;
AUTHORITY.
(a) Each of Enviroq and its Subsidiaries is a corporation duly
organized, validly existing, and in good standing under the laws of the
jurisdiction of its incorporation. Each of Enviroq and its Subsidiaries is duly
authorized and qualified to conduct business and is in good standing under the
laws of each jurisdiction where such qualification is required, except where the
lack of such qualification would not have a Material Adverse Effect. Each of
Enviroq and its Subsidiaries has full corporate power and authority to carry on
the businesses in which it is engaged and to own, lease, use and operate the
properties owned, leased, used and operated by it. The copies of the
certificates of incorporation and the bylaws of Enviroq and its Subsidiaries,
which have previously been made available to IAM and CRC, are true, complete and
correct copies of such documents as in effect as of the date of this Agreement.
Schedule 12.1 lists the directors and officers of each of Enviroq and its
Subsidiaries.
(b) Enviroq has full corporate power and authority to execute
and deliver this Agreement and, subject to the approval of the stockholders of
Enviroq and to the receipt of the Consents of the Regulatory Authorities, to
consummate the transactions contemplated hereby. The board of directors of
Enviroq has duly and validly approved this Agreement and the transactions
contemplated hereby, has authorized the execution and delivery of this
Agreement, has directed that this Agreement and the transactions contemplated
hereby be submitted to Enviroq's stockholders for approval at a meeting of such
stockholders and, except for the adoption of this Agreement by its stockholders,
no other corporate proceedings on the part of Enviroq are necessary to
consummate the transactions so contemplated. This Agreement, when duly and
validly executed by Enviroq and delivered by Enviroq, will constitute a valid
and binding obligation of Enviroq, and will be enforceable against Enviroq in
accordance with its terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the enforcement of creditors rights generally and except that the
availability of the equitable remedy of specific performance or injunctive
relief is subject to the discretion of the court before which any proceeding may
be brought.
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SECTION 12.2 CAPITALIZATION. The entire authorized common capital stock
of Enviroq and its Subsidiaries consists of 10,000,000 shares of Enviroq Stock,
of which 1,009,377 Enviroq Shares were issued and outstanding as of the date
hereof; provided, however, it is envisioned that Enviroq shall redeem up to
42.698013% of the issued and outstanding shares of Enviroq Stock in the
Redemption. No shares of Enviroq Stock are held in treasury, although it is
contemplated that the Redeemed Shares shall be held as treasury shares prior to
their cancellation and retirement as of the Effective Time in accordance with
Section 3.1(a). All of the issued and outstanding shares of Enviroq Stock have
been duly authorized and are validly issued, fully paid, and nonassessable.
Except as set forth on Schedule 12.2, there are no outstanding or authorized
options, warrants, purchase rights, subscription rights, conversion rights,
exchange rights, or other contracts or commitments that could require Enviroq or
any of its Subsidiaries to issue, sell, or otherwise cause to become outstanding
any of its capital stock; provided, however, it is contemplated that Enviroq
shall redeem shares of Enviroq Stock in the Redemption. There are no outstanding
or authorized stock appreciation, phantom stock, profit participation, or
similar rights with respect to Enviroq and its Subsidiaries. Enviroq and its
Subsidiaries have no outstanding bonds, debentures, notes or similar obligations
the holders of which have the right to vote generally with holders of Enviroq
Shares.
SECTION 12.3 NON-CONTRAVENTION. Except as set forth on Schedule 12.3,
neither the execution and the delivery of this Agreement, nor the consummation
of the transactions contemplated hereby, will (i) violate any constitution,
statute, regulation, rule, injunction, judgment, order, decree, ruling, charge,
or other restriction of any government, governmental agency, or court to which
any of Enviroq or any of its Subsidiaries is subject or any provision of the
charter or bylaws of any of Enviroq or any of its Subsidiaries; or (ii) except
with respect to those agreements for which Consent shall be obtained prior to
Closing, conflict with, result in a breach of, constitute a default under,
result in the acceleration of, create in any party the right to accelerate,
terminate, modify, or cancel, or require any notice under any agreement,
contract, lease, license, instrument, or other arrangement to which Enviroq or
any of its Subsidiaries is a party or by which it is bound or to which any of
its assets is subject (or result in the imposition of any Security Interest upon
any of its assets), except where the violation, conflict, breach, default,
acceleration, termination, modification, cancellation, failure to give notice,
or Security Interest would not have a Material Adverse Effect on Enviroq or on
the ability of the Parties to consummate the transactions contemplated by this
Agreement. Except as set forth specifically in this Agreement or on Schedule
12.3, neither Enviroq nor any of its Subsidiaries needs to give any notice to,
make any filing with, or obtain any Consent of any government, governmental
agency or regulatory authority in order for the Parties to consummate the
transactions contemplated by this Agreement, except where the failure to give
notice, to file, or to obtain any Consent would not have a Material Adverse
Effect on Enviroq or on the ability of the Parties to consummate the
transactions contemplated by this Agreement.
SECTION 12.4 BROKERS' FEES. None of Enviroq or any of its Subsidiaries
has any liability or obligation, contingent or otherwise, to pay any fees or
commissions or similar payments to any broker, finder, or agent with respect to
the transactions contemplated by this Agreement.
SECTION 12.5 TITLE TO ASSETS. Except as set forth on Schedule 12.5,
Enviroq and its Subsidiaries have good and marketable title to all of their
properties and assets real and personal, tangible and intangible, used by them,
located on their premises, or shown on the Enviroq Most Recent Financial
Statements or acquired after the date thereof, free and clear of all Security
Interests, except for properties and assets disposed of in the Ordinary Course
of Business or in the Redemption since the date of the Enviroq Most Recent
Financial Statements. All leases pursuant to which Enviroq or any of its
Subsidiaries lease from others material amounts of real or personal property are
in good standing, valid and effective in accordance with their respective terms,
and there is not, to the knowledge of Enviroq and its Subsidiaries, under any of
such leases, any existing material default or event of default (or event which,
with notice or lapse of time, or both, would constitute a material default),
except where lack of such good standing, validity and effectiveness or the
existence of such default or event of default would not reasonably be expected
to have Material Adverse Effect on Enviroq.
SECTION 12.6 SUBSIDIARIES. Schedule 12.6(a) sets forth for each
Subsidiary of Enviroq (i) its name and jurisdiction of incorporation, (ii) the
number of shares of authorized capital stock of each class of its capital stock,
(iii) the number of issued and outstanding shares of each class of its capital
stock, the names of the holders thereof, and the number of shares held by each
such holder, and (iv) the number of shares of its capital stock held in
treasury. All of the issued and outstanding shares of capital stock of each
Subsidiary of Enviroq have been duly authorized, and are validly issued, fully
paid, and nonassessable and were issued in accordance with applicable federal
and state securities laws.
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Except as set forth on Schedule 12.6(b), Enviroq holds of record and owns
beneficially all of the outstanding shares of each Subsidiary of Enviroq, free
and clear of any restrictions on transfer (other than restrictions under the
Securities Act and state securities laws), taxes, Security Interests, options,
warrants, purchase rights, contracts, commitments, equities, claims, and
demands. Except as disclosed on Schedule 12.6(c), there are no outstanding or
authorized options, warrants, purchase rights, subscription rights, conversion
rights, exchange rights, or other contracts or commitments that could require
Enviroq or any of its Subsidiaries to sell, transfer, or otherwise dispose of
any capital stock of any of its Subsidiaries or that could require any
Subsidiary of Enviroq to issue, sell, or otherwise cause to become outstanding
any of its own capital stock. Except as disclosed on Schedule 12.6(d), there are
no outstanding stock appreciation, phantom stock, profit participation, or
similar rights with respect to any Subsidiary of Enviroq. Except as disclosed to
IAM and CRC on Schedule 12.6(e), there are no voting trusts, proxies, or other
agreements or understandings with respect to the voting of any capital stock of
any Subsidiary of Enviroq. Except as set forth on Schedule 12.6(f), none of
Enviroq and its Subsidiaries controls directly or indirectly or has any direct
or indirect equity participation in any corporation, partnership, trust, or
other business association which is not a Subsidiary of Enviroq.
SECTION 12.7 FINANCIAL STATEMENTS. Schedule 12.7 includes the following
financial statements of Enviroq and its Subsidiaries (collectively the "Enviroq
Financial Statements"): (i) audited consolidated balance sheets and statements
of income, changes in stockholders' equity, and cash flows as of and for the
fiscal year ended March 30, 1996, and the fiscal year ended March 29, 1997 (the
"Enviroq Most Recent Fiscal Year End") for Enviroq and its Subsidiaries; and
(ii) unaudited consolidated balance sheets and statements of income, and cash
flows (the "Enviroq Most Recent Financial Statements") as of and for the three
months and year to date periods ended September 27, 1997 (the "Enviroq Most
Recent Fiscal Month End"), for Enviroq and its Subsidiaries. The Enviroq
Financial Statements (including the notes thereto) have been prepared in
accordance with GAAP applied on a consistent basis throughout the periods
covered thereby and present fairly the financial condition of Enviroq and its
Subsidiaries as of such dates and the results of operations of Enviroq and its
Subsidiaries for such periods; provided, however, that the Enviroq Most Recent
Financial Statements are subject to normal recurring adjustments (which will not
be material individually or in the aggregate) and lack footnotes and other
presentation items. Without limiting the generality of the foregoing, the
Enviroq Most Recent Financial Statements accurately reflect anticipated costs to
complete all contracts or services pursuant to which Enviroq or any of its
Subsidiaries have agreed to furnish products and services in accordance with
GAAP applied on a basis consistent with the Enviroq Financial Statements for the
Enviroq Most Recent Fiscal Year End; provided, however, the Enviroq Most Recent
Financial Statements do not reflect any provision for the payment of the
Redemption Price to the holders of Enviroq Stock who shall accept the Redemption
Offer.
SECTION 12.8 ENVIROQ SEC DOCUMENTS. Each of Enviroq and its
Subsidiaries has timely filed with the SEC all forms, reports, schedules,
statements, exhibits and other documents required to be filed by it since
December 31, 1994 with the SEC (such documents, as supplemented and amended
since the time of filing, collectively, the "Enviroq SEC Documents"). The
Enviroq SEC Documents, including any financial statements or schedules included
therein, at the time filed (and, in the case of registration statements and
proxy statements, on the dates of effectiveness and the dates of mailing,
respectively), (a) did not 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 light of the circumstances under which
they were made, not misleading, and (b) complied in all material respects with
the applicable requirements of the Exchange Act and the Securities Act, as the
case may be. The financial statements (including the related notes) of Enviroq
included in the Enviroq SEC Documents comply as to form in all material respects
with applicable accounting requirements and the published rules and regulations
of the SEC with respect thereto, were prepared in accordance with GAAP applied
on a consistent basis during the periods involved (except as may be indicated in
the notes thereto), and fairly present (subject in the case of unaudited
statements to the absence of footnotes and to normal, recurring and year-end
audit adjustments which will not be material individually or in the aggregate)
the consolidated financial position of Enviroq as of the dates thereof and the
consolidated results of its operations and cash flows for the periods then
ended.
SECTION 12.9 EVENTS SUBSEQUENT TO ENVIROQ MOST RECENT FISCAL YEAR END.
Since the Enviroq Most Recent Fiscal Year End, except as set forth on Schedule
12.7 or 12.9, there has not been any change in the business, financial
condition, operations, results of operations, or future prospects of Enviroq and
its Subsidiaries taken as a whole which would constitute a Material Adverse
Effect in respect of Enviroq. Without limiting the generality of the foregoing,
except as set forth on Schedule 12.9 and for actions to be taken in connection
with the Redemption, since that date:
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(a) none of Enviroq or any of its Subsidiaries has sold,
leased, transferred, or assigned any material assets, tangible or intangible,
outside the Ordinary Course of Business;
(b) none of Enviroq or any of its Subsidiaries has entered
into any material agreement, contract, lease, or license outside the Ordinary
Course of Business;
(c) no Party (including any of Enviroq and its Subsidiaries)
has accelerated, terminated, made material modifications to, or canceled any
material agreement, contract, lease, or license to which any of Enviroq or any
of its Subsidiaries is a party or by which any of them is bound;
(d) none of Enviroq or any of its Subsidiaries has caused to
be imposed any Security Interest upon any of its assets, tangible or intangible;
(e) none of Enviroq or any of its Subsidiaries has made any
material capital expenditures outside the Ordinary Course of Business;
(f) none of Enviroq or any of its Subsidiaries has made any
material capital investment in, or any material loan to, any other Person
outside the Ordinary Course of Business;
(g) none of Enviroq or any of its Subsidiaries has created,
incurred, assumed, or guaranteed more than $20,000 in aggregate indebtedness
(other than internal debt between Enviroq and/or its Subsidiaries) for borrowed
money and capitalized lease obligations;
(h) other than is normal and customary with respect to the
business of Sprayroq, none of Enviroq or any of its Subsidiaries has granted any
license or sublicense of any material rights under or with respect to any
Intellectual Property;
(i) there has been no change made or authorized in the charter
or bylaws of any of Enviroq or any of its Subsidiaries;
(j) none of Enviroq or any of its Subsidiaries has issued,
sold, or otherwise disposed of any of its capital stock, or granted any options,
warrants, or other rights to purchase or obtain (including upon conversion,
exchange, or exercise) any of its capital stock;
(k) none of Enviroq or any of its Subsidiaries has declared,
set aside, or paid any dividend or made any distribution with respect to its
capital stock (whether in cash or in kind) or redeemed, purchased, or otherwise
acquired any of its capital stock;
(l) none of Enviroq or any of its Subsidiaries has experienced
any material damage, destruction, or loss (whether or not covered by insurance)
to its property;
(m) none of Enviroq or any of its Subsidiaries has made any
loan to, or entered into any other transaction with, any of its directors,
officers, and employees outside the Ordinary Course of Business;
(n) none of Enviroq or any of its Subsidiaries has entered
into any employment contract or collective bargaining agreement, written or
oral, or modified the terms of any existing such contract or agreement;
(o) none of Enviroq or any of its Subsidiaries has granted any
increase in the base compensation of any of its directors, officers, and
employees outside the Ordinary Course of Business;
(p) none of Enviroq or any of its Subsidiaries has adopted,
amended, modified, or terminated any bonus, profit-sharing, incentive,
severance, or other plan, contract, or commitment for the benefit of any of its
directors, officers, and employees (or taken any such action with respect to any
other Employee Benefit Plan);
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(q) none of Enviroq or any of its Subsidiaries has made any
other material change in employment terms for any of its directors, officers,
and employees outside the Ordinary Course of Business; and
(r) none of Enviroq or any of its Subsidiaries has committed
to any of the foregoing.
SECTION 12.10 UNDISCLOSED LIABILITIES. Except as set forth on Schedule
12.10, none of Enviroq or any of its Subsidiaries has any material liability
(whether asserted or unasserted, whether absolute or contingent, whether accrued
or unaccrued, and whether due or to become due, including any liability for
taxes), except for (a) liabilities set forth in the Enviroq SEC Documents; (b)
liabilities which have arisen since September 27, 1997 in the Ordinary Course of
Business and (c) any liabilities to holders of Enviroq Stock who accept the
Redemption Offer.
SECTION 12.11 LEGAL COMPLIANCE. Except as set forth on Schedule 12.11,
each of Enviroq and its Subsidiaries has complied with all applicable laws
(including rules, regulations, codes, ordinances, plans, injunctions, judgments,
orders, decrees, rulings, and charges thereunder) of federal, state, local, and
foreign governments (and all agencies thereof), and no action, suit, proceeding,
hearing, investigation, charge, complaint, claim, demand, or notice has been
filed or commenced or, to the Knowledge of Enviroq and its Subsidiaries,
threatened, against any of them alleging any failure so to comply, except where
the failure to comply would not have a Material Adverse Effect on Enviroq.
SECTION 12.12 TAX MATTERS. Except as set forth in the Enviroq SEC
Documents or on Schedule 12.12, and except with respect to any such matters that
would not, in the aggregate, have a Material Adverse Effect on Enviroq, (a) each
of Enviroq and its Subsidiaries has duly filed all federal and state income Tax
Returns and all other material Tax Returns (including, those filed on a
consolidated, combined or unitary basis) required to have been filed by Enviroq
or any of its Subsidiaries prior to the date hereof and will file, on or before
the Effective Time, all such returns which are required to be filed after the
date hereof and on or before the Effective Time, (b) all of the foregoing
returns and reports are and will be at the Effective Time true and correct in
all material respects, and each of Enviroq and its Subsidiaries has paid or,
prior to the Effective Time, will pay, or make adequate provision for payment in
accordance with GAAP regarding, all Taxes required to be paid in respect of the
periods covered by such returns or reports to any federal, state, foreign, local
or other taxing authority, (c) neither Enviroq nor any of its Subsidiaries will
have any material liability for any Taxes in excess of the amounts so paid or
reserves so established or is delinquent in the payment of any material Tax,
assessment or governmental charge, and none of them has requested any extension
of time within which to file any returns in respect of any fiscal year which
have not since been filed, (d) no deficiencies for any tax, assessment or
governmental charge have been proposed, asserted or assessed in writing
(tentatively or definitely), in each case, by any taxing authority, against
Enviroq or any of its Subsidiaries for which there are not adequate reserves in
its financial statements (in accordance with GAAP), (e) as of the date of this
Agreement, there are no extensions or waivers or pending requests for extensions
or waivers of the time to assess or collect any such tax, (f) the federal income
Tax Returns of Enviroq have not been audited, and the federal income Tax Returns
of its Subsidiaries have not been audited, (g) neither Enviroq nor any of its
Subsidiaries is or has been a party to any tax sharing agreement with any
corporation which is not currently a member of the affiliated group of which
Enviroq is currently a member, (h) there are no liens for Taxes on any assets of
Enviroq or any of its Subsidiaries (other than statutory liens for taxes not yet
due or liens for which adequate reserves have been established in its financial
statements in accordance with generally accepted accounting principles), (i)
Enviroq and its Subsidiaries have withheld and paid (and until the Effective
Time will withhold and pay) all income, social security, unemployment, and all
other material payroll Taxes required to be withheld (including pursuant to
Sections 1441 and 1442 of the Code or similar provisions under foreign law) and
paid in connection with amounts paid to any employee, independent contractor,
stockholder, creditor or other third party, and (j) Enviroq has not filed an
election under Section 341(f) of the Code to be treated as a consenting
corporation.
SECTION 12.13 REAL PROPERTY.
(a) Schedule 12.13(a) lists and describes briefly all real
property that any of Enviroq and its Subsidiaries owns. Except as set forth on
Schedule 12.13(a), and except as would not reasonably be expected to have a
Material Adverse Effect on Enviroq, with respect to each such parcel of owned
real property:
(i) the identified owner has good and marketable title to
the parcel of real property, free and clear of any Security Interest, easement,
covenant, or other restriction, except for (A) installments of special
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assessments not yet delinquent, (B) recorded easements, covenants, and other
restrictions, and utility easements, building restrictions and zoning
restrictions, and (C) other easements and restrictions existing generally with
respect to properties of a similar character, none of which affect materially
and adversely the current use, occupancy, or value, or the marketability of
title, of the property subject thereto;
(ii) there are no pending or, to the Knowledge of Enviroq
and its Subsidiaries, threatened condemnation proceedings, lawsuits, or
administrative actions relating to the property or other matters affecting
materially and adversely the current use, occupancy, or value thereof;
(iii) the legal description for the parcel contained in
the deed thereof describes such parcel fully and adequately, the buildings and
improvements are located within the boundary lines of the described parcels of
land, are not in material violation of applicable setback requirements, zoning
laws, and ordinances (and none of the properties or buildings or improvements
thereon are subject to "permitted nonconforming use" or "permitted
non-conforming structure" classifications), and do not encroach on any easement
which may burden the land;
(iv) to the Knowledge of Enviroq and its Subsidiaries, all
facilities have received all approvals of governmental authorities (including
material licenses and permits) required in connection with the ownership or
operation thereof, and have been operated and maintained in accordance with
applicable laws, rules, and regulations in all material respects;
(v) there are no leases, subleases, licenses, concessions,
or other agreements, written or oral, granting to any party or parties the right
of use or occupancy of any portion of the parcel of real property;
(vi) there are no outstanding options or rights of first
refusal to purchase the parcel of real property, or any portion thereof or
interest therein;
(vii) there are no Parties (other than Enviroq and its
Subsidiaries) in possession of the parcel of real property, other than tenants
under any leases disclosed in Schedule 12.13 who are in possession of space to
which they are entitled;
(viii) the plumbing, HVAC, electrical and mechanical
systems located in the facilities are all in good repair, order and condition
subject to reasonable wear and tear; and
(ix) there are no pending or, to the Knowledge of any of
the officers and directors of Enviroq or any of its Subsidiaries, threatened
insurance claims with respect to the properties.
(b) Schedule 12.13(b) lists and describes briefly all real
property leased or subleased to any of Enviroq and its Subsidiaries. Enviroq and
its Subsidiaries has delivered to IAM and CRC correct and complete copies of the
leases and subleases listed on Schedule 12.13(b) (as amended to date). Except as
set forth on Schedule 12.13(b), with respect to each material lease and sublease
listed on Schedule 12.13(b):
(i) the lease or sublease is legal, valid, binding,
enforceable, and in full force and effect in all material respects;
(ii) Enviroq is not, and to the Knowledge of any of the
directors and officers of Enviroq and its Subsidiaries, no other party to the
lease or sublease is, in material breach or default, and no event has occurred
which, with notice or lapse of time, would constitute a material breach or
default or permit termination, modification, or acceleration thereunder;
(iii) no party to the lease or sublease has repudiated any
material provision thereof;
(iv) to the Knowledge of any of the directors and officers
of Enviroq and its Subsidiaries, there are no material disputes, oral
agreements, or forbearance programs in effect as to the lease or sublease;
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(v) none of Enviroq or any of its Subsidiaries has
assigned, transferred, conveyed, mortgaged, deeded in trust, or encumbered any
interest in the leasehold or subleasehold; and
(vi) all facilities leased or subleased thereunder have
received all approvals of governmental authorities (including material licenses
and permits) required in connection with the operation thereof, and have been
operated and maintained in accordance with applicable laws, rules, and
regulations in all material respects.
SECTION 12.14 INTELLECTUAL PROPERTY.
(a) Enviroq and each of its Subsidiaries owns, or is licensed
or otherwise possesses legally enforceable rights to use, all patents, trade
secrets, trademarks, trade names, service marks, copyrights, and any
applications therefor, technology, know-how, computer software programs or
applications, and tangible or intangible proprietary information or material
that are used in the business of Enviroq and its Subsidiaries as currently
conducted, except as would not reasonably be expected to have a Material Adverse
Effect on Enviroq.
(b) Except as disclosed in Schedule 12.14 or as would not
reasonably be expected to have a Material Adverse Effect on Enviroq, (i) neither
Enviroq nor any of its Subsidiaries, is or will be as a result of the execution
and delivery of this Agreement or the performance of its obligations hereunder,
in violation of any Third-Party Intellectual Property Rights; (ii) no claims
with respect to the patents, registered and material unregistered trademarks and
service marks, registered copyrights, trade names and any applications therefor
owned by Enviroq or any of its Subsidiaries (the "Enviroq Intellectual Property
Rights"), any trade secret material to Enviroq, or Third Party Intellectual
Property Rights to the extent arising out of any use, reproduction or
distribution of such Third Party Intellectual Property Rights by or through
Enviroq or any of its Subsidiaries, are currently pending or, to the knowledge
of Enviroq or any of it Subsidiaries, are overtly threatened by any person; and
(iii) Enviroq and its Subsidiaries do not have Knowledge of any bona fide claims
(A) to the effect that the manufacture, sale, licensing or use of any product as
now used, sold or licensed or proposed for use, sale or license by Enviroq or
any of its Subsidiaries infringes on any copyright, patent, trademark, service
mark or trade secret; (B) against the use by Enviroq or any of its Subsidiaries
of any trademarks, trade names, trade secrets, copyrights, patents, technology,
know-how or computer software programs and applications used in the business of
Enviroq or any of its Subsidiaries as currently conducted or as proposed to be
conducted; (C) challenging the ownership, validity or effectiveness of any of
the Enviroq Intellectual Property Rights or other trade secret material to
Enviroq; or (D) challenging the license or legally enforceable right to use of
the Third Party Intellectual Rights by Enviroq or any of its Subsidiaries.
(c) Except as would not reasonably be expected to have a
Material Adverse Effect on Enviroq, to the Knowledge of Enviroq and its
Subsidiaries, all material patents, registered trademarks, service marks and
copyrights held by Enviroq and its Subsidiaries are valid and subsisting. Except
as set forth in Schedule 12.14 or the Enviroq SEC Documents, to the Knowledge of
Enviroq and its Subsidiaries, there is no material unauthorized use,
infringement or misappropriation of any of the Intellectual Property of Enviroq
by any third party, including any employee or former employee of Enviroq or any
of its Subsidiaries.
SECTION 12.15 TANGIBLE ASSETS. Except as would not reasonably be
expected to have a Material Adverse Effect on Enviroq, the buildings, machinery,
equipment, and other tangible assets that Enviroq and its Subsidiaries own and
lease have been maintained in accordance with normal industry practice, are in
good operating condition and repair (subject to normal wear and tear), and have
no defects (patent and latent).
SECTION 12.16 INVENTORY. Except as would not reasonably be expected to
have a Material Adverse Effect on Enviroq, the inventory of Enviroq and its
Subsidiaries consists of raw materials and supplies, manufactured and processed
parts, work in process, and finished goods, all of which is merchantable and fit
for the purpose for which it was procured or manufactured, and none of which is
obsolete, damaged, or defective, subject only to the reserve for inventory
writedown set forth in the Enviroq SEC documents as adjusted for operations and
transactions through the Closing Date in accordance with the Ordinary Course of
Business of Enviroq and its Subsidiaries.
SECTION 12.17 CONTRACTS. Schedule 12.17 lists the following contracts
and other agreements to which any of Enviroq and its Subsidiaries is a party:
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(a) any agreement (or group of related agreements) for the
lease of personal property to or from any Person providing for lease payments in
excess of $20,000 per annum;
(b) any agreement (or group of related agreements) for the
purchase or sale of raw materials, commodities, supplies, products, or other
personal property, or for the furnishing or receipt of services, the performance
of which will extend over a period of more than one year or involve
consideration in excess of $20,000;
(c) any agreement concerning a partnership or joint venture;
(d) any agreement (or group of related agreements) under which
it has created, incurred, assumed, or guaranteed any indebtedness for borrowed
money, or any capitalized lease obligation, in excess of $20,000 or under which
it has imposed a Security Interest on any of its assets, tangible or intangible;
(e) any material agreement concerning confidentiality or
noncompetition;
(f) any material agreement with any Affiliates of Enviroq or
its Subsidiaries;
(g) any profit sharing, stock option, stock purchase, stock
appreciation, deferred compensation, severance, or other material plan or
arrangement for the benefit of its current or former directors, officers, and
employees;
(h) any agreement for the employment of any individual on a
full-time, part-time, consulting, or other basis providing annual compensation
in excess of $20,000 or providing material severance benefits;
(i) any agreement under which it has advanced or loaned any
amount to any of its directors, officers, and employees outside the Ordinary
Course of Business;
(j) any agreement under which the consequences of a default or
termination could have a Material Adverse Effect on Enviroq not identified on
any other Schedule hereto; and
(k) any other agreement (or group of related agreements) the
performance of which involves consideration in excess of $20,000.
Enviroq and its Subsidiaries have delivered to IAM or CRC, or made
available for review by IAM and CRC, a correct and complete copy of each written
agreement listed in Schedule 12.17 (as amended to date), which shall be deemed
to be Schedules for purposes of Section 12.17 hereof, and a written summary
setting forth the material terms and conditions of each oral agreement referred
to in Schedule 12.17. Except as set forth on Schedule 12.17 and except as would
not reasonably be expected to have a Material Adverse Effect on Enviroq, to the
Knowledge of Enviroq and its Subsidiaries, with respect to each such agreement:
(a) the agreement is legal, valid, binding, enforceable, and in full force and
effect in all material respects; (b) no party is in material breach or default,
and no event has occurred which with notice or lapse of time would constitute a
material breach or default, or permit termination, modification, or
acceleration, under the agreement; and (c) no party has repudiated any material
provision of the agreement.
SECTION 12.18 NOTES AND ACCOUNTS RECEIVABLE. Except as disclosed on
Schedule 12.18 or except as would not reasonably be expected to have a Material
Adverse Effect on Enviroq, all notes and accounts receivable of Enviroq and its
Subsidiaries are reflected properly on their books and records, are valid
receivables, are current and collectible, and will be collected in accordance
with their terms at their recorded amounts, subject only to the reserve for bad
debts set forth on the face of the Enviroq Most Recent Financial Statements
(rather than in any notes thereto) included in the Enviroq SEC Documents as
adjusted for operations and transactions through the Closing Date in the
Ordinary Course of Business of Enviroq and its Subsidiaries. Except as disclosed
on Schedule 12.18, prior to the Closing Date, all loans from Enviroq to
stockholders of Enviroq or any of its Subsidiaries, including any shown on the
Enviroq Most Recent Financial Statements, shall have been repaid, and all loans
to Enviroq or any of its Subsidiaries from stockholders of Enviroq or any of its
Subsidiaries, including any shown on the Enviroq Most Recent Balance Sheet,
shall have been repaid.
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SECTION 12.19 INSURANCE. Schedule 12.19 sets forth the following
information with respect to each material insurance policy (including policies
providing property, casualty, liability, and workers' compensation coverage and
bond and surety arrangements) with respect to which any of Enviroq and its
Subsidiaries is a party, a named insured, or otherwise the beneficiary of
coverage:
(a) the name, address, and telephone number of the agent;
(b) the name of the insurer, the name of the policyholder, and
the name of each covered insured;
(c) the policy number and the period of coverage;
(d) the scope (including an indication of whether the coverage
is on a claims made, occurrence, or other basis) and amount (including a
description of how deductibles and ceilings are calculated and operate) of
coverage; and
(e) a description of any retroactive premium adjustments or
other material loss-sharing arrangements.
With respect to each such insurance policy: to the Knowledge of Enviroq and its
Subsidiaries with respect to such policy, (a) the policy is legal, valid,
binding, enforceable, and in full force and effect in all material respects; (b)
the policy is with a reputable insurance carrier and provides adequate coverage
subject to a normal deductible amount for all risks incident to the business of
Enviroq and its Subsidiaries and their respective properties and assets normally
insured against by a similar business, except as would not reasonably be
expected to have a Material Adverse Effect on Enviroq; (c) neither Enviroq nor
its Subsidiaries nor any other party to the policy is in material breach or
default (including, with respect to the payment of premiums or the giving of
notices), and no event has occurred which, with notice or the lapse of time,
would constitute such a material breach or default, or permit termination,
modification, or acceleration, under the policy; and (d) no party to the policy
has repudiated any material provision thereof. Schedule 12.19 describes any
material self-insurance arrangements affecting any of Enviroq and its
Subsidiaries.
SECTION 12.20 LITIGATION. Schedule 12.20 sets forth each instance in
which any of Enviroq and its Subsidiaries (a) is subject to any outstanding
injunction, judgment, order, decree, ruling, or charge or (b) is a party or, to
the Knowledge of Enviroq and its Subsidiaries, is threatened to be made a party
to any action, suit, proceeding, hearing, or investigation of, in, or before any
court or quasi-judicial or administrative agency of any federal, state, local,
or foreign jurisdiction or before any arbitrator, and to the Knowledge of each
of such officers and directors, no reasonable basis therefor exists.
SECTION 12.21 EMPLOYEES. Except as contemplated by this Agreement, to
the Knowledge of Enviroq and its Subsidiaries, no executive, key employee, or
significant group of employees plans to terminate employment with any of Enviroq
and its Subsidiaries during the next four months. None of Enviroq and its
Subsidiaries is a party to or bound by any collective bargaining agreement, nor
has any of them experienced any strike or material grievance, claim of unfair
labor practices, or other collective bargaining dispute within the past three
years.
SECTION 12.22 EMPLOYEE BENEFITS.
(a) For purposes of this Agreement, "Controlled Group
Liability" means any and all liabilities under (i) Title IV of ERISA, (ii)
section 302 of ERISA, (iii) sections 412 and 4971 of the Code, (iv) the
continuation coverage requirements of section 601 et seq. of ERISA and section
4980B of the Code, and (v) corresponding or similar provisions of foreign laws
or regulations, in each case other than pursuant to the Enviroq Plans with
respect to Enviroq and its Subsidiaries, or the IAM/CRC Plans with respect to
IAM and CRC.
(b) Schedule 12.22(b) lists all Enviroq Plans. With respect to
each Enviroq Plan, Enviroq and its Subsidiaries have made available a true,
correct and complete copy of: (i) each writing constituting a part of such
Enviroq Plan, including all plan documents, benefit schedules, trust agreements,
and insurance contracts and other funding vehicles; (ii) the most recent Annual
Report (Form 5500 Series) and accompanying schedule, if any; (iii) the
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current summary plan description, if any; (iv) the most recent annual financial
report, if any; and (v) the most recent determination letter from the IRS, if
any.
(c) Except as set forth in Schedule 12.22(c), the Internal
Revenue Service has issued a favorable determination letter or opinion letter
with respect to each Enviroq Plan that is intended to be a "qualified plan"
within the meaning of Section 401(a) of the Code (a "Qualified Enviroq Plan"),
and there are no existing circumstances nor any events that have occurred that
could adversely affect the qualified status of any Qualified Enviroq Plan or the
related trust.
(d) All contributions required to be made to any Enviroq Plan
by applicable Law or by any plan document or other contractual undertaking, and
all premiums due or payable with respect to insurance policies funding any
Enviroq Plan, for any period through the date hereof have been timely made or
paid in full and through the Closing Date will be timely made or paid in full
or, to the extent not required to be made or paid on or before the date hereof
or the Closing Date, as applicable, have been or will be fully reflected in
Enviroq's financial statements contained in the Enviroq SEC Documents as of the
date of such statements.
(e) Except as set forth in Schedule 12.22(e), to the Knowledge
of any of the directors and officers of Enviroq and its Subsidiaries, Enviroq
and its Subsidiaries have complied, and are now in compliance, in all material
respects, with all provisions of ERISA, the Code and all laws and regulations
applicable to the Enviroq Plans. To the Knowledge of any of the directors and
officers of Enviroq and its Subsidiaries, there is not now, and there are no
existing, circumstances that standing alone could give rise to, any requirement
for the posting of security with respect to an Enviroq Plan or the imposition of
any lien on the assets of Enviroq or any of its Subsidiaries under ERISA or the
Code.
(f) Except as set forth in Schedule 12.22(f), no Enviroq Plan
is subject to Title IV or Section 302 of ERISA or Section 412 or 4971 of the
Code. Except as set forth in Schedule 12.22(f), no Enviroq Plan is a
Multiemployer Plan or a Multiple Employer Plan, nor has Enviroq or any of its
Subsidiaries or any of their respective ERISA Affiliates, at any time within
five years before the date hereof, contributed to or been obligated to
contribute to any Multiemployer Plan or Multiple Employer Plan.
(g) There does not now exist, and there are no existing,
circumstances that could result in, any Controlled Group Liability that would be
a liability of Enviroq or any of its Subsidiaries following the Closing, other
than normal funding responsibilities. Without limiting the generality of the
foregoing, neither Enviroq nor any of its Subsidiaries, nor any of their
respective ERISA Affiliates, has engaged in any transaction described in Section
4069 or Section 4204 of ERISA.
(h) Except as set forth in Schedule 12.22(h), and except for
health continuation coverage as required by Section 4980B of the Code or Part 6
of Title I of ERISA, neither Enviroq nor any of its Subsidiaries has any
liability for life, health, medical or other welfare benefits to former
employees or beneficiaries or dependents thereof.
(i) Except as set forth in Schedule 12.22(i), neither the
execution and delivery of this Agreement nor the consummation of the
transactions contemplated hereby will result in, cause the accelerated vesting
or delivery of, or increase the amount or value of, any payment or benefit to
any employee or director or former employee or former director of Enviroq or any
of its Subsidiaries, pursuant to a "change in control" or "change of control" or
otherwise. Without limiting the generality of the foregoing and except as set
forth in Schedule 12.22(i), no amount paid or payable by Enviroq or any of its
Subsidiaries in connection with the transactions contemplated hereby either
solely as a result thereof or as a result of such transactions in conjunction
with any other events will be an "excess parachute payment" within the meaning
of Section 280G of the Code.
(j) There are no pending or, to the Knowledge of any of the
directors and officers of Enviroq and its Subsidiaries, threatened claims (other
than claims for benefits in the ordinary course), lawsuits or arbitrations which
have been asserted or instituted against the Enviroq Plans, any fiduciaries
thereof with respect to their duties to the Enviroq Plans or the assets of any
of the trusts under any of the Enviroq Plans which could reasonably be expected
to result in any material liability of Enviroq or any of its Subsidiaries to the
PBGC, the Department of Treasury, the Department of Labor or any Multiemployer
Plan.
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SECTION 12.23 GUARANTIES. Except as set forth on Schedule 12.23,
neither Enviroq nor any of its Subsidiaries is a guarantor or otherwise is
responsible for any liability or obligation (including indebtedness) of any
other Person.
SECTION 12.24 ENVIRONMENT, HEALTH, AND SAFETY. Except as set forth on
Schedule 12.24:
(a) each of Enviroq and its Subsidiaries (i) has complied with
the Environmental, Health, and Safety Laws in all material respects, and no
action, suit, proceeding, hearing, investigation, charge, complaint, claim,
demand, or notice has been filed or commenced against any of them alleging any
such failure to comply, (ii) has obtained and has at all times been and is in
substantial compliance with all of the terms and conditions of all material
permits, licenses, and other authorizations, certifications and training which
are required under any of the Environmental, Health, and Safety Laws, (iii) has
complied in all material respects with all other limitations, restrictions,
conditions, standards, prohibitions, requirements, obligations, schedules, and
timetables which are contained in the Environmental, Health, and Safety Laws,
and (iv) each of Enviroq and its Subsidiaries will provide IAM and CRC, within
12 Business Days hereof, with copies within its possession or control of all
environmental assessments, complaints, claims, consent orders or agreements,
notices of violations, governmental inquiries and permits issued or arising
under or subject or relating or pursuant to any Environmental, Health and Safety
Laws for any property owned, now or in the past or to be acquired prior to
Closing, by Enviroq or any of its Subsidiaries, and such copies shall be deemed
to be Schedules for purposes of Section 12.24(a) hereof; and
(b) none of Enviroq and its Subsidiaries has any material
liability, and none of Enviroq, its Subsidiaries, and their respective
predecessors has handled or disposed of any substance, arranged for the disposal
of any substance, exposed any employee or other individual to any substance or
condition, or owned or operated any property or facility in any manner that
could give rise to any material liability, for contamination or damage to any
site, location, or body of water (surface or subsurface), for any illness of or
personal injury to any employee or other individual, or for any reason under any
Environmental, Health, and Safety Law.
SECTION 12.25 REGISTRATION STATEMENT AND PROXY STATEMENT. None of the
information supplied or to be supplied by or on behalf of Enviroq or any of its
Subsidiaries for inclusion or incorporation by reference in the Registration
Statement will, at the time the Registration Statement is filed with the SEC and
at the time it becomes effective under the Securities Act or the Exchange Act,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading. The Proxy Statement will not contain, at the date mailed to the
stockholders of Enviroq and at the time of the meeting of stockholders of
Enviroq to be held in connection with the Enviroq Merger, any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading, excluding any
information supplied, or omitted information which should have been supplied, by
IAM and CRC for inclusion therein.
ARTICLE 13
REPRESENTATIONS AND WARRANTIES OF IAM AND CRC
In order to induce Enviroq to enter into this Agreement, IAM and CRC,
jointly and severally, represent and warrant to Enviroq as follows:
SECTION 13.1 ORGANIZATION, QUALIFICATION, AND CORPORATE POWER;
AUTHORITY.
(a) Each of IAM and CRC is a corporation duly organized,
validly existing, and in good standing under the laws of the jurisdiction of its
incorporation. Each of IAM and CRC is duly authorized and qualified to conduct
business and is in good standing under the laws of each jurisdiction where such
qualification is required, except where the lack of such qualification would not
have a Material Adverse Effect on IAM or CRC. Each of IAM and CRC has full
corporate power and authority to carry on the businesses in which it is engaged
and to own, lease, use, and operate the properties owned, leased, used, and
operated by it. The copies of the articles of incorporation and the bylaws of
IAM and CRC, respectively, which have previously been made available to Enviroq,
are true, complete and
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correct copies of such documents as in effect as of the date of this Agreement.
Schedule 13.1 lists the directors and officers of each of IAM and CRC.
(b) Each of IAM and CRC has full corporate power and authority
to execute and deliver this Agreement and, subject to receipt of the Consents of
the Regulatory Authorities, to consummate the transactions contemplated hereby.
The respective boards of directors and shareholders of IAM and CRC have duly and
validly approved this Agreement and the transactions contemplated hereby, have
authorized the execution and delivery of this Agreement, and no other corporate
proceedings on the part of IAM and CRC are necessary to consummate the
transactions so contemplated. This Agreement constitutes the valid and binding
obligation of IAM and CRC, and will be enforceable against IAM and CRC in
accordance with its terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the enforcement of creditors rights generally and except that the
availability of the equitable remedy of specific performance or injunctive
relief is subject to the discretion of the court before which any proceeding may
be brought.
SECTION 13.2 CAPITALIZATION. The entire authorized common capital stock
of IAM consists of 1000 shares of IAM Stock, of which 500 shares of IAM Stock
are issued and outstanding. No shares of IAM Stock are held in treasury. The
entire authorized common capital stock of CRC consists of 1000 shares of CRC
Stock, of which 500 shares of CRC Stock are issued and outstanding. No shares of
CRC Stock are held in treasury. All of the issued and outstanding shares of IAM
Stock and CRC Stock have been duly authorized and are validly issued, fully
paid, and nonassessable. Except as set forth on Schedule 13.2, there are no
outstanding or authorized options, warrants, purchase rights, subscription
rights, conversion rights, exchange rights, or other contracts or commitments
that could require IAM or CRC to issue, sell, or otherwise cause to become
outstanding any of its capital stock. There are no outstanding or authorized
stock appreciation, phantom stock, profit participation, or similar rights with
respect to IAM or to CRC. Neither IAM nor CRC has any outstanding bonds,
debentures, notes or other similar obligations the holders of which have the
right to vote generally with holders of Enviroq Stock.
SECTION 13.3 NON-CONTRAVENTION. Except as set forth on Schedule 13.3,
neither the execution and the delivery of this Agreement, nor the consummation
of the transactions contemplated hereby, will (i) violate any constitution,
statute, regulation, rule, injunction, judgment, order, decree, ruling, charge,
or other restriction of any government, governmental agency, or court to which
any of IAM or CRC is subject or any provision of the articles of incorporation
or bylaws of any of IAM or CRC; or (ii) except with respect to those agreements
for which Consent shall be obtained prior to Closing, conflict with, result in a
breach of, constitute a default under, result in the acceleration of, create in
any party the right to accelerate, terminate, modify, or cancel, or require any
notice under any agreement, contract, lease, license, instrument, or other
arrangement to which IAM or CRC is a party or by which it is bound or to which
any of its assets is subject (or result in the imposition of any Security
Interest upon any of its assets), except where the violation, conflict, breach,
default, acceleration, termination, modification, cancellation, failure to give
notice, or Security Interest would not have a Material Adverse Effect on IAM or
CRC or on the ability of the Parties to consummate the transactions contemplated
by this Agreement. Except as set forth specifically in this Agreement or on
Schedule 13.3, neither IAM nor CRC needs to give any notice to, make any filing
with, or obtain any Consent of any government, governmental agency, or
regulatory authority in order for the Parties to consummate the transactions
contemplated by this Agreement, except where the failure to give notice, to
file, or to obtain any Consent would not have a Material Adverse Effect on IAM
or CRC or on the ability of the Parties to consummate the transactions
contemplated by this Agreement.
SECTION 13.4 BROKERS' FEES. None of IAM or CRC has any liability or
obligation, contingent or otherwise, to pay any fees or commissions or similar
payments to any broker, finder, or agent with respect to the transactions
contemplated by this Agreement.
SECTION 13.5 TITLE TO ASSETS. Except as set forth on Schedule 13.5, IAM
and CRC have good and marketable title to all of their properties and assets,
real and personal, tangible and intangible, used by them, located on their
premises, or shown on the IAM/CRC Most Recent Balance Sheet or acquired after
the date thereof, free and clear of all Security Interests, except for
properties and assets disposed of in the Ordinary Course of Business since the
date of the IAM/CRC Most Recent Balance Sheet. All leases pursuant to which IAM
or CRC lease from other Persons material amounts of real or personal property
are in good standing, valid and effective in accordance with their respective
terms, and there is not, to the Knowledge of IAM or CRC, under any of such
leases, any existing material default or event
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of default (or event which, with notice or lapse of time, or both, would
constitute a material default) except where lack of such good standing, validity
and effectiveness or the existence of such default or event of default would not
reasonably be expected to have a Material Adverse Effect on IAM or CRC.
SECTION 13.6 SUBSIDIARIES. None of IAM and CRC controls directly or
indirectly or has any direct or indirect equity participation in any
corporation, partnership, trust, or other business association. Except as
specifically provided in this Agreement or as disclosed to the Parties on or
before the date hereof, there are no voting trusts, proxies, or other agreements
or understandings with respect to the voting of any capital stock of IAM or CRC.
SECTION 13.7 FINANCIAL STATEMENTS. Schedule 13.7 includes the following
financial statements of each of IAM and CRC (collectively, the "IAM/CRC
Financial Statements"): (i) audited consolidated balance sheets and statements
of income, changes in stockholders' equity, and cash flows as of and for the
fiscal year ended December 31, 1997 (the "IAM/CRC Most Recent Fiscal Year End");
and (ii) unaudited consolidated balance sheets and statements of income, and
cash flows (the "IAM/CRC Most Recent Financial Statements") as of and for the
three months and year to date periods ended March 31, 1998 (the "IAM/CRC Most
Recent Fiscal Month End"). The IAM/CRC Financial Statements (including the notes
thereto) have been prepared in accordance with GAAP applied on a consistent
basis throughout the periods covered thereby and present fairly the financial
condition of IAM and CRC as of such dates and the results of operations of IAM
and CRC for such periods; provided, however, that the IAM/CRC Most Recent
Financial Statements are subject to normal recurring adjustments (which will not
be material individually or in the aggregate) and lack footnotes and other
presentation items. Without limiting the generality of the foregoing, the
IAM/CRC Most Recent Financial Statements accurately reflect anticipated costs to
complete all contracts or services pursuant to which IAM or CRC have agreed to
furnish products and services in accordance with GAAP applied on a basis
consistent with the IAM/CRC Financial Statements for the IAM/CRC Most Recent
Fiscal Year End.
SECTION 13.8 EVENTS SUBSEQUENT TO IAM/CRC MOST RECENT FISCAL YEAR END.
Since the IAM/CRC Most Recent Fiscal Year End, except as set forth on Schedule
13.7 or 13.8, there has not been any change in the business, financial
condition, operations, results of operations, or future prospects of IAM or CRC
which would constitute a Material Adverse Effect in respect of IAM or CRC.
Without limiting the generality of the foregoing, except as set forth on
Schedule 13.8, since that date:
(a) none of IAM or CRC has sold, leased, transferred, or
assigned any material assets, tangible or intangible, outside the Ordinary
Course of Business;
(b) none of IAM or CRC has entered into any material
agreement, contract, lease, or license outside the Ordinary Course of Business;
(c) no party (including any of IAM and CRC) has accelerated,
terminated, made material modifications to, or canceled any material agreement,
contract, lease, or license to which any of IAM or CRC is a party or by which
any of them is bound;
(d) none of IAM or CRC has caused to be imposed any Security
Interest upon any of its assets, tangible or intangible;
(e) none of IAM or CRC has made any material capital
expenditures outside the Ordinary Course of Business;
(f) none of IAM or CRC has made any material capital
investment in, or any material loan to, any other Person outside the Ordinary
Course of Business;
(g) none of IAM or CRC has created, incurred, assumed, or
guaranteed more than $20,000 in aggregate indebtedness for borrowed money and
capitalized lease obligations;
(h) none of IAM or CRC has granted any license or sublicense
of any material rights under or with respect to any Intellectual Property;
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(i) there has been no change made or authorized in the
Articles of Incorporation or Bylaws of IAM or CRC;
(j) none of IAM or CRC has issued, sold, or otherwise disposed
of any of its capital stock, or granted any options, warrants, or other rights
to purchase or obtain (including upon conversion, exchange, or exercise) any of
its capital stock;
(k) none of IAM or CRC has declared, set aside, or paid any
dividend or made any distribution with respect to its capital stock (whether in
cash or in kind) or redeemed, purchased, or otherwise acquired any of its
capital stock;
(l) none of IAM or CRC has experienced any material damage,
destruction, or loss (whether or not covered by insurance) to its property;
(m) none of IAM or CRC has made any loan to, or entered into
any other transaction with, any of its directors, officers, and employees
outside the Ordinary Course of Business;
(n) none of IAM or CRC has entered into any employment
contract or collective bargaining agreement, written or oral, or modified the
terms of any existing such contract or agreement;
(o) none of IAM or CRC has granted any increase in the base
compensation of any of its directors, officers, and employees outside the
Ordinary Course of Business;
(p) none of IAM or CRC has adopted, amended, modified, or
terminated any bonus, profit-sharing, incentive, severance, or other plan,
contract, or commitment for the benefit of any of its directors, officers, and
employees (or taken any such action with respect to any other Employee Benefit
Plan);
(q) none of IAM or CRC has made any other material change in
employment terms for any of its directors, officers, and employees outside the
Ordinary Course of Business; and
(r) none of IAM or CRC has committed to any of the foregoing.
SECTION 13.9 UNDISCLOSED LIABILITIES. Except as set forth on Schedule
13.9, none of IAM or CRC has any material liability (whether asserted or
unasserted, whether absolute or contingent, whether accrued or unaccrued, and
whether due or to become due, including any liability for taxes), except for (i)
liabilities set forth in the IAM/CRC Most Recent Balance Sheet and (ii)
liabilities which have arisen after the IAM/CRC Most Recent Fiscal Month End in
the Ordinary Course of Business.
SECTION 13.10 LEGAL COMPLIANCE. Except as set forth on Schedule 13.10,
each of IAM and CRC has complied with all applicable laws (including rules,
regulations, codes, ordinances, plans, injunctions, judgments, orders, decrees,
rulings, and charges thereunder) of federal, state, local, and foreign
governments (and all agencies thereof), and no action, suit, proceeding,
hearing, investigation, charge, complaint, claim, demand, or notice has been
filed or commenced or, to the Knowledge of IAM or CRC, threatened against any of
them alleging any failure so to comply, except where the failure to comply would
not have a Material Adverse Effect on IAM or CRC.
SECTION 13.11 TAX MATTERS. Except with respect to any such matters that
would not, in the aggregate, have a Material Adverse Effect on IAM or CRC, (a)
each of IAM and CRC has duly filed all federal and state income Tax Returns and
all other material Tax Returns (including, those filed on a consolidated,
combined or unitary basis) required to have been filed by IAM and CRC prior to
the date hereof and will file, on or before the Effective Time, all such returns
which are required to be filed after the date hereof and on or before the
Effective Time, (b) all of the foregoing returns and reports are and will be at
the Effective Time true and correct in all material respects, and each of IAM
and CRC has paid or, prior to the Effective Time, will pay, or make adequate
provision for payment in accordance with GAAP regarding, all Taxes required to
be paid in respect of the periods covered by such returns or reports to any
federal, state, foreign, local or other taxing authority, (c) neither IAM nor
CRC will have any material liability for any Taxes in excess of the amounts so
paid or reserves so established or is delinquent in the payment of any material
Tax, assessment or
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governmental charge, and none of them has requested any extension of time within
which to file any returns in respect of any fiscal year which have not since
been filed, (d) no deficiencies for any tax, assessment or governmental charge
have been proposed, asserted or assessed in writing (tentatively or definitely),
in each case, by any taxing authority, against IAM or CRC for which there are
not adequate reserves in its financial statements (in accordance with GAAP), (e)
as of the date of this Agreement, there are no extensions or waivers or pending
requests for extensions or waivers of the time to assess or collect any such
tax, (f) the federal income Tax Returns of IAM and CRC have not been audited,
(g) neither IAM nor CRC is or has been a party to any tax sharing agreement with
any corporation which is not currently a member of the affiliated group of which
IAM and CRC are currently members, (h) there are no liens for Taxes on any
assets of IAM or CRC (other than statutory liens for taxes not yet due or liens
for which adequate reserves have been established in its financial statements in
accordance with generally accepted accounting principles), (i) IAM and CRC have
withheld and paid (and until the Effective Time will withhold and pay) all
income, social security, unemployment, and all other material payroll Taxes
required to be withheld (including, pursuant to Sections 1441 and 1442 of the
Code or similar provisions under foreign law) and paid in connection with
amounts paid to any employee, independent contractor, stockholder, creditor or
other third party, and (j) IAM and CRC have not filed an election under Section
341(f) of the Code to be treated as a consenting corporation. IAM has been a
validly electing S corporation within the meaning of Code ss. ss. 1361 and 1362
at all times during its existence and will be an S corporation up to and
including the Effective Time. CRC (and any predecessor of CRC) has been a
validly electing S corporation within the meaning of Code ss. ss. 1361 and 1362
at all times during its existence and will be an electing S corporation up to
and including the Effective Time.
SECTION 13.12 REAL PROPERTY. Neither IAM nor CRC owns any real
property.
SECTION 13.13 INTELLECTUAL PROPERTY.
(a) IAM and CRC own, or are licensed or otherwise possess
legally enforceable rights to use, all patents, trade secrets, trademarks, trade
names, service marks, copyrights, and any applications therefor, technology,
know-how, computer software programs or applications, and tangible or intangible
proprietary information or material that are used in the business of IAM and CRC
as currently conducted, except as would not reasonably be expected to have a
Material Adverse Effect on IAM or CRC.
(b) Except as disclosed in Schedule 13.13 or as would not
reasonably be expected to have a Material Adverse Effect on IAM or CRC (i)
neither IAM nor CRC is or will be as a result of the execution and delivery of
this Agreement or the performance of their obligations hereunder, in violation
of any Third-Party Intellectual Property Rights; (ii) no claims with respect to
the patents, registered and material unregistered trademarks and service marks,
registered copyrights, trade names and any applications therefor owned by IAM
and CRC (the "IAM and CRC Intellectual Property Rights"), any trade secret
material to IAM and CRC, or Third Party Intellectual Property Rights to the
extent arising out of any use, reproduction or distribution of such Third Party
Intellectual Property Rights by or through IAM and CRC, are currently pending
or, to the knowledge of IAM and CRC, are overtly threatened by any person; and
(iii) IAM and CRC do not have Knowledge of any bona fide claims (A) to the
effect that the manufacture, sale, licensing or use of any product as now used,
sold or licensed or proposed for use, sale or license by IAM and CRC infringes
on any copyright, patent, trademark, service mark or trade secret; (B) against
the use by IAM and CRC, of any programs and applications used in the business of
IAM and CRC of any trademarks, trade names, trade secrets, copyrights, patents,
technology, know-how or computer software programs and applications used in the
business of IAM and CRC as currently conducted or as proposed to be conducted;
(C) challenging the ownership, validity or effectiveness of any of the IAM and
CRC Intellectual Property Rights or other trade secret material to IAM and CRC;
or (D) challenging the license or legally enforceable right to use of the Third
Party Intellectual Rights by IAM and CRC.
(c) Except as would not reasonably be expected to have a
Material Adverse Effect on IAM or CRC, to the Knowledge of IAM and CRC, all
material patents, registered trademarks, service marks and copyrights held by
IAM and CRC are valid and subsisting. Except as set forth in Schedule 13.13, to
IAM's and CRC's knowledge, there is no material unauthorized use, infringement
or misappropriation of any of the IAM and CRC Intellectual Property by any third
party, including any employee or former employee of IAM and CRC.
SECTION 13.14 TANGIBLE ASSETS. Except as would not reasonably be
expected to have a Material Adverse Effect on IAM or CRC, the buildings,
machinery, equipment, and other tangible assets that IAM and CRC own and lease
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have been maintained in accordance with normal industry practice, are in good
operating condition and repair (subject to normal wear and tear), and have no
defects (patent and latent) which have or would have a Material Adverse Effect.
SECTION 13.15 INVENTORY. Neither IAM nor CRC owns any inventory.
SECTION 13.16 CONTRACTS. Schedule 13.16 lists the following contracts
and other agreements to which any of IAM and CRC is a party:
(a) any agreement (or group of related agreements) for the
lease of personal property to or from any Person providing for lease payments in
excess of $20,000 per annum;
(b) any agreement (or group of related agreements) for the
purchase or sale of raw materials, commodities, supplies, products, or other
personal property, or for the furnishing or receipt of services, the performance
of which will extend over a period of more than one year or involve
consideration in excess of $20,000;
(c) any agreement concerning a partnership or joint venture;
(d) any agreement (or group of related agreements) under which
it has created, incurred, assumed, or guaranteed any indebtedness for borrowed
money, or any capitalized lease obligation, in excess of $20,000 or under which
it has imposed a Security Interest on any of its assets, tangible or intangible;
(e) any material agreement concerning confidentiality or
noncompetition;
(f) any material agreement with any Affiliates of IAM or CRC;
(g) any profit sharing, stock option, stock purchase, stock
appreciation, deferred compensation, severance, or other material plan or
arrangement for the benefit of its current or former directors, officers, and
employees;
(h) any agreement for the employment of any individual on a
full-time, part-time, consulting, or other basis providing annual compensation
in excess of $20,000 or providing material severance benefits;
(i) any agreement under which it has advanced or loaned any
amount to any of its directors, officers, and employees outside the Ordinary
Course of Business;
(j) any agreement under which the consequences of a default or
termination could have a Material Adverse Effect on IAM or CRC not identified on
any other Schedule hereto; and
(k) any other agreement (or group of related agreements) the
performance of which involves consideration in excess of $20,000.
Each of IAM and CRC has delivered to Enviroq and its
Subsidiaries, or made available for Enviroq's review, a correct and complete
copy of each written agreement listed in Schedule 13.16 (as amended to date),
which shall be deemed to be Schedules for purposes of Section 15.12 hereof, and
a written summary setting forth the material terms and conditions of each oral
agreement referred to in Schedule 13.16. Except as set forth on Schedule 13.16
and except as would not reasonably be expected to have a Material Adverse Effect
on IAM or CRC, to the Knowledge of IAM and CRC, with respect to each such
agreement: (a) the agreement is legal, valid, binding, enforceable, and in full
force and effect in all material respects; (b) no party is in material breach or
default, and no event has occurred which with notice or lapse of time would
constitute a material breach or default, or permit termination, modification, or
acceleration, under the agreement; and (c) no party has repudiated any material
provision of the agreement.
SECTION 13.17 NOTES AND ACCOUNTS RECEIVABLE. Except as disclosed on
Schedule 13.17 or except as would not reasonably be expected to have a Material
Adverse Effect on IAM or CRC, all notes and accounts receivable of IAM and CRC
are reflected properly on their books and records, are valid receivables, are
current and collectible, and will be collected in accordance with their terms at
their recorded amounts, subject only to the reserve for bad debts set forth on
the face of the IAM/CRC Most Recent Financial Statements (rather than in any
notes thereto) as adjusted for
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operations and transactions through the Closing Date in the Ordinary Course of
Business of IAM and CRC. Except as disclosed on Schedule 13.17, prior to the
Closing Date, all loans from IAM/CRC to stockholders of IAM and CRC, including
any shown on the Most Recent Financial Statements, shall have been repaid, and
all loans to IAM and CRC from stockholders of IAM and CRC, including any shown
on the IAM/CRC Most Recent Financial Statements, shall have been repaid.
SECTION 13.18 INSURANCE. Schedule 13.18 sets forth the following
information with respect to each material insurance policy (including policies
providing property, casualty, liability, and workers' compensation coverage and
bond and surety arrangements) with respect to which any of IAM and CRC is a
party, a named insured, or otherwise the beneficiary of coverage:
(a) the name, address, and telephone number of the agent;
(b) the name of the insurer, the name of the policyholder, and
the name of each covered insured;
(c) the policy number and the period of coverage;
(d) the scope (including an indication of whether the coverage
is on a claims made, occurrence, or other basis) and amount (including a
description of how deductibles and ceilings are calculated and operate) of
coverage; and
(e) a description of any retroactive premium adjustments or
other material loss-sharing arrangements.
With respect to each such insurance policy, to the Knowledge of IAM and CRC with
respect to such policy: (a) the policy is legal, valid, binding, enforceable,
and in full force and effect in all material respects; (b) the policy is with a
reputable insurance carrier and provides adequate coverage subject to a normal
deductible amount for all risks incident to the business of IAM and CRC and
their respective properties and assets normally insured against by a similar
business, except as would not reasonably be expected to have a Material Adverse
Effect on IAM or CRC; (c) neither any of IAM and CRC nor any other party to the
policy is in material breach or default (including, with respect to the payment
of premiums or the giving of notices), and no event has occurred which, with
notice or the lapse of time, would constitute such a material breach or default,
or permit termination, modification, or acceleration, under the policy; and (d)
no party to the policy has repudiated any material provision thereof. Schedule
13.18 describes any material self-insurance arrangements affecting any of IAM
and CRC.
SECTION 13.19 LITIGATION. Schedule 13.19 sets forth each instance in
which any of IAM and CRC (a) is subject to any outstanding injunction, judgment,
order, decree, ruling, or charge or (b) is a party or, to the Knowledge of IAM
and CRC, is threatened to be made a party to any action, suit, proceeding,
hearing, or investigation of, in, or before any court or quasi-judicial or
administrative agency of any federal, state, local, or foreign jurisdiction or
before any arbitrator, and to the Knowledge of such officers and directors, no
reasonable basis therefor exists.
SECTION 13.20 EMPLOYEES. Except as contemplated by this Agreement, to
the Knowledge of IAM and CRC, no executive, key employee, or significant group
of employees plans to terminate employment with any of IAM and CRC during the
next four months. None of IAM and CRC is a party to or bound by any collective
bargaining agreement, nor has any of them experienced any strike or material
grievance, claim of unfair labor practices, or other collective bargaining
dispute within the past three years.
SECTION 13.21 EMPLOYEE BENEFITS.
(a) Schedule 13.21(a) lists all IAM/CRC Plans. With respect to
each IAM/CRC Plan, IAM and CRC have made available to Enviroq and its
Subsidiaries a true, correct and complete copy of: (i) each writing constituting
a part of such IAM/CRC Plan, including all plan documents, benefit schedules,
trust agreements, and insurance contracts and other funding vehicles; (ii) the
most recent Annual Report (Form 5500 Series) and accompanying schedule, if any;
(iii) the current summary plan description, if any; (iv) the most recent annual
financial report, if any; and (v) the most recent determination letter from the
IRS, if any.
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(b) Except as set forth in Schedule 13.21(b), the Internal
Revenue Service has issued a favorable determination letter or opinion letter
with respect to each IAM/CRC Plan that is intended to be a "qualified plan"
within the meaning of Section 401(a) of the Code (a "Qualified IAM/CRC Plan")
and there are no existing circumstances nor any events that have occurred that
could adversely affect the qualified status of any Qualified IAM/CRC Plan or the
related trust.
(c) All contributions required to be made to any IAM/CRC Plan
by applicable Law or by any plan document or other contractual undertaking, and
all premiums due or payable with respect to insurance policies funding any
IAM/CRC Plan, for any period through the date hereof have been timely made or
paid in full and through the Closing Date will be timely made or paid in full
or, to the extent not required to be made or paid on or before the date hereof
or the Closing Date, as applicable, have been or will be fully reflected in the
IAM/CRC Financial Statements as of the date of such statements.
(d) Except as set forth in Schedule 13.21(d), to the Knowledge
of any of the directors and officers of IAM and CRC, IAM and CRC have complied,
and are now in compliance, in all material respects, with all provisions of
ERISA, the Code and all laws and regulations applicable to the IAM/CRC Plans. To
the Knowledge of any of the directors and officers of IAM and CRC, there is not
now, and there are no existing, circumstances that standing alone could give
rise to, any requirement for the posting of security with respect to an IAM/CRC
Plan or the imposition of any lien on the assets of IAM and CRC under ERISA or
the Code.
(e) Except as set forth in Schedule 13.21(e), no IAM/CRC Plan
is subject to Title IV or Section 302 of ERISA or Section 412 or 4971 of the
Code. Except as set forth in Schedule 13.21(e), no IAM/CRC Plan is Multiemployer
Plan or a Multiple Employer Plan, nor has IAM nor CRC, nor any of their
respective ERISA Affiliates, at any time within five years before the date
hereof, contributed to or been obligated to contribute to any Multiemployer Plan
or Multiple Employer Plan.
(f) There does not now exist, and there are no existing,
circumstances that could result in, any Controlled Group Liability that would be
a liability of IAM or CRC following the Closing, other than normal funding
responsibilities. Without limiting the generality of the foregoing, neither IAM
nor CRC, nor any of their respective ERISA Affiliates, has engaged in any
transaction described in Section 4069 or Section 4204 of ERISA.
(g) Except as set forth in Schedule 13.21(g), and except for
health continuation coverage as required by Section 4980B of the Code or Part 6
of Title I of ERISA, neither IAM nor CRC has any liability for life, health,
medical or other welfare benefits to former employees or beneficiaries or
dependents thereof.
(h) Except as set forth in Schedule 13.21(h), neither the
execution and delivery of this Agreement nor the consummation of the
transactions contemplated hereby will result in, cause the accelerated vesting
or delivery of, or increase the amount or value of, any payment or benefit to
any employee or director or former employee or former director of IAM or CRC,
pursuant to a "change in control" or "change of control" or otherwise. Without
limiting the generality of the foregoing and except as set forth in Schedule
13.21(h), no amount paid or payable by IAM or CRC in connection with the
transactions contemplated hereby either solely as a result thereof or as a
result of such transactions in conjunction with any other events will be an
"excess parachute payment" within the meaning of Section 280G of the Code.
(i) There are no pending or, to the Knowledge of any of the
directors and officers of IAM or CRC, threatened claims (other than claims for
benefits in the ordinary course), lawsuits or arbitrations which have been
asserted or instituted against the IAM/CRC Plans, any fiduciaries thereof with
respect to their duties to the IAM/CRC Plans or the assets of any of the trusts
under any of the IAM/CRC Plans which could reasonably be expected to result in
any material liability of IAM or CRC to the PBGC, the Department of Treasury,
the Department of Labor or any Multiemployer Plan.
SECTION 13.22 GUARANTIES. Except as set forth on Schedule 13.22,
neither IAM nor CRC is a guarantor or otherwise is responsible for any liability
or obligation (including indebtedness) of any other Person.
SECTION 13.23 ENVIRONMENT, HEALTH, AND SAFETY. Except as set forth on
Schedule 13.23:
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(a) each of IAM and CRC (i) has complied with the
Environmental, Health, and Safety Laws in all material respects, and no action,
suit, proceeding, hearing, investigation, charge, complaint, claim, demand, or
notice has been filed or commenced against any of them alleging any such failure
to comply, (ii) has obtained and has at all times been and is in substantial
compliance with all of the terms and conditions of all permits, licenses, and
other authorizations, certifications and training which are required under any
of the Environmental, Health, and Safety Laws, (iii) has complied in all
material respects with all other limitations, restrictions, conditions,
standards, prohibitions, requirements, obligations, schedules, and timetables
which are contained in the Environmental, Health, and Safety Laws, and (iv) each
of IAM and CRC will provide Purchaser, within 12 Business Days hereof, with
copies within its possession or control of all environmental assessments,
complaints, claims, consent orders or agreements, notices of violations,
governmental inquiries and permits issued or arising under or subject or
relating or pursuant to any Environmental, Health and Safety Laws for any
property owned, now or in the past or to be acquired prior to Closing, by IAM or
CRC, and such copies shall be deemed to be Schedules for purposes of Section
13.23 hereof; and
(b) none of IAM and CRC has any material liability, and none
of IAM, CRC, and their respective predecessors has handled or disposed of any
substance, arranged for the disposal of any substance, exposed any employee or
other individual to any substance or condition, or owned or operated any
property or facility in any manner that could give rise to any material
liability, for contamination or damage to any site, location, or body of water
(surface or subsurface), for any illness of or personal injury to any employee
or other individual, or for any reason under any Environmental, Health, and
Safety Law.
SECTION 13.24 REGISTRATION STATEMENT AND PROXY STATEMENT. None of the
information supplied or to be supplied by or on behalf of IAM or CRC for
inclusion or incorporation by reference in (a) the Registration Statement will,
at the time the Registration Statement is filed with the SEC and at the time it
becomes effective under the Securities Act or the Exchange Act, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein not misleading
and (b) the Proxy Statement will, at the date mailed to the stockholders of
Enviroq, and at the time of the meeting of stockholders of Enviroq to be held in
connection with the Enviroq Merger, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they are made, not misleading.
SECTION 13.25 IAM AND CRC DOCUMENTS FILED WITH VARIOUS REGULATORY
AUTHORITIES. Each of IAM and CRC has timely filed with all applicable Regulatory
Authorities all notices, applications, forms, reports, schedules, statements,
exhibits and other documents required to be filed by it since December 31, 1994
(such documents, as supplemented and amended since the time of filing, together
with the Investment Advisor Filings (as defined herein) and the Broker-Dealer
Filings (as defined herein), collectively, the "IAM/CRC Regulatory Documents").
IAM is registered as an investment advisor pursuant to the Investment Advisers
Act of 1940 (a "Registered Investment Adviser") and has timely filed all forms,
reports, schedules, statements, exhibits and other documents, including Form
ADV, and all amendments thereto, required to be filed by it since its
registration as a Registered Investment Adviser (the "Investment Adviser
Filings") and has maintained a continual, valid registration as a Registered
Investment Adviser. CRC is a registered broker-dealer (a "Broker-Dealer")
pursuant to the Exchange Act and the rules and regulations of the National
Association of Securities Dealers, Inc. and has timely filed all forms, reports,
schedules, statements, exhibits and other documents, including Form B-D, and all
amendments thereto, required to be filed by it since its registration as a
Broker- Dealer (the "Broker-Dealer Filings") and has maintained a continual,
valid registration as a Broker-Dealer. The IAM/CRC Regulatory Documents at the
time filed (a) did not 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 light of the circumstances under which they were
made, not misleading, and (b) complied in all material respects with the
applicable requirements of the Exchange Act, the Investment Advisers Act of 1940
and the rules and regulations of the National Association of Securities Dealers,
Inc., as the case may be.
SECTION 13.26 NO INVESTMENT COMPANY REGISTRATION OR ACTIVITIES. Neither
IAM nor CRC is registered as an investment company pursuant to the Investment
Company Act of 1940 (as amended, the "Investment Company Act"). Without relying
on the exception from the definition of "investment company" found in paragraph
(1) or (7) of Section 3(c) of the Investment Company Act, neither IAM nor CRC is
engaged, or proposes to engage, in any business which would cause it to fall
within the definition of, or otherwise cause it to be deemed to be, an
"investment company" as defined in the Investment Company Act.
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ARTICLE 14
REPRESENTATIONS AND WARRANTIES OF NEWCO, SUB-1, SUB-2 AND SUB-3
In order to induce Enviroq, IAM and CRC to enter into this Agreement,
NewCo and its subsidiaries, Sub-1, Sub-2 and Sub-3 (collectively, the "NewCo
Subs"), jointly and severally, represent and warrant to Enviroq, IAM and CRC as
follows:
SECTION 14.1 ORGANIZATION, QUALIFICATION, AND CORPORATE POWER;
AUTHORITY.
(a) Each of NewCo and the NewCo Subs is a corporation duly
organized, validly existing, and in good standing under the laws of the
jurisdiction of its incorporation. Each of NewCo and the NewCo Subs is duly
authorized and qualified to conduct business and is in good standing under the
laws of each jurisdiction where such qualification is required, except where the
lack of such qualification would not have a Material Adverse Effect on NewCo.
Each of NewCo and the NewCo Subs has full corporate power and authority to carry
on the businesses in which it is engaged and to own, lease, use and operate the
properties owned, leased used and operated by it. The copies of the certificate
of incorporation and the bylaws of NewCo and the NewCo Subs, which have
previously been made available to Enviroq, IAM and CRC are true, complete and
correct copies of such documents as in effect as of the date of this Agreement.
Schedule 14.1 lists the directors and officers of each of NewCo and the NewCo
Subs.
(b) Each of NewCo and the NewCo Subs has full corporate power
and authority to execute and deliver this Agreement, and to consummate the
transactions contemplated hereby. The respective boards of directors of each of
NewCo and the NewCo Subs have duly and validly approved this Agreement and the
transactions contemplated hereby, have authorized the execution and delivery of
this Agreement, have directed that this Agreement and the transactions
contemplated hereby be submitted to the shareholders of each of NewCo and the
NewCo Subs, as the case may be, for approval at a meeting of such shareholders,
the shareholders of each of NewCo and the NewCo Subs have approved this
Agreement and the transactions contemplated hereby, and no other corporate
proceedings on the part of each of NewCo and the NewCo Subs are necessary to
consummate the transactions so contemplated. This Agreement constitutes a valid
and binding obligation of each of NewCo and the NewCo Subs, and is enforceable
against each of NewCo and the NewCo Subs in accordance with its terms, except as
such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors rights generally and except that the availability of the equitable
remedy of specific performance or injunctive relief is subject to the discretion
of the court before which any proceeding may be brought.
SECTION 14.2 CAPITALIZATION. The entire authorized common capital stock
of NewCo consists of 15,000,000 shares of NewCo Stock, of which 100 shares of
NewCo Stock were issued and outstanding as of the date hereof. The entire
authorized common capital stock of Sub-1, Sub-2 and Sub-3 consists of 1,000
shares of Sub-1 Stock, 1,000 shares of Sub-2 Stock and 1,000 shares of Sub-3
Stock, respectively. Sub-1, Sub-2 and Sub-3 have 100 shares of Sub-1 Stock,
Sub-2 Stock and Sub-3 Stock issued and outstanding, respectively as of the date
hereof. No shares of NewCo stock are held in treasury. All of the issued and
outstanding shares of NewCo Stock, Sub-1 Stock, Sub-2 Stock or Sub-3 Stock have
been duly authorized and are validly issued, fully paid, and nonassessable.
Except as set forth in this Agreement and except as set forth on Schedule 14.2,
there are no outstanding or authorized options, warrants, purchase rights,
subscription rights, conversion rights, exchange rights, or other contracts or
commitments that could require NewCo or any of the NewCo Subs to issue, sell, or
otherwise cause to become outstanding any of its capital stock. There are no
outstanding or authorized stock appreciation, phantom stock, profit
participation, or similar rights with respect to NewCo and the NewCo Subs. NewCo
and the NewCo Subs have no outstanding bonds, debentures, notes or similar
obligations the holders of which have the right to vote generally with holders
of NewCo Stock, Sub-1 Stock, Sub-2 Stock or Sub-3 Stock.
SECTION 14.3 NON-CONTRAVENTION. Except as set forth on Schedule 14.3,
neither the execution and the delivery of this Agreement, nor the consummation
of the transactions contemplated hereby, will (a) violate any constitution,
statute, regulation, rule, injunction, judgment, order, decree, ruling, charge,
or other restriction of any government, governmental agency, or court to which
any of NewCo and the NewCo Subs are subject or any provision of the charter or
bylaws of any of NewCo or any of the NewCo Subs; or (b) except with respect to
those agreements for which Consent shall be obtained prior to Closing, conflict
with, result in a breach of, constitute a default under, result
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in the acceleration of, create in any party the right to accelerate, terminate,
modify, or cancel, or require any notice under any agreement, contract, lease,
license, instrument, or other arrangement to which NewCo or any of the NewCo
Subs is a party or by which it is bound or to which any of its assets is subject
(or result in the imposition of any Security Interest upon any of its assets),
except where the violation, conflict, breach, default, acceleration,
termination, modification, cancellation, failure to give notice, or Security
Interest would not have a Material Adverse Effect on NewCo or on the ability of
the Parties to consummate the transactions contemplated by this Agreement.
Except as set forth specifically in this Agreement or on Schedule 14.3, neither
NewCo nor any of the NewCo Subs needs to give any notice to, make any filing
with, or obtain any Consent of any government, governmental agency or regulatory
authority in order for the Parties to consummate the transactions contemplated
by this Agreement, except where the failure to give notice, to file, or to
obtain any Consent would not have a Material Adverse Effect on NewCo or on the
ability of the Parties to consummate the transactions contemplated by this
Agreement.
ARTICLE 15
GENERAL PROVISIONS
SECTION 15.1 NONSURVIVAL OF REPRESENTATIONS AND WARRANTIES. None of the
representations and warranties in this Agreement shall survive the Effective
Time. This Section shall not limit those covenants and agreements of the Parties
found in Sections 2.5, 2.6, 6.1, 6.5, 6.6, 6.8 and in Articles 3, 4 and 15 which
by their terms contemplate performance after the Effective Time.
SECTION 15.2 PRESS RELEASES AND PUBLIC ANNOUNCEMENTS. No Party shall
issue any press release or make any public announcement relating to the subject
matter of this Agreement without the prior written approval of all of the other
Parties; provided, however, that any Party may make any public disclosure it
believes in good faith is required by applicable law (in which case the
disclosing Party will use its best efforts to advise the other Parties at the
earliest possible time prior to making such disclosure).
SECTION 15.3 NO THIRD-PARTY BENEFICIARIES. This Agreement shall not
confer any rights or remedies upon any Person other than the Parties and their
respective successors and permitted assigns; provided, however, that the
provisions in Article 4 above concerning payment of the Merger Consideration
contemplated by this Agreement and certain additional agreements are intended
for the benefit of the stockholders of Enviroq, IAM, CRC and their respective
directors and officers.
SECTION 15.4 ENTIRE AGREEMENT. This Agreement (including the documents
referred to herein) constitutes the entire agreement among the Parties and
supersedes any prior understandings, agreements, or representations by or among
the Parties, written or oral, to the extent they related in any way to the
subject matter hereof.
SECTION 15.5 SUCCESSION AND ASSIGNMENT. This Agreement shall be binding
upon and inure to the benefit of the Parties named herein and their respective
successors and permitted assigns. No Party may assign either this Agreement or
any of its rights, interests, or obligations hereunder without the prior written
approval of all of the other Parties.
SECTION 15.6 COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
SECTION 15.7 NOTICES. Notices to be given to IAM and CRC hereunder
shall be in writing, and delivered personally to the designated officer of IAM,
transmitted by facsimile, or deposited in the United States mail, certified and
return receipt requested, postage prepaid, and addressed to IAM or CRC at:
50 North Laura Street, Suite 3550
Jacksonville, Florida 32202
Attention: Forrest Travis
Telephone (904) 350-9999
Facsimile (904) 355-1745
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with a copy to:
Rogers & Hardin LLP
2700 International Tower
229 Peachtree Street, N.E.
Atlanta, Georgia 30303
Attention: Steven E. Fox, Esq.
Telephone: (404) 420-4603
Facsimile: (404) 525-2224
or to such other address as may be specified by IAM or CRC
in writing.
Notices to be given to Enviroq and its Subsidiaries hereunder shall be
in writing, and delivered personally to the designated officer of Enviroq,
transmitted by facsimile, or deposited in the United States mail, certified and
return receipt requested, postage prepaid, and addressed to Enviroq at:
Enviroq Corporation
3918 Montclair Road, Suite 206
Post Office Box 130062
Birmingham, Alabama 35213
Attention: William J. Long
Telephone (205)870-0588
Facsimile (205)870-0576
with a copy to:
Bradley Arant Rose & White LLP
2001 Park Place, Suite 1400
Birmingham, Alabama 35203-2736
Attn: John K. Molen, Esq.
Telephone (205)521-8238
Facsimile (205)521-8800
or to such other address as may be specified by Enviroq in writing.
Notices to be given to NewCo, Sub-1, Sub-2 or Sub-3 hereunder shall be
in writing, and delivered personally to the designated officer of NewCo
transmitted by facsimile, or deposited in the United States mail, certified and
return receipt requested, postage prepaid, and addressed to NewCo, Sub-1, Sub-2
or Sub-3 at:
3918 Montclair Road, Suite 206
Post Office Box 130062
Birmingham, Alabama 35213
Attention: William J. Long
Telephone: (205) 870-0588
Facsimile: (205) 870-0576
with a copy to:
Bradley Arant Rose & White LLP
2001 Park Place, Suite 1400
Birmingham, Alabama 35203-2736
Attention: John K. Molen, Esq.
Telephone: (205) 521-8238
Facsimile: (205) 521-8800
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or to such other address as may be specified by NewCo in writing.
Notices delivered personally shall be effective upon delivery. Notices
transmitted by facsimile shall be effective when receipt is confirmed. Notices
delivered by mail shall be effective upon the acceptance or rejection by the
person to whom they are addressed.
SECTION 15.8 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the domestic laws of the State of Delaware without
giving effect to any choice or conflict of law provision or rule (whether of the
State of Delaware or any other jurisdiction) that would cause the application of
the laws of any jurisdiction other than the State of Delaware.
SECTION 15.9 AMENDMENTS AND WAIVERS. The Parties may mutually amend any
provision of this Agreement at any time prior to the Effective Time with the
prior authorization of their respective boards of directors; provided, however,
that any amendment effected subsequent to the stockholder approval of Enviroq
will be subject to the restrictions contained in the Delaware General
Corporation Law. No amendment of any provision of this Agreement shall be valid
unless the same shall be in writing and signed by all of the Parties. No waiver
by any Party of any default, misrepresentation, or breach of warranty or
covenant hereunder, whether intentional or not, shall be deemed to extend to any
prior or subsequent default, misrepresentation, or breach of warranty or
covenant hereunder or affect in any way any rights arising by virtue of any
prior or subsequent such occurrence.
SECTION 15.10 SEVERABILITY. Any term or provision of this Agreement
that is invalid or unenforceable in any situation in any jurisdiction shall not
affect the validity or enforceability of the remaining terms and provisions
hereof or the validity or enforceability of the offending term or provision in
any other situation or in any other jurisdiction.
SECTION 15.11 CONSTRUCTION. The Parties have participated jointly in
the negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the Parties, and no presumption or burden of proof
shall arise favoring or disfavoring any Party by virtue of the authorship of any
of the provisions of this Agreement. Any reference to any federal, state, local,
or foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context otherwise requires.
"Herein", "hereby", "hereunder", "hereof", "hereinbefore, "hereinafter" and
other equivalent words refer to this Agreement as a whole and not solely to the
particular Article or Section in which such word is used. When a reference is
made in this Agreement to a Section or Exhibit, such reference shall be to a
Section of, or an Exhibit to, this Agreement unless otherwise indicated. The
table of contents and headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement. Whenever the words "include", "includes" or "including" are used
in this Agreement, they shall be deemed to be followed by the words "without
limitation".
SECTION 15.12 INCORPORATION OF EXHIBITS AND SCHEDULES. The Exhibits and
Schedules identified in this Agreement are incorporated herein by reference and
made a part hereof.
SECTION 15.13 TRANSACTION COSTS. With the exception of expenses
relating to the incorporation and registration of NewCo, Sub-1, Sub-2 and Sub-3
and any fees and expenses payable pursuant to Section 11.2(a) hereof, each of
the Parties shall be responsible for its own expenses in connection with the
negotiation of this Agreement and the consummation of the transactions
contemplated hereby, including those expenses incurred in connection with the
Proxy Statement; Paying Agent charges; attorneys' fees and disbursements;
accounting fees and disbursements; investment banking fees and disbursements,
and printing costs. Enviroq and its Subsidiaries, IAM and CRC agree that the
Registration Attorney shall be engaged to prepare and file any registration
statements with the SEC as well as any related filings, including "blue sky"
filings with applicable states, and the Registration Attorney shall engage the
accounting firm of Deloitte & Touche LLP, Birmingham, Alabama to assist in such
filings. If the Mergers are not consummated, Enviroq will pay one half of the
fees and expenses of the Registration Attorney, IAM will pay one-fourth of fees
and expenses of the Registration Attorney, and CRC will pay one-fourth of the
fees and expenses of the Registration Attorney. If the Mergers are consummated,
NewCo will pay all of the fees and expenses of the Registration Attorney.
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IN WITNESS WHEREOF, each of the Parties hereto has caused its duly
authorized officer to execute this Agreement on the date first above written.
ATTESTED TO: INTREPID CAPITAL CORPORATION
By: /s/ FAYE JOHNSON BASS By: /s/ WILLIAM J. LONG
--------------------- -------------------
Name: Faye Johnson Bass Name: William J. Long
Its: Secretary Its: President
ATTESTED TO: ENVIROQ CORPORATION
By: /s/ FAYE JOHNSON BASS By: /s/ WILLIAM J. LONG
--------------------- -------------------
Name: Faye Johnson Bass Name: William J. Long
Its: Secretary Its: President
ATTESTED TO: FREEDOM HOLDINGS OF ALABAMA, INC.
By: /s/ FAYE JOHNSON BASS By: /s/ WILLIAM J. LONG
--------------------- -------------------
Name: Faye Johnson Bass Name: William J. Long
Its: Secretary Its: President
ATTESTED TO: INSTITUTIONAL ASSET
MANAGEMENT, INC.
By: /s/ STEPHANIE T. FRECHETTE By: /s/ FORREST TRAVIS
-------------------------- ------------------
Name: Stephanie T. Frechette Name: Forrest Travis
Its: Secretary Its: President
ATTESTED TO: IAM MERGER SUB, INC.
By: /s/ STEPHANIE T. FRECHETTE By: /s/ FORREST TRAVIS
-------------------------- ------------------
Name: Stephanie T. Frechette Name: Forrest Travis
Its: Secretary Its: President
ATTESTED TO: CAPITAL RESEARCH CORPORATION
By: /s/ STEPHANIE T. FRECHETTE By: /s/ FORREST TRAVIS
-------------------------- ------------------
Name: Stephanie T. Frechette Name: Forrest Travis
Its: Secretary Its: President
ATTESTED TO: CRC MERGER SUB, INC.
By: /s/ STEPHANIE T. FRECHETTE By: /s/ FORREST TRAVIS
-------------------------- ------------------
Name: Stephanie T. Frechette Name: Forrest Travis
Its: Secretary Its: President
A-48
<PAGE> 191
Annex B
April 10, 1998
Board of Directors
Enviroq Corporation
P. O. Box 130062
Birmingham, AL 35213
Members of the Board of Directors:
Enviroq Corporation ("the Company") proposes to enter into an
agreement and plan of reorganization ("the Agreement") pursuant to which the
Company will be merged with a wholly owned subsidiary of Intrepid Capital
Corporation, a newly formed Delaware corporation ("Intrepid Capital"), which
will occur simultaneously with similar mergers between wholly owned subsidiaries
of Intrepid Capital and each of Capital Research Corporation, a Florida
corporation ("Broker-Dealer") and Institutional Asset Management, Inc., a
Florida corporation ("Investment Advisor"). As a result of the simultaneous
mergers ("the Mergers"), the Company, Broker-Dealer and Investment Advisor will
become wholly owned subsidiaries of Intrepid Capital.
Immediately prior to the Merger of the Company with a
subsidiary of Intrepid Capital, each stockholder of the Company ("Stockholder")
will be given the option to redeem 42.698013%, but not less than 42.698013%, of
the shares of the outstanding common stock of the Company ("the Company Stock")
owned by such Stockholder for $5.22061144 per share ("the Redemption"). Each
Stockholder that participates in the Redemption will receive in the Merger
1.74514041 shares of common stock of Intrepid Capital ("Intrepid Capital Stock")
for each of its remaining shares of Company Stock. In the event that a
Stockholder elects not to participate in the Redemption, such Stockholder will
receive one share of Intrepid Capital Stock and $2.22909775 for each share of
Company Stock in the Merger. The total consideration that a Stockholder that
participates in the Redemption will receive as a result of the Redemption and
the Merger will be equivalent on a per share basis to the total consideration
that a Stockholder that does not participate in the Redemption will receive in
the Merger (except for possible differences in tax treatment). As used herein,
"the Consideration" shall mean: (i) in respect of a Stockholder that
participates in the Redemption, the redemption price of $5.22061144 per share of
Company Stock to be redeemed in the Redemption and the 1.74514014 shares of
Intrepid Capital Stock to be received in the Merger for each of such
Stockholder's shares of Company Stock not redeemed in the Redemption; or (ii) in
respect of a Stockholder that does not participate in the Redemption, the one
share of Intrepid Capital Stock and the $2.22909775 to be received for each
share of Company Stock in the Merger.
You have asked us whether, in our opinion, the Consideration
proposed to be paid to the Stockholders of the Company is fair, from a financial
point of view, to the Stockholders.
In arriving at the opinion set forth below, we have, among
other things:
(1) Reviewed certain publicly available business and
financial information relating to the Company that we
deemed to be relevant;
(2) Reviewed audited and unaudited financial statements
of the Company, Broker-Dealer and Investment Advisor;
(3) Conducted discussions with management of the Company
and Intrepid Capital concerning the matters described
in clauses (1) and (2) above, as well as the
businesses and prospects of the Company and Intrepid
Capital before and after giving effect to the Merger;
(4) Reviewed the market prices and valuation multiples
for the Company's shares and compared them with those
of certain publicly traded companies that we deemed
to be relevant;
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(5) Reviewed the market prices and valuation multiples of
certain publicly traded companies that we deemed to
be relevant to the business of the Broker-Dealer and
the Investment Advisor;
(6) Reviewed the results of operation of the Company, the
Broker-Dealer and the Investment Advisor and compared
them with those of certain publicly traded companies
that we deemed to be relevant;
(7) Participated in discussions with representatives of
the Company and Intrepid Capital and the legal
advisors of the Company;
(8) Reviewed the unaudited pro forma combined financial
information of the Merger;
(9) Reviewed a draft dated March 27, 1998 of the
Agreement; and
(10) Reviewed such other financial studies and analyses
and took into account such other matters as we deemed
necessary, including our assessment of general
economic, market and monetary conditions.
In preparing our opinion, we have assumed and relied on the
accuracy and completeness of all information supplied or otherwise made
available to us, discussed with or reviewed by or for us, or publicly available,
and we have not assumed any responsibility for independently verifying such
information or undertaken an independent valuation or appraisal of any of the
assets or liabilities of the Company, the Broker-Dealer or the Investment
Advisor. In addition, we have not assumed any obligation to conduct, nor have we
conducted, any physical inspection of the properties or facilities of the
Company, Broker-Dealer, Investment Advisor or Intrepid Capital. We also did not
make an independent evaluation or appraisal of the assets or liabilities of the
Company, Broker-Dealer or Investment Advisor. We have further assumed that the
Merger will be accounted for as a purchase transaction under generally accepted
accounting principles, and that no goodwill results from the Merger.
In addition, after the parties to the Merger reached a
general agreement with respect to the economic terms of the Agreement and
during the course of our review prior to rendering our opinion, we received
copies of financial projections for Broker-Dealer and Investment Advisor that
were prepared by the respective managements of each company. Neither
Broker-Dealer nor Investment Advisor publicly discloses internal management
projections of the type provided to us in connection with our analysis of the
Merger, and such projections were not prepared with a view toward public
disclosure. Broker-Dealer and Investment Advisor prepared the projections for
general corporate modeling purposes to attempt to show a relationship between
hypothetical levels of business activity and potential profitability. The
projections were not prepared in accordance with any accounting guidelines or
standards for the preparation of projections and were based on assumptions
which are inherently uncertain and beyond the control of management. After
reviewing the projections, we concluded that the level of business activity
assumed in the projections was unduly optimistic and that actual results could
vary significantly from the projected results set forth therein. Accordingly,
we did not rely on the projections in evaluating the fairness of the Merger
to the holders of Company Stock.
We understand that the Company has received a tax opinion from
Deloitte & Touche, LLP, concerning the tax treatment of shares of Company Stock
that are redeemed in the Redemption. It is our further understanding that the
opinion concludes, with certain caveats, that the tax treatment of the receipt
of shares of Intrepid Capital Stock in connection with the Redemption, when
considered in light of the overall transaction, will be treated for federal
income tax purposes as a sale or exchange of redeemed shares, rather than as a
distribution constituting a dividend. Assuming shares of Company Stock redeemed
by the Company in the Redemption constitute capital assets in the hands of a
stockholder that elects to participate in the Redemption, such redeeming
Stockholder will report either capital gain or loss in respect of its shares of
Company Stock redeemed in the Redemption, and will be permitted to apply its tax
basis in such redeemed shares (i.e., the cost to the Stockholder to acquire the
shares) against the amount received by such Stockholder as payment for such
redeemed shares. It is also our understanding that the Company Stockholders who
participate in the Redemption will not recognize gain or loss with respect to
their exchange of Company Stock for Intrepid Capital Stock pursuant to the
Merger and that Company Stockholders who elect not to participate in the
Redemption will recognize gain but not loss with respect to their exchange of
Company Stock for Intrepid Capital Stock and other property pursuant to the
Merger to the extent of the fair value of such other property.
Our opinion is necessarily based upon market, economic and
other conditions as they exist and can be evaluated, and on the information made
available to us as of the date hereof. We have assumed that in the course of
obtaining the necessary regulatory or other consents or approvals (contractual
or otherwise) for the Merger, no restriction will be imposed or will have a
material adverse effect on the contemplated benefits of the Merger.
This opinion is for the use and benefit of the Board of
Directors of the Company. Our opinion does not address the merits and underlying
decision by the Company to engage in the merger and does not constitute a
recommendation to any stockholder of the Company as to how such stockholder
should vote on the proposed Merger.
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We express no opinion as to the fairness of the Merger to
Stockholders who are directors, or participate in management, or are similarly
affiliated with the Company.
We are not expressing any opinion herein as to the prices at
which the Intrepid Capital shares will trade following consummation of the
Merger.
On the basis of and subject to the foregoing, we are of the
opinion that, as of the date hereof, the Consideration proposed to be paid to
the Stockholders of the Company is fair, from a financial point of view, to the
Stockholders.
Very truly yours,
Porter, White & Company, Inc.
By: /s/ JAMES H. WHITE, III
---------------------------------
President
JHWIII/pp
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<PAGE> 194
Annex C
October 21, 1998
Enviroq Corporation
3918 Montclair Road, Suite 206
Birmingham, AL 35213
Ladies and Gentlemen:
You have requested our opinion as to the federal income tax
consequences to certain of your stockholders on the proposed redemption by
Enviroq Corporation, a Delaware corporation (the "Company"), of certain of its
authorized, issued and outstanding shares of common stock ("Company Stock") from
certain electing stockholders, as well as the exchange by the Company
stockholders of their Company shares for shares of Intrepid Capital Corporation,
a Delaware corporation ("NewCo").
In rendering this opinion, we have (with your permission)
reviewed and relied upon and have based our opinion on, inter alia, the accuracy
of (i) the information contained in the Agreement and Plan of Reorganization
among NewCo, the Company, Institutional Asset Management, Inc., a Florida
corporation ("IAM"), Capital Research Corporation, a Florida corporation ("CRC")
and certain other entities, dated April 22, 1998 (the "Merger Agreement"); and
(ii) certain assumptions which we have deemed necessary and essential to our
opinion and which are contained herein. Any material variation or difference in
the facts or assumptions, as stated or incorporated in the materials just
referred to, might affect our conclusions. Furthermore, any issues which may
arise as a result of the transaction described herein but which are not
expressly addressed herein are outside the scope of our opinion.
What follows is a summary of the essential facts of the
transactions:
ESSENTIAL FACTS
The Company was incorporated on February 9, 1995. At the time
of its incorporation, the Company was a wholly-owned subsidiary of a Delaware
corporation formerly named Enviroq Corporation ("Old Enviroq"). Prior to April
18, 1995, the Company was named New Enviroq Corporation ("New Enviroq"). On
April 18, 1995, Old Enviroq distributed all of the issued and outstanding
capital stock of New Enviroq to the holders of the common stock of Old Enviroq
(the "Distribution"). Following the Distribution, the Company changed its name
from New Enviroq Corporation to Enviroq Corporation. Also following the
Distribution, Old Enviroq merged (the "Merger") with a subsidiary of Insituform
Mid-America, Inc. ("IMA") and changed its name to Insituform Southeast, Inc.
("Insituform Southeast"). In a transaction subsequent to, and unrelated to the
Merger, IMA was acquired by Insituform Technologies, Inc.
The Company's principal executive office is located at 3918
Montclair Road, Suite 206, Birmingham, Alabama 35213.
The Company is principally engaged in the development,
commercialization, formulation and marketing of spray-applied resinous products,
and in the development of processes related to the treatment of municipal
wastewater biosolids. The Company's operations are conducted primarily through
Sprayroq, Inc., a Florida corporation of which the Company owns 50% of the
outstanding capital stock ("Sprayroq"). The Company also owns 100% of the
outstanding capital stock of Synox Corporation, a Delaware corporation
("Synox"). Sprayroq is engaged in the development, commercialization,
manufacture and marketing of spray-applied resinous materials. Synox has been
engaged in the research, development and marketing of a process for the
treatment of municipal wastewater biosolids. Almost all of the operations of the
Company are the result of the operations of Sprayroq. The operations of Synox
are minimal and substantially all of the assets of Synox have been written off.
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NewCo is a newly-formed corporation which is a wholly-owned
subsidiary of the Company. NewCo, in turn, owns all of the issued and
outstanding stock in Freedom Holding of Alabama, Inc., a Delaware corporation
("Sub 1"), IAM Merger Sub, Inc., a Florida corporation ("Sub 2") and CRC Merger
Sub, Inc., a Florida corporation ("Sub 3"). NewCo, Sub 1, Sub 2 and Sub 3 were
formed solely to effectuate the transactions set forth below. The Company files
its corporate income tax return on the basis of a fiscal year end of March 28.
As part of one integrated plan, the Company, IAM, CRC, Sub 1,
Sub 2 and Sub 3 intend to enter into the following transactions:
STEP 1
The Company will make an offer (the "Redemption Offer") to
redeem up to 42.698013% of the shares of Company Stock at a price of $5.22061144
per share ("Redemption Price"). The Redemption Offer will be made to holders of
record of Company Stock as of a certain record date. Each stockholder of the
Company ("Company Stockholder") will be given the opportunity to have Enviroq
redeem exactly 42.698013% of the shares of Company Stock tendered by such
Company Stockholder pursuant to the Redemption Offer (the "Redemption"). Those
Company Stockholders who participate in the Redemption will hereinafter be
referred to as the "Redeeming Stockholders". All other Company Stockholders will
be referred to as the "Non-Redeeming Stockholders."
The Company will make available an amount equal to the
Redemption Price times the number of shares of Company Stock to be redeemed in
the Redemption, plus any ancillary amount to cover rounding to the nearest whole
cent. Amounts actually paid out to Redeeming Stockholders shall hereafter be
referred to as the "Redemption Proceeds." Payment of the Redemption Proceeds
will take place immediately prior to Step 2.
STEP 2
Sub 1 will merge with and into the Company (the "Company
Merger"). The Company will survive the Company Merger, and Sub 1 will cease to
exist as a separate corporate entity. As a result of the Company Merger, each of
the following will occur:
(a) Each issued and outstanding share of the common stock
of Sub 1 will be converted into, and become, one
share of Company Stock.
(b) Subject to a holder's right of dissent, each share of
Company Stock owned by a Redeeming Stockholder after
the Redemption and before the Company Merger which
was tendered but not redeemed in the Redemption will
be canceled and converted into the right to receive
1.74514041 shares of NewCo Common Stock ("NewCo
Stock"). Subject to a holder's right to dissent, each
share of Company Stock owned by a Redeeming
Stockholder after the Redemption and before the
Company Merger which was not tendered in the
Redemption and each share of Company Stock owned by a
Non-Redeeming Stockholder will be canceled and
converted into the right to receive one share of
NewCo Stock and $2.22909775 in cash. Each Redeeming
and Non-Redeeming Stockholder will receive cash in
lieu of any fractional share of NewCo stock to which
he or she is entitled.
All such shares of Company Stock will no longer be
outstanding and will automatically be canceled and
retired.
(c) All shares of Company Stock owned as treasury stock
by the Company shall be canceled and retired, and no
NewCo Stock, or other consideration, will be
delivered in exchange therefor.
Simultaneously, Sub 2 will merge with and into IAM (the "IAM
Merger"). IAM will survive the IAM Merger, and Sub 2 will cease to exist as a
separate corporate entity. As a result of the IAM Merger, each of the following
will occur:
(a) Each issued and outstanding share of the common stock
of Sub 2 will be converted into, and become, one
share of common stock of IAM.
(b) Each issued and outstanding share of the common stock
of IAM before the IAM Merger will be converted into
the right to receive 1,206.149 shares of NewCo Stock.
Each IAM
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Stockholder will receive cash in lieu of any
fractional share of NewCo stock to which he or she is
entitled. All such shares of IAM common stock will no
longer be outstanding and will automatically be
canceled and retired.
(c) All shares of IAM common stock owned as treasury
stock by IAM shall be canceled and retired, and no
NewCo Stock, or other consideration, will be
delivered in exchange therefor.
Simultaneously, with the Company Merger and the IAM Merger,
Sub 3 will merge with and into CRC (the "CRC Merger"). CRC will survive the CRC
Merger, and Sub 3 will cease to exist as a separate corporate entity.
As a result of the CRC Merger, each of the following will occur:
(a) Each issued and outstanding share of the common stock
of Sub 3 will be converted into, and become, one
share of common stock of CRC.
(b) Each issued and outstanding share of the common stock
of CRC before the CRC Merger will be converted into
the right to receive 1,206.149 shares of NewCo Stock.
Each CRC Stockholder will receive cash in lieu of any
fractional share of NewCo stock to which he or she is
entitled. All such shares of CRC common stock will no
longer be outstanding and will automatically be
canceled and retired.
(c) All shares of CRC common stock owned as treasury
stock by CRC shall be canceled and retired, and no
NewCo Stock, or other consideration, will be
delivered in exchange therefor.
The Company Merger, the IAM Merger and the CRC Merger will
hereinafter be referred to collectively as the "Mergers."
At the time of the Mergers, all shares of NewCo Stock owned by
the Company shall be canceled and retired, and no consideration will be
delivered in exchange therefor.
STEP 3
Immediately subsequent to the Mergers, the Company will
distribute by means of a cash dividend to NewCo an amount sufficient to pay the
cash portion of the Company Merger proceeds to Company Stockholders, minus any
amount that would otherwise be paid to a Company Stockholder except for the fact
that such Company Stockholder perfected and did not withdraw a demand for
payment of "fair or appraised" value pursuant to such holder's right to dissent.
These funds will be used to pay the cash portion of the Company Merger proceeds
to Company Stockholders.
ESSENTIAL ASSUMPTIONS
1. The Redeeming Stockholders have no plan or intention to
reacquire additional Company Stock (except through the
exercise of currently owned rights to acquire Company Stock)
or to purchase additional rights to acquire Company Stock.
2. The Company has no warrants and options outstanding except
those that are exercisable by the holders thereof, based upon
the passage of time and continuing employment with the
Company.
3. The Company is not a "collapsible corporation" within the
meaning of ss.341(b).
4. The cash received from the Company by the Redeeming
Stockholders will, in each instance, be approximately equal to
the fair market value of the Company Stock surrendered in
exchange therefor.
5. The Company Stockholders (taking into account the attribution
rules of ss.318 as modified by ss.304(b)) will not own 50% or
more of the Company's Stock following the Mergers.
6. The Redeeming Stockholders will receive shares of NewCo and
cash, as the case may be, approximately equal in value to the
Company Stock transferred by them to NewCo in the Company
Merger.
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7. The Non-Redeeming Stockholders will receive shares of NewCo
and cash approximately equal in value to the Company Stock
transferred by them to NewCo in the Company Merger.
8. No stock will be issued for services rendered by Company
Stockholders to or for the benefit of NewCo in connection with
the proposed transaction.
9. The Company Stockholders will not retain any rights in the
Company Stock transferred to NewCo other than indirectly as
stockholders of NewCo.
10. Any liabilities to be expressly assumed by NewCo were incurred
in the ordinary course of business and are associated with the
Company Stock to be transferred.
11. None of the Company Stock to be transferred to NewCo was
received by the Company Stockholders as part of a plan of
liquidation of another corporation.
12. Taking into account any issuance of additional shares of
NewCo; any issuance of stock for services; the exercise of any
NewCo stock rights, warrants, or subscriptions, a public
offering of shares of NewCo; and the sale, exchange, transfer
by gift, or other disposition of any shares of NewCo to be
received in the exchange, the Company Stockholders, the IAM
Stockholders and the CRC Stockholders will, when taken
together, be in "control" of NewCo within the meaning of
ss.368(c), because they will hold at least 80 percent of the
NewCo voting stock and at least 80 percent of each other class
of shares of NewCo.
13. There is no indebtedness between the Company Stockholders, the
IAM Stockholders or the CRC Stockholders, on the one hand, and
NewCo, on the other, and there will be no indebtedness created
in favor of the Company Stockholders, the IAM Stockholders and
the CRC Stockholders as a result of the transaction.
14. NewCo will remain in existence and retain and use the property
transferred to it. There is no plan or intention by NewCo to
dispose of any of the stock of the Company, IAM or CRC other
than in the ordinary course of business.
15. There is no plan or intention on the part of NewCo to redeem
or otherwise reacquire any stock to be issued in the proposed
transaction.
16. The total adjusted basis and the fair market value of the
stock of the Company, IAM and CRC to be transferred by the
Company Stockholders, the IAM Stockholders and the CRC
Stockholders, respectively, will, in each instance, be equal
to or exceed the sum of the liabilities to be assumed by NewCo
plus any liabilities to which the stock of the Company, IAM
and CRC are subject.
17. NewCo will not be an investment company within the meaning of
ss.351(e)(1) and Regs ss.1.351- 1(c)(1)(ii), because less than
80 percent of NewCo's assets will consist of readily
marketable stocks or securities, or regulated investment
companies or real estate investment trusts. For purposes of
this test, stock owned by NewCo in the Company, IAM and CRC
will be ignored, and the assets of those companies will be
considered owned directly by NewCo.
18. Each of the parties to the transaction will pay its own
expenses, if any, other than expenses solely and directly
related to the proposed transaction.
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ISSUES CONSIDERED
I. How should the distribution by the Company of cash to the Redeeming
Stockholders in exchange for Company Stock be characterized by such
Redeeming Stockholders for federal income tax purposes?
II. What are the federal income tax consequences to the Redeeming
Stockholders of the Company resulting from the treatment reflected in
(I) above?
III. What are the federal income tax consequences to the Redeeming
Stockholders of the exchange by them of their Company Stock for shares
of NewCo and cash, as the case may be, and to the Non-Redeeming
Stockholders of the exchange by them of their Company Stock for shares
of NewCo and cash in the Company Merger?
CONCLUSION REACHED
I. For federal income tax purposes, the distribution by the Company of
cash in exchange for certain of its shares of Company Stock will be
characterized as a distribution in redemption of stock to which ss.302
applies.
II. With respect to the Company Stock redeemed in the Redemption, each
Redeeming Stockholder will be treated as having such Redeeming
Stockholder's Company Stock redeemed in a transaction to which
ss.302(a) applies by virtue of the application of ss.302(b)(3). Any
gain or loss realized by a Redeeming Stockholder will be recognized as
capital gain or loss in accordance with ss.1001 provided the shares of
Common Stock redeemed by the Company are held as a capital asset on the
day of the exchange. Any gain recognized on the exchange of Company
Stock will be treated as long term capital gain in accordance with
ss.1223(3) provided that the shares of Company Stock redeemed have had
the requisite holding period and will be subject to the rates reflected
in ss.1(h).
III. The Redeeming and Non-Redeeming Stockholders will be treated as
transferors for purposes of the control requirement of ss.ss.351(a) and
368(c).
No gain or loss will be recognized by the Redeeming Stockholders upon
the transfer of their Company Stock to NewCo in exchange solely for
stock of NewCo. The basis of the shares of NewCo to be received by such
Redeeming Stockholders in the Company Merger will be the same as the
basis of the Company Stock transferred by such Redeeming Stockholders
to NewCo.
Gain, but not loss, will be recognized by Redeeming Stockholders upon
the transfer of their Company Stock to NewCo in exchange for stock of
NewCo and other property (i.e. the cash portion of the Company Merger
proceeds, if any, and cash received in lieu of fractional shares of
stock of NewCo) to the extent of the fair value of the other property
received. The basis of the shares of NewCo to be received by such
Redeeming Stockholders in the Company Merger will be the same as the
basis of the Company Stock transferred by such Redeeming Stockholders
to NewCo, increased by the amount of any gain recognized in the
exchange, and reduced by the fair market value of the other property
received in the exchange.
Gain, but not loss, will be recognized by the Non-Redeeming
Stockholders upon the transfer of their Company Stock to NewCo in
exchange for stock of NewCo and other property (i.e. the cash portion
of the Company Merger proceeds, and cash received in lieu of fractional
shares of stock of NewCo) to the extent of the fair value of the other
property received. The basis of the shares of NewCo to be received by
such Non-Redeeming Stockholders in the Company Merger will be the same
as the basis of the Company Stock transferred by such Non-Redeeming
Stockholders to NewCo, increased by the amount of any gain recognized
in the exchange, and reduced by the fair market value of the other
property received in the exchange.
The holding period of the shares of NewCo to be received by the
Redeeming and Non-Redeeming Stockholders will include the period during
which each such stockholder held the Company Stock
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that was transferred to NewCo, provided that the Company Stock was held
by the respective stockholder as a capital asset.
DISCUSSION
I. If a corporation acquires its stock from a shareholder in exchange for
property, then the stock is treated for tax purposes as having been
redeemed by the corporation regardless of whether the stock so acquired
is canceled, retired or held as treasury stock. Furthermore, "property"
for purposes of the preceding sentence means money, securities and any
other distributed property except that it does not include stock of the
corporation making the distribution. Therefore, the distribution by the
Company of cash in cancellation of a portion of its own shares
constitutes a distribution in redemption of stock for federal income
tax purposes.
II. Every distribution of property by a corporation in redemption of its
stock constitutes a distribution to which ss.301 applies and will be
treated as a dividend (assuming the distributing corporation has
adequate earnings and profits) unless one of the enumerated exceptions
in ss.302(b) applies to the exchange. Section 302(b) applies, and a
redemption of stock is to be treated as being a distribution in part or
full payment for the stock surrendered, if the transaction fits into
any one of the following four categories:
(i) a redemption that is not essentially equivalent to a dividend
under ss.302(b)(1);
(ii) a substantially disproportionate redemption under ss.302(b)(2);
(iii) a redemption of all the shareholder's stock under ss.302(b)(3);
and
(iv) a partial liquidation under ss.302(b)(4).
The Redemption and the Mergers Treated as One Integrated Transaction.
In determining the proper tax treatment to a redeeming shareholder,
other transactions (e.g., sales) occurring as part of the overall plan
are relevant in determining whether the Redemption Proceeds are
equivalent to a dividend. It has long been recognized, by both the
courts and the Internal Revenue Service (the "Service"), that a
redemption transaction may obtain capital gain or loss treatment if it
is combined with other steps pursuant to one overall plan.
First, it is appropriate to consider how the Mergers will be
characterized for federal income tax purposes. Although the Mergers
have been structured as mergers pursuant to state law, the existence of
Sub 1, Sub 2 and Sub 3, respectively, should be disregarded for tax
purposes. Thus, the Company Stockholders, the IAM shareholders and the
CRC shareholders should be viewed as having transferred their
shareholdings in the Company, IAM and CRC, respectively, directly to
NewCo in exchange for NewCo Stock. This is the case whether or not the
Mergers qualify as tax-free reorganizations under ss.ss.368(a)(1)(A)
and (a)(2)(E).
It is well established that where a series of transactions take place
pursuant to one integrated plan, all of the transactions should be
considered together in determining the treatment of redeeming
shareholders under ss.302. In the landmark decision of Zenz v.
Quinlivan, Mrs. Zenz, the sole shareholder of a corporation, had her
corporation redeem the balance of her shares after a portion of her
shares were sold to an unrelated party. The Service had argued that if
the corporation had redeemed Mrs. Zenz's shares before the sale, the
redemption would have been treated as a dividend because she continued
to own all of its then outstanding shares. The Court found that the
redemption and sale transactions were an integral part of an overall
plan and therefore had to be analyzed as a single transaction for
purposes of testing the redemption under ss.302(b), regardless of
whether the redemption preceded or followed the sale. So viewed, Mrs.
Zenz's redemption could not be viewed as essentially equivalent to a
dividend because her entire interest in the corporation had been
eliminated. The Service said it would follow Zenz under similar
circumstances.
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Subsequent court cases as well as published and private letter rulings
of the Service indicate that not only has the principal of Zenz been
embraced, namely, that a capital ss.302(a) redemption may be achieved
via a multistep transaction, but that it extends to capital redemption
transactions which do not constitute a complete termination of interest
within the meaning of ss.302(b)(3), as well as to ss.304 transactions
generally. Thus, the Service relied upon Zenz to conclude that for
purposes of determining whether the "substantially disproportionate"
test contained in ss.302(b)(2) is met, the sequence in which either a
redemption and sale of stock on the one hand or a redemption and a
"buy-in" of stock on the other hand occur is irrelevant so long as
both events are clearly part of an overall, integrated plan. Moreover,
consistent with Zenz, the Service in this and other rulings has
indicated that the overall financial plan which allows for the
integration of various steps need not be undertaken pursuant to a
written agreement between the redeeming shareholder and third parties
but rather that the redeeming shareholder needs to evince an intention
to bring about a reduction or elimination of his stock holdings and
that such intent is demonstrated when a "plan" is found.
The Service applied Zenz principles to reach a non-dividend conclusion
under ss.356 in a recapitalization context when the effect of the
overall plan, applying analogous redemption concepts, would have
qualified as "not essentially equivalent to a dividend" within the
meaning of ss.302(b)(1). The Tax Court similarly applied Zenz to reach
a ss.302(b)(1) conclusion in the context of a multi-year redemption
plan. Redemption transactions involving ss.304 have applied the same
principles for determining capital treatment vs. dividend equivalence.
Although the Service and the Courts are in general agreement that under
certain circumstances, the tax effect of a redemption must take into
account other transactions occurring as an integral part of the
redemption plan, the Service and the Courts enunciate the proper test
to be applied differently. Thus, the Service, in a number of the
authorities alluded to above, refers to one overall financial plan with
the intent of the redeeming shareholder being paramount and with the
circumstances surrounding the actual redemption being taken into
account as a reflection of the manifestation of that shareholder's
intention. The Courts, on the other hand, for the most part, have
essentially focused on whether the steps sought to be integrated were
part of a "firm and fixed" plan. In one case, however, the Court
required the taxpayer to prove that "an overall financial plan existed"
before the Court was prepared to consider the impact of certain public
offerings of the acquiring corporation which took place subsequent to
the ss.304 redemption transaction and which had the effect of reducing
the taxpayer's relevant stock interest -- something the taxpayer could
not do. Interestingly enough, in that case however, the Service and the
Tax Court took the first public offering into account in determining
the tax effect of the ss.304 sale itself because there, inter alia, the
ss.304 sale anticipated that public offering occurring, which it did.
Moreover, that public offering was contemporaneous with the ss.304 sale
itself. In contrast, the Service argued and the Tax Court found that
the second public offering took place more than 2 years after the first
one and was not considered when the ss.304 sale took place.
Accordingly, it could have no bearing on the tax treatment accorded to
the redeeming shareholders.
In reviewing the facts of the instant case, we are cognizant that
whether a "firm and fixed plan" for the Mergers to take place existed
at the time the Company redeemed certain of its shares of Company Stock
is a question of fact. Phrasing the inquiry in terms of whether an
"overall financial plan" to reduce the Redeeming Stockholders' interest
in the Company is likewise dependent on a factual determination. We are
persuaded, however, that the objective facts and circumstances
surrounding the Company's redemption of certain of its shares of
Company Stock, particularly (i) the documentation of the overall plan
of the Company; and (ii) the relatively short time between the time of
the redemption and the time of the Mergers, warrant that the tax
treatment resulting from the transaction take into account the effect
of the Mergers on the Redeeming Stockholders' actual and constructive
ownership in the Company because the requisite plan existed at the time
of the redemption of Company's Stock. Assuming the correctness of that
observation, each of the Redeeming Stockholders' interests in the
Company, both actually and constructively, was reduced.
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Complete Terminations.
Section 302(b)(3) provides that a redemption will be treated as an
exchange pursuant to ss.302(a) if it is in complete redemption of all
of the stock of the corporation owned by the stockholder. Accordingly,
any Redeeming Stockholder who owns no Company Stock after the
Redemption and the Mergers have taken place will be considered to have
disposed of his or her shares of Company Stock in a sale or exchange,
and will recognize a capital gain or loss accordingly.
For purposes of testing a redemption under ss.302, the stock
attribution rules of ss.318(a) apply when making computations of stock
ownership before and after the redemption. Under ss.318, in addition to
stock which a shareholder actually owns, he is also considered to own
constructively stock owned by certain other persons. The attribution
rules operate to attribute stock to a distributee, not away from him to
other shareholders. Further, a person can be considered to own stock by
attribution from other persons under ss.318 even if he actually owns no
stock in the corporation. These rules of constructive ownership operate
inflexibly under ss.302(b)(1)-(4).
For purposes of ss.302, the existence of relationships that may or may
not give rise to constructive ownership under ss.318 are to be
determined at the date on which the redemption occurs (as distinct, for
example, from the date on which an executory agreement to redeem stock
is entered into with a specified "closing date" on which the actual
exchange will occur).
There is attribution based on familial relationships - i.e. an
individual is deemed to own stock owned by certain family members.
Ownership of stock is also attributed between entities and their
owners. Stock owned by a partnership or estate is considered owned
proportionately by its partners or beneficiaries. Stock owned by a
trust (other than an employee trust under ss.401(a)) is considered
owned by the trust beneficiaries in proportion to their actuarial
interests in the trust (even if remote or contingent). Stock owned by a
corporation is considered owned by its 50% or more (by value)
shareholders to the extent of a proportion equal to the shareholder's
percentage interest (by value) in the corporation.
Since no Redeeming Stockholder will own 50% or more of the shares of
NewCo Stock, no Redeeming Stockholder will be deemed to own any stock
in the Company after the Mergers. Thus, we have concluded that all
Redeeming Stockholders will be considered to have completely terminated
their interest in the Company.
III. The Company Stockholders' contribution of Company Stock, the IAM
Stockholders' contribution of IAM Stock, and the CRC Stockholders'
contribution of CRC Stock are part of one integrated plan as described
in the Merger Agreement. However, we have excluded from this opinion
the tax consequences to the IAM and CRC Stockholders in connection with
this transaction other than as expressly stated herein.
Section 351(a) provides that no gain or loss will be recognized if
property is transferred to a corporation by one or more persons solely
in exchange for stock in such corporation and immediately after the
exchange such person or persons are in control of the corporation.
Section 368(c) defines control, for purposes of ss.351, to mean the
ownership of stock possessing at least 80 percent of the total combined
voting power of all classes of stock entitled to vote and at least 80
percent of the total number of shares of all other classes of the
corporation's stock. Section 351 does not apply unless the transferor
or transferors hold control, as defined in ss.368(c), of the transferee
corporation immediately after the transfer, i.e., at least 80 percent
of the vote and 80 percent of each class of nonvoting stock. Regulation
ss. 1.351-1(a)(1) clarifies that the phrase "immediately after the
exchange" does not necessarily require simultaneous exchanges by two or
more persons, but comprehends a situation where the rights of the
parties have been previously defined and the execution of the agreement
proceeds with an expedition consistent with orderly procedure. In the
present case, the receipt of shares of NewCo by the Company
Stockholders in exchange for Company Stock, the receipt of shares of
NewCo by the IAM Stockholders in exchange for IAM Stock, and the
receipt of shares of NewCo by the CRC Stockholders in exchange for CRC
Stock should be viewed as one integrated transaction since the rights
of the parties have been clearly defined in advance by
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the Merger Agreement. Accordingly, the control test of ss.368(c) should
be applied after all of the Mergers have been completed.
In order to qualify under ss.351, the Company Stockholders, the IAM
Stockholders, and the CRC Stockholders must be considered transferors,
so that the transferors own at least 80 percent of the common stock of
NewCo. Since the proposed transaction, in form, consists of three
simultaneously- executed reverse mergers, the Company Stockholders, the
IAM Stockholders, and the CRC Stockholders are not transferring their
Company Stock, IAM Stock and CRC Stock directly to NewCo. However, Sub
1, Sub 2 and Sub 3, and their role in the Mergers should be
disregarded, and the Company Stockholders, the IAM Stockholders, and
the CRC Stockholders will be treated as having transferred property
(i.e. their respective shareholdings in the Company, IAM and CRC) to
NewCo in exchange for shares of NewCo.
In Rev. Rul. 67-448, pursuant to a plan of reorganization, a parent
corporation issued some of its voting shares to its new subsidiary and
the subsidiary immediately merged into an unrelated corporation, with
unrelated corporation's shareholders receiving parent stock and the
parent receiving 80 percent or more of the unrelated corporation's
stock. The Service held that the existence of the transitory subsidiary
was disregarded and the transaction was to be viewed, in substance, as
an acquisition by the parent, in exchange solely for part of its voting
stock, of the unrelated corporation's stock within the meaning of
ss.368(a)(1)(B). See also Rev. Rul. 73-427, in which the transitory
subsidiary in a reverse merger was disregarded and the transaction
treated as a taxable stock acquisition. Thus, under Rev. Rul. 67-448,
the shareholders of Company, IAM and CRC can be considered transferors
because the existence of Sub 1, Sub 2 and Sub 3 would be disregarded
due to its transitory nature. See Rev. Rul. 68-357, in which the
Service held that in a transaction which is treated as a
reorganization, a transferor in the reorganization can also be treated
as a transferor in a ss. 351 transaction. See also Rev. Rul. 76-123.
In 1970 Congress enacted ss.368(a)(2)(E), which addresses the tax
consequences of a reverse triangular merger. In a transaction
qualifying under ss.368(a)(2)(E), the transitory existence is not
disregarded and the shareholders of Company, IAM and CRC would not be
considered transferors. Inasmuch as Rev. Rul. 67-448 has never been
revoked, a transaction can qualify as both a reorganization under
ss.368(a)(2)(E) and as a reorganization under ss.368(a)(1)(B) or a
transfer under ss.351. Using the shareholders of Company, IAM and CRC
as transferors is also consistent with the position of the Service in
PLR 9143025 (July 24, 1991) where the transaction qualified under
ss.368(a)(2)(E), but the Service held that, solely for purposes of
determining whether the 80% requirement had been met so as to qualify
for treatment under ss.351, the target's shareholders would be
considered "transferors" described in ss.351. Although private letter
rulings cannot be cited as authority they at least indicate the
Service's current thinking.
In Rev. Rul. 84-44, the Service held that stock of a parent
corporation, received by shareholders of a target corporation in a
merger under ss.ss.368(a)(1)(A) and 368(a)(2)(D), will not be
aggregated with stock of the parent received by a transferor of
property to the parent in determining whether the control requirement
of ss.351 is met. In a merger under ss.ss.368(a)(1)(A) and
368(a)(2)(D), the target is merged into a subsidiary of the parent
corporation whose stock is exchanged. Since the parent did not receive
any property for the stock it issued in the merger under
ss.ss.368(a)(1)(A) and 368(a)(2)(D), the stock received in the merger
cannot count towards the control requirement.
As stated above, if the form of the transaction is followed, the
Company Stockholders, the IAM Stockholders, and the CRC Stockholders
would not be considered transferors for purposes of the control
requirement. However, based on Rev. Ruls. 67-448 and 73-427, the
transitory existence of Sub 1, Sub 2 and Sub 3 can be ignored and the
transaction treated as a transfer of the stock of the Company, IAM and
CRC to NewCo in exchange for shares of NewCo. Unlike a merger that
qualifies as a reorganization under ss.ss.368(a)(1)(A) and
368(a)(2)(D), there are no revenue rulings that recast a merger that
qualifies as a reorganization under ss.ss.368(a)(1)(A) and 368(a)(2)(E)
as a stock sale.
In PLRs 8817079 (February 4, 1988) and 8822062 (March 7, 1988), the
Service stated in footnotes that if a merger qualifies under
ss.ss.368(a)(1)(A) and 368(a)(2)(E), the stock of the controlling
parent
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corporation received in these transaction will not count toward the
control requirement of ss.351, because, following the form, the
controlling parent corporation did not receive any property in the
transaction. Since the Service has not revoked Rev. Rul. 67-448, we
believe that these rulings are contrary to the Service's published
position as to the qualification of a merger under ss.ss.368(a)(1)(A)
and 368(a)(2)(E) which also qualifies under ss.368(a)(1)(B). These
letters are also inconsistent with the Service's position taken in a
later private letter ruling, PLR 9143025 (discussed above). The Service
has acknowledged that a transaction can qualify under more than one
reorganization provision. In Rev. Rul. 75-161, the Service recognized
that a transaction can qualify as both a ss.368(a)(1)(A) and a
ss.368(a)(1)(D) reorganization at the same time. See also Rev. Rul.
79-289 (involving a ss.368(a)(1)(D) and 368(a)(1)(F) overlap) and Prop.
Reg. ss. 1.358-6(c)(5) (where the service acknowledges that a
ss.368(a)(2)(E) and 368(a)(1)(B) overlap can occur) which, we believe,
revoked the Service's position sub silento in PLRs 8817079 and 8822062.
In Rev. Rul. 68-349, the Service held that the transfer of property by
an individual to a newly formed corporation does not qualify under
ss.351 where another corporation simultaneously transfers its assets to
the new corporation for the purpose of qualifying the individual's
transfer thereunder. This revenue ruling is distinguishable from the
present facts since the new corporation was merely considered to be a
continuation of the old corporation while in our facts, we have a new
corporate structure. (Compare Rev. Rul. 68-357, above.)
Thus, for purposes of determining whether the 80 percent control
requirement has been met so as to qualify the Company Stockholders for
treatment under ss.351, the IAM Stockholders, and the CRC Stockholders
should be considered to be transferors described in ss.351, and
accordingly, the IAM and CRC Stockholders' ownership of NewCo Stock
should be included in the computation of control.
The combined ownership of the transferors (i.e. the Stockholders of the
Company, IAM and CRC) will exceed 80 percent because the transferors
will own 100 percent of NewCo's stock. Since the Company Stockholders
will receive shares of NewCo, the transaction should qualify for
treatment under ss.351. Thus no gain or loss will be recognized by the
Redeeming Stockholders upon the transfer of Company Stock to NewCo in
exchange solely for stock of NewCo, under ss.351(a). Non- Redeeming
Stockholders will recognize gain, but not loss, to the extent of any
cash received under the Merger Agreement, under ss.351.
Section 1032(a) provides that no gain or loss shall be recognized to a
corporation on the receipt of money or other property in exchange for
stock (including treasury stock) of such corporation. Since NewCo will
issue its stock for property, no gain or loss should be recognized to
NewCo.
Section 358(a)(1) provides that, in the case of an exchange to which
ss.351 applies, the basis of the property permitted to be received
under such section without the recognition of gain or loss shall be the
same as that of the property exchanged, decreased by (i) the fair
market value of any other property (except money) received by the
taxpayer, (ii) the amount of money received by the taxpayer, and (iii)
the amount of loss to the taxpayer which was recognized on such
exchange, and increased by (i) the amount which was treated as a
dividend, and (ii) the amount of gain to the taxpayer which was
recognized in such exchange (not including any portion of such gain
which was treated as a dividend). Since this transaction will
constitute an exchange to which ss.351 applies, the basis of the shares
of NewCo to be received by the Redeeming Shareholders in the proposed
transaction will be the same as their basis in the Company Stock that
they transferred to NewCo. The basis of the shares of NewCo to be
received by the Non-Redeeming Shareholders in the proposed transaction
will be the same as their basis in the Company Stock that they
transferred to NewCo, increased by the amount of any gain recognized by
virtue of the transaction, and decreased by the amount of boot
received.
Section 1223(1) provides that, in determining the period for which the
taxpayer has held property received in an exchange, there shall be
included the period for which the taxpayer held the property exchanged
if the property has, for the purpose of determining gain or loss from a
sale or exchange, the same basis (in whole or in part) in its hands as
the property exchanged, provided the property exchanged at the time of
such exchange is a capital asset as defined in ss.1221 or property
described in ss.1231. Since the basis of the shares of NewCo held by
the Company Stockholders will have the
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same basis (in whole or in part) as the Company Stock exchanged
therefor, in determining the period for which the Company Stockholders
have held such shares of NewCo, the holding period will include the
period for which they held their Company Stock, provided that the
Company Stock was a capital asset on the date of the exchange.
The transaction described herein has not been analyzed to determine
whether it also qualifies in whole, or in part, as a reorganization
under ss.368(a)(1)(A) and ss.368(a)(2)(E). However, the federal income
tax consequences to the Company Stockholders will be unaffected by such
a determination.
If applicable, ss.304 would potentially recharacterize any cash
received by a Non-Redeeming Stockholder, pursuant to the Merger
Agreement, as a redemption. However, ss.304 only applies where, inter
alia, the controlling shareholders (i.e. the Company Stockholders), as
a group, own 50% or more of the voting power or value of the acquiror
(i.e. NewCo) at any point in time during a multi-step transaction.
Issues may also arise as to whether the post-merger dividend from the
Company to NewCo will be respected by the Service. If it were not,
Non-Redeeming Stockholders receiving cash pursuant to the Merger
Agreement would be deemed to have received a dividend directly from the
Company prior to the Company Merger. However, the facts and
circumstances surrounding the proposed dividend from the Company to
NewCo are potentially distinguishable from situations in which the
Service has recharacterized such a dividend.
No tax ruling from the Service has or will be obtained with respect to
the particular issues addressed by this opinion. Accordingly, we can
give no assurance that the Service will not take a position contrary to
this opinion. The opinion represents our considered judgment as to the
proper tax treatment to the parties concerned based upon the law as it
existed at the time the transaction was consummated and the facts as
they were presented to us. Our opinion is not binding upon the Service
or the courts. However, because it is consistent with the relevant
published precedents of the Service in the areas discussed, and follows
the Treasury Department's own regulations governing these matters, both
the Service and the courts should be receptive to our analysis. Based
on the foregoing, it is our opinion that, if the issues were fairly and
completely presented in litigation, the result would be that the
redemption by the Company of certain shares of Company Stock would be
treated for federal income tax purposes as a sale or exchange resulting
in the recognition of capital gain or loss, and the Redeeming
Stockholders would be entitled to report the transaction accordingly.
It is also our opinion that no gain or loss would be recognized by the
Redeeming Stockholders upon the transfer of their Company Stock to
NewCo in exchange solely for stock of NewCo, and that gain, but not
loss, would be recognized by the Non-Redeeming Stockholders upon the
transfer of their Company Stock to NewCo in exchange for stock of NewCo
and other property (i.e. the cash portion of the Company Merger
proceeds) to the extent of the fair value of the other property
received. In the event of any change to the applicable law or relevant
facts, we would of necessity need to reconsider our views.
This opinion is for the sole benefit of the Company and the
Company Stockholders and may not be relied upon by any other persons.
Furthermore, this opinion may not be referenced by any person other than the
Company and the Company Stockholders without our express written consent. We
hereby consent to the inclusion of this opinion as an exhibit to the
Registration Statement on Form S-4 filed by NewCo with the Securities and
Exchange Commission relating to the transactions described in this opinion, as
amended (the "Registration Statement").
Should you wish any further assistance in connection with this
or any other matter, we will be happy to provide it.
Very truly yours,
/s/ DELOITTE & TOUCHE, LLP
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Annex D
SECTION 262 OF THE GENERAL CORPORATION LAW OF
THE STATE OF DELAWARE
(a) Any stockholder of a corporation of this State who holds shares of
stock on the date of the making of a demand pursuant to subsection (d)
of this section with respect to such shares, who continuously holds
such shares through the effective date of the merger or consolidation,
who has otherwise complied with subsection (d) of this section and who
has neither voted in favor of the merger or consolidation nor consented
thereto in writing pursuant to s 228 of this title shall be entitled to
an appraisal by the Court of Chancery of the fair value of the
stockholder's shares of stock under the circumstances described in
subsections (b) and (c) of this section. As used in this section, the
word "stockholder" means a holder of record of stock in a stock
corporation and also a member of record of a nonstock corporation; the
words "stock" and "share" mean and include what is ordinarily meant by
those words and also membership or membership interest of a member of a
nonstock corporation; and the words "depository receipt" mean a receipt
or other instrument issued by a depository representing an interest in
one or more shares, or fractions thereof, solely of stock of a
corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or
consolidation to be effected pursuant to s 251 (other than a merger
effected pursuant to s 251(g) of this title), s 252, s 254, s 257, s
258, s 263 or s 264 of this title:
(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of
stock, which stock, or depository receipts in respect thereof,
at the record date fixed to determine the stockholders
entitled to receive notice of and to vote at the meeting of
stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities
exchange or designated as a national market system security on
an interdealer quotation system by the National Association of
Securities Dealers, Inc. or (ii) held of record by more than
2,000 holders; and further provided that no appraisal rights
shall be available for any shares of stock of the constituent
corporation surviving a merger if the merger did not require
for its approval the vote of the stockholders of the surviving
corporation as provided in subsection (f) of s 251 of this
title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal
rights under this section shall be available for the shares of
any class or series of stock of a constituent corporation if
the holders thereof are required by the terms of an agreement
of merger or consolidation pursuant to ss 251, 252, 254, 257,
258, 263 and 264 of this title to accept for such stock
anything except:
a. Shares of stock of the corporation surviving or
resulting from such merger or consolidation, or
depository receipts in respect thereof;
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b. Shares of stock of any other corporation, or
depository receipts in respect thereof, which shares
of stock (or depository receipts in respect thereof)
or depository receipts at the effective date of the
merger or consolidation will be either listed on a
national securities exchange or designated as a
national market system security on an interdealer
quotation system by the National Association of
Securities Dealers, Inc. or held of record by more
than 2,000 holders;
c. Cash in lieu of fractional shares or fractional
depository receipts described in the foregoing
subparagraphs a. and b. of this paragraph; or
d. Any combination of the shares of stock, depository
receipts and cash in lieu of fractional shares or
fractional depository receipts described in the
foregoing subparagraphs a., b. and c. of this
paragraph.
(3) In the event all of the stock of a subsidiary Delaware
corporation party to a merger effected under s 253 of this
title is not owned by the parent corporation immediately prior
to the merger, appraisal rights shall be available for the
shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares
of any class or series of its stock as a result of an amendment to its
certificate of incorporation, any merger or consolidation in which the
corporation is a constituent corporation or the sale of all or
substantially all of the assets of the corporation. If the certificate
of incorporation contains such a provision, the procedures of this
section, including those set forth in subsections (d) and (e) of this
section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal
rights are provided under this section is to be submitted for
approval at a meeting of stockholders, the corporation, not
less than 20 days prior to the meeting, shall notify each of
its stockholders who was such on the record date for such
meeting with respect to shares for which appraisal rights are
available pursuant to subsection (b) or (c) hereof that
appraisal rights are available for any or all of the shares of
the constituent corporations, and shall include in such notice
a copy of this section. Each stockholder electing to demand
the appraisal of his shares shall deliver to the corporation,
before the taking of the vote on the merger or consolidation,
a written demand for appraisal of his shares. Such demand will
be sufficient if it reasonably informs the corporation of the
identity of the stockholder and that the stockholder intends
thereby to demand the appraisal of his shares. A proxy or vote
against the merger or consolidation shall not constitute such
a demand. A stockholder electing to take such action must do
so by a separate written demand as herein provided. Within 10
days after the effective date of such merger or consolidation,
the surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied
with this subsection and has not voted in favor of or
consented to the merger or consolidation of the date that the
merger or consolidation has become effective; or
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(2) If the merger or consolidation was approved pursuant to s 228
or s 253 of this title, each constituent corporation, either
before the effective date of the merger or consolidation or
within ten days thereafter, shall notify each of the holders
of any class or series of stock of such constituent
corporation who are entitled to appraisal rights of the
approval of the merger or consolidation and that appraisal
rights are available for any or all shares of such class or
series of stock of such constituent corporation, and shall
include in such notice a copy of this section; provided that,
if the notice is given on or after the effective date of the
merger or consolidation, such notice shall be given by the
surviving or resulting corporation to all such holders of any
class or series of stock of a constituent corporation that are
entitled to appraisal rights. Such notice may, and, if given
on or after the effective date of the merger or consolidation,
shall, also notify such stockholders of the effective date of
the merger or consolidation. Any stockholder entitled to
appraisal rights may, within 20 days after the date of mailing
of such notice, demand in writing from the surviving or
resulting corporation the appraisal of such holder's shares.
Such demand will be sufficient if it reasonably informs the
corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of such
holder's shares. If such notice did not notify stockholders of
the effective date of the merger or consolidation, either
(i) each such constituent corporation shall send a second
notice before the effective date of the merger or
consolidation notifying each of the holders of any
class or series of stock of such constituent
corporation that are entitled to appraisal rights of
the effective date of the merger or consolidation or
(ii) the surviving or resulting corporation shall send
such a second notice to all such holders on or within
10 days after such effective date; provided, however,
that if such second notice is sent more than 20 days
following the sending of the first notice, such
second notice need only be sent to each stockholder
who is entitled to appraisal rights and who has
demanded appraisal of such holder's shares in
accordance with this subsection. An affidavit of the
secretary or assistant secretary or of the transfer
agent of the corporation that is required to give
either notice that such notice has been given shall,
in the absence of fraud, be prima facie evidence of
the facts stated therein. For purposes of determining
the stockholders entitled to receive either notice,
each constituent corporation may fix, in advance, a
record date that shall be not more than 10 days prior
to the date the notice is given, provided, that if
the notice is given on or after the effective date of
the merger or consolidation, the record date shall be
such effective date. If no record date is fixed and
the notice is given prior to the effective date, the
record date shall be the close of business on the day
next preceding the day on which the notice is given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any
stockholder who has complied with subsections (a) and (d) hereof and
who is otherwise entitled to appraisal rights, may file a petition in
the Court of Chancery demanding a determination of the value of the
stock of all such stockholders. Notwithstanding the foregoing, at any
time within 60 days after the effective date of the merger or
consolidation, any stockholder shall have the right to withdraw his
demand for appraisal and to accept the terms offered upon the merger or
consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with the
requirements of subsections (a) and (d) hereof, upon written request,
shall be entitled to receive from the corporation surviving the merger
or resulting from the consolidation a statement setting forth the
aggregate number of shares not voted in favor of the merger or
consolidation and with respect to which demands for appraisal have been
received and the aggregate number of holders of such shares. Such
written statement shall be mailed to the stockholder within 10 days
after his written request for such a statement is received
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by the surviving or resulting corporation or within 10 days after
expiration of the period for delivery of demands for appraisal under
subsection (d) hereof, whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation,
which shall within 20 days after such service file in the office of the
Register in Chancery in which the petition was filed a duly verified
list containing the names and addresses of all stockholders who have
demanded payment for their shares and with whom agreements as to the
value of their shares have not been reached by the surviving or
resulting corporation. If the petition shall be filed by the surviving
or resulting corporation, the petition shall be accompanied by such a
duly verified list. The Register in Chancery, if so ordered by the
Court, shall give notice of the time and place fixed for the hearing of
such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the
addresses therein stated. Such notice shall also be given by 1 or more
publications at least 1 week before the day of the hearing, in a
newspaper of general circulation published in the City of Wilmington,
Delaware or such publication as the Court deems advisable. The forms of
the notices by mail and by publication shall be approved by the Court,
and the costs thereof shall be borne by the surviving or resulting
corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become
entitled to appraisal rights. The Court may require the stockholders
who have demanded an appraisal for their shares and who hold stock
represented by certificates to submit their certificates of stock to
the Register in Chancery for notation thereon of the pendency of the
appraisal proceedings; and if any stockholder fails to comply with such
direction, the Court may dismiss the proceedings as to such
stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of
any element of value arising from the accomplishment or expectation of
the merger or consolidation, together with a fair rate of interest, if
any, to be paid upon the amount determined to be the fair value. In
determining such fair value, the Court shall take into account all
relevant factors. In determining the fair rate of interest, the Court
may consider all relevant factors, including the rate of interest which
the surviving or resulting corporation would have had to pay to borrow
money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to
participate in the appraisal proceeding, the Court may, in its
discretion, permit discovery or other pretrial proceedings and may
proceed to trial upon the appraisal prior to the final determination of
the stockholder entitled to an appraisal. Any stockholder whose name
appears on the list filed by the surviving or resulting corporation
pursuant to subsection (f) of this section and who has submitted his
certificates of stock to the Register in Chancery, if such is required,
may participate fully in all proceedings until it is finally determined
that he is not entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting
corporation to the stockholders entitled thereto. Interest may be
simple or compound, as the Court may direct. Payment shall be so made
to each such stockholder, in the case of holders of uncertificated
stock forthwith, and the case of holders of shares represented by
certificates upon the surrender to the corporation of the certificates
representing such stock. The Court's decree may be enforced as other
decrees in the Court of Chancery may be enforced, whether such
surviving or resulting corporation be a corporation of this State or of
any state.
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(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances.
Upon application of a stockholder, the Court may order all or a portion
of the expenses incurred by any stockholder in connection with the
appraisal proceeding, including, without limitation, reasonable
attorney's fees and the fees and expenses of experts, to be charged pro
rata against the value of all the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in
subsection (d) of this section shall be entitled to vote such stock for
any purpose or to receive payment of dividends or other distributions
on the stock (except dividends or other distributions payable to
stockholders of record at a date which is prior to the effective date
of the merger or consolidation); provided, however, that if no petition
for an appraisal shall be filed within the time provided in subsection
(e) of this section, or if such stockholder shall deliver to the
surviving or resulting corporation a written withdrawal of his demand
for an appraisal and an acceptance of the merger or consolidation,
either within 60 days after the effective date of the merger or
consolidation as provided in subsection (e) of this section or
thereafter with the written approval of the corporation, then the right
of such stockholder to an appraisal shall cease. Notwithstanding the
foregoing, no appraisal proceeding in the Court of Chancery shall be
dismissed as to any stockholder without the approval of the Court, and
such approval may be conditioned upon such terms as the Court deems
just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had
they assented to the merger or consolidation shall have the status of
authorized and unissued shares of the surviving or resulting
corporation.
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Annex E
INCENTIVE STOCK OPTION PLAN
OF
INTREPID CAPITAL CORPORATION
THIS IS THE INCENTIVE STOCK OPTION PLAN (the "Plan") of INTREPID
CAPITAL CORPORATION (the "Corporation") under which options may be granted from
time to time to eligible employees of the Corporation or any of its subsidiary
corporations (collectively the "Subsidiaries" and severally the "Subsidiary") to
purchase shares of the Corporation's Common Stock, par value $0.01 per share
(the "Common Stock"), subject to the limitations, provisions and requirements
hereinafter stated.
The Plan was adopted by the board of directors on _______________, 1998
and was approved by the Corporation's stockholders on ___________, 1998. The
terms of the Plan are as follows:
1. PURPOSE.
The purposes of the Plan are to provide an opportunity for officers and
other key employees of the Corporation or its Subsidiaries to acquire an equity
interest in the Corporation as an incentive to serve or continue to serve as an
officer of the Corporation and to aid the Corporation in obtaining and retaining
key personnel with outstanding ability.
2. ADMINISTRATION.
After the initial grants which may be authorized by the entire board of
directors, the Plan shall be administered by the Incentive Stock Option
Committee (the "Committee"). The Committee shall be appointed by the board of
directors of the Corporation and shall consist of not less than two members of
the Corporation's board of directors. As long as the Principal Enviroq
Stockholders and the Principal IAM/CRC Shareholders (as such terms are defined
in that certain Voting Agreement, dated as of April 22, 1998, by and between the
Corporation, certain stockholders of Enviroq Corporation, certain shareholders
of Institutional Asset Management, Inc. and certain shareholders of Capital
Research Corporation (the "Voting Agreement")) are able to designate one
director on the board of directors pursuant to the provisions of the Voting
Agreement, each will have at least one director designated by them serving on
the Committee. Subject to the immediately preceding sentence, the board of
directors may from time to time remove members from, or add members to, the
Committee; vacancies on the Committee, howsoever caused, shall be filled by the
board of directors. The Committee shall select one of its members as Chairman,
and shall hold meetings at such times and places as it may determine. Acts taken
by a majority of the Committee at which a quorum is present, or acts reduced to
or approved in writing by a majority of the members of the Committee, shall be
the valid acts of the Committee. No director, while a member of the Committee,
shall be eligible to receive an option under the plan.
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The interpretation and construction of the Committee of any provisions
of the Plan or of any option granted under it shall be final unless otherwise
determined by the Board of directors. No member of the Board of directors or the
Committee shall be liable for any action or determination made in good faith
with respect to the Plan or any option granted under it.
3. ELIGIBILITY.
(a) The persons who shall be eligible to receive options shall be
such key executive employees (including officers, whether or
not they are directors) of the Corporation or its
Subsidiaries, (as such term is defined in Section 424 of the
Internal Revenue Code of 1986, as amended ("Code")), existing
from time to time as the Committee shall select from time to
time. An optionee may hold more than one option, but only on
the terms and subject to the restrictions set forth in this
Plan.
(b) No option shall be granted hereunder to any employee if, at
the time of the grant, such employee owns stock possessing
more than ten percent (10%) of the total combined voting power
or value of all classes of stock of the Corporation or its
Subsidiaries as determined pursuant to Code Section 422 and
Regulations promulgated thereunder unless the option price to
such an employee is at least 110% of the fair market value of
the Common Stock subject to the option at the time the option
is granted and the option by its terms is not exercisable more
than five years from the date it is granted.
4. COMMON STOCK SUBJECT TO OPTIONS.
The stock subject to the options shall be shares of the Corporation's
authorized but unissued or reacquired Common Stock (the "Shares"). The aggregate
number of Shares which may be issued under options shall not exceed One Hundred
Thousand (100,000) shares, subject to adjustment as provided in Article 7 of
this Plan. In the event any option shall, for any reason, terminate or expire or
be surrendered without having been exercised in full, the Shares subject to such
option but not purchased thereunder shall again be available for options to be
granted under the Plan.
5. TERMS AND CONDITIONS OF OPTIONS.
Any incentive stock options granted pursuant to the Plan by the
Committee shall be evidenced by agreements ("Stock Option Agreements"), executed
by the Committee and the Optionee, in such form as the Committee shall from time
to time approve, which agreements shall comply with and be subject to the
following terms and conditions:
(a) Number of Shares.
Each option shall state the number of Shares to which it pertains.
(b) Option Price.
Each option shall state the option price, which shall be not less than
100%, and if Article 3, Section (b) applies, shall be not less than
110%, of the fair market value of the Common Stock on the date of the
granting of the option ("Option Price"), as determined by the Committee
at the time of the grant in accordance with applicable provisions of
the Code and Treasury Department rulings and regulations thereunder.
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(c) Medium and Time of Payment.
The Option Price shall be payable in United States dollars upon the
exercise of the option and may be paid by cashier's, certified or other
check, or with Common Stock.
(d) Term and Exercise of Options.
Subject to the accumulation requirement provided in the last sentence
of this subdivision, each option shall be exercisable as to not more
than twenty five percent (25%) of the total number of shares covered
thereby during each consecutive twelve month period commencing on the
date of the granting of the option until all shares covered by the
option shall have been purchased. No option shall be exercisable after
the expiration of ten (10) years from the date it is granted and if
Article 3, Section (b) applies, no option to such an employee shall be
exercisable more than five (5) years from the date it is granted. Not
less than one hundred Shares may be purchased at any one time unless
the number purchased is the total number purchasable under the option.
During the lifetime of the optionee, the option shall be exercisable
only by him or her and shall not be assignable or transferable by him
or her and no other person shall acquire any rights therein. To the
extent not exercised, installments shall accumulate and be exercisable,
in whole or in part, in any subsequent period but not later than ten
years, or if Article 3, Section (b) applies five (5) years, from the
date the option is granted.
(e) Maximum Amount of Options that May be Exercised.
The aggregate fair market value (determined as of the time the option
is granted) of the Shares with respect to which incentive stock options
are exercisable for the first time by an employee during any calendar
year shall not exceed One Hundred Thousand Dollars ($100,000).
(f) Termination of Employment Except by Death.
In the event that an optionee shall cease to be employed by the
Corporation or its Subsidiaries for any reason other than his or her
death and shall be no longer in the employ of any of them, no option
shall be exercisable by such optionee. Whether authorized leave of
absence or absence for military of governmental service shall
constitute termination of employment, for the purposes of the Plan,
shall be determined by the Committee, which determination, unless
overruled by the Board of directors, shall be final and conclusive.
(g) Death of Optionee.
If the optionee shall die while in the employ of the Corporation or a
Subsidiary and shall not have fully exercised an option, the option may
be exercised, subject to the condition that no option shall be
exercisable after the expiration of ten (10) years, and if Article 3,
Section (b) applies five (5) years, from the date it is granted, to the
extent that the optionee's right to exercise such option had accrued
pursuant to Article 5, Section (d) of the Plan at the time of his or
her death and had not previously been exercised, at any time prior to
one year after the date of the optionee's death which date shall in no
event be later than ten (10) years, and if Article 3, Section (b)
applies five (5) years from the date the option is granted, by the
executors or administrators of the optionee or by any person or persons
who shall have acquired the option directly from the optionee by
bequest or inheritance.
(h) Non-Transferability of Options.
No option shall be transferable or assignable by the optionee otherwise
than by will or the laws of descent and distribution, and each option
shall be exercisable during the optionee's lifetime, only by him or
her. No option shall be pledged or hypothecated in any way and no
option shall be subject to execution, attachment, or similar process
except with the express consent of the Committee.
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(i) Holding Period.
The Internal Revenue Code of 1986, as amended, and the regulations and
rulings of the Treasury Department thereunder, and the Securities
Exchange Act of 1934, as amended, may impose certain holding period
requirements with respect to Common Stock purchased upon the exercise
of an option. Failure to meet such holding period requirements by
disposing of such Common Stock before the expiration of the applicable
holding period may result in adverse tax consequences upon the sale of
such Common Stock by realizing a gain on the amount by which the value
of the Common Stock on the date of exercise exceeded the Option Price.
All such realizable gain is taxed at ordinary income rates. In
addition, any gain realized on sale may be subject to the provisions of
ss.16 (b) of the Securities Exchange Act of 1934.
(j) Rights as a Stockholder.
An optionee or a transferee of an option shall have no rights as a
stockholder with respect to any shares covered by his or her option
until the date of the issuance of a stock certificate to him or her for
such shares. No adjustment shall be made for dividends (ordinary or
extraordinary, whether in cash, securities or other property) or
distributions or other rights for which the record date is prior to the
date such stock certificate is issued, except as provided in Article 7,
hereof.
(k) Investment Purpose.
Each option under the Plan shall be granted on the condition that the
purchase of stock thereunder shall be for investment purposes, and not
with a view to resale or distribution except that in the event that
stock subject to such option is registered under the Securities Act of
1933, as amended, or in the event a resale of such stock without such
registration would otherwise be permissible, such condition shall be
inoperative if in the opinion of counsel for the Corporation such
condition is not required under the Securities Act of 1933 or any other
applicable law, regulation or rule of any governmental agency.
(l) Other Provisions.
Each Stock Option Agreement authorized under the Plan shall contain
such other provisions, including, without limitation, restrictions upon
the exercise of the option, as the Committee and/or the board of
directors of the Corporation shall deem advisable and, in amplification
but not in limitation of the foregoing, the exercise of any option is
expressly authorized to be delayed until the effective date of a
Registration Statement on Form S-8 under the Securities Act of 1933.
6. FREEDOM OF CORPORATE ACTION.
The granting or existence of any option shall not affect in any way the
right or power of the Corporation or its stockholders to make or authorize any
or all adjustments, recapitalizations, reorganizations or other changes in the
Corporation's capital structure or its business, or any merger or consolidation
of the Corporation, or any issue of bonds, debentures, preferred or prior
preference stock ahead of or affecting the Common Stock or the rights thereof,
or the dissolution or liquidation of the Corporation, or any sale or transfer of
all or any part of the assets or business, or any other corporate act or
proceeding, whether of a similar character or otherwise.
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7. ADJUSTMENTS.
(a) In the event that the Corporation shall effect a subdivision
or combination of shares or other capital readjustment, the
payment of a stock dividend, or other increase or reduction of
the number of shares of Common Stock outstanding, without
receiving compensation therefor in money, services or
property, then (i) in the event of an increase in the number
of such shares outstanding, the Option Price shall be
proportionately reduced and the number of shares of Common
Stock then subject to the option shall be proportionately
increased; and (ii) in the event of a reduction in the number
of such shares outstanding, the Option Price payable per share
shall be proportionately increased and the number of shares of
Common Stock then subject to the option shall be
proportionately reduced.
(b) In the event of a merger of one or more corporations into the
Corporation, or a consolidation of the Corporation and one or
more corporations in which the Corporation shall be the
surviving corporation, an Optionee shall, if the option is
then outstanding, at no additional cost, be entitled upon
exercise of the option to receive (subject to any required
action by stockholders) in lieu of the number of shares as to
which the option shall be exercisable at the time of such
exercise, the number and class of shares of stock or other
securities to which it would have been entitled pursuant to
the terms of the agreement of merger or consolidation if,
immediately prior to such merger or consolidation, he or she
had been the holder of record of a number of shares of Common
Stock equal to the number of shares as to which the option
shall be so exercised. Notwithstanding the foregoing, if the
stockholders of the Corporation are required to surrender
their shares of stock in the Corporation pursuant to the terms
of any such consolidation or merger and receive any portion of
the purchase price in cash or other property (excluding stock
in the acquiring corporation) for their surrendered shares,
the Board of directors of the Corporation may cancel any
unexercised options as of the effective date of any such
consolidation or merger; provided, however (i) written notice
of any such cancellation is given to Optionee not later than
30 days prior to such effective date, and (ii) the Optionee
shall have the right to exercise such option in full during
said 30-day period preceding the effective date of such
consolidation or merger.
(c) In the event that the Corporation is merged into or
consolidated with another corporation under circumstances
where the Corporation is not the surviving corporation, or if
the Corporation sells or otherwise disposes of all or
substantially all its property or assets to another
corporation while the option remains outstanding, (i) subject
to the provisions of clause (ii) below, after the effective
date of such merger, consolidation or sale, as the case may
be, the optionee shall be entitled, upon exercise of the
option, to receive, in lieu of shares of Common Stock, the
number and class of shares of such stock or other securities
as the holders of shares of Common Stock received pursuant to
the terms of the merger, consolidation or sale and to which he
or she would have been entitled if, immediately prior to such
merger, consolidation or sale he or she had been the holder of
record of a number of shares of Common Stock equal to the
number of shares as to which the option shall be so exercised;
and (ii) the option may be canceled by the Board of directors
of the Corporation as of the effective date of any such
merger, consolidation or sale, provided that (x) such merger,
consolidation or sale results in a change of control of the
business and operations of the Corporation rather than a mere
change of form or domicile of the Corporation, (y) written
notice of such cancellation is given to the Optionee not later
than 30 days prior to such effective date, and (z) the
Optionee shall have the right to exercise the option in full
during the said 30 day period preceding the effective date of
such merger, consolidation or sale.
(d) In case the Corporation shall determine to issue to the
holders of Common Stock rights to subscribe pro rata for any
new or additional shares of Common Stock, or any securities
convertible into Common Stock, then the Optionee shall be
entitled to participate in such pro rata offering in the same
manner and to the same extent as if the option has been
exercised at the Option Price then in effect and the number of
shares of Common Stock purchasable upon such exercise had been
issued to such Director pursuant to the terms of the option.
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(e) Except as hereinbefore expressly provided, the issue by the
Corporation of shares of stock of any class, or securities
convertible into shares of stock of any class, for cash or
property, or for labor or services either upon direct sale or
upon the exercise of rights or warrants to subscribe therefor,
or upon conversion of shares or obligations of the Corporation
convertible into such shares or other securities, shall not
affect, and no adjustment by reason thereof shall be made with
respect to, the Option Price or the number of shares of Common
Stock then subject to the option.
(f) In the event of a change in the Common Stock of the
Corporation as presently constituted, which is limited to a
change of all of its authorized shares with a par value into
the same number of shares with a different par value or
without par value, the shares resulting from any such change
shall be deemed to be the Common Stock within the meaning of
the Plan.
(g) To the extent that the foregoing adjustments relate to stock
or securities of the Corporation, such adjustments shall be
made by the Committee, whose determination in that respect
shall be final, binding and conclusive, provided that each
option granted pursuant to this plan shall not be adjusted in
a manner that caused the option to fail to continue to qualify
as an incentive stock option within the meaning of Code
Section 422.
(h) Except as hereinabove expressly provided in Article 7, the
optionee shall have no rights by reason of any subdivision or
consolidation of shares of stock of any class or the payment
of any stock dividend or any other increase or decrease in the
number of shares of stock of any class or by reason of any
dissolution, liquidation, merger, or consolidation or spin-off
of assets or stock of another corporation, and any issue by
the Corporation of shares of stock of any class, or securities
convertible into shares of stock of any class, shall not
affect, and no adjustments by reason thereof shall be made
with respect to, the number or price of shares of Common Stock
subject to the option.
(i) The grant of an option pursuant to the Plan shall not affect
in any way the right or power of the Corporation to make
adjustments, reclassifications, reorganizations or changes of
its capital or business structure or to merge or to
consolidate or to dissolve, liquidate or sell, or transfer all
or any part of its business or assets.
8. RESTRICTIONS ON ISSUING SHARES.
The exercise of each option shall be subject to the condition that, if
at any time the Corporation shall determine in its discretion that the
satisfaction of withholding tax or other withholding liabilities, or that the
listing, registration, or qualification of any shares otherwise deliverable upon
such exercise of any securities exchange or under any state or federal law, or
that the consent or approval of any regulatory body, is necessary or desirable
as a condition of, or in connection with, such exercise or the delivery or
purchase of shares pursuant thereto, that in any such event, such exercise shall
not be effective unless such withholding, listing, registration, qualification,
consent, or approval shall have been effected or obtained free of any conditions
not acceptable to the Corporation.
The Corporation shall not be required to sell or issue any shares under
the Option Agreement if the issuance of such shares shall constitute a violation
of any provision of any law or regulation of any governmental authority.
9. TERM OF PLAN.
Options may be granted pursuant to the Plan from time to time, within a
period of ten (10) years from the date the Plan is adopted, or the date the Plan
is approved by the stockholders of the Corporation, whichever is earlier.
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10. INDEMNIFICATION OF COMMITTEE.
In addition to such other rights of indemnification, as they may have
as directors or as members of the Committee, the members of the Committee shall
be indemnified by the Corporation against the reasonable expenses, including
attorneys' fees actually and necessarily incurred in connection with the defense
of any action, suit or proceeding, or in connection with any appeal therein, to
which they or any of them may be a party by reason of any action taken or
failure to act under or in connection with the Plan or any option granted
thereunder, and against all amounts paid by them in settlement thereof (provided
such settlement is approved by independent legal counsel selected by the
Corporation) or paid by them in satisfaction of a judgment in any action, suit
or proceeding, except in relation to matters as to which it shall be adjudged in
such action, suit or proceeding that such Committee member is liable for
negligence or misconduct in the performance of his or her duties; provided that
within 60 days after institution of any such action, suit or proceeding a
Committee member shall in writing offer the Corporation the opportunity, at its
own expense, to handle and defend the same.
11. AMENDMENT, SUSPENSION, AND TERMINATION OF THE PLAN.
The board of directors of the Corporation may, insofar as permitted by
law, at any time and from time to time, with respect to any shares of Common
Stock at the time not subject to options, suspend or terminate the Plan or
revise or amend it in any respect whatsoever as the board may deem advisable,
except that without approval of the stockholders of the Corporation, no such
revision or amendment shall change the number of shares subject to the Plan,
change the designation of the class of employees eligible to receive options,
decrease the price at which options may be granted, remove the administration of
the Plan from the Committee, or render any member of the Committee eligible to
receive an option under the Plan while serving thereon. Unless the Plan shall
theretofore have been terminated by the board, the Plan shall terminate ten (10)
years after the effective date of the Plan. No option may be granted during any
suspension or after the termination of the Plan. Except as provided in Article
7, no amendment, suspension or termination of the Plan shall, without an
optionee's consent, alter or impair any of the rights or obligations under any
option theretofore granted to such optionee under the Plan.
12. USE OF PROCEEDS.
The proceeds received by the Corporation from the sale of Common Stock
pursuant to the exercise of options granted under the Plan shall be added to the
Corporation's general funds and used for general corporate purposes.
13. NO OBLIGATION TO EXERCISE OPTION.
The granting of an option shall impose no obligation upon the optionee
to exercise such option.
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14. COMPLIANCE WITH SECTION 16.
During any period in which the Corporation has a class of equity
securities registered under Section 12 of the Securities Exchange Act of 1934
(the "Exchange Act"), and with respect to persons subject to Section 16 of the
Exchange Act, transactions under the Plan are intended to comply with all
applicable provisions of Section 16 of the Exchange Act and the rules
promulgated thereunder (including, without limitation, Rule 16b-3) or their
successors under the Exchange Act. To the extent any provision of the Plan or
any Stock Option Agreement or any action by the Committee fails to so comply, it
shall be deemed null and void, to the extent permitted by law and deemed
advisable by the Committee, and it shall be restructured to the extent deemed
advisable by the Committee so to comply.
15. COMPLIANCE WITH OTHER LAWS AND REGULATIONS.
The Plan, the grant and exercise of options hereunder, and the
obligation of the Corporation to sell and deliver shares under such options,
shall be subject to all applicable federal and state laws, rules and regulations
and to such approvals by any governmental or regulatory agency or national
securities exchange as may be required. The Corporation shall not be required to
issue or deliver any certificates for shares of Common Stock prior to the
completion of any registration or qualification of such shares under any federal
or state law, or any ruling or regulation of any governmental or regulatory
agency or national securities exchange which the Corporation shall, in its sole
discretion, determine to be necessary or advisable.
16. EFFECTIVE DATE OF PLAN AND STOCKHOLDER APPROVAL.
The Plan was adopted by the board of directors on _________, 1998 and
was approved by the Corporation's stockholders on _______________, 1998.
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IN WITNESS WHEREOF, the Corporation has caused this Plan to be executed
in its name and on its behalf by its proper officers thereunto duly authorized
as of the __________ day of ____________, 1998.
INTREPID CAPITAL CORPORATION
By:
--------------------------------
Name:
------------------------------
Its:
-------------------------------
ATTEST:
By:
----------------------------------
Name:
--------------------------------
Its:
---------------------------------
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<PAGE> 219
Annex F
NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
OF
INTREPID CAPITAL CORPORATION
THIS IS THE NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN (the "Plan") of
Intrepid Capital Corporation (the "Corporation") under which options may be
granted from time to time to eligible non-employee directors of the Corporation
or any of its subsidiary corporations (collectively the "Subsidiaries" and
severally the "Subsidiary") to purchase shares of the Corporation's common
stock, par value $0.01 per share (the "Common Stock"), subject to the
limitations, provisions, and requirements hereinafter stated.
The Plan was adopted by the board of directors of the Corporation on
__________, 1998, and was approved by the stockholders of the Corporation on
_____, 1998. The terms of the Plan are as follows:
1. PURPOSE.
The purposes of the Plan are to provide directors of the Corporation or
its Subsidiaries who are not eligible for the Corporation's Incentive Stock
Option Plan the opportunity to acquire an equity interest in the Corporation as
an incentive to serve or continue to serve as a director of the Corporation and
to aid the Corporation in obtaining and retaining outside directors of
outstanding ability.
2. ADMINISTRATION.
The Plan shall be administered by a Committee composed of at least two
disinterested members of the board of directors (the "Committee"). As long as
the Principal Enviroq Stockholders and the Principal IAM/CRC Shareholders (as
such terms are defined in that certain Voting Agreement, dated as of April 22,
1998, by and between the Corporation, certain stockholders of Enviroq
Corporation, certain shareholders of Institutional Asset Management, Inc. and
certain shareholders of Capital Research Corporation (the "Voting Agreement"))
are able to designate one director of the board of directors pursuant to the
terms of such Voting Agreement, each will have at least one director designated
by them serving on the Committee. Subject to the immediately preceding sentence,
the Committee shall be appointed by the board of directors. The board of
directors may from time to time remove members from, or add members to, the
Committee; vacancies on the Committee, howsoever caused, shall be filled by the
board of directors. The Committee shall report all action taken by it to the
board. Members of the Committee shall not have participated in the Plan, or
received any options under the Plan, for one year prior to serving on the
Committee, and shall not be eligible to participate in the Plan while serving on
the Committee. The Committee shall have full and final authority in its
discretion, subject to the provisions of the Plan, to determine the individuals
to whom and the time or times at which options shall be granted and the number
of shares and purchase price of Common Stock covered by each option; to construe
and interpret the Plan; to determine the terms and provisions of the respective
option agreements, which need not be identical, including, but without
limitation, terms covering the payment of the option price; and to make all
other determinations and take all other actions deemed necessary or advisable
for the proper administration of the Plan. All such actions and determinations
shall be conclusively binding for all purposes and upon all persons.
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3. ELIGIBILITY.
The persons who shall be eligible to receive options shall be such
directors of the Corporation and its Subsidiaries who are not eligible for the
Corporation's Incentive Stock Option Plan (the "Qualified Directors") existing
from time to time as the Committee shall, in its sole discretion, select from
time to time. An optionee may hold more than one option, but only on the terms
and subject to the restriction set forth in this Plan.
4. COMMON STOCK SUBJECT TO OPTIONS.
The stock subject to the options shall be shares of the Corporation's
authorized but unissued or reacquired Common Stock (the "Shares"). The aggregate
number of Shares which may be issued under options granted under the Plan, shall
not exceed One Hundred Thousand (100,000) shares, subject to an adjustment under
the provisions of Article 7. In the event any option shall, for any reason,
terminate or expire or be surrendered without having been exercised in full, the
Shares subject to such option but not purchased thereunder shall again be
available for options to be granted under the Plan.
5. TERMS AND CONDITIONS OF OPTIONS.
Any option granted under the Plan shall be evidenced by an Option
Agreement (the "Agreement"), executed by the Committee and the Qualified
Director (the "Optionee"), containing such terms and in such form as the
Committee may from time to time approve, which Option Agreement shall comply
with and be subject to the following terms and conditions:
(a) Number of Shares.
Each option shall state the number of Shares to which it pertains.
(b) Option Price.
The price per share at which an option may be exercised (the "Option
Price") shall be determined by the Committee, subject to adjustment as
provided in Article 7 herein. The Option Price shall not be less than
85% of the fair market value of the Shares on the date of grant. For
the purposes hereof, fair market value shall be as determined by the
Committee and, upon such determination, shall be binding upon the
Corporation and upon the Optionee. The Committee may make such
determination if the Common Stock is listed and traded upon a
recognized securities exchange upon the basis of the mean between the
highest and lowest selling prices at which the Common Stock was traded
on such recognized securities exchange on the date of grant, or, if the
Common Stock was not traded on said date, upon the basis of the mean of
such prices on the date nearest preceding the date of grant upon which
the Common Stock was traded, and upon any other factors which the
Committee shall deem appropriate. If the Common Stock is not listed and
traded upon a recognized securities exchange, the Committee may make a
determination of the fair market value of the Common Stock in
accordance with applicable provisions of the Code and Treasury
Department rulings and regulations thereunder and upon any other
factors which the Committee shall deem appropriate.
(c) Medium and Time of Payment.
The Option Price shall be payable in United States dollars upon the
exercise of the option and may be paid by cashier's, certified or other
check, or with Common Stock.
(d) Term and Exercise of Options.
No option shall be exercisable after the expiration of five (5) years
from the date it is granted. Each option shall be exercisable from time
to time over a period commencing on the date of grant and ending on the
expiration or termination of the options; provided, however, the
Committee may, by the
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<PAGE> 221
provisions of the Agreement, limit the number of shares purchasable
thereunder in any period or periods of time during which the option is
exercisable. An option shall not be exercisable in whole or in part
prior to the date of stockholder approval of the Plan.
(e) Termination of Service.
Except as may be otherwise expressly provided in the Plan, any option
shall terminate immediately upon the Qualified Director's
discontinuance of service on the board of directors of the Corporation
or any of its Subsidiaries for any reason, for or without cause, other
than death or disability.
(f) Death or Disability of the Qualified Director.
In the event an Optionee dies or becomes permanently and totally
disabled while a member of the board of directors of the Corporation or
any of its Subsidiaries and before the expiration date of the option as
defined in Article 5, Section (d) of this Plan, the option shall
terminate on the earlier of the expiration date or one year following
the date of such death or disability. After the death of the Optionee,
his or her executors or administrators, or any person or persons to
whom the option may be transferred by will or by the laws of descent
and distribution, shall have the right, at any time prior to such
termination, to exercise the option pursuant to the terms of the
Agreement.
(g) Non-Transferability of Option.
No option shall be transferable or assignable by an Optionee otherwise
than by will or the laws of descent and distribution, and each option
shall be exercisable, during the Optionee's lifetime, only by him or
her. No option shall be pledged or hypothecated in any way and no
option shall be subject to execution, attachment, or similar process
except with the express consent of the Committee.
(h) Holding Period.
No Common Stock purchased upon exercise of an option shall be resold or
transferred by an Optionee in violation of the Securities Act of 1933.
(i) Rights as a Stockholder.
Neither an Optionee nor his or her successor shall have any of the
rights of a stockholder of the Corporation until the certificates
evidencing the shares purchased are properly delivered to such Optionee
or his or her successor. No adjustment shall be made for dividends
(ordinary or extraordinary, whether in cash, securities or other
property) or distributions or other rights for which the record date is
prior to the date such stock certificate is issued, except as provided
in Article 7 of this Plan.
(j) Investment Purpose.
Each option under the Plan shall be granted on the condition that the
purchase of stock thereunder shall be for investment purposes, and not
with a view to resale or distribution except that in the event that
stock subject to such option is registered under the Securities Act of
1933, as amended, or in the event a resale of such stock without such
registration would otherwise be permissible, such condition shall be
inoperative if in the opinion of counsel for the Corporation such
condition is not required under the Securities Act of 1933 or any other
applicable law, regulation or rule of any governmental agency.
(k) Other Provisions.
The Option Agreements authorized under the Plan shall contain such
other provisions, including, without limitation, restrictions upon the
exercise of the option, as the Committee and/or the board of directors
of the Corporation shall deem advisable and, in amplification but not
in limitation of the foregoing, the exercise
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of any option is expressly authorized to be delayed until the effective
date of a Registration Statement on Form S-8 under the Securities Act
of 1933.
6. FREEDOM OF CORPORATE ACTION.
The granting or existence of any option shall not affect in any way the
right or power of the Corporation or its stockholders to make or authorize any
or all adjustments, recapitalizations, reorganizations or other changes in the
Corporation's capital structure or its business, or any merger or consolidation
of the Corporation, or any issue of bonds, debentures, preferred or prior
preference stock ahead of or affecting the Common Stock or the rights thereof,
or the dissolution or liquidation of the Corporation, or any sale or transfer of
all or any part of the assets or business, or any other corporate act or
proceeding, whether of a similar character or otherwise.
7. ADJUSTMENTS.
(a) In the event that the Corporation shall effect a subdivision
or combination of the Common Stock or other capital
readjustment, the payment of a stock dividend, or other
increase or reduction of the number of shares of Common Stock
outstanding, without receiving compensation therefor in money,
services or property, then (i) in the event of an increase in
the number of shares of Common Stock outstanding, the Option
Price shall be proportionately reduced and the number of
shares of Common Stock then subject to the option shall be
proportionately increased; and (ii) in the event of a
reduction in the number of shares of Common Stock outstanding,
the Option Price payable per share shall be proportionately
increased and the number of shares of Common Stock then
subject to the option shall be proportionately reduced.
(b) In the event of a merger of one or more corporations into the
Corporation, or a consolidation of the Corporation and one or
more corporations in which the Corporation shall be the
surviving corporation, an Optionee shall, if the option is
then outstanding, at no additional cost, be entitled upon
exercise of the option to receive (subject to any required
action by stockholders) in lieu of the number of Shares as to
which the option shall be exercisable at the time of such
exercise, the number and class of shares of stock or other
securities to which it would have been entitled pursuant to
the terms of the agreement of merger or consolidation if,
immediately prior to such merger or consolidation, he or she
had been the holder of record of a number of shares of Common
Stock equal to the number of Shares as to which the option
shall be so exercised. Notwithstanding the foregoing, if the
stockholders of the Corporation are required to surrender
their shares of Common Stock pursuant to the terms of any such
consolidation or merger and receive any portion of the
purchase price in cash or other property (excluding stock in
the acquiring corporation) for their surrendered shares of
Common Stock, the board of directors of the Corporation may
cancel any unexercised options as of the effective date of any
such consolidation or merger; provided, however (i) written
notice of any such cancellation is given to Optionee not later
than 30 days prior to such effective date, and (ii) the
Optionee shall have the right to exercise such option in full
during said 30-day period preceding the effective date of such
consolidation or merger.
(c) In the event that the Corporation is merged into or
consolidated with another corporation under circumstances
where the Corporation is not the surviving corporation, or if
the Corporation sells or otherwise disposes of all or
substantially all its property or assets to another
corporation while the option remains outstanding, (i) subject
to the provisions of clause (ii) below, after the effective
date of such merger, consolidation or sale, as the case may
be, the Optionee shall be entitled, upon exercise of the
option, to receive, in lieu
F-4
<PAGE> 223
of shares of Common Stock, the number and class of shares of
such stock or other securities as the holders of shares of
Common Stock received pursuant to the terms of the merger,
consolidation or sale and to which he or she would have been
entitled if, immediately prior to such merger, consolidation
or sale he or she had been the holder of record of a number of
shares of Common Stock equal to the number of Shares as to
which the option shall be so exercised; and (ii) the option
may be canceled by the board of directors of the Corporation
as of the effective date of any such merger, consolidation or
sale, provided that (x) such merger, consolidation or sale
results in a change of control of the business and operations
of the Corporation rather than a mere change of form or
domicile of the Corporation, (y) written notice of such
cancellation is given to the Optionee not later than 30 days
prior to such effective date, and (z) the Optionee shall have
the right to exercise the option in full during the said 30
day period preceding the effective date of such merger,
consolidation or sale.
(d) In case the Corporation shall determine to issue to the
holders of Common Stock rights to subscribe pro rata for any
new or additional shares of Common Stock, or any securities
convertible into Common Stock, then the Optionee shall be
entitled to participate in such pro rata offering in the same
manner and to the same extent as if the option has been
exercised at the Option Price then in effect and the number of
shares of Common Stock purchasable upon such exercise had been
issued to such Director pursuant to the terms of the option.
(e) Except as hereinbefore expressly provided, the issue by the
Corporation of shares of stock of any class, or securities
convertible into shares of stock of any class, for cash or
property, or for labor or services either upon direct sale or
upon the exercise of rights or warrants to subscribe therefor,
or upon conversion of shares or obligations of the Corporation
convertible into such shares or other securities, shall not
affect, and no adjustment by reason thereof shall be made with
respect to, the Option Price or the number of shares of Common
Stock then subject to the option.
(f) In the event of a change in the Common Stock as presently
constituted, which is limited to a change of all of its
authorized shares with a par value into the same number of
shares with a different par value or without par value, the
shares resulting from any such change shall be deemed to be
the Common Stock within the meaning of the Plan.
(g) To the extent that the foregoing adjustments relate to shares
of Common Stock such adjustments shall be made by the
Committee, whose determination in that respect shall be final,
binding and conclusive.
(h) Except as hereinabove expressly provided in this Article 7,
the Optionee shall have no rights by reason of any subdivision
or consolidation of shares of stock of any class or the
payment of any stock dividend or any other increase or
decrease in the number of shares of stock of any class or by
reason of any dissolution, liquidation, merger, or
consolidation or spin-off of assets or stock of another
corporation, and any issue by the Corporation of shares of
stock of any class, or securities convertible into shares of
stock of any class, shall not affect, and no adjustments by
reason thereof shall be made with respect to, the number or
price of shares of Common Stock subject to the option.
(i) The grant of an option pursuant to the Plan shall not affect
in any way the right or power of the Corporation to make
adjustments, reclassifications, reorganizations or changes of
its capital or business structure or to merge or to
consolidate or to dissolve, liquidate or sell, or transfer all
or any part of its business or assets.
8. RESTRICTIONS ON ISSUING SHARES.
The exercise of each option shall be subject to the condition that, if
at any time the Corporation shall determine in its discretion that the
satisfaction of withholding tax or other withholding liabilities, or that the
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<PAGE> 224
listing, registration, or qualification of any shares otherwise deliverable upon
such exercise of any securities exchange or under any state or federal law, or
that the consent or approval of any regulatory body, is necessary or desirable
as a condition of, or in connection with, such exercise or the delivery or
purchase of shares pursuant thereto, that in any such event, such exercise shall
not be effective unless such withholding, listing, registration, qualification,
consent, or approval shall have been effected or obtained free of any conditions
not acceptable to the Corporation.
The Corporation shall not be required to sell or issue any shares under
the Option Agreement if the issuance of such shares shall constitute a violation
of any provision of any law or regulation of any governmental authority.
9. TERM OF PLAN.
Options may be granted pursuant to the Plan from time to time, within a
period of ten (10) years from the date the Plan is adopted, or the date the Plan
is approved by the stockholders of the Corporation, whichever is earlier.
10. INDEMNIFICATION OF COMMITTEE.
In addition to such other rights of indemnification, as they may have
as directors or as members of the Committee, the members of the Committee shall
be indemnified by the Corporation against the reasonable expenses, including
attorneys' fees actually and necessarily incurred in connection with the defense
of any action, suit or proceeding, or in connection with any appeal therein, to
which they or any of them may be a party by reason of any action taken or
failure to act under or in connection with the Plan or any option granted
thereunder, and against all amounts paid by them in settlement thereof (provided
such settlement is approved by independent legal counsel selected by the
Corporation) or paid by them in satisfaction of a judgment in any action, suit
or proceeding, except in relation to matters as to which it shall be adjudged in
such action, suit or proceeding that such Committee member is liable for
negligence or misconduct in the performance of his or her duties; provided that
within 60 days after institution of any such action, suit or proceeding a
Committee member shall in writing offer the Corporation the opportunity, at its
own expense, to handle and defend the same.
11. AMENDMENT, SUSPENSION, AND TERMINATION OF PLAN.
The board of directors of the Corporation may, in so far as permitted
by law, at any time and from time to time, with respect to any Shares at the
time not subject to options, suspend or terminate the Plan or revise or amend it
in any respect whatsoever as the board may deem advisable except that without
the approval of the stockholders of the Corporation no such revision or
amendment shall change the number of Shares subject to the Plan, change the
designation of the class of employees eligible to receive options, decrease the
price at which options may be granted, remove the administration of the Plan
from the Committee, or render any member of the Committee eligible to receive an
option under the Plan while serving thereon. Unless the Plan shall theretofore
have been terminated by the board, the Plan shall terminate ten (10) years after
the effective date of the Plan. No option may be granted during any suspension
or after the termination of the Plan. Except as provided in Article 7, no
amendment, suspension or termination of the Plan shall, without an Optionee's
consent, alter or impair any of the rights or obligations under any option
theretofore granted to such Optionee under the Plan.
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<PAGE> 225
12. USE OF PROCEEDS.
The proceeds received by the Corporation from the sale of Common Stock
pursuant to the exercise of options granted under the Plan shall be added to the
Corporation's general funds and used for general corporate purposes.
13. NO OBLIGATION TO EXERCISE OPTION.
The granting of an option shall impose no obligation upon the Optionee
to exercise such option.
14. COMPLIANCE WITH SECTION 16.
During any period in which the Corporation has a class of equity
securities registered under Section 12 of the Securities Exchange Act of 1934
(the "Exchange Act"), and with respect to persons subject to Section 16 of the
Exchange Act, transactions under the Plan are intended to comply with all
applicable provisions of Section 16 of the Exchange Act and the rules
promulgated thereunder (including, without limitation, Rule 16b-3) or their
successors under the Exchange Act. To the extent any provision of the Plan or
any Stock Option Agreement or any action by the Committee fails to so comply, it
shall be deemed null and void, to the extent permitted by law and deemed
advisable by the Committee, and it shall be restructured to the extent deemed
advisable by the Committee so to comply.
15. COMPLIANCE WITH OTHER LAWS AND REGULATIONS.
The Plan, the grant and exercise of options hereunder, and the
obligation of the Corporation to sell and deliver shares under such options,
shall be subject to all applicable federal and state laws, rules and regulations
and to such approvals by any governmental or regulatory agency or national
securities exchange as may be required. The Corporation shall not be required to
issue or deliver any certificates for shares of Common Stock prior to the
completion of any registration or qualification of such shares under any federal
or state law, or any ruling or regulation of any governmental or regulatory
agency or national securities exchange which the Corporation shall, in its sole
discretion, determine to be necessary or advisable.
16. EFFECTIVE DATE OF PLAN AND STOCKHOLDER APPROVAL.
The Plan was adopted by the Corporation's board of directors on
______________, 1998 and was approved by the Corporation's stockholders on
_______________, 1998.
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<PAGE> 226
IN WITNESS WHEREOF, the Corporation has caused this Plan to be executed
in its name and on its behalf by its proper officers thereinto duly authorized
as of this ______ day of __________, 1998.
INTREPID CAPITAL CORPORATION
By:
---------------------------------
Name:
---------------------------------
Its:
---------------------------------
ATTEST:
By:
---------------------------------
Name:
---------------------------------
Its:
---------------------------------
F-8
<PAGE> 1
EXHIBIT (A)(2)
LETTER OF TRANSMITTAL
TO TENDER SHARES OF COMMON STOCK
OF
ENVIROQ CORPORATION
PURSUANT TO THE OFFER TO REDEEM
DATED NOVEMBER 9, 1998
AND
LETTER OF TRANSMITTAL
TO ACCOMPANY CERTIFICATE(S)
REPRESENTING (PRIOR TO THE ENVIROQ MERGER)
SHARES OF COMMON STOCK
OF
ENVIROQ CORPORATION
THE OFFER TO REDEEM AND WITHDRAWAL RIGHTS WILL EXPIRE AT 9:00 A.M.,
BIRMINGHAM, ALABAMA TIME, ON TUESDAY, DECEMBER 15, 1998, THE DAY
AFTER THE SPECIAL MEETING UNLESS THE OFFER TO REDEEM IS EXTENDED.
ALL SHARES TENDERED HEREWITH WHICH ARE NOT REDEEMED IN THE
REDEMPTION FOR ANY REASON SHALL BE EXCHANGED FOR SHARES OF INTREPID
STOCK UNLESS A STOCKHOLDER PERFECTS ITS RIGHT TO DISSENT PRIOR TO
THE ENVIROQ MERGER.
The Depositary for the Offer to Redeem and Exchange Agent for the Share
Exchange is:
By Hand, by Courier or by Mail:
AMERICAN STOCK TRANSFER AND TRUST COMPANY
40 Wall Street, 46th Floor
New York, New York 10005
-------------------
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET
FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. YOU MUST SIGN THIS LETTER OF
TRANSMITTAL WHERE INDICATED BELOW AND COMPLETE THE SUBSTITUTE FORM W-9 PROVIDED
ON PAGE 11.
THE INSTRUCTIONS ACCOMPANYING THIS LETTER OF TRANSMITTAL SHOULD BE READ
CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED.
IF YOU WISH TO REDEEM SHARES OF ENVIROQ STOCK IN THE REDEMPTION, BUT DO
NOT WANT THE REMAINING SHARES REPRESENTED BY THE CERTIFICATE(S) SUBJECT OF THIS
LETTER OF TRANSMITTAL OF ENVIROQ STOCK TO BE EXCHANGED FOR SHARES OF INTREPID
STOCK IN THE ENVIROQ MERGER UPON CONSUMMATION OF THE ENVIROQ MERGER, YOU MUST
PERFECT AND NOT WITHDRAW YOUR RIGHT TO DISSENT WITH RESPECT TO SUCH SHARES PRIOR
TO THE ENVIROQ MERGER.
This Letter of Transmittal is to be completed by all stockholders (the
"Stockholders") of Enviroq Corporation ("Enviroq") either if stock certificates
("Stock Certificates") evidencing shares of Enviroq Stock (as defined below) are
to be forwarded herein or if delivery of shares is to be made by book-entry
transfer to the account of American Stock Transfer and Trust Company (the
"Depositary") at The Depository Trust Company or Philadelphia Depository Trust
Company (each, a "Book-Entry Transfer Facility" and collectively, the
"Book-Entry Transfer Facilities") pursuant to the book-entry transfer procedures
described in the section captioned "THE REDEMPTION -- Procedure for Tendering
Shares of Enviroq Stock" set forth in the Offer to Redeem (as defined below).
Delivery of documents to a Book-Entry Transfer Facility in accordance with such
Book-Entry Transfer Facility's procedures does not constitute delivery to the
Depositary. This Letter of Transmittal
-1-
<PAGE> 2
shall also serve as the letter of transmittal to be used in connection with the
Enviroq Merger. If any tender of shares of Enviroq Stock not accepted for
payment pursuant to the Offer to Redeem or if Stock Certificates are submitted
for more shares of Enviroq Stock than are tendered, certificates representing
all shares of Enviroq Stock not purchased or tendered in the Offer to Redeem
will be deemed surrendered pursuant to this Letter of Transmittal and will be
exchanged for Stock Certificates representing shares of Intrepid Stock in the
Enviroq Merger upon the consummation of the Enviroq Merger, unless the
Stockholder perfects and does not withdraw its right to dissent prior to the
Enviroq Merger in accordance with Delaware General Corporation Law 262 ("DGCL
ss. 262").
[ ] CHECK HERE IF SHARES OF ENVIROQ STOCK ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER TO THE DEPOSITARY'S ACCOUNT AT ONE OF THE BOOK-ENTRY TRANSFER
FACILITIES AND COMPLETE THE FOLLOWING (ONLY PARTICIPANTS IN A
BOOK-ENTRY TRANSFER FACILITY MAY DELIVER SHARES OF ENVIROQ STOCK BY
BOOK-ENTRY TRANSFER):
Name of Tendering Institution:
----------------------------------------
CHECK BOX OF APPLICABLE BOOK-ENTRY TRANSFER FACILITY:
[ ] The Depository Trust Company
[ ] Philadelphia Depository Trust Company
Account Number
--------------------------------------------------------
Transaction Code Number
-----------------------------------------------
-2-
<PAGE> 3
<TABLE>
<CAPTION>
DESCRIPTION OF SHARES TENDERED
- -----------------------------------------------------------------------------------------------------------------------------------
Name(s) and Address(es) of Registered Holder(s)
Please complete exactly as name(s) Stock Certificate(s) Tendered
appear(s) on Stock Certificate(s)) (Attach additional list if necessary)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Number of
Stock Certificate Total Number of shares of Enviroq shares of
Number(s)(1), (2) Stock Represented by Stock Enviroq Stock
Certificate(s)(1), (2) Tendered(3)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Total shares of
Enviroq Stock
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Need not be completed by Stockholders delivering shares of Enviroq
Stock by book-entry transfer.
(2) If any tendered shares of Enviroq Stock are registered in different
names on several certificates, it will be necessary to complete, sign
and submit as many separate Letters of Transmittal as there are
different registrations of certificates. You may either make additional
copies of this Letter of Transmittal or request further copies from
Enviroq or the Depository. See Instruction 4.
(3) Enviroq will redeem 42.698013% of all shares of Enviroq Stock being
tendered. Unless otherwise indicated, it will be assumed that all
described shares of Enviroq Stock are being tendered. The remainder of
the 57.301987% of the shares of Enviroq being tendered will be
exchanged for shares of Intrepid Stock in the Enviroq Merger upon
consummation of the Enviroq Merger, unless you perfect your right to
dissent from the Enviroq Merger. See Instruction 6.
IMPORTANT: IN ORDER TO ACCEPT THE OFFER TO REDEEM, THIS LETTER
OF TRANSMITTAL MUST BE RECEIVED BY THE DEPOSITARY PRIOR TO 9:00 A.M.,
BIRMINGHAM, ALABAMA TIME, ON TUESDAY, DECEMBER 15, 1998, THE DAY AFTER
THE SPECIAL MEETING. IN ADDITION, STOCK CERTIFICATES (OR, IF TENDERED
BY BOOK-ENTRY TRANSFER PROCEDURES, A BOOK- ENTRY CONFIRMATION AND AN
AGENT'S MESSAGE) MUST BE RECEIVED BY THE DEPOSITARY PRIOR TO 9:00 A.M.,
BIRMINGHAM, ALABAMA TIME, ON TUESDAY, DECEMBER 15, 1998.
-3-
<PAGE> 4
To: Enviroq Corporation
The undersigned hereby tenders to Enviroq Corporation, a Delaware
corporation ("Enviroq"), the above-described shares of Common Stock, par value
$0.01 per share (the "Enviroq Stock"), of Enviroq, which are evidenced by some
or all of the Stock Certificate(s) enclosed herewith upon the terms and subject
to the conditions set forth in Enviroq's Offer to Redeem dated November 9, 1998,
the receipt of which is hereby acknowledged, and this Letter of Transmittal
(which together constitute the "Offer to Redeem"). The undersigned hereby
presents for exchange to Intrepid Corporation ("Intrepid") certificates
representing shares of Enviroq Stock that are not redeemed pursuant to the
Redemption (the "Exchanged Shares") which shall be exchanged for shares of the
common stock of Intrepid ("Intrepid Stock") in the merger of a subsidiary of
Intrepid into Enviroq (the "Enviroq Merger") pursuant to the Agreement and Plan
of Reorganization, dated April 22, 1998, among Enviroq, Intrepid and certain
other parties as amended by Amendment No. 1 to Agreement and Plan of
Reorganization and as amended and restated on October 29, 1998 (as amended and
restated, the "Reorganization Agreement")
Unless indicated by the undersigned, 42.698013% of the total number of
shares of Enviroq Stock tendered by the undersigned in the Redemption and
represented by the Stock Certificates accompanying this Letter of Transmittal
will be redeemed by Enviroq pursuant to the Offer to Redeem (the "Redeemed
Shares"). All remaining shares of Enviroq Stock ("Exchanged Shares") represented
by the Stock Certificates that are not redeemed pursuant to the Offer to Redeem
shall be deemed surrendered, and will be exchanged for Stock Certificates
representing shares of Intrepid Stock in the Enviroq Merger upon the
consummation of the Enviroq Merger, unless the Stockholder perfects its rights
to dissent and otherwise complies with DGCL ss. 262.
Subject to, and effective upon, consummation of the Enviroq Merger, in
accordance with the terms of the Reorganization Agreement the undersigned hereby
exchanges the Exchanged Shares in consideration for certificates representing
shares of Intrepid Stock.
Subject to, and effective upon, consummation of the Enviroq Merger, in
accordance with the terms of the Reorganization Agreement, the undersigned
hereby exchanges certificates representing the Exchanged Shares in consideration
for certificates representing shares of Intrepid Stock in the Enviroq Merger
upon the consummation of the Enviroq Merger, pursuant to the terms of the
Reorganization Agreement.
By executing this Letter of Transmittal, the undersigned irrevocably
appoints William J. Long and Faye Johnston Bass of Enviroq (the "Designees"),
and each of them, as the undersigned's attorney-in-fact and proxy, each with
full power of substitution, to the full extent of the undersigned's rights with
respect to the Redeemed Shares and with respect to any and all Distributions.
All such powers of attorney and proxies shall be deemed irrevocable and
considered coupled with an interest in the Redeemed Shares and Distributions.
This appointment will be effective with respect to the Redeemed Shares if, when,
and only to the extent that, Enviroq redeems such Redeemed Shares pursuant to
the Offer to Redeem. Upon the redemption, with respect to the Redeemed Shares,
all prior powers of attorney and proxies given by the undersigned with respect
to such Redeemed Shares and Distributions will, without further action, be
revoked, and no subsequent powers of attorney or proxies may be given by the
undersigned nor any written consents executed by the undersigned (and, if given
or executed, will not be deemed effective). The Designees
-4-
<PAGE> 5
will be empowered, among other things, to exercise all voting and other rights
of the undersigned with respect to the Redeemed Shares and Distributions as such
Designees, in their sole discretion, may deem proper at any annual, special,
adjourned or postponed meeting of the Stockholders, or any consent in lieu of
any such meeting or otherwise, and Enviroq reserves the right to require that,
in order for the Redeemed Shares or Distributions to be redeemed, Enviroq must
be able, immediately upon redemption, to exercise full voting and other rights
of a record and beneficial owner, including the right to act by written consent,
with respect to the Redeemed Shares and Distributions.
The undersigned represents and warrants that the undersigned has full
power and authority to tender, sell, assign and transfer the Redeemed Shares and
Distributions tendered hereby and, when the same are redeemed by Enviroq that
such sale will convey good, marketable and unencumbered title thereto and to all
Distributions, free and clear of all liens, restrictions, charges and
encumbrances and not subject to any adverse claim. The undersigned will, upon
request, execute any additional documents which Enviroq deems necessary or
desirable to complete the sale, assignment and transfer of the Redeemed Shares
purchased pursuant to the Offer to Redeem. In addition, the undersigned shall
remit and transfer promptly to the Depositary for the account of Enviroq all
Distributions in respect of the Redeemed Shares, accompanied by appropriate
documentation of transfer, and, pending such remittance and transfer or
appropriate assurance thereof, Enviroq shall be entitled to all rights and
privileges as owner of each such Distribution and may withhold the entire
purchase price of the Redeemed Shares or deduct from such purchase price the
amount or value of such Distribution as determined by Enviroq in its sole
discretion.
The undersigned represents and warrants that the undersigned has full
power and authority to exchange the Exchanged Shares for shares of Intrepid
Stock after consummation of the Enviroq Merger. The undersigned will, upon
request, execute any additional documents which Intrepid deems necessary or
desirable in the exchange of the Exchanged Shares for shares of Intrepid Stock.
No authority herein conferred or agreed to be conferred shall be
affected by, and all such authority shall survive, the death or incapacity of
the undersigned. All obligations of the undersigned hereunder shall be binding
upon the heirs, executors, administrators, personal representatives, successors
and assigns of the undersigned. Except as stated in the Offer to Redeem, this
tender is irrevocable; provided, however, with respect to the Exchanged Shares,
if the undersigned perfects its right of dissent pursuant to applicable law, the
undersigned shall have returned certificates representing shares of Enviroq
Stock not redeemed in the Redemption.
Tenders of Redeemed Shares pursuant to any one of the procedures
described in the Section captioned "THE REDEMPTION -- Procedure for Tendering
Shares of Enviroq Stock" of the Offer to Redeem and in the instructions hereto
will constitute the undersigned's acceptance of the terms and conditions of the
Offer to Redeem, including the tendering Stockholder's representation and
warranty that (a) such Stockholder owns the Redeemed Shares tendered within the
meaning of Rule 14e-4 promulgated under the Securities Exchange Act of 1934, as
amended, and (b) the tender of such Redeemed Shares complies with Rule 14e-4.
Enviroq's redemption of the Redeemed Shares pursuant to the Offer to Redeem will
constitute a binding agreement between the undersigned and Enviroq upon the
terms and subject to the conditions of the Offer to Redeem. The undersigned
-5-
<PAGE> 6
recognizes that under certain circumstances set forth in the Offer to Redeem,
Enviroq may not be required to redeem any of the Redeemed Shares tendered
hereby.
Unless otherwise indicated herein under "Special Payment or Certificate
Issuance Instructions," please issue the check for the purchase price for the
Redeemed Shares in the name of the registered holder(s), and mail such check to
the address of the registered holder(s), appearing under "Description of Shares
of Enviroq Stock Tendered." In addition, unless otherwise indicated herein under
"Special Payment or Certificate Issuance Instructions," if applicable, please
redeem any certificates for shares of Enviroq Stock tendered but not eligible
for redemption by Enviroq for certificates for shares of Intrepid Stock in the
name of the registered holder(s) appearing under "Description of Shares of
Enviroq Stock Tendered" and send the same to the address of the registered
holder(s) appearing under "Description of Shares of Enviroq Stock Tendered." In
the event that the boxes entitled "Special Delivery Instructions" and"Special
Payment or Certificate Issuance Instructions" are both completed, please issue
the check for the purchase price and exchange any certificates for shares of
Enviroq Stock tendered but not eligible for redemption by Enviroq for
certificates representing shares of Intrepid Stock in the name of, and deliver
said check and issue such certificates for shares of Intrepid Stock to, the
person or persons so indicated. The undersigned recognizes that Enviroq has no
obligation pursuant to the "Special Payment or Certificate Issuance
Instructions" to transfer any Redeemed Shares from the name of the registered
holder thereof if Enviroq does not redeem any of the Redeemed Shares so
tendered.
Stock Certificates for all of the tendered shares of Enviroq Stock in respect of
which the undersigned wishes Enviroq to redeem 42.689013% are forwarded
herewith. Stock certificates representing all shares of Enviroq Stock not
accepted for Redemption shall be deemed surrendered pursuant to this Letter of
Transmittal and will be exchanged for Stock Certificates representing shares of
Intrepid Stock in the Enviroq Merger upon the consummation of the Enviroq Merger
unless such Stockholder perfects and does not withdraw its right to dissent
pursuant to DGCL ss. 262.
-6-
<PAGE> 7
<TABLE>
<CAPTION>
<S> <C>
SPECIAL PAYMENT OR CERTIFICATE SPECIAL DELIVERY INSTRUCTIONS
ISSUANCE INSTRUCTIONS (See Instructions 2, 4, 5 and 10)
(See Instructions 2, 4, 5 and 10)
To be completed ONLY if either certificates for
To be completed ONLY if either certificates shares of Intrepid Stock issued in exchange for shares of
for shares of Intrepid Stock issued in exchange for Enviroq Stock tendered but not eligible for redemption
shares of Enviroq Stock tendered but not eligible for and/or the check for the purchase price of the Redeemed
redemption or the check for the purchase price of the Shares are to be sent to someone other than the name
Redeemed Shares is to be issued in the name of appearing under "Description of shares of Enviroq Stock
someone other than the name appearing under Tendered" or to an address other than that appearing
"Description of shares of Enviroq Stock Tendered" or under "Description of shares of Enviroq Stock
if the shares of Enviroq Stock tendered hereby and Tendered."
delivered by book-entry transfer which are not
eligible for redemption are to be returned by credit to Mail [] check []certificate(s) to:
an account at one of the Book Entry Transfer
Facilities other than that designated above. Name
------------------------------------------------------
(Please Print)
[] Issue check to:
[] Issue certificate for shares of Address
Intrepid Stock to: ---------------------------------------------------
----------------------------------------------------------
Name (Include Zip Code)
---------------------------------------------------
(Please Print)
Address ----------------------------------------------------------
------------------------------------------------ (Taxpayer Identification or Social Security Number)
- -------------------------------------------------------
(Include Zip Code)
- -------------------------------------------------------
(Taxpayer Identification or Social Security Number)
</TABLE>
-7-
<PAGE> 8
IMPORTANT
SIGN HERE AND COMPLETE SUBSTITUTE FORM W-9 ON PAGE 11.
Signature(s) of Holder(s):
-----------------------------------------------------
- -------------------------------------------------------------------------------
Dated:
-------------------------------------------------------------------------
(Must be signed by the registered holder(s) exactly as name(s) appear(s) on
stock certificate(s) or on a security position listing or by person(s)
authorized to become registered holder(s) by certificates and documents
transmitted herewith. If signature is by trustees, executors, administrators,
guardians, attorneys-in-fact, agents, officers of corporations or others acting
in a fiduciary or representative capacity, please provide the following
information. See Instruction 4.)
Name(s):
----------------------------------------------------------------------
(Please print)
Capacity (full title):
---------------------------------------------------------
(See Instruction 3)
Address:
-----------------------------------------------------------------------
(Including Zip Code)
Area Code and Telephone Numbers:
- -------------------------------------------------------------------------------
(Home) (Business)
Tax Identification or Social Security Number.:
--------------------------------
-8-
<PAGE> 9
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER TO REDEEM
1. INADEQUATE SPACE. If the space provided herein under "Description of
shares of Enviroq Stock Tendered" is inadequate, the share certificate numbers,
the number of shares of Enviroq Stock evidenced by such share certificates and
the number of shares of Enviroq Stock tendered should be listed on a separate
signed schedule and attached hereto.
2. GUARANTEE OF SIGNATURES. No signature guarantee is required on this
Letter of Transmittal if (i) this Letter of Transmittal is signed by the
registered holder(s) (which term for purposes of this document includes any
participant in any of the Book-Entry Transfer Facilities' systems whose name
appears on a security position listing as the owner of shares of Enviroq Stock)
of the shares of Enviroq Stock tendered herewith, unless such registered holder
has completed either the box entitled "Special Delivery Instructions" or the box
entitled "Special Payment or Certificate Issuance Instructions" on this Letter
of Transmittal or (ii) such shares of Enviroq Stock are tendered for the account
of a financial institution (including most commercial banks, savings and loan
associations and brokerage houses) that is a participant in the Security
Transfer Agents Medallion Program, the New York Stock Exchange Medallion
Signature Guarantee Program or the Stock Exchange Medallion Program (each such
entity being hereinafter referred to as an "Eligible Institution"). In all other
cases, all signatures on this Letter of Transmittal must be guaranteed by an
Eligible Institution. See Instruction 4.
3. DELIVERY OF LETTER OF TRANSMITTAL AND STOCK CERTIFICATES. This
Letter of Transmittal is to be used either if certificates are to be forwarded
herewith or if shares of Enviroq Stock are to be delivered by book-entry
transfer pursuant to the procedure set forth in the Offer to Redeem. Stock
Certificates evidencing all tendered shares of Enviroq Stock, or confirmation of
a book entry transfer of such shares of Enviroq Stock (a "Book-Entry
Confirmation"), if such procedure is available, into the Depositary's account at
one of the Book-Entry Transfer Facilities pursuant to the procedures set forth
in the Offer to Redeem, together with a properly completed and duly executed
Letter of Transmittal (or copy thereof) with any required signature guarantees
(or, in the case of a book-entry transfer, an Agent's Message, as defined below)
and any other documents required by this Letter of Transmittal, must be received
by the Depositary at one of its addresses set forth herein prior to the
Expiration Time. All shares of Enviroq Stock tendered herewith which are not
redeemed in the Redemption for any reason shall be deemed surrendered and shall
be exchanged for shares of Intrepid Stock in the Enviroq Merger after
consummation of the Enviroq Merger, unless the Stockholder perfects and does not
withdraw its right to dissent pursuant to DGCL ss. 262 prior to the Enviroq
Merger. If Stock Certificates are forwarded to the Depositary in multiple
deliveries, a properly completed and duly executed Letter of Transmittal must
accompany each such delivery. The term "Agent's Message" means a message
transmitted by a Book-Entry Transfer Facility to, and received by, the
Depositary and forming a part of a Book-Entry Confirmation, which states that
such Book-Entry Transfer Facility has received an express acknowledgment from
the participant in such Book-Entry Facility tendering the shares of Enviroq
Stock that such participant has received and agrees to be bound by the terms of
this Letter of Transmittal and that Enviroq may enforce such agreement against
the participant.
THE METHOD OF DELIVERY OF THIS LETTER OF TRANSMITTAL, STOCK
CERTIFICATES AND ALL OTHER REQUIRED DOCUMENTS, INCLUDING DELIVERY THROUGH ANY
BOOK-ENTRY TRANSFER FACILITY, IS AT THE ELECTION AND RISK OF THE TENDERING
STOCKHOLDER, AND THE DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY
THE DEPOSITARY (INCLUDING, IN THE CASE OF A BOOK-ENTRY TRANSFER, BY BOOK-ENTRY
CONFIRMATION). IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT
REQUESTED, PROPERLY INSURED, IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME
SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY.
No alternative, conditional or contingent tenders will be accepted. By
execution of this Letter of Transmittal (or a copy hereof), all tendering
Stockholders waive any right to receive any notice of the acceptance of their
shares of Enviroq Stock for redemption and any right to receive any notice of
the exchange of the remaining shares of Enviroq Stock not redeemed in the
Redemption for certificates representing shares of Intrepid Stock in the Enviroq
Merger after consummation of the Enviroq Merger.
-9-
<PAGE> 10
4. SIGNATURE ON LETTER OF TRANSMITTAL, STOCK POWERS AND ENDORSEMENTS.
If the Letter of Transmittal is signed by the registered holder of the Stock
Certificates tendered hereby, the signature must correspond with the name as
written on the face of the certificates without any change or alteration
whatsoever.
If the certificates tendered hereby are owned of record by two or more
joint owners, all owners must sign the Letter of Transmittal.
If any tendered shares of Enviroq Stock are registered in different
names on several certificates, it will be necessary to complete, sign and submit
as many separate Letters of Transmittal as there are different registrations of
certificates. You may either make additional copies of this Letter of
Transmittal or request further copies from Enviroq or the Depositary.
If the Letter of Transmittal or any certificates or stock powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of a corporation or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and must submit proper
evidence satisfactory to Enviroq of their authority so to act.
When this Letter of Transmittal is signed by the registered holder(s)
of the shares of Enviroq Stock listed and transmitted hereby, no endorsements of
certificates or separate stock powers are required unless payment or
certificates for shares of Intrepid Stock to be received in exchange for shares
of Enviroq Stock not tendered or purchased are to be issued to a person other
than the registered holder(s). Signatures on such certificates or stock powers
must be guaranteed by an Eligible Institution. See Instruction 2.
If the Letter of Transmittal is signed by a person other than the
registered owner of the certificates listed, or if payment is to be made or
certificates for shares of Intrepid Stock exchanged for shares of Enviroq Stock
not tendered or not accepted for payment are to be sent to a person other than
the registered holder of the certificates surrendered, the certificates must be
endorsed or accompanied by appropriate stock powers, in either case signed
exactly as the name or names of the registered owner or owners appear on the
certificates. Signatures on such certificates or stock powers must be guaranteed
by an Eligible Institution. See Instruction 2.
5. SPECIAL PAYMENT AND DELIVERY INSTRUCTIONS. If a check and/or
certificates for shares of Intrepid Stock are to be issued in the name of a
person other than the signer of this Letter of Transmittal or if a check is to
be sent and/or such certificates are to be sent to someone other than the signer
of this Letter of Transmittal or to an address other than that shown above, the
appropriate boxes on this Letter of Transmittal must be completed.
6. PARTIAL TENDERS. (Not applicable to Stockholders who tender by
book-entry transfer.) All of the shares of Enviroq Stock represented by the
Stock Certificates delivered to the Depositary will be deemed to be tendered
unless otherwise indicated. Enviroq will redeem 42.698013% of the shares of
Enviroq Stock tendered and will exchange the remaining 57.301987% of the shares
of Enviroq Stock tendered for shares of Intrepid Stock in the Enviroq Merger
upon the consummation of the Enviroq Merger, unless the Stockholder perfects and
does not withdraw its right to dissent pursuant to DGCL ss. 262. If fewer than
all the shares of Enviroq Stock evidenced by any certificate submitted are to be
tendered, fill in the number of shares of Enviroq Stock which are to be tendered
in the box entitled "Number of shares of Enviroq Stock Tendered" within the box
entitled "Description of shares of Enviroq Stock Tendered." In such case, the
remainder of the shares of Enviroq Stock that were evidenced by the old
certificate(s) will be deemed to be surrendered and will be exchanged for shares
of Intrepid Stock in the Enviroq Merger after the consummation of the Enviroq
Merger and sent to the person(s) signing this Letter of Transmittal, unless
otherwise provided in the appropriate box on this Letter of Transmittal, as soon
as practicable after the consummation of the Enviroq Merger or unless the
Stockholder perfects and does not withdraw its right to dissent pursuant to DGCL
ss. 262 prior to the Enviroq Merger.
7. EXCHANGE OF SHARES NOT REDEEMED. Stock certificates representing
shares of Enviroq Stock not redeemed will be deemed to be surrendered and will
be exchanged for shares of Intrepid Stock in the Enviroq Merger upon
consummation of the Enviroq Merger, according to the instructions in this Letter
of Transmittal, as promptly as practicable after the consummation of the Enviroq
Merger, unless the Stockholder perfects and does not withdraw its right to
dissent pursuant to DGCL ss. 262.
-10-
<PAGE> 11
8. DELIVERY OF LETTER OF TRANSMITTAL AND CERTIFICATES. Certificates for
all tendered shares of Enviroq Stock together with a properly completed and duly
executed Letter of Transmittal, and any other documents required by the Letter
of Transmittal, should be mailed or delivered to the Depositary at the
appropriate address set forth in the Offer to Redeem and must be received by the
Depositary prior to the Expiration Time (as defined in the Offer to Redeem), in
order to participate in the Redemption.
The method of delivery of certificates for the shares of Enviroq Stock,
the Letter of Transmittal and any other required documents is at the election
and risk of the tendering Stockholder. If delivery is by mail, registered mail,
return receipt requested, properly insured, is recommended.
9. IRREGULARITIES AND WAIVERS OF CONDITIONS. All questions as to the
number of shares of Enviroq Stock to be accepted, and the validity, form,
eligibility (including time of receipt) and acceptance of any tender of shares
of Enviroq Stock will be determined by Enviroq, in its sole discretion, and its
determination shall be final and binding. Enviroq reserves the absolute right to
reject any or all tenders of shares of Enviroq Stock determined by it not to be
in appropriate form or the acceptance of or payment for which may, in the
opinion of Enviroq's counsel, be unlawful. Enviroq also reserves the absolute
right to waive any of the conditions of the Offer to Redeem or any defect or
irregularity in any tender with respect to any particular shares of Enviroq
Stock, and Enviroq's interpretation of the terms and conditions of the Offer to
Redeem (including these instructions) shall be final and binding. Neither
Enviroq, nor any other person, shall be obligated to give notice of any defects
or irregularities in tenders, and none of them shall incur any liability for
failure to give any such notice. Tenders will not be deemed to have been made
until all defects and irregularities have been cured or waived. All shares of
Enviroq Stock tendered herewith which are not redeemed in the Redemption for any
reason shall be deemed surrendered and shall be exchanged for shares of Intrepid
Stock in the Enviroq Merger after consummation of the Enviroq Merger, unless the
Stockholder perfects and does not withdraw its right to dissent pursuant to DGCL
ss. 262 prior to the Enviroq Merger.
10. STOCK TRANSFER TAXES. Except as set forth in this Instruction 10,
Enviroq will pay all stock transfer taxes, if any, applicable to the transfer to
it of shares of Enviroq Stock redeemed pursuant to the Offer to Redeem. If
payment of the purchase price is to be made to, or if certificates for shares of
Intrepid Stock exchanged for shares of Enviroq Stock not tendered in the
Redemption are to be registered in the name of any person other than the
registered holder, or if tendered certificates are registered in the name of any
person other than the person(s) signing the Letter of Transmittal, the amount of
any stock transfer taxes (whether imposed on the registered holder or such other
person) payable on account of the transfer to such person will be deducted from
the purchase price if satisfactory evidence of the payment of such taxes or
exemption therefrom is not submitted. Except as provided in this Instruction 10,
it will not be necessary for transfer tax stamps to be affixed to the
certificate(s) listed in this Letter of Transmittal.
11. BACK-UP WITHHOLDING. In order to avoid backup withholding of
federal income tax on payments of cash pursuant to the Offer to Redeem, a
Stockholder tendering shares of Enviroq Stock in the Offer to Redeem must,
unless an exemption applies, provide the Depositary with such holder's correct
taxpayer identification number (i.e., social security number or employer
identification number) ("TIN") on the Substitute Form W-9 below in this Letter
of Transmittal and certify under penalties of perjury that such TIN is correct
and that such holder is not subject to backup withholding. If a holder does not
provide such holder's correct TIN or fails to provide the certifications
described above, the Internal Revenue Service (the "IRS") may impose a $50
penalty on such holder and payment of cash to such holder pursuant to the Offer
to Redeem may be subject to backup withholding of 31%.
Backup withholding is not an additional income tax. Rather, the amount
of the backup withholding may be credited against the federal income tax
liability of the person subject to the backup withholding, provided that the
required information is given to the IRS. If backup withholding results in an
overpayment of tax, a refund may be obtained by the holder upon filing an income
tax return.
The Stockholder is required to give the Depositary the TIN of the
record holder of the shares of Enviroq Stock. If the shares of Enviroq Stock are
held in more than one name or are not in the name of the actual owner, consult
the enclosed "Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9" for additional guidance on which number to report.
-11-
<PAGE> 12
The box in Part 3 of Substitute Form W-9 may be checked if the
tendering Stockholder has not been issued a TIN and has applied for a TIN or
intends to apply for a TIN in the near future. If the box in Part 3 is checked,
the Stockholder or other payee must also complete the Certificate of Awaiting
Taxpayer Identification Number below in order to avoid backup withholding.
Notwithstanding that the box in Part 3 is checked and the Certificate of
Awaiting Taxpayer Identification Number is completed, the Depositary will
withhold 31% on all payments made prior to the time a properly certified TIN is
provided to the Depositary. However, such amounts will be refunded to such
Stockholder if a TIN is provided to the Depositary within 60 days.
Certain Stockholders (including, among others, all corporations and
certain foreign individuals and entities) are not subject to backup withholding.
Noncorporate foreign Stockholders must complete and sign a Form W-8, Certificate
of Foreign Status, a copy of which may be obtained from the Depositary, in order
to avoid backup withholding. See the enclosed "Guidelines for Certification of
Taxpayer Identification Number on Substitute Form W-9" for more instructions.
12. REQUESTS FOR ASSISTANCE; ADDITIONAL COPIES. Questions and requests
for assistance or additional copies of the Offer to Redeem and the Letter of
Transmittal and the "Guidelines for Certification of Taxpayer Identification
Number on Substitute Form W-9," may be obtained from Enviroq or the Depositary
at the addresses set forth in the Offer to Redeem.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
PAYER'S NAME: ENVIROQ CORPORATION
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
PART 1 - PLEASE PROVIDE YOUR TIN IN THE BOX
AT RIGHT AND CERTIFY BY SIGNING ----------------------------------------
SUBSTITUTE AND DATING BELOW Social Security Number(s)
FORM W-9 or
----------------------------------------
Employer Identification
DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE Number(s)
----------------------------------------------------------------------------------------------
PAYER'S REQUEST
FOR TAXPAYER
IDENTIFICATION
NUMBER (TIN)
PART 2 - Certification - Under penalty of perjury,
I certify that:
(1) the number shown on this form is my
correct Taxpayer Identification Number
(or I am waiting for a number to be issued
to me) and
(2) I am not subject to backup withholding PART 3-
because (a) I am exempt from backup Awaiting TIN
withholding or (b) I have not been [ ]
notified by the Internal Revenue Service
(the "IRS") that I am subject to backup
withholding as a result of a failure to
report all interest or dividends or (c) the
IRS has notified me that I am no longer
subject to backup withholding.
PART 4-
Exempt
[ ]
----------------------------------------------------------------------------------------------
CERTIFICATION INSTRUCTIONS - You must cross out item (2) in Part 2 above if you have been
notified by the IRS that you are subject to backup withholding because of under reporting
interest or dividends on your tax returns. However, if after being notified by the IRS that
you were subject to backup withholding you received another notification from the IRS stating
that you are no longer subject to backup withholding, do not cross out such item (2). If you
are exempt from backup withholding, check the box in Part 4 above.
Signature Date
------------------------------------------------------------- --------------------------------------------------------
</TABLE>
-12-
<PAGE> 13
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP
WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE OFFER TO
REDEEM. PLEASE REVIEW THE ENCLOSED "GUIDELINES FOR CERTIFICATION OF TAXPAYER
IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9," FOR ADDITIONAL DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECK
THE BOX IN PART 3 OF SUBSTITUTE FORM W-9
CERTIFICATE OF AWAITING TAX IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number has
not been issued to me, and either (a) I have mailed or delivered an application
to receive a taxpayer identification number to the appropriate Internal Revenue
Service Center or Social Security Administration Office, or (b) I intend to mail
or deliver an application in the near future. I understand that if I do not
provide a taxpayer identification number within sixty (60) days, 31% of all
reportable payments made to me thereafter will be withheld until I provide a
number.
- ------------------------------------- ------------------------------------
Signature Date
(DO NOT WRITE IN SPACES BELOW)
<TABLE>
<CAPTION>
DATE RECEIVED ______________ ACCEPTED BY ______________ CHECKED BY _______________
- ----------------------------------------------------------------------------------------------------------------------
SHARES OF SHARES OF SHARES OF CHECK AMOUNT SHARES OF STOCK
ENVIROQ ENVIROQ ENVIROQ NUMBER OF CHECK ENVIROQ CERTIFICATE
STOCK STOCK STOCK STOCK NUMBER
SURRENDERED TENDERED ACCEPTED RETURNED
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CR. _______
TAX _______
NET _______
- ----------------------------------------------------------------------------------------------------------------------
DELIVERY PREPARED BY ________ CHECKED BY ______________ DATE ______________________
</TABLE>
-13-
<PAGE> 1
EXHIBIT (A)(3)
ENVIROQ CORPORATION
3918 MONTCLAIR ROAD, SUITE 206
BIRMINGHAM, ALABAMA 35213
PROXY FOR A SPECIAL MEETING OF STOCKHOLDERS - MONDAY, DECEMBER 14, 1998
(THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF ENVIROQ CORPORATION)
The undersigned holder of shares of Common Stock, par value $0.01 per
share ("Enviroq Stock"), of Enviroq Corporation, a Delaware corporation
("Enviroq"), hereby appoints William J. Long and Faye Johnston Bass, or either
of them, as attorneys and proxies for the undersigned, each with full power of
substitution, to attend, vote and act for and in the name of the undersigned and
to vote, as designated on the reverse side, all of the Shares of Enviroq Stock
that the undersigned is entitled to vote at the Special Meeting of stockholders
of Enviroq to be held at 9:00 a.m., local time, on Monday, December 14, 1998, at
the Mountain Brook Inn, 2800 Highway 280, Birmingham, Alabama and at any
adjournment or postponement thereof, to vote on the following proposals set
forth on the reverse side:
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN A MANNER DIRECTED HEREIN BY
THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED
"FOR" PROPOSALS 1, 2 AND 3.
The undersigned hereby revokes any other proxy or proxies heretofore given to
vote or act with respect to such shares of Enviroq Stock, and hereby ratifies
and confirms all action that said attorneys and proxies, their substitutes, or
any of them, may lawfully take by virtue thereof.
(Continued and to be signed on the reverse side)
PLEASE COMPLETE, DATE AND SIGN THIS PROXY AND RETURN IT IN THE ENCLOSED
ENVELOPE. NO POSTAGE NECESSARY IF MAILED IN THE UNITED STATES.
1. A proposal to adopt that certain Agreement and Plan of
Reorganization, dated as of April 22, 1998, as amended by that
certain Amendment No. 1 to the Agreement and Plan of
Reorganization, dated as of August 27, 1998, and as amended
and restated on October 29, 1998 (as amended and restated, the
"Merger Agreement"), between, among others, Enviroq and
Freedom Holdings of Alabama, Inc., a Delaware corporation
("Sub-1"), providing for the merger of Sub-1 with and into
Enviroq, with Enviroq being the surviving corporation (the
"Enviroq Merger"), and pursuant to and in connection with such
Enviroq Merger, (i) each Stockholder shall be given the
opportunity to have Enviroq redeem exactly 42.698013% of the
shares of Enviroq Stock tendered by such Stockholder (the
"Redemption"), and
(a) in the case of a Stockholder who has elected to
participate in the Redemption, each share of Enviroq
Stock (other than shares of Enviroq Stock which are
held as treasury stock or in respect of which the
Stockholder of record has exercised rights of
dissent) tendered but not redeemed in the Redemption
shall be canceled and converted into the right to
receive in the Enviroq Merger, 1.745140 shares of
common stock, par value $0.01 per share ("Intrepid
Stock"), of Intrepid Capital Corporation, a Delaware
corporation ("Intrepid") and each share of Enviroq
Stock not tendered in the Redemption shall be
canceled and converted into the right to receive in
the Enviroq Merger one (1) share of Intrepid Stock
and $2.229098 in cash; and
(b) in the case of a Stockholder who elects not to
participate in the Redemption, each share of Enviroq
Stock (other than shares of Enviroq Stock which are
held as treasury stock or in respect of which the
stockholder of record has exercised rights of
dissent) shall be canceled and converted into the
right to receive one (1) share of Intrepid Stock and
$2.229098 in cash.
2. A proposal to approve the Incentive Stock Option Plan of
Intrepid.
3. A proposal to approve the Non-Employee Directors' Stock Option
Plan of Intrepid.
4. To approve, in their discretion, such other matters as are
incident to the conduct of the Special Meeting or any
adjournment or postponement thereof.
PROPOSAL FOR AGAINST ABSTAIN
1 [ ] [ ] [ ]
2 [ ] [ ] [ ]
3 [ ] [ ] [ ]
4 [ ] [ ] [ ]
Dated: , 1998
-------------------------------
--------------------------------------------
--------------------------------------------
Signature of Stockholder
--------------------------------------------
Signature if held jointly
This proxy should be signed exactly as your
name appears thereon. Joint holders should
both sign. If signed by an attorney,
executor, guardian or in some other capacity
or as an officer of a corporation, please
add title as such.
<PAGE> 1
EXHIBIT (A)(4)
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE
PAYER.--Social Security numbers have nine digits separated by two hyphens: i.e.
000-00-0000. Employer identification numbers have nine digits separated by only
one hyphen: i.e. 00-0000000. The table below will help determine the number to
give the payer.
<TABLE>
<CAPTION>
FOR THIS TYPE OF ACCOUNT: GIVE THE SOCIAL SECURITY NUMBER OF--
- ------------------------------------------------------ --------------------------------------------------
<S> <C>
1. Individual The individual
2. Two or more individuals (joint account) The actual owner of the account or, if combined
funds, the first individual on the account (1)
3. Custodian account of a minor (Uniform Gift to The minor (2)
Minors Act)
4. a. The usual revocable savings trust account The grantor-trustee(1)
(grantor is also trustee)
b. So-called trust account that is not a legal or The actual owner(1)
valid trust under State law
5. Sole proprietorship The owner(3)
GIVE THE EMPLOYER IDENTIFICATION
FOR THIS TYPE OF ACCOUNT: NUMBER OF--
- ------------------------------------------------------ --------------------------------------------------
6. Sole proprietorship account The owner (3)
7. A valid trust, estate, or pension trust Legal entity (Do not furnish the identifying number of
the personal representative or trustee unless the legal
entity itself is not designated in the account title)(4)
8. Corporate account The corporation
9. Religious, charitable, or educational organization The organization
account
10. Partnership account held in the name of the The partnership
business
11. Association, club, or other tax-exempt The organization
organization
12. A broker or registered nominee The broker or nominee
13. Account with the Department of Agriculture in The public entity
the name of a public entity (such as a state or
local government, school district, or prison) that
receives agricultural program payments
</TABLE>
===============================================================================
(1) List first and circle the name of the person whose number you furnish. If
only one person on a joint account has a Social Security Number, that
person's number must be furnished.
(2) Circle the minor's name and furnish the minor's social security number. (3)
Show the name of the owner. You also may enter your business or "doing
business as" name. You may use either your Social Security Number or your
employer identification number (if you have one).
(4) List first and circle the name of the legal trust, estate, or pension
trust.
Note: If no name is circled when there is more than one name, the number
will be considered to be that of the first name listed.
<PAGE> 2
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9 -- CONTINUED
OBTAINING A NUMBER
If you don't have a taxpayer identification number or you don't know your
number, obtain Form SS-4, Application for Employer Identification Number, or
Form SS-5, Application for Social Security Number, or Form W-7, Application for
IRS Individual Taxpayer Identification Number at the local office of the Social
Security Administration or the Internal Revenue Service and apply for a number.
PAYEES EXEMPT FROM BACKUP WITHHOLDING Payees specifically exempted from backup
withholding on ALL payments include the following:
- - A corporation.
- - A financial institution.
- - An organization exempt from tax under section 501(a), or an individual
retirement plan.
- - The United States or any agency or instrumentality thereof.
- - A State, the District of Columbia, a possession of the United States, or any
subdivision or instrumentality thereof.
- - A foreign government, a political subdivision of a foreign government, or any
agency or instrumentality thereof.
- - An international organization or any agency, or instrumentality thereof.
- - A registered dealer in securities or commodities
registered in the U.S. or a possession of the U.S.
- - A real estate investment trust.
- - A common trust fund operated by a bank under
section 584(a).
- - An exempt charitable remainder trust, or a non-exempt trust described in
section 4947(a)(1).
- - An entity registered at all times under the Investment Company Act of 1940. o
- - A foreign central bank of issue.
Payments of dividends and patronage dividends not
generally subject to backup withholding include the
following:
- - Payments to nonresident aliens subject to withholding
under section 1441.
- - Payments to partnerships not engaged in a trade or
business in the U.S. and which have at least one
nonresident partner.
- - Payments of patronage dividends where the amount received is not paid in
money.
- - Payments made by certain foreign organizations.
Payments of interest not generally subject to backup
withholding include the following:
- - Payments of interest on obligations issued by
individuals. Note: You may be subject to backup
withholding if this interest is $600 or more and is paid
in the course of the payer's trade or business and you
have not provided your correct taxpayer identification
number to the payer.
- - Payments of tax-exempt interest (including exempt- interest dividends under
section 852).
- - Payments described in section 6049(b)(5) to non-resident aliens.
- - Payments on tax-free covenant bonds under section 1451.Payments made by
certain foreign organizations.
Exempt payees described above should file Form W-9 to
avoid possible erroneous backup withholding. FILE THIS FORM WITH THE PAYER.
FURNISH YOUR TAXPAYER IDENTIFICATION NUMBER, CHECK THE BOX MARKED "EXEMPT" IN
PART 4 OF THE FORM, AND RETURN IT TO THE PAYER, IF THE PAYMENTS ARE INTEREST,
DIVIDENDS, OR PATRONAGE DIVIDENDS, ALSO SIGN AND DATE THE FORM.
Certain payments other than interest, dividends, and patronage dividends,
that are not subject to information reporting are also not subject to backup
withholding. For details, see the regulations under sections 6041, 6041(A),
6042, 6044, 6045, 6049, 6050A, and 6050N.
PRIVACY ACT NOTICE.--Section 6109 requires most recipients of dividends,
interest, or other payments to give taxpayer identification numbers to payers
who must report the payments to the IRS. The IRS uses the numbers for
identification purposes. Payers must be given the numbers whether or not
recipients are required to file tax returns. Payers must generally withhold 31%
of taxable interest, dividends, and certain other payments to a payee who does
not furnish a taxpayer identification number to a payer. Certain penalties may
also apply.
PENALTIES
(1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER.--If you fail
to furnish your taxpayer identification number to a payer, you are subject to a
penalty of $50 for each such failure unless your failure is due to reasonable
cause and not to willful neglect. (2) FAILURE TO REPORT CERTAIN DIVIDEND AND
INTEREST PAYMENTS.--If you fail to include any portion of an includible payment
for interest, dividends, or patronage dividends in gross income, such failure
will be treated as being due to negligence and will be subject to a penalty of
20% on any portion of an under-payment attributable to that failure unless there
is reasonable cause for such failure. (3) CIVIL PENALTY FOR FALSE INFORMATION
WITH RESPECT TO WITHHOLDING.--If you make a false statement with no reasonable
basis which results in no imposition of backup withholding, you are subject to a
penalty of $500. (4) CRIMINAL PENALTY FOR FALSIFYING INFORMATION.-- Willfully
falsifying certifications or affirmations may subject you to criminal penalties
including fines and/or imprisonment.
FOR ADDITIONAL INFORMATION CONTACT
YOUR TAX CONSULTANT OR THE INTERNAL
REVENUE SERVICE
<PAGE> 1
Exhibit (A)(5)
ENVIROQ CORPORATION
FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION
This booklet contains the following reports filed by
Enviroq Corporation with the Securities and Exchange Commission:
ANNUAL REPORT ON FORM 10-KSB FOR
FISCAL YEAR ENDED MARCH 28, 1998
------------------
AMENDMENT TO ANNUAL REPORT ON FORM 10-KSB/A FOR
FISCAL YEAR ENDED MARCH 28, 1998
------------------
AMENDMENT TO ANNUAL REPORT ON FORM 10-KSB/A-1 FOR
FISCAL YEAR ENDED MARCH 28, 1998
------------------
AMENDMENT TO ANNUAL REPORT ON FORM 10-KSB/A-2 FOR
FISCAL YEAR ENDED MARCH 28, 1998
------------------
QUARTERLY REPORT ON FORM 10-QSB FOR
QUARTER ENDED JUNE 27, 1998
------------------
AMENDMENT TO QUARTERLY REPORT ON FORM 10-QSB/A FOR
QUARTER ENDED JUNE 27, 1998
<PAGE> 2
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) [No Fee Required]
OF THE SECURITIES EXCHANGE ACT OF 1934 ---------------
For the fiscal year ended March 28, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) [No Fee Required]
OF THE SECURITIES EXCHANGE ACT OF 1934 ---------------
For the transition period from ___________________ to ________________________
Commission file number 0-25528
ENVIROQ CORPORATION
(Name of small business issuer in its charter)
Delaware 59-3290346
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3918 Montclair Road, Suite 206
Birmingham, Alabama 35213
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (205) 870-0588
Securities registered under Section 12(b) of the Exchange Act:
Title of each class Name of each exchange on which registered
None None
---- ----
Securities registered under Section 12(g) of the Exchange Act:
Common Stock
--------------------
(Title of class)
Check whether the issuer: (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
----- -----
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B is not contained in this form, and no disclosure
will be contained, to the best of registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. [X]
As of June 4, 1998, the aggregate market value of the voting stock of
the Registrant held by non-affiliates was approximately $1,379,414, based on
$3.25 per share being an average of the bid and asked prices listed on the OTC
Bulletin Board system.
State issuer's revenues for its most recent fiscal year: $1,304,357
As of June 4, 1998, the Registrant had issued 1,009,377 shares of
Common Stock, par value $0.01.
Transitional Small Business Disclosure Format YES NO X
--- ---
1
<PAGE> 3
PART I
ITEM 1. DESCRIPTION OF BUSINESS
BUSINESS DEVELOPMENT: HISTORY.
Enviroq Corporation, a Delaware corporation (the "Company"),
was incorporated on February 9, 1995. At the time of its
incorporation, the Company was a wholly-owned subsidiary of a Delaware
corporation formerly named Enviroq Corporation ("Old Enviroq"). Prior
to April 18, 1995, the Company was named New Enviroq Corporation ("New
Enviroq"). On April 18, 1995, Old Enviroq distributed all of the
issued and outstanding capital stock of New Enviroq to the holders of
the common stock of Old Enviroq (the "Distribution"). Following the
Distribution, the Company changed its name from New Enviroq
Corporation to Enviroq Corporation. Also following the Distribution,
Old Enviroq merged (the "Merger") with a subsidiary of Insituform
Mid-America, Inc. ("IMA") and changed its name to Insituform
Southeast, Inc. ("Insituform Southeast"). In a transaction subsequent
to and unrelated to the Merger, IMA was acquired by Insituform
Technologies, Inc.
The Company's principal executive office is located at 3918
Montclair Road, Suite 206, Birmingham, Alabama 35213, and its
telephone number is (205) 870-0588. The Company's mailing address is
P. O. Box 130062, Birmingham, Alabama 35213.
BUSINESS AND BUSINESS STRATEGY OF ISSUER.
The Company is currently principally engaged in the
development, commercialization, formulation and marketing of
spray-applied resinous products, and in the treatment of municipal
wastewater biosolids. The Company's operations are conducted primarily
through Sprayroq(R), Inc., a Florida corporation of which the Company
owns 50% of the outstanding capital stock ("Sprayroq"). Sprayroq is
engaged in the development, commercialization, manufacture and
marketing of spray-applied resinous materials. The Company also owns
100% of the outstanding capital stock of Synox(R) Corporation, a
Delaware corporation ("Synox"). Synox has been engaged in the
research, development and marketing of a process for the treatment of
municipal wastewater biosolids. During the fiscal year ended March 30,
1996, management of the Company elected to minimize the activities of
Synox and to write off substantially all of the assets of Synox.
During the fiscal year ended March 28, 1998, the Synox demonstration
facility in Jacksonville, Florida was dismantled. As of March 28,
1998, all remaining assets of Synox had been fully depreciated. See
"Description of Business -- Background on Operations of Synox
Corporation." Accordingly, during the fiscal year ended March 28,
1998, most of the income and gross profit of the Company was
attributable to the operations of Sprayroq.
The management of the Company believes the strong financial
position of the Company, along with its status as a public company,
may offer opportunities for growth or
2
<PAGE> 4
other strategic alliances, and has been searching for opportunities to
leverage the Company's advantages to bring additional value to its
shareholders. On April 23, 1998, Enviroq announced that its board of
directors has approved entering into an Agreement and Plan of
Reorganization (the "Reorganization Plan") by which Enviroq will merge
with a subsidiary of Intrepid Capital Corporation ("Intrepid"), a
newly-formed corporation. The merger would be consummated through a
transaction in which Enviroq stockholders would receive shares of
Intrepid common stock, as well as cash. See Item 6, "Management's
Discussion and Analysis of Financial Condition and Results of
Operations." The business of Intrepid may or may not involve the
Company's traditional business and markets. The Reorganization Plan
and related transactions are subject to a number of conditions
including, without limitation, the approval of the stockholders of
Enviroq, and there can be no assurance that these conditions will be
fulfilled.
Pursuant to the Merger, the Company and IMA entered into
several related agreements which included the Subordinated Promissory
Note (the "Note"), the Covenant Not to Compete Agreement (the
"Covenant'), and the Consulting Agreement. On March 12, 1996, the
Company and IMA executed an agreement (the "Settlement Agreement") to
settle all claims and counterclaims made, or that could have been
made, by the parties to related lawsuits between the parties with
respect to several matters arising out of the Merger, including the
Subordinated Promissory Note. The Company received $3,335,000 as
payment in full under the Settlement Agreement, which includes the
Note and the Consulting Agreement. In the Settlement Agreement, the
parties, which included the Company, IMA, and Insituform Technologies,
Inc., released each other, subject to limited exceptions, from all
claims that the parties had or may have had or may have arising out of
the Note, the Merger Agreement (including the Expense Deficit as
defined in the Merger Agreement) and the related lawsuits. In the
Settlement Agreement, the Company was not released from certain
obligations under the related agreements including, without
limitation, the Covenant.
BACKGROUND ON OPERATIONS OF SPRAYROQ, INC.
Sprayroq, Inc. was initially organized in January, 1991 as
Enviroq Resin Development, Inc., a Florida corporation, to be a member
of a joint venture to develop, commercialize, manufacture and market
technology and know-how relating to the spray application of chemicals
and additives in the rehabilitation, repair and reconstruction of
certain pipes, pipelines, manholes, wetwells, drains and wastewater
treatment facilities. The other member of this joint venture was
Replico Development Company, Inc., a Pennsylvania corporation
("Replico"). In February, 1992, the name of Enviroq Resin Development,
Inc. was changed to Sprayroq, Inc. In March, 1992, Replico contributed
all of its rights and interests in the joint venture to Sprayroq in
exchange for 50% of the outstanding common stock of Sprayroq, which
resulted in the Company and Replico each owning fifty percent of the
outstanding capital stock of Sprayroq. Pursuant to the Stockholder
Agreement dated as of March 25, 1992 between the Company (as a
successor to Old Enviroq), Sprayroq and Replico (the "Stockholder
Agreement"), the parties agreed to vote their respective shares to
elect three directors designated by the Company and two directors
designated by Replico. At this same time, Sprayroq assumed all of the
obligations of the joint venture, including the payment
3
<PAGE> 5
obligations of the joint venture pursuant to a promissory note dated
March 25, 1992 from the joint venture to the Company in the principal
amount of $181,143.29. The Stockholder Agreement also provides that
the stockholders of Sprayroq may make loans to Sprayroq for legitimate
business purposes.
Since its organization, Sprayroq has engaged in the
development, commercialization, formation and marketing of
spray-applied resinous materials. At the present time, Sprayroq has
developed two products; SprayWall(R) and SprayShield(R). Sprayroq has
also developed additional materials utilizing polyureas, epoxies and
other resin technologies which may have future commercial application.
Sprayroq has entered into licensing agreements with seven installers
to provide for the promotion, sale and installation of SprayWall, and
two installers for the promotion, sale and installation of
SprayShield. Both SprayWall and SprayShield have significant corrosion
and abrasion resistance. SprayWall is a spray-applied resinous
material that can achieve structural strength and is relatively rigid.
SprayWall was initially developed to be utilized for the
reconstruction of manholes. Other SprayWall applications include the
reconstruction of vaults, underground tanks, as a corrosion resistant
lining for underground pipe, etc. SprayShield is a pliable,
spray-applied elastomeric material for waterproofing use in flumes and
tanks, and has also been installed in truck beds of truck trailers for
containment of potential spillage, during shipment, of hazardous
materials. Other uses of SprayShield include installation inside the
bodies of dump trucks to reduce damage from abrasion and the lining of
pipes for corrosion protection.
Sprayroq was organized with minimum capital, and has obtained
operating funds primarily from the Company. Of the total amount owed
to the Company by Sprayroq, $547,219 was loaned by the Company
pursuant to written promissory notes made by Sprayroq to the Company
(collectively, the "Sprayroq Notes"). The Sprayroq Notes became due on
April 1, 1995. On October 15, 1996, the board of directors of Sprayroq
voted to restructure and consolidate this debt with the Company, and a
Consolidated Note evidencing the restructured debt was executed on
October 21, 1996, by Sprayroq. The principal amount of the debt as of
October 21, 1996 was approximately $840,000. The rate of interest on
the debt is 7% per annum, and the debt will be amortized over a
30-year period, with the balance of the principal due, in the form of
a "balloon" payment, on October 1, 2001. As of March 28, 1998, the
balance owed under the Consolidated Note was approximately $492,000.
Under the Stockholder Agreement between the Company and
Replico, the Company is given certain rights of control over Sprayroq,
including the right to designate its executive officers and to elect a
majority of the board of directors. Since the formation of Sprayroq,
the chief executive officer of Sprayroq has also been the chief
executive officer of the Company. Nevertheless, from time to time
during fiscal year 1998 and continuing to the present, one or more of
the principals of Replico has, either on their own behalf or on the
behalf of Replico, raised issues or otherwise questioned the Company's
management of and designation of officers of Sprayroq. Among such
issues and questions is the suggestion of a conflict of interest, as
yet undefined, in connection with the election of William J. Long as
the chief executive officer of both Sprayroq and the Company. Another
such issue relates to the assertion that Replico and/or certain
affiliates of Replico should be free to engage in certain
4
<PAGE> 6
ventures that may present opportunities for Sprayroq and/or be
competitive with Sprayroq, or that utilize certain technology and/or
technology rights belonging to Sprayroq, and that the corresponding
responses of Sprayroq's management to Replico might somehow be
improper. Management of the Company believes that all actions taken
have been entirely within the terms and the spirit of the Stockholder
Agreement with respect to the management of Sprayroq, and Sprayroq's
responses to the questions and issues raised by Replico and or its
principals. However, no assurances can be given that Replico or its
affiliates will not pursue claims against Sprayroq, the Company,
and/or their respective affiliates, or that the outcome of such
matters will be favorable to the Company.
BACKGROUND ON OPERATIONS OF SYNOX CORPORATION.
Synox was organized as a Delaware corporation on May 23,
1986, and was acquired by the Company on September 30, 1991. The
primary purpose of Synox was to perform research and development with
respect to processes and methods related to municipal wastewater
treatment, particularly suspended solids and nutrients (known in the
industry and referred to hereafter as "biosolids"). Synox has obtained
a license to utilize technology relating to a process for the
treatment of municipal wastewater biosolids (the "Synox Process(R)"),
and other related processes for producing and managing usable end
products from wastewater biosolids. The intellectual property and
know-how underlying the Synox Process is licensed to Synox by Long
Enterprises, Inc., an Alabama corporation controlled by Charles A.
Long, Jr., a Director of the Company and the father of William J.
Long, the President, Chief Executive Officer and a Director of the
Company ("Long Enterprises").
The research and development activities of Synox included the
creation of a mobile pilot testing unit, as well as efforts to achieve
processes that meet the highest treatment standards of the U.S.
Environmental Protection Agency (the "EPA"). Such processes are known
as Processes that Further Reduce Pathogens ("PFRP"). Synox also
invested approximately $995,000 in the design and construction of a
full scale demonstration plant located in Jacksonville, Florida.
As a result of the lack of activity in the markets addressed
by the Synox Process, the Company elected, during fiscal year 1996, to
reduce substantially the operations at Synox in order to minimize
expense. The two full-time employees of Synox were terminated and the
full scale demonstration plant of Synox located in Jacksonville,
Florida was closed. Substantially all of the assets of Synox were
written off during fiscal year 1996. The demonstration plant was
dismantled during fiscal year 1998. Nevertheless, management of the
Company believes that the Synox Process may become valuable in the
future, provided that, among other factors, a full implementation and
vigorous enforcement of the existing EPA Regulations is realized;
funding becomes available to municipalities to enable municipalities
to implement processes such as the Synox Process; the Synox Process,
at such time in the future, is competitive and viable; and, at such
time in the future, the beneficial use of Class A biosolids is
generally accepted.
5
<PAGE> 7
In March of 1993, the Company received notification from the
EPA that a committee of the EPA has recommended PFRP equivalency for
the Synox Process, which means that the Synox Process achieves the
EPA's "Class-A" standard of treatment of municipal wastewater
biosolids (sludge). Under the EPA Regulations, the EPA has reserved
the "Class-A" designation for those processes that can achieve the
highest standards of treatment, allowing beneficial re-use of
biosolids with minimal regulation. The Company believes that the
patented Synox Process is the only "Class-A" designated process that
treats biosolids in a liquid form, is non-biological and does not
require heat or the addition of alkaline materials for disinfection,
resulting in several important advantages. The Synox Process is
relatively fast, achieving Class-A treatment in less than a day. Other
processes may require from several days to several weeks. Unlike most
other processes, Synox treats biosolids in liquid form and does not
require an odor-causing dewatering step prior to treatment. In
addition, the Synox in-vessel process is designed to provide for
pathogen kill and to control objectionable odors.
EPA REGULATIONS.
The treatment and disposal of municipal biosolids are
regulated by the EPA, under authority of Section 405(d) of the Clean
Water Act, as amended (the "CWA"). On February 19, 1993, the EPA
published new regulations relating to the treatment, disposal and
usage of biosolids. These new regulations were, the Company believes,
the result of a major effort by the EPA to develop regulations
containing guidelines for the use and disposal of biosolids, including
standards that are intended to adequately protect public health and
the environment from reasonably anticipated adverse effects from the
use and disposal of biosolids. The EPA has also set performance
standards for owners and operators of sewage treatment works. The EPA
Regulations also provide for other standards such as performance,
long-term storage, vector attraction, reporting, etc.
Management has observed that, to date, the adoption by the
EPA of its new regulations on February 19, 1993 has not resulted in a
meaningful increase in the sales of biosolids equipment. Management
believes that this lack of market activity is primarily the result of
a lack of funding for improvements, required by the new regulations,
to municipal treatment works. Management also believes that full
implementation and vigorous enforcement of the new regulations must be
realized before a potential market for the Synox Process may be
developed. There can be no assurance, however, that vigorous
regulatory enforcement will occur or will lead to a developed market
for the Synox Process or otherwise benefit Synox or the Company.
Management of the Company has seen a trend towards a general reduction
in emphasis (primarily politically) in these regulations which could
adversely impact any future value of the Synox Process.
6
<PAGE> 8
SALES AND MARKETING.
The Company's organization includes operations for sales and
marketing. At the present time, Synox Corporation is conducting no
full-time sales and marketing programs, and relies on the senior
officers of the Company to monitor market developments that might
result in potential sales of the Synox Process. Sprayroq Corporation
employs one salesperson to coordinate activities among Sprayroq's
licensees and to secure new licensees. From time to time, the
Company's senior officers and directors also participate in sales and
marketing of the Company's products and services.
The Company and Sprayroq conduct marketing activities, which
typically include: (i) identifying new markets and market strategies,
trade shows, advertising, new releases and other promotional
activities; (ii) brochures, video, Internet "Web" pages, and slide
presentations; and (iii) other sales aids and investor relations.
Sales and marketing activities are directed to potential licensees,
engineers (both in the municipal and industrial sectors), public works
officials, consulting engineers, mayors, and other public officials to
introduce them to, and educate them about, the products and services
offered by the Company.
CUSTOMERS.
Sprayroq's sales are almost exclusively to its licensees. The
majority of Sprayroq's revenues are derived from the sale of resinous
materials, principally SprayWall and SprayShield. Additional revenues
are derived from fees arising out of license agreements, along with
related sales of equipment, spare parts, and technical support. These
licensees market, sell and install Sprayroq products primarily to
municipal and industrial customers. An aggregate of 89% of Sprayroq's
sales for fiscal year 1998 were made to two customers which amounted
to sales totaling approximately $1,007,000 and $151,000, to Insituform
Southeast, Inc. and Slaughter Construction Company, Inc.,
respectively. Synox Corporation currently has no customers.
MARKETS.
Sprayroq.
Sprayroq currently intends to continue to market its products
though its licensed installers and to continue to attempt to obtain
additional licensees for the current Sprayroq products. If additional
products are developed by Sprayroq, such products may be marketed
through existing or new licensed installers. Since Sprayroq products
may be utilized in various ways by various industries, existing
licensed installers may or may not be appropriate to market certain
new Sprayroq products. Depending upon the background and expertise of
any particular licensed installer, Sprayroq may elect to allow that
licensee to market new products, elect to find another organization
which is more suitable, or pursue the marketing of the product
directly.
7
<PAGE> 9
The Company believes that the market for spray-applied
resinous materials is large. Any municipality and any larger
industrial plant are among potential customers for Sprayroq products.
In addition, the Company has identified significant potential markets
in the lining of truck beds, containment vessels and/or structures and
subterraneous vaults.
Synox.
The Company decided to minimize the operations of Synox
during fiscal year ended March 30, 1996. If, however, at any time in
the future, the Company determines that it is in the best interest of
the Company to develop and increase the operations of Synox, its
market is likely to primarily consist of 1,000 publicly owned
treatment works treating more than 5 million gallons of wastewater per
day, operated by municipalities in the United States.
COMPETITION.
Sprayroq.
Sprayroq faces competition, either directly from companies
marketing similar resin products, or indirectly, from other techniques
and technologies which accomplish similar results in a different
manner. Other companies provide resin materials which may be
spray-applied, or are similar but which are applied in a different
manner, or are not similar but which provide similar results.
The SprayWall product was developed specifically for use in
the reconstruction of manholes and related structures. Management is
unaware of any product that offers a similar combination of spray
application of polyurethanes, long-term structural performance, and
high resistance to corrosion. There are, however, a number of products
which are utilized in the refurbishment or reconstruction of manholes.
Many of these products are less expensive and offer viable
competition.
The Company is also aware of other products which exhibit
certain of the qualities of SprayShield. The Company believes that
SprayShield has significant adhesive qualities combined with corrosion
and abrasion resistance. Various paints and thin coatings are
available that are easily spray-applied and offer corrosion
protection. The Company is aware of other products which offer similar
abrasion resistance, but is unaware, however, of any product which
offers all of the qualities of SprayShield.
The development of products utilizing urethane, polyesters,
and epoxies is growing rapidly, with the announcement of new products
occurring frequently. Sprayroq's products are not patented and are
protected only to the extent offered as know-how and trade secrets.
There can be no assurance that other competitors will not develop
products similar or superior to those of Sprayroq.
8
<PAGE> 10
Management is aware of other processes which may become
significant future competitors of the Company's products. Among such
processes are those that involve techniques based on in-pipe curing or
spray-applied lining. In addition, there are other types and methods
of applied linings and coatings which are competitive to the Company's
products, particularly in the lining of manholes.
Synox.
If the Company determines to develop and increase the
operations of Synox, Synox would be likely to face competition from a
number of suppliers employing more traditional, well-known and
accepted methods of wastewater biosolids treatment. All biosolids
treatment processes, including the Synox Process, have strengths and
weaknesses and no one process is the best choice in all situations.
Competing biosolids treatment processes include alkaline
stabilization/fixation, heat drying/pelletizing, and composting. For
some potential customers, more conventional treatment methods will be
adequate. There are a number of companies marketing specific
technologies that offer many of the same advantages as the Synox
Process over conventional wastewater biosolids treatment techniques.
Many of these companies employ techniques that may produce soil
amendment products or fuel from the treated biosolids. These
companies, which are well established and better financed than Synox,
constitute substantial, direct competition for Synox. See "Description
of Business -- Background on Operations of Synox Corporation."
PATENTS AND LICENSES.
Sprayroq.
Sprayroq currently has not pursued registering any patents
with respect to its products. Management believes that the
formulations of the SprayWall and SprayShield products are proprietary
to Sprayroq and are protected as know-how and trade secrets. Sprayroq
has licensed the formulation of the SprayWall product to Mitsui
Chemical and Toa Grout, Inc. of Japan.
Synox.
Synox is the exclusive licensee under a license agreement
dated May 27, 1986, as amended on May 16, 1991, October 5, 1994,
December 20, 1996, and December 22, 1997 between Synox and Long
Enterprises (the "License Agreement"), pursuant to which Synox has
obtained rights to six U.S. patents relating to the Synox Process.
9
<PAGE> 11
The patents and patent applications covered by the License
Agreement, and their expiration dates are listed below:
<TABLE>
<CAPTION>
Number Name Description Expiration
-------------------------------------------------------------------------------------
<S> <C> <C> <C>
4,487,699 Long Sewage Biosolids Treatment Dec. 11, 2001
Apparatus and Process
4,582,612 Long Improved Sewage Biosolids Apr. 15, 2003
Treatment Apparatus
4,659,464 Long Apparatus for Dispersing Apr. 21, 2004
Biosolids With Gas Impingement
4,695,388 Long Apparatus and Process for Sept. 22, 2004
Rapid Sewage Biosolids Separation
4,936,983 Long Sewage Biosolids Treatment June 26, 2007
with Gas Injection
5,147,563 Long Improved Sewage Sludge Treatment Sept. 29, 2009
With Gas Injection
</TABLE>
The License Agreement grants to Synox exclusive rights to
license the Synox Process in the following territory comprising the
states of Maryland, Delaware, Virginia, West Virginia, North Carolina,
South Carolina, Florida, Georgia, Alabama, Kentucky, Tennessee,
California, Texas, Arizona, New Mexico and the District of Columbia.
As amended, the License Agreement expires on September 28,
2011 or the later date of termination of the last to expire of any
patent issued pursuant to the patent applications and continuations in
part relating to the subject matter of the License Agreement in
existence on May 16, 1991, and thereafter prosecuted by the licensor
or its assignor, Charles A. Long, Jr. (the "Long License Expiration").
Under the License Agreement, Synox is obligated to pay
royalties of 4% of the total contract value of each Synox Process
installation (which begins with a storage unit for thickened biosolids
and ends with biosolids thickening and chemical contact), less
allowable deductions, such as the building, site preparation, paving,
land and landscape. No such installations have been completed or are
currently contemplated.
Minimum annual royalties (based on retaining the existing
territory of 15 states listed above) are due each January 1, for the
ensuing calendar year through the Long License Expiration. On January
1, 1995, a minimum royalty payment of $45,168 was made, and the
minimum royalty payments for 1996 and 1997 were waived as the result
of amendments to the License Agreement. The License Agreement was
amended on December 22 1997 to change the expiration date of the
license and to provide that no minimum royalty payment would be due on
January 1, 1998 but that such minimum royalty payments would resume on
January 1, 1999 in accordance with the following schedule:
10
<PAGE> 12
<TABLE>
<CAPTION>
Date Due Amount
----------------------------------------------------------------------
<S> <C>
January 1, 1999 $ 90,335.51
January 2, 2000 $ 180,671.02
January 1, 2001 $ 180,671.02
January 1, 2002 and on each January 1
through Long License Expiration $ 225,838.77
</TABLE>
SUPPLIERS.
The Company purchases raw materials and other supplies from a
variety of sources and is not dependent upon any one source. While
Sprayroq does utilize a third party to blend its products, other
companies provide similar blending services. In addition, Sprayroq has
performed such blending in the past and would be able to resume
blending quickly, if required.
OPERATIONAL RISKS AND INSURANCE.
To cover various insurable risks, the Company has in force
$2,000,000 in general liability insurance ($1,000,000 per occurrence),
$1,000,000 in automobile liability insurance, and $1,000,000 in
"umbrella" coverage. In addition, the Company carries various property
coverages and worker's compensation policies as required by each
jurisdiction in which it does business.
At the present time, Sprayroq's principal products are
characterized as polyurethanes and utilize several chemicals,
including diisocyanates. Diisocyanates have been in general use for
many years, in many applications including automobile parts,
insulation, floor coverings, and roofing. Guidelines regarding the use
of diisocyanates were published by the U.S. Department of Health,
Education and Welfare, Public Health Service, Center for Disease
Control, and National Institute for Occupational Safety and Health
(NIOSH) in September, 1978. Additional documentation regarding
recommended precautions and procedures to be used with such chemicals
has been provided by the suppliers of the chemicals, and by Sprayroq,
and Sprayroq instructs all licensees to follow the procedures set
forth in this documentation. Sprayroq's current supplier of
diisocyanates reports that diisocyanates and other such chemicals have
been in general use for more than fifty years, and that the issues
relating to their safe use are well known. There can be no assurance,
however, that NIOSH or other regulatory organizations, governmental
agencies, etc. might, in the future, determine that such chemicals are
hazardous or otherwise harmful, or might otherwise regulate or prevent
their use.
11
<PAGE> 13
Sprayroq's licensee in Denmark had previously reported that
the spraying of diisocyanates in a confined space is not allowed
according to a regulatory agency of the Danish government. During
fiscal year 1997, this licensee reported that the spraying of
diisocyanates was permitted in Denmark. The management of Sprayroq is
not aware of any other similar prohibition of the use of diisocyanates
in other countries. While the management of Sprayroq understands that
the previous objections of the Danish regulatory agency are apparently
no longer in effect, there can be no assurance that such objection
will not persist, nor can assurance be given that similar objections
will not occur in the future in other countries, geographical and/or
political divisions.
EQUIPMENT.
The Company owns or leases a number of trailers, vans, and
other equipment which are necessary to the operations of the Company.
RESEARCH AND DEVELOPMENT.
The Company engages in research and development ("R&D")
efforts to develop new products, improve existing products, reduce its
costs and expand potential applications. The Company incurred R&D
expenses with respect to Sprayroq of approximately $5,000 in the year
ended March 28, 1998 and $23,000 in the year ended March 29, 1997.
EMPLOYEES.
As of May 28, 1998, the Company had three full-time employees
and three part-time employees.
ITEM 2. PROPERTIES
(a) The Company owns approximately 10.6 acres of real estate
adjacent to Old Enviroq's facilities at 11511 Phillips Highway South
in Jacksonville, Florida. At the present time, this acreage is
undeveloped and is zoned industrial light and light industrial. The
Company currently has no plans to improve or develop the property and
has advertised the property for sale.
The Company leases, on a month-to-month basis, approximately
1,300 square feet of office space located at 3918 Montclair Road,
Birmingham, Alabama 35213. This leased space serves as the principal
executive offices of the Company and may be canceled upon 90 days
notice. The Company believes that these executive offices are adequate
for the conduct of the business of the Company. The Company's Sprayroq
subsidiary also leases approximately 5,000 square feet of
office/warehouse space at 4707 Alton Court, Irondale, Alabama 35210.
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<PAGE> 14
This space serves as the executive offices, training, blending, and
warehouse for Sprayroq and may be canceled upon 90 days written
notice.
(b) The Company does not typically invest in real estate,
real estate mortgages or related securities. There is no policy of the
Company which places restrictions or limitations on the percentage of
assets which may be invested or the type of investment, and this
policy may be changed without the vote of the Company's shareholders.
It is not the policy of the Company to acquire assets primarily for
possible capital gain or primarily for income.
Management believes that the foregoing properties are
adequately insured.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved, from time to time, in various legal
proceedings incidental to the conduct of its business. The Company is
not currently engaged in any legal proceedings that are presently
expected to have a material adverse effect on the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of the Company's
shareholders during the period covered by this Item 4.
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<PAGE> 15
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
At the present time, the common stock of the Company is traded in the
over-the-counter markets, and bid/asked quotations may be found on the OTC
Bulletin Board under the symbol "ENVQ." The following table sets forth for the
last two fiscal years, the high and low bid and asked prices of the common
stock of the Company. The information set forth below has been obtained from
the OTC Bulletin Board and is believed to be reliable. The reported high and
low bid and asked quotations do not reflect actual trades, but are dealer
prices without mark-ups, mark-downs or commissions.
<TABLE>
<CAPTION>
--------------------------------------------------------------
FISCAL YEAR 1997
--------------------------------------------------------------
Quarter Ended Low High Low High
Bid Bid Ask Ask
--------------------------------------------------------------
<S> <C> <C> <C> <C>
First Quarter(1) N/A N/A N/A N/A
Second Quarter $1.25 $2.00 $2.00 $2.50
Third Quarter $0.63 $1.63 $1.00 $2.50
Fourth Quarter $0.25 $0.63 $0.75 $1.50
---------------------------------------------------------------
FISCAL YEAR 1998
---------------------------------------------------------------
Quarter Ended Low High Low High
Bid Bid Ask Ask
---------------------------------------------------------------
<S> <C> <C> <C> <C>
First Quarter $0.64 $1.50 $1.50 $3.00
Second Quarter $0.75 $1.00 $1.25 $3.00
Third Quarter $0.38 $0.75 $0.57 $1.25
Fourth Quarter $0.50 $0.75 $0.88 $1.50
</TABLE>
(1) Management has not been able to obtain any information with respect
to trades of the common stock of the Company that may have occurred
from the date of the Distribution on April 18, 1995 through
August 15, 1996, which would include all of the first quarter of fiscal
year 1997.
There were 361 shareholders of record as of June 4, 1998, which number
does not include shareholders whose shares were held of record by brokers, but
does include each brokerage firm holding stock as a nominee.
The Company has not paid any cash dividends on its common stock since
its organization, and currently intends to retain any earnings of the Company
for the Company's operations and the expansion of its business. Other than state
corporate law limitations, there are no restrictions on the Company's ability to
pay dividends.
14
<PAGE> 16
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
This discussion should be read in conjunction with the
Company's consolidated financial statements and notes thereto included
elsewhere herein.
RESULTS OF OPERATIONS.
Revenue.
Revenues for the fiscal year ended March 28, 1998 were
approximately $1,304,000 as compared to approximately $1,339,000 for
fiscal year ended March 29, 1997, a decrease of 2.6%. Approximately
$1,284,000 in revenues for fiscal year 1998 resulted from the sales of
materials, parts, support, etc., while approximately $20,000 in
revenues were derived from licenses fees. Approximately $1,153,000 in
revenues for fiscal year 1997 resulted from the sales of materials,
parts, support, etc., while approximately $186,000 in revenues were
derived from licenses fees. The decrease in revenues for fiscal year
1998 as compared to fiscal year 1997 was primarily attributable to
decreases in the number of new license agreements procured by
Sprayroq, which resulted in a corresponding decrease in license fees.
Gross Profit.
For fiscal year 1998, the Company's gross profit margin was
53.5%, as compared to 44.8% for fiscal year 1997. The increased gross
profit margin over fiscal year 1997 is due primarily to the increased
proportion of Sprayroq resin sales to total sales, with a
corresponding decrease in the proportion attributable to license fees.
Selling, General and Administrative Expenses.
Selling, General and Administrative expenses ("S,G&A") for
fiscal year 1998 were approximately $761,000 as compared to
approximately $759,000 for fiscal year 1997, an increase of less than
1%. S,G&A for fiscal year 1998 was approximately unchanged as compared
to fiscal year 1997 primarily as a result of decreases in expenses,
primarily payroll, at Sprayroq, which were offset by increases in
expenses, primarily legal expenses relating to the Reorganization Plan
as referred to herein, as well as the payment of a bonus.
Net Income/(Loss).
For fiscal year 1998, the Company had net income of
approximately $74,000, as compared to net income of approximately
$54,000 for fiscal year 1997, an increase of 37.0%. The increase in net
income is primarily attributable to increases in gross profit and
other income. In addition, the Company had income tax expense of
approximately $21,000 in fiscal year 1998 which reduced the pre-tax
income of $94,348, as compared to income tax benefit of
15
<PAGE> 17
approximately $72,000 in fiscal year 1997, which offset the pre-tax
loss of $17,732.
Financial Condition.
Total assets, stockholders' equity, and working capital
increased during fiscal year 1998, as compared to fiscal year 1997.
The increase during fiscal year 1998 was primarily the result of the
increase in net income, along with increases in property, plant and
equipment.
At March 28, 1998, the Company had approximately $2,820,000
in working capital and a current ratio of 32.0-to-1, as compared to
$2,784,000 in working capital and a current ratio of 32.2-to-1 at
March 29, 1997.
The Company's cash and cash equivalents totaled approximately
$2,545,000 at March 28, 1998. The Company's operating activities
provided cash of approximately $202,000, as compared to cash used by
operating activities of approximately $1,247,000 in fiscal year 1997.
Cash in the amount of approximately $36,000 was used in investing
activities during fiscal year 1998, as compared to cash of
approximately $3,000 used in investing activities in fiscal year 1997.
In fiscal years 1998 and 1997, approximately $36,000 and
$5,000, respectively, was expended for capital assets.
Depreciation expense was approximately $8,000, and
amortization expense was zero in fiscal year 1998, as compared to
depreciation and amortization expense of $27,000 in fiscal year 1997.
Net fixed assets were approximately $359,000 at the end of fiscal year
1998, as compared to approximately $330,000 at the end of fiscal year
1997, an increase of 8.8%. This increase is primarily attributable to
the purchase of equipment offsetting accumulated depreciation.
The Company does not believe that there is any appreciable
seasonal impact on the business of the Company, although extreme cold
weather may impair installation of spray-applied materials, which may
result in decreased resin sales by Sprayroq.
The Company's undeveloped property in Jacksonville, Florida
(approximately 10.6 acres) is currently being offered for sale, which
may result in an increase in the Company's cash.
Other than normal trade accounts payable, taxes and normal
accrued expenses incurred in the ordinary course of business, the
Company is not currently aware of other material contingencies.
Operating cash flow combined with available cash are
currently expected to provide resources for the Company's working
capital needs for the foreseeable future. To the extent that the
Company is not able to meet its financial goals, however, the
Company's revenues may not be sufficient to satisfy the Company's
working capital needs. Consequently, no
16
<PAGE> 18
assurance can be given that the Company's revenues will be sufficient
to adequately fund the Company's future working capital requirements.
The operating results and financial statements of the Company
include all of the operating results of Sprayroq, without discount or
reduction based upon the fact that the Company owns 50% of the
outstanding capital stock of Sprayroq, and controls the operations of
Sprayroq. The minority interest in Sprayroq is not reflected in the
financial statements because of its accumulated deficit position.
On April 23, 1998, Enviroq announced that its board of
directors has approved entering into an Agreement and Plan of
Reorganization (the "Reorganization Plan") by which Enviroq will merge
with a subsidiary of Intrepid Capital Corporation ("Intrepid"), a
newly-formed corporation. The merger would be consummated through a
transaction in which Enviroq stockholders would receive shares of
Intrepid common stock, as well as cash. Simultaneously with the
Enviroq-Intrepid merger, Institutional Asset Management, Inc. ("IAM")
and Capital Research Corporation ("CRC") will also merge with
newly-formed subsidiaries of Intrepid. As a result of the transaction,
Enviroq, IAM and CRC will become wholly-owned subsidiaries of Intrepid
(the "Mergers").
According to the Reorganization Plan, the shares of Intrepid
common stock issued in the mergers will be registered securities under
the Securities Exchange Act of 1934, as amended. It is anticipated
that the common stock of Intrepid will be traded in the
over-the-counter markets. The Reorganization Plan also contemplates
that Enviroq stockholders will receive $2,250,000 in cash and
1,009,377 shares of Intrepid common stock. This would result in
Enviroq stockholders receiving approximately $2.23 in cash and one
share of Intrepid common stock for each issued and outstanding share of
Enviroq stock. The stockholders of IAM and CRC will receive
approximately 1,206,149 shares of Intrepid common stock in exchange for
all of the outstanding common stock of IAM and CRC. Completion of the
Mergers are subject to a number of conditions, including approval of
Enviroq stockholders, the receipt by Enviroq of a fairness opinion from
its investment banker, and other conditions.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of the Company as of
March 28, 1998 and other information required by Item 310(a) of
Regulation S-B are set forth on pages F-1 through F-10 hereof.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
There have been no changes in or disagreements with the
Company's accountants regarding accounting procedures or financial
disclosure.
17
<PAGE> 19
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS OF THE
COMPANY; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Executive officers and directors of the Company as of the date hereof
are as follows:
<TABLE>
<CAPTION>
DIRECTOR POSITIONS WITH
NAME AGE SINCE(1) THE COMPANY
- ---- --- -------- --------------
<S> <C> <C> <C>
Antonio M. Marinelli 78 1995 Chairman of the Board
and Director
William J. Long 46 1995 President, Chief Executive
Officer and Director
Charles A. Long, Jr 70 1995 Director
Michael X. Marinelli 39 1995 Director
Thomas W. Brander 49 1997 Director
Alexander P. Zechella 77 1995 Director
</TABLE>
Antonio M. Marinelli has been Chairman of the Board and a Director of
the Company since April 1995. Prior to April 1995, Mr. Marinelli had been
Chairman of the Board of Old Enviroq since 1981. Mr. Marinelli is, and has been
for over five years, Vice Chairman of the Board and a Director of Intercounty
Construction Company of Florida, Inc. ("Intercounty"), a heavy construction
contractor and a wholly-owned subsidiary of Micam Industries, Inc. ("Micam").
William J. Long has been President, Chief Executive Officer and a
Director of the Company since April 1995. Prior to April 1995, Mr. Long had been
Vice President-Marketing and a Director of Old Enviroq since October 1984. Since
May 25, 1995, Mr. Long has been Chairman of the Board and a Director of
Sullivan, Long & Hagerty, an Alabama corporation ("SLH"), a heavy construction
contractor, which is the parent of SCE, Incorporated, an Alabama corporation
("SCE"), a heavy construction contractor. Prior to October, 1995, Mr. Long had
been Chief Executive Officer of SCE and SLH. Prior to May 25, 1995, Mr. Long had
been a Director and Senior Vice President of SCE, and a Director and Senior Vice
President of SLH, for over five years.
(1) All directors of the Company hold office for a term of one year or until
such director's successor is elected and qualified.
18
<PAGE> 20
Charles A. Long, Jr., has been a Director of the Company since April
1995. Prior to April, 1996, Mr. Long had served as Secretary-Treasurer of the
Company. Prior to April 1995, Mr. Long had served as Secretary-Treasurer and a
Director of Old Enviroq since October 1981. Prior to May 25, 1995, Mr. Long also
served since 1970 as the Chairman of the Board and Chief Executive Officer of
SCE and SLH and is currently a director of both SCE and SLH.
Michael X. Marinelli is an associate with the Washington, D.C. law firm
of Baker & Botts. He graduated from Catholic University Law School in 1989. Mr.
Marinelli served as Assistant Secretary of the Company from January 1987 to July
1987. He served as Special Assistant to the General Manager of Insituform East,
Inc., from February 1986 to August 1986. From October 1985 to February 1986, Mr.
Marinelli served as assistant to the President of the Company, and from October
1984 to October 1985, he was a sales representative for the Company. He has
served as a Director of the Company since April 1995. Prior to April 1995, he
had served as a Director of Old Enviroq since October 1984.
Thomas W. Brander served from 1988 until April, 1998 as a Senior Vice
President of Compass Bankshares in Birmingham, Alabama. From 1987 until 1988,
Mr. Brander served as a Vice President for American International Group in New
York, NY. From 1976 until 1987, Mr. Brander served in various positions with
Citibank, NA in Sydney, Australia, Atlanta, GA, and New York, NY.
Alexander P. Zechella served from September 1983 to April 1984, as
Chairman of Charter Oil Company and Executive Vice President of The Charter
Company ("Charter"). From April 1984 until his retirement in December, 1985 Mr.
Zechella served as President, Chief Executive Officer, and Chief Operating
Officer of Charter. Mr. Zechella has served as a Director of the Company since
April 1995. Prior to April 1995, he had served as a Director of Old Enviroq
since April 1987.
Marinelli Securities Associates, a Florida general partnership ("MSA"),
is the record owner of 294,900 shares.
Based solely on its review of the copies of such forms received by it,
or written representations from certain reporting persons that no Forms 5 were
required by those persons, the Company believes that, during the fiscal year
ended March 28, 1998, all filing requirements applicable to its officers,
directors, and greater-than-10% beneficial owners have been complied with.
William J. Long, a Director and Chief Executive Officer of the Company,
is the son of Charles A. Long, Jr., also a Director of the Company. Michael X.
Marinelli, a Director of the Company, is the son of Antonio M. Marinelli, also a
director of the Company.
19
<PAGE> 21
ITEM 10. EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION
The following table sets forth certain information respecting the
compensation paid to the Chief Executive Officer of the Company during the
fiscal year ended March 28, 1998 and relevant preceding fiscal years:
SUMMARY COMPENSATION TABLE
Annual Compensation Awards
<TABLE>
<CAPTION>
Name and All Other
Principal Salary Compensation
Position Year ($) ($)
---------------- ---- ------- ------------
<S> <C> <C> <C>
William J. Long 1998 $85,000 $50,000 (1)
President and 1997 $84,133 --
Chief Executive 1996 $58,335 --
Officer
</TABLE>
(1) Bonus of $50,000, of which $20,000 was paid in fiscal year 1998, and the
remaining $30,000 to be paid in the first quarter of fiscal year 1999.
Directors' Compensation. Non-employee directors of the Company are paid
$1,000 per quarter for a maximum of six meetings of the Board of Directors and
Committees of the Board. In the event that additional meetings of the Board of
Directors are required, the non-employee Directors are compensated at a rate of
$1,000 per meeting. All Directors and Officers are reimbursed for travel
expenses incurred in connection with their attendance at meetings of the Board
of Directors.
In addition, non-employee directors are entitled to receive options to
purchase shares of the Company's common stock pursuant to a Non-Employee
Directors Stock Option Plan (the "Directors' Plan"). Options for up to 100,000
shares of common stock are authorized to be issued under the Directors' Plan.
The Directors' Plan allows the Company's Stock Option Committee to grant options
to non-employee directors for a price of not less than eighty-five percent (85%)
of the fair market value of the Company's common stock on the dates that the
options are granted. Options are exercisable in whole or in part, from time to
time, until five (5) years from the date of grant, except that, absent a change
in control of the Company, each option terminates upon the discontinuance of the
option holder's service as a Director of the Company for any reason except death
or disability. Sale of common stock purchased upon exercise of an option is
prohibited for two (2) years from the date of exercise or three (3) years from
the date of grant, whichever is later, unless there is a change in control of
the Company or in the event of the Director's death. Each option agreement under
the Directors' Plan provides, among other things, that shares of Common Stock
will be issued and delivered to the Director upon payment to the Company of the
exercise price of such shares and that the option price and number of shares
subject to such option will be adjusted for stock splits, stock dividends or
other similar changes in the Company's capital structure. No options were issued
during fiscal 1998 under the Directors' Plan.
20
<PAGE> 22
Incentive Stock Option Plan. Options may be granted under the Company's
Incentive Stock Option Plan (the "ISO Plan"), which provides for the issuance to
key employees of incentive stock options ("ISOs") within the meaning of Section
422A of the Internal Revenue Code of 1986, as amended. The ISO Plan is
administered by the Stock Option Committee of the Board of Directors (the
"Committee"). As of June 20, 1996, the Committee was authorized to issue up to
100,000 shares of common stock pursuant to the exercise of the ISOs. The option
price of each ISO granted is 100% of the fair market value of the common stock
on the date of grant. If an ISO is granted to an optionee who holds more than
10% of the combined voting power of all classes of the Company's stock at the
date of the grant, the option price is 110% of fair market value of the common
stock on the date of grant. The ISO Plan provides for the exercise of ISOs at
the maximum rate of 25% in the first 12 months after grant and 25% in each
12-month period thereafter. To the extent not exercised, an optionee may
accumulate his or her ISOs and exercise them, in whole or in part, in any
subsequent period but not later than 10 years from the date on which the option
was granted. No options were issued during fiscal year 1998 to executive
officers of the Company under the ISO Plan.
Compensation Committee Interlocks and Insider Participation. Thomas W.
Brander, Antonio M. Marinelli and Alexander P. Zechella serve on the
Compensation Committee of the Board of Directors.
21
<PAGE> 23
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The table set forth below presents certain information regarding the
beneficial ownership as of June 4, 1998 by (i) each shareholder known to the
Company to own more than five percent of any class of the Company's outstanding
securities entitled to vote; (ii) directors of the Company; and (iii) all
executive officers and directors of the Company as a group.
<TABLE>
<CAPTION>
AMOUNT AND NATURE PERCENT OF CLASS
NAME AND ADDRESS OF OF SECURITIES (EXCLUDING
BENEFICIAL OWNER BENEFICIAL OWNER(1) TREASURY SHARES)(2)
- ------------------- ------------------- -------------------
<S> <C> <C>
Insituform of North America, Inc. 73,800 shares 7.3%
3315 Democrat Road of common stock
Memphis, Tennessee 38118
Marinelli Securities Associates (3) 294,900 shares 29.2%
2100 North Dixie Highway of common stock
Fort Lauderdale, Florida 33305
Charles A. Long, Jr. (4) 5,686 shares 0.6%
P. O. Box 12887 of common stock
Birmingham, Alabama 35202
William J. Long (4)(5) 263,389 shares 26.1%
3918 Montclair Road, Suite 206 of common stock
Birmingham, Alabama 35213
Antonio M. Marinelli (3)(6) 299,559 shares 29.7%
of common stock
Michael X. Marinelli (3)(7) 295,420 shares 29.3%
of common stock
Thomas W. Brander 14,061 shares 1.4%
3763 West Jackson Blvd of common stock
Birmingham, Alabama 35213
Alexander P. Zechella 4,221 shares 0.4%
1000 Vicar's Landing Way, #F-109 of common stock
Ponte Vedra Beach, Florida 32082
All officers and directors 584,942 shares 58.0%
as a group (7 persons) of common stock
</TABLE>
(1) Included in such beneficial ownership are shares of common stock
issuable upon the exercise of certain options exercisable immediately
or within 60 days of June 4, 1998, as follows: None.
22
<PAGE> 24
(2) The percentages represent the total of the shares listed in the
adjacent column divided by the issued and outstanding shares of common
stock as of June 4, 1998, plus any options exercisable immediately or
within 60 days.
(3) Marinelli Securities Associates ("MSA") is a Florida general
partnership and is the record owner of 294, 900 shares. The partners of
MSA are Micam Industries, Inc. ("Micam") (41.16%), Estate of Orlando M.
Marinelli (7.65%), Marion Marinelli (7.65%), Antonio M. Marinelli
(7.65%), Phyllis Marinelli (7.65%), Michelle Marinelli (7.06%), Kim
Vreeland (7.06%), Michael X. Marinelli (7.06%), and Michael J.
Marinelli (7.06%). Michael X. Marinelli, a director of the Company, is
a partner in MSA. Accordingly, the shares owned by MSA may be deemed to
be beneficially owned by each of them. The address of each of the
above-named partners is the same as the address of MSA.
(4) Charles A. Long, Jr. is the record owner of 3,312 shares. Also includes
2,374 shares owned of record by Long Enterprises, Inc. Both Charles A.
Long, Jr., and William J. Long are directors, executive officers, and
controlling shareholders of Long Enterprises, Inc.
(5) William J. Long is the record owner of 257,975 shares. Also includes an
aggregate of 3,040 shares owned of record by William J. Long's wife and
children, and 2,374 shares owned by Long Enterprises, Inc., of which
William J. Long is a director, executive officer, and controlling
shareholder. Mr. Long has pledged 257,706 shares to First Commercial
Bank as security for a loan.
(6) Antonio M. Marinelli is the record owner of 4,659 shares.
(7) Michael X. Marinelli is the record owner of 120 shares. Also includes
400 shares owned of record by Michael X. Marinelli's sons.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Directors Charles A. Long, Jr., and William J. Long, and other members
of the Long family may be deemed to be in control of Assurance Agency, Inc., an
Alabama corporation and an insurance broker ("Assurance"), Long Technologies,
Inc., a research and development company, Integrid, Inc., a consulting company,
Sullivan, Long & Hagerty, and Long Enterprises, Inc.
The Company has had a number of transactions, which are described
below, with the businesses named above. The Company believes that the
transactions were or are on terms that are no less favorable to the Company than
those which could reasonably have been obtained from an unaffiliated party.
In April, 1996, Assurance sold its book of business and certain other
assets to LMJ Corporation. Among other of the terms relating to this sale was
the right of Assurance to receive a percentage of future commissions arising out
of the book of business sold to LMJ by Assurance. With respect to insurance
purchased by the Company from LMJ, LMJ pays 22% of the commissions from such
business to Assurance. During fiscal year 1998, a portion of the Company's
insurance (primarily relating to Director's and Officer's insurance) was
provided through LMJ Corporation for a total of approximately $29,000. For
fiscal years 1996 and 1997, the Company paid Assurance approximately $58,000 and
$66,000, respectively. In April, 1997, much of the Company's insurance was
purchased from an unaffiliated third party, although LMJ retained the portion of
insurance relating to workers'
23
<PAGE> 25
compensation. Management believes that the Company will make payments to LMJ
during fiscal year 1999 for certain insurance needs equal to approximately
$30,000.
Synox is party to the License Agreement with Long Enterprises. Pursuant
to the License Agreement, Synox has obtained from Long Enterprises rights to
five U.S. patents relating to the Synox Process. During fiscal years 1996, 1997
and 1998 the Company made no payments to Long Enterprises pursuant to the
License Agreement. See "Description of Business -- Patents and Licenses."
During fiscal years 1998, 1997 and 1996, the Company paid approximately
$29,000, $13,000, and $2,800, respectively, to Market Potential, Inc., a company
controlled by Patricia L. Ford, for advertising and marketing services performed
for the Company. Ms. Ford is the sister of William J. Long and the daughter of
Charles A. Long, Jr. Market Potential, Inc. sub-leases office space from the
Company, and paid approximately $4,000 for this space during fiscal year 1998
and, for the period after September, 1997, $3,000 during fiscal year 1997.
Market Potential, Inc. sub-let offices, through August, 1996, to the Company,
for which, the Company paid approximately $1,000 to Market Potential, Inc.
during fiscal year 1997.
Charles A. Long, Jr. sub-leases office space from the Company, and paid
the Company approximately $2,000 for this space during fiscal year 1998, and
approximately $1,400 during fiscal year 1997.
Integrid, Inc., a company owned by William J. Long, sub-leases office
space from the Company, and paid the Company approximately $1,300 for this space
during fiscal year 1998, and $800 during fiscal year 1997.
Old Enviroq acquired all of the outstanding common stock of Synox from
its existing stockholders on September 30, 1991. The stockholders of Synox at
the time of that merger received shares of Old Enviroq valued at $672,000 in the
aggregate plus the right to receive additional shares of Old Enviroq, dependent
on the earnings of Synox, up to a maximum value of $2,017,000. The right to
receive these additional shares was represented by certificates of contingent
shares of Old Enviroq ("Contingent Share Certificates"). In addition to other
past stockholders of Synox, certain directors of the Company or their
affiliates, including Long Enterprises, Inc., and Sullivan, Long & Hagerty,
Inc., Estate of Orlando M. Marinelli, Antonio M. Marinelli, former director W.
T. Goodloe Rutland, and Alexander P. Zechella, hold Contingent Share
Certificates.
The Company has issued replacement contingent share certificates
representing the contingent right to receive shares of common stock of the
Company ("New Contingent Share Certificates"), partly in consideration of the
agreement of the holders of the Contingent Share Certificates to surrender their
Contingent Share Certificates. The New Contingent Share Certificates have rights
and privileges substantially similar to those afforded by the Contingent Share
Certificates except that (i) any shares to be issued pursuant to the New
Contingent Share Certificates will be shares of the common stock of the Company
rather than Old Enviroq, and (ii) the arbitration provisions contained in the
Contingent Share Certificates giving the holders thereof the right to arbitrate
the reasonableness of the decision to abandon the Synox Process are not
contained in the New Contingent Share Certificates.
24
<PAGE> 26
Synox has issued certain promissory notes to certain directors and
officers of the Company and certain of their affiliates. The aggregate amount of
such notes as of May 28, 1998 was approximately $1,091,179. These notes provide
that interest will be deferred and paid only if and after Synox has after-tax
net income and then only to the extent that the amount of interest paid does not
exceed the amount of such after-tax net income; and principal will be paid after
Synox has accumulated retained earnings, and then only to the extent that the
payment of such indebtedness does not exceed the amount of such retained
earnings. Management believes that the attainment of sufficient retained
earnings by Synox is not likely in the foreseeable future, and consequently such
notes are not recorded as liabilities in the Company's financial statements.
Any future transactions with officers, directors, principal
stockholders, or affiliates of any officers, directors, or principal
stockholders will be on terms which management believes are no less favorable to
the Company than those which could reasonably be obtained from an unaffiliated
party and will be subject to the approval of a majority of the disinterested
directors.
25
<PAGE> 27
ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following financial statements are filed with this report on
Form 10-KSB:
<TABLE>
<CAPTION>
Page
Reference
---------
<S> <C>
Independent Auditors' Report F-1
Consolidated Balance Sheets F-2
Consolidated Statements of Income F-3
Consolidated Statements of Stockholders'
Equity F-4
Consolidated Statements of Cash Flows F-5
Notes to Consolidated Financial F-6
Statements
</TABLE>
(b) The Company filed a report on Form 8-K on April 23, 1998. No financial
statements were filed with respect to the Report on Form 8-K and the report
consisted of disclosures made in respect of Item 5 of Form 8-K.
[remainder of this page intentionally left blank]
26
<PAGE> 28
ENVIROQ CORPORATION AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS
ENDED MARCH 28, 1998 AND MARCH 29, 1997
AND INDEPENDENT AUDITORS' REPORT
<PAGE> 29
INDEPENDENT AUDITORS' REPORT
To The Board of Directors and Stockholders of
Enviroq Corporation:
We have audited the accompanying consolidated balance sheets of Enviroq
Corporation and subsidiaries as of March 28, 1998 and March 29, 1997, and the
related consolidated statements of income, stockholders' equity, and cash flows
for the years then ended. 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, such consolidated financial statements present fairly, in all
material respects, the financial position of Enviroq Corporation and
subsidiaries as of March 28, 1998 and March 29, 1997, and the results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles.
Birmingham, Alabama
May 11, 1998
<PAGE> 30
ENVIROQ CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 28, 1998 AND MARCH 29, 1997
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 2,545,100 $ 2,379,613
Accounts receivable (Note 6) 78,404 314,772
Inventories 168,184 52,830
Refundable income taxes 63,470 100,189
Prepaid expenses and other assets 36,884 24,494
----------- -----------
Total current assets 2,892,042 2,871,898
----------- -----------
OTHER ASSETS:
Employee notes receivable 11,858 13,819
Deferred taxes (Note 2) 10,650
----------- -----------
Total other assets 22,508 13,819
----------- -----------
PROPERTY, PLANT AND EQUIPMENT:
Land 310,135 310,135
Operating equipment 44,160 25,563
Other equipment and vehicles 57,917 40,241
----------- -----------
412,212 375,939
Less accumulated depreciation 53,279 45,506
Property, plant and equipment, net 358,933 330,433
----------- -----------
TOTAL $ 3,273,483 $ 3,216,150
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 46,733 $ 69,292
Salaries, wages and related taxes 25,203 18,824
----------- -----------
Total liabilities 71,936 88,116
----------- -----------
COMMITMENTS AND CONTINGENCIES (Note 4)
STOCKHOLDERS' EQUITY (Note 3):
Common stock (par value $.01 per share, authorized
10,000,000 shares, issued and outstanding 1,009,377 shares) 10,094 10,094
Additional paid-in capital 6,190,647 6,190,647
Accumulated deficit (2,999,194) (3,072,707)
----------- -----------
Total stockholders' equity, net 3,201,547 3,128,034
----------- -----------
TOTAL $ 3,273,483 $ 3,216,150
=========== ===========
</TABLE>
See notes to consolidated financial statements.
F-2
<PAGE> 31
ENVIROQ CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED MARCH 28, 1998 AND MARCH 29, 1997
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
REVENUES (Note 6):
Net revenues from sales and support $ 1,284,357 $ 1,152,972
Revenues from licenses 20,000 185,835
----------- -----------
Total revenues 1,304,357 1,338,807
COST OF REVENUES 605,940 738,666
----------- -----------
GROSS PROFIT 698,417 600,141
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES (Note 5) 761,199 759,418
----------- -----------
LOSS FROM OPERATIONS (62,782) (159,277)
----------- -----------
OTHER INCOME:
Interest 124,113 136,958
Other, net 33,017 4,587
----------- -----------
157,130 141,545
----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES 94,348 (17,732)
INCOME TAX (EXPENSE) BENEFIT (Note 2) (20,835) 71,799
----------- -----------
NET INCOME $ 73,513 $ 54,067
=========== ===========
BASIC AND DILUTED NET INCOME PER SHARE $ 0.07 $ 0.05
=========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING 1,009,377 1,009,377
============ ===========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 32
ENVIROQ CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED MARCH 28, 1998 AND MARCH 29, 1997
<TABLE>
<CAPTION>
Additional
Common Paid-In Accumulated
Stock Capital Deficit Total
<S> <C> <C> <C> <C>
BALANCE, MARCH 25, 1996 $10,094 $6,190,647 $(3,126,774) $3,073,967
Net income 54,067 54,067
------- --------- ---------- ---------
BALANCE, MARCH 29, 1997 10,094 6,190,647 (3,072,707) 3,128,034
Net income 73,513 73,513
-------- --------- --------- ---------
BALANCE, MARCH 28, 1998 $10,094 $6,190,647 $(2,999,194) $3,201,547
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 33
ENVIROQ CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MARCH 28, 1998 AND MARCH 29, 1997
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 73,513 $ 54,067
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation 7,774 8,715
Amortization 17,989
Gain on sale of property, plant and equipment (2,000)
Provision for uncollectible notes receivable 10,000
Changes in assets and liabilities provided (used) cash:
Accounts receivable 236,368 (188,375)
Interest receivable 7,890
License fees receivable 4,030
Inventories (115,354) 65,560
Income taxes 36,719 (1,140,693)
Prepaid expenses and other assets (12,391) 514
Other assets (8,689) 3,181
Accounts payable and accrued expenses (22,559) (96,462)
Salaries, wages and related taxes 6,379 9,010
----------- ----------
Net cash provided by (used in) operating activities 201,760 (1,246,574)
----------- ----------
INVESTING ACTIVITIES:
Proceeds from sale of property, plant and equipment 2,000
Additions to property, plant and equipment (36,273) (4,803)
----------- ----------
Net cash used in investing activities (36,273) (2,803)
----------- ----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 165,487 (1,249,377)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 2,379,613 3,628,990
----------- ----------
CASH AND CASH EQUIVALENTS
AT END OF YEAR $ 2,545,100 $2,379,613
=========== ==========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 34
ENVIROQ CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION - Enviroq Corporation (the "Company") was incorporated on
February 9, 1995. Prior to April 18, 1995, the Company was named "New
Enviroq." The Company was initially a wholly-owned subsidiary of a
predecessor company which was named Enviroq Corporation (hereafter
referred to as "Old Enviroq"). On April 18, 1995, a transaction was
completed in which all of the outstanding shares of New Enviroq were
distributed to the shareholders of Old Enviroq (the "Distribution"), and
the name of Old Enviroq was changed to Insituform Southeast, Inc.
Insituform Southeast, Inc. was then merged (the "Merger") into a
subsidiary of Insituform MidAmerica ("IMA"), after which the name of New
Enviroq was then changed to Enviroq Corporation. Also on April 18, 1995,
the stock of Synox Corporation ("Synox"), a wholly-owned subsidiary of Old
Enviroq, and Sprayroq, Inc. ("Sprayroq"), a 50% owned subsidiary of Old
Enviroq, approximately 11 acres of unimproved land and $500,000 in cash
were transferred to the Company, a newly formed public entity effective
April 18, 1995, at their respective book values. Each share of common
stock of Old Enviroq issued and outstanding was converted into a right to
receive a cash payment equal to the pro-rata portion of the merger
consideration of $15,250,000.
NATURE OF OPERATIONS - The Company's operations are conducted primarily
through Sprayroq. Sprayroq is engaged in development, commercialization,
manufacture and marketing of spray-applied resinous materials.
FISCAL YEAR - The Company's 1998 and 1997 fiscal years ended on March 28,
1998 and March 29, 1997, respectively. Fiscal years 1998 and 1997 included
52 weeks.
PRINCIPLES OF CONSOLIDATION - These consolidated financial statements
include the accounts of the Company and its subsidiaries, Synox and
Sprayroq. All significant intercompany transactions are eliminated in
these consolidated financial statements. The Company controls the
operations and activities of Sprayroq. There is no recognition of the
minority interest in this subsidiary because of its accumulated deficit
position.
ACCOUNTING ESTIMATES - 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 periods. Actual
results could differ from those estimates.
CASH EQUIVALENTS - Cash equivalents consist of highly liquid investments
purchased with an original maturity of three months or less.
INVENTORIES - Inventories, consisting of raw materials and supplies, are
valued at the lower of cost (first-in, first-out method) or market.
PROPERTY, PLANT AND EQUIPMENT - Property, plant and equipment is carried
at cost, less accumulated depreciation. Depreciation is provided
principally on the straight-line method over the estimated useful lives of
the assets, which range from three to twenty years. Repairs and
maintenance costs are charged to expense as incurred.
F-6
<PAGE> 35
RESEARCH AND DEVELOPMENT COSTS - Research and development costs are
expensed as incurred. Such costs were $5,170 (1998) and $22,798 (1997).
LICENSE FEES - Sprayroq licenses its technology for use within certain
geographic regions. These licenses allow the licensee use of the
proprietary technology within their territory and are subject to
restrictions as specified in the individual agreements.
NET INCOME PER SHARE - In February 1997, the Financial Accounting
Standards Board ("FASB") issued Statement of Financial Accounting
Standards ("SFAS") No. 128, Earnings Per Share. SFAS No. 128 replaces the
presentation of primary earnings per share with a presentation of basic
earnings per share, requires dual presentation of basic and diluted
earnings per share on the face of the income statement for all entities
with complex capital structures, and provides guidance on other
computational changes. The Company adopted this statement for all periods
presented in the accompanying consolidated statements of income.
RECENTLY ISSUED ACCOUNTING STANDARDS - In June 1997, the FASB issued SFAS
No. 130, Reporting Comprehensive Income, and SFAS No. 131, Disclosures
About Segments of an Enterprise and Related Information, both of which
will be effective for the Company in fiscal year 1999. Management does not
expect the adoption of these Statements to have a material impact on the
Company's financial statements and disclosures.
RECLASSIFICATIONS - Reclassifications have been made to certain 1997
amounts to conform with the 1998 presentation.
2. INCOME TAXES
Income tax (expense) benefit for the years ended March 28, 1998 and March
29, 1997 consists of the following:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Current:
Federal $ (16,789) $ 73,342
State (14,696) (1,543)
--------- --------
Total current (31,485) 71,799
Deferred - Federal 10,650
--------- --------
$ (20,835) $ 71,799
========= ========
</TABLE>
The differences between the income tax (expense) benefit and income taxes
computed using the federal statutory rate are as follows:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Income tax (expense) benefit at federal statutory rate $ (33,268) $ 5,059
State income taxes, net of federal tax benefit (4,214) (1,019)
Benefit of operating loss carryback 71,796
Nondeductible expenses (6,116)
Benefit from lower tax brackets 17,191 3,209
Other (544) (1,130)
--------- --------
Income tax (expense) benefit $ (20,835) $ 71,799
========= ========
</TABLE>
F-7
<PAGE> 36
The types of temporary differences and their related tax effects are
summarized as follows:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Deferred tax assets (long-term):
Net operating loss and credit carryforwards $ 37,238 $ 25,803
Valuation allowance (26,588) (25,803)
-------- --------
Deferred tax assets $ 10,650 $ --
-------- --------
</TABLE>
A valuation allowance has been established against the net deferred income
tax asset. Such valuation allowance can be adjusted in future periods as
the probability of realization of the net deferred tax asset increases.
During 1996, Enviroq elected to waive its right to all but $79,000 of
future use of Synox's net operating loss carryforwards. At March 28, 1998,
Synox had a remaining net operating loss carryforward of approximtely
$75,000 which, if not utilized, will expire in 2010. The Company also has
a general business credit carryforward of approximately $9,000 at March
28, 1998, which will expire in March 2009, if not utilized.
3. RETIREMENT AND INCENTIVE PLANS
The Company has a retirement plan for its employees pursuant to Section
401(k) of the Internal Revenue Code. Participants may make contributions
by salary reduction pursuant to Section 401(k) of the Internal Revenue
Code.
Non-employee Directors are entitled to receive options to purchase shares
of the Company's common stock pursuant to a Non-Employee Directors Stock
Option Plan (the "Directors' Plan"). Options for up to 100,000 shares of
common stock are authorized to be issued under the Directors' Plan. The
Directors' Plan allows the Company's Stock Option Committee (the
"Committee") to grant options to non-employee Directors for a price of not
less than eighty-five percent of the fair market value of the Company's
common stock on the dates that the options are granted. Options are
exercisable in whole or in part, from time to time, until five years from
the date of grant, except that, absent a change in control of the Company,
each option terminates upon the discontinuance of the option holder's
service as a Director of the Company for any reason except death or
disability. Sale of common stock purchased upon exercise of an option is
prohibited for two years from the date of exercise or three years from the
date of grant, whichever is later, unless there is a change in control of
the Company or in the event of the Director's death. Each option agreement
under the Directors' Plan provides, among other things, that shares of
Common Stock will be issued and delivered to the Director upon payment to
the Company of the exercise price of such shares and that the option price
and number of shares subject to option will be adjusted for stock splits,
stock dividends or other similar changes in the Company's capital
structure.
The Company also has an Incentive Stock Option Plan (the "ISO Plan")
administered by the Committee which provides for the issuance to key
employees of incentive stock options ("ISOs") within the meaning of
Section 422A of the Internal Revenue Code of 1986, as amended. The
Committee is authorized to issue up to 100,000 shares of common stock
pursuant to the exercise of the ISOs. The option price of each ISO granted
is 100% of the fair market value of the common stock on the date of grant.
If an ISO is granted to an optionee who holds more than 10% of the
combined voting power of all classes of the Company's stock at the date of
the grant, the option price is 110% of fair market value of the common
stock on the date of grant. The ISO Plan provides for the exercise of ISOs
at the maximum rate of 25% in the first 12 months after grant and 25% in
each 12-month period thereafter. To the extent not exercised, an optionee
may accumulate
F-8
<PAGE> 37
his or her ISOs and exercise them, in whole or in part, in any subsequent
period but not later than 10 years from the date on which the option was
granted.
No options have been issued by the Company under the Directors' Plan or
the ISO Plan.
4. COMMITMENTS AND CONTINGENCIES
Synox is the exclusive licensee of certain technology and know-how under a
license agreement with a company controlled by certain affiliates of the
Company. The agreement currently covers 15 states in the license
territory. Under the terms of its license agreement (as amended), Synox is
subject to minimum royalty provisions and to the maintenance of a $50,000
net worth and the performance of other material provisions of the license
agreement. Minimum annual royalties (based upon retaining the 15 states
currently under the agreement) are due each January 1, for the ensuing
calendar year through the license expiration. The license agreement was
amended on December 22, 1997 to change the expiration date of the license
and to provide that no minimum royalty payment would be due on January 1,
1998, but that such minimum royalty payments would resume on January 1,
1999, in accordance with the following schedule.
<TABLE>
<CAPTION>
DUE DATE AMOUNT
<S> <C>
January 1, 1999 $ 90,336
January 1, 2000 180,671
January 1, 2001 180,671
January 1, 2002 through 2009 225,839
</TABLE>
Pursuant to the merger agreement between Old Enviroq and Synox, the
stockholders of Synox at the time of the merger received Old Enviroq
shares valued at $672,000 in the aggregate plus the right to receive
additional shares of Old Enviroq, dependent on the earnings of Synox, up
to a maximum value of $2,017,000. In addition, the then existing
obligations of Synox under promissory notes to certain shareholders
amounting to $767,376 plus additional interest at 7.66%) shall become
payable by Synox in cash only after such time as (i) all the contingent
shares have been issued and (ii) accumulated retained earnings are
available for such payment. Interest shall become payable only to the
extent of available net earnings. Management believes it is unlikely that
Synox will achieve the required levels of retained earnings. Therefore,
these promissory notes are not recorded as liabilities in the accompanying
consolidated balance sheets. As a result of the Distribution of Company
shares referred to in Note 1, the obligation to issue contingent shares
became an obligation of the Company to issue its shares in lieu of Old
Enviroq shares. To the extent additional, contingent shares become
issuable in the future or additional obligations become payable in the
future, such consideration will be recorded at that time at its fair value
and accounted for as additional intangible assets.
5. RELATED PARTY TRANSACTIONS
During fiscal years 1998 and 1997, the Company paid approximately $29,000
and $13,000, respectively, to a marketing and public relations company
controlled by a family member of certain stockholders of the Company.
During fiscal 1997, the Company paid approximately $58,000 to an insurance
agency controlled by stockholders of the Company.
6. SIGNIFICANT CUSTOMERS AND CONCENTRATION OF CREDIT RISK
The Company had sales transactions with two and four unrelated customers
which accounted for approximately 89% and 92% of total sales in fiscal
1998 and 1997, respectively. Trade accounts
F-9
<PAGE> 38
receivable included approximately $77,445 and $303,000 due from these
customers at March 28, 1998 and March 29, 1997, respectively.
7. SUBSEQUENT EVENT
On April 22, 1998, the Company entered into an Agreement and Plan of
Reorganization (the "Merger Agreement") with Institutional Asset
Management, Inc. ("IAM"), a Florida corporation, Capital Research
Corporation ("CRC"), a Florida corporation, Intrepid Capital Corporation
("Intrepid Capital"), a newly formed Delaware corporation and a subsidiary
of the Company, and three wholly-owned subsidiaries of Intrepid Capital
formed to effect the transactions contemplated in the Merger Agreement.
Subject to the terms and conditions of the Merger Agreement, including
without limitation the approval of the stockholders of the Company, the
Company will be merged into a wholly-owned subsidiary of Intrepid Capital,
which will occur simultaneously with similar mergers between wholly-owned
subsidiaries of Intrepid Capital and each of CRC and IAM. As a result of
the simultaneous mergers, the Company, CRC and IAM will become
wholly-owned subsidiaries of Intrepid Capital.
* * * * *
F-10
<PAGE> 39
The following exhibits are filed as part of this Form 10-K or are
incorporated herein by reference, and this list comprises the Exhibit Index.
Description of Exhibit
Item
*2.01 Agreement and Plan of Reorganization dated April 22, 1998, by
and among the Company, Intrepid Capital Corporation,
Institutional Asset Management, Inc., Capital Research
Corporation, Freedom Holdings of Alabama, Inc., IAM Merger
Sub, Inc., and CRC Merger Sub, Inc. Exhibit 2 to the Report
on Form 8-K, dated April 23, 1998, is incorporated herein by
reference (Commission File No. 0-25528).
*3.01 Certificate of Incorporation of New Enviroq Corporation.
Exhibit 3.01 to the Company's Registration Statement on Form
10-SB/A2 dated April 12, 1995, is incorporated herein by
reference (Commission File No. 0-25528).
*3.02 Certificate of Amendment to Certificate of Incorporation of
New Enviroq Corporation. Exhibit 3.02 to the Company's
Registration Statement on Form 10-SB/A2 dated April 12, 1995,
is incorporated herein by reference (Commission File No.
0-25528).
*3.03 Bylaws of New Enviroq Corporation. Exhibit 3.03 to the
Company's Registration Statement on Form 10-SB/A2 dated April
12, 1995, is incorporated herein by reference (Commission
File No. 0-25528).
*4.01 Certificate of Designation of Rights and Preferences of
Series A Preferred Stock. Exhibit 4.01 to the Company's
Registration Statement on Form 10-SB/A2 dated April 12, 1995,
is incorporated herein by reference (Commission File No.
0-25528).
*4.02 Form of Certificate of Common Stock. Exhibit 4.02 to the
Company's Registration Statement on Form 10-SB/A2 dated April
12, 1995, is incorporated herein by reference (Commission
File No. 0-25528).
*4.03 Form of Certificate of Series A Preferred Stock. Exhibit 4.03
to the Company's Registration Statement on Form 10-SB/A2
dated April 12, 1995, is incorporated herein by reference
(Commission File No. 0-25528).
*4.04 Stock Agreement, dated April 22, 1998, by and among certain
shareholders of the Company, Institutional Asset Management,
Inc., and Capital Research Corporation. Exhibit 4 to the
Report on Form 8-K, dated April 23, 1998, is incorporated
herein by reference (Commission File No. 0-25528).
27
<PAGE> 40
*10.01 Merger Agreement between Enviroq Corporation, New Enviroq
Corporation, Insituform Mid-America, Inc. and IMA Merger Sub,
Inc. dated as of November 2, 1994. Exhibit 10.01 to the
Company's Registration Statement on Form 10-SB/A2 dated April
12, 1995, is incorporated herein by reference (Commission
File No. 0-25528).
*10.02 Form of Consulting Agreement between New Enviroq Corporation
and Insituform Mid-America, Inc. Exhibit 10.02 to the
Company's Registration Statement on Form 10-SB/A2 dated April
12, 1995, is incorporated herein by reference (Commission
File No. 0-25528).
*10.03 Form of Covenant Not to Compete Agreement between New Enviroq
Corporation, Insituform Mid-America, Inc., Marinelli
Securities Associates, and SCE, Inc. Exhibit 10.03 to the
Company's Registration Statement on Form 10-SB/A2 dated April
12, 1995, is incorporated herein by reference (Commission
File No. 0-25528).
*10.04 License Agreement between Synox Corporation and Long
Enterprises, Inc. dated May 26, 1986, together with
amendments dated May 16, 1991 and October 5, 1994. Exhibit
10.05 to the Company's Registration Statement on Form
10-SB/A2 dated April 12, 1995, is incorporated herein by
reference (Commission File No. 0-25528).
*10.05 Shareholder Agreement between Sprayroq, Inc. Enviroq
Corporation, and Replico Development Company, Inc. dated
March 25, 1992. Exhibit 10.06 to the Company's Registration
Statement on Form 10-SB/A2 dated April 12, 1995, is
incorporated herein by reference (Commission File No.
0-25528).
*10.06 License Agreement dated May 22, 1992, between Sprayroq, Inc.
and Enviroq Services, Inc. Exhibit 10.07 to the Company's
Registration Statement on Form 10-SB/A2 dated April 12, 1995,
is incorporated herein by reference (Commission File No.
0-25528).
*10.07 License Agreements dated June 12, 1994, between Sprayroq,
Inc., Toa Grout Kogyo Company, LTD., and Sprayroq, Inc., and
Mitsui Toatsu Chemicals, Inc. Exhibit 10.08 to the Company's
Registration Statement on Form 10-SB/A2 dated April 12, 1995,
is incorporated herein by reference (Commission File No.
0-25528).
*10.08 Amended and Restated Promissory Notes dated September 27,
1991 and issued by Synox Corporation in favor of Charles A.
Long, Jr. in the principal amounts of $6,000, $6,000, $6,000,
$3,000, $6,000, and $6,000, respectively. Exhibit 10.09 to
the Company's Registration Statement on Form 10-SB/A2 dated
April 12, 1995, is incorporated herein by reference
(Commission File No. 0-25528).
28
<PAGE> 41
*10.09 Amended and Restated Promissory Notes dated September 27,
1991 and issued by Synox Corporation in favor of Long
Enterprises, Inc. in the principal amount of $3,000. Exhibit
10.10 to the Company's Registration Statement on Form
10-SB/A2 dated April 12, 1995, is incorporated herein by
reference (Commission File No. 0-25528).
*10.10 Amended and Restated Promissory Notes dated September 27,
1991 and issued by Synox Corporation in favor of Sullivan,
Long and Hagerty, Inc. in the principal amounts of $132,000,
$17,020, $22,000, $11,000, $11,000 $11,000 $22,000, $11,000,
$22,000, and $22,000, respectively. Exhibit 10.11 to the
Company's Registration Statement on Form 10-SB/A2 dated April
12, 1995, is incorporated herein by reference (Commission
File No. 0-25528).
*10.11 Amended and Restated Promissory Notes dated September 27,
1991 and issued by Synox Corporation in favor of Orlando M.
Marinelli in the principal amounts of $66,000, $8,510,
$11,000, $5,500, and $1,000, respectively. Exhibit 10.12 to
the Company's Registration Statement on Form 10-SB/A2 dated
April 12, 1995, is incorporated herein by reference
(Commission File No. 0-25528).
*10.12 Amended and Restated Promissory Notes dated September 27,
1991 and issued by Synox Corporation in favor of Antonio M.
Marinelli in the principal amounts of $66,000, $8,510,
$11,000, $5,500, and $1,000, respectively. Exhibit 10.13 to
the Company's Registration Statement on Form 10-SB/A2 dated
April 12, 1995, is incorporated herein by reference
(Commission File No. 0-25528).
*10.13 Amended and Restated Promissory Notes dated September 27,
1991 and issued by Synox Corporation in favor of Road
Machinery, Inc., in the principal amounts of $22,000,
$11,000, $11,000, $11,000 and $10,000, respectively. Exhibit
10.14 to the Company's Registration Statement on Form
10-SB/A2 dated April 12, 1995, is incorporated herein by
reference (Commission File No. 0-25528).
*10.14 Amended and Restated Promissory Notes dated September 27,
1991 and issued by Synox Corporation in favor of Micam
Industries, Inc., in the principal amounts of $11,000, and
$11,000 respectively. Exhibit 10.15 to the Company's
Registration Statement on Form 10-SB/A2 dated April 12, 1995,
is incorporated herein by reference (Commission File No.
0-25528).
*10.15 Amended and Restated Promissory Notes dated September 27,
1991 and issued by Synox Corporation in favor of Marinelli
Securities Associates in
29
<PAGE> 42
the principal amount of $10,000. Exhibit 10.16 to the
Company's Registration Statement on Form 10-SB/A2 dated April
12, 1995, is incorporated herein by reference (Commission
File No. 0-25528).
*10.16 Non-Employee Director Stock Option Plan of the Company, as
amended. Exhibit 10.17 to the Company's Registration
Statement on Form 10-SB/A2 dated April 12, 1995, is
incorporated herein by reference (Commission File No.
0-25528).
*10.17 Incentive Stock Option Plan of the Company. Exhibit 10.18 to
the Company's Registration Statement on Form 10-SB/A2 dated
April 12, 1995, is incorporated herein by reference
(Commission File No. 0-25528).
*10.18 Mutual Release and Settlement Agreement dated March 12, 1996
by and between the Company, Insituform Mid-America, Inc. and
Insituform Technologies, Inc. Exhibit 10.18 to the Company's
Annual Report on Form 10-KSB dated June 26, 1996 is
incorporated herein by reference (Commission File No.
0-25528).
*10.19 Promissory Note dated March 27, 1993 in the aggregate
principal sum of $206,203.46 made by Sprayroq, Inc. in favor
of the Company. Exhibit 10.19 to the Company's Annual Report
on Form 10-KSB dated June 26, 1996 is incorporated herein by
reference (Commission File No. 0-25528).
*10.20 Promissory Note dated March 26, 1994 in the aggregate
principal sum of $159,872.95 made by Sprayroq, Inc. in favor
of the Company. Exhibit 10.20 to the Company's Annual Report
on Form 10-KSB dated June 26, 1996 is incorporated herein by
reference (Commission File No. 0-25528).
*10.21 SprayWall System License Agreement dated December 1, 1993,
between Sprayroq, Inc., a Florida corporation, and
Southwestern Underground Supply and Environmental Services,
Inc., a Texas corporation. Exhibit 10.21 to the Company's
Annual Report on Form 10-KSB dated June 26, 1996 is
incorporated herein by reference (Commission File No.
0-25528).
*10.22 Form of SprayWall License Agreement dated January 1, 1996,
between Sprayroq, Inc., a Florida corporation and Per
Aarsleff A/S, a corporation organized and existing under the
laws of Denmark. Exhibit 10.22 to the Company's Annual Report
on Form 10-KSB dated June 26, 1996 is incorporated herein by
reference (Commission File No. 0-25528).
*10.23 Consolidated Note dated October 21, 1996 and issued by
Sprayroq, Inc. in favor of the Company in aggregate principal
sum of $840,249. Exhibit 10.01 to the Company's quarterly
report on Form 10-QSB dated November 5, 1996 is incorporated
herein by reference (Commission File No. 0-25528).
30
<PAGE> 43
*10.24 Further Amended Agreement as of December 20, 1996 by and
between Long Enterprises, Inc. and Synox Corporation. Exhibit
10.01 to the Company's quarterly report on Form 10-QSB dated
February 11, 1997 is incorporated herein by reference
(Commission File No. 0-25528).
*10.25 Further Amended Agreement as of December 22, 1997 by and
between Long Enterprises, Inc. and Synox Corporation. Exhibit
10.01 to the Company's quarterly report on Form 10-QSB dated
February 10, 1998 is incorporated herein by reference
(Commission File No. 0-25528).
*10.26 Agreement and Plan of Reorganization by and among Intrepid
Capital Corporation, the Company, Freedom Holdings of
Alabama, Inc., Institutional Asset Management, Inc., IAM
Merger Sub, Inc., Capital Research Corporation, and CRC
Merger Sub, Inc. dated as of April 22, 1998. Exhibit 2 to the
Report on Form 8-K, dated April 23, 1998, is incorporated
herein by reference (Commission File No. 0-25528).
21.0 Subsidiaries:
1. Synox Corporation, a Delaware corporation (100%).
2. Sprayroq, Inc., a Florida corporation (50%).
27 Financial Data Schedule (for SEC use only)
* Exhibits incorporated by reference
31
<PAGE> 44
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ENVIROQ CORPORATION
Date: June 19, 1998 By: /s/ William J. Long
-----------------------------------------
William J. Long, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ William J. Long
- ------------------------------------------- President, Chief Executive June 19, 1998
William J. Long Officer and Director (Principal
Executive Officer and Principal
Financial and Accounting Officer)
/s/ Charles A. Long, Jr.
- ------------------------------------------- Director June 19, 1998
Charles A. Long, Jr.
/s/ Antonio M. Marinelli
- ------------------------------------------- Chairman of the Board of June 19, 1998
Antonio M. Marinelli Directors, Secretary/Treasurer,
Director
/s/ Michael X. Marinelli
- ------------------------------------------- Director June 19, 1998
Michael X. Marinelli
/s/ Thomas W. Brander
- ------------------------------------------- Director June 19, 1998
Thomas W. Brander
/s/ Alexander P. Zechella
- ------------------------------------------- Director June 19, 1998
Alexander P. Zechella
</TABLE>
32
<PAGE> 45
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-KSB/A
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) [No Fee Required]
OF THE SECURITIES EXCHANGE ACT OF 1934 ---------------
For the fiscal year ended March 28, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) [No Fee Required]
OF THE SECURITIES EXCHANGE ACT OF 1934 ---------------
For the transition period from ___________________ to ________________________
Commission file number 0-25528
ENVIROQ CORPORATION
(Name of small business issuer in its charter)
Delaware 59-3290346
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3918 Montclair Road, Suite 206
Birmingham, Alabama 35213
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (205) 870-0588
Securities registered under Section 12(b) of the Exchange Act:
Title of each class Name of each exchange on which registered
None None
---- ----
Securities registered under Section 12(g) of the Exchange Act:
Common Stock
--------------------
(Title of class)
Check whether the issuer: (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
----- -----
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B is not contained in this form, and no disclosure
will be contained, to the best of registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. [X]
As of June 4, 1998, the aggregate market value of the voting stock of
the Registrant held by non-affiliates was approximately $1,379,414, based on
$3.25 per share being an average of the bid and asked prices listed on the OTC
Bulletin Board system.
State issuer's revenues for its most recent fiscal year: $1,304,357
As of June 4, 1998, the Registrant had issued 1,009,377 shares of
Common Stock, par value $0.01.
Transitional Small Business Disclosure Format YES NO X
--- ---
1
<PAGE> 46
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The table set forth below presents certain information regarding the
beneficial ownership as of June 4, 1998 by (i) each shareholder known to the
Company to own more than five percent of any class of the Company's outstanding
securities entitled to vote; (ii) directors of the Company; and (iii) all
executive officers and directors of the Company as a group.
<TABLE>
<CAPTION>
AMOUNT AND NATURE PERCENT OF CLASS
NAME AND ADDRESS OF OF SECURITIES (EXCLUDING
BENEFICIAL OWNER BENEFICIAL OWNER(1) TREASURY SHARES)(2)
- ------------------- ------------------- -------------------
<S> <C> <C>
Insituform of North America, Inc. 73,800 shares 7.3%
3315 Democrat Road of common stock
Memphis, Tennessee 38118
Marinelli Securities Associates (3) 294,900 shares 29.2%
2100 North Dixie Highway of common stock
Fort Lauderdale, Florida 33305
Charles A. Long, Jr. (4) 5,686 shares 0.6%
P. O. Box 12887 of common stock
Birmingham, Alabama 35202
William J. Long (4)(5) 263,389 shares 26.1%
3918 Montclair Road, Suite 206 of common stock
Birmingham, Alabama 35213
Antonio M. Marinelli (3)(6) 299,559 shares 29.7%
of common stock
Michael X. Marinelli (3)(7) 295,420 shares 29.3%
of common stock
Thomas W. Brander No shares 0.0%
3763 West Jackson Blvd of common stock
Birmingham, Alabama 35213
Alexander P. Zechella 4,221 shares 0.4%
1000 Vicar's Landing Way, #F-109 of common stock
Ponte Vedra Beach, Florida 32082
All officers and directors 571,001 shares 56.6%
as a group (6 persons) of common stock
</TABLE>
(1) Included in such beneficial ownership are shares of common stock
issuable upon the exercise of certain options exercisable immediately
or within 60 days of June 4, 1998, as follows: None.
22
<PAGE> 47
(2) The percentages represent the total of the shares listed in the
adjacent column divided by the issued and outstanding shares of common
stock as of June 4, 1998, plus any options exercisable immediately or
within 60 days.
(3) Marinelli Securities Associates ("MSA") is a Florida general
partnership and is the record owner of 294, 900 shares. The partners of
MSA are Micam Industries, Inc. ("Micam") (41.16%), Estate of Orlando M.
Marinelli (7.65%), Marion Marinelli (7.65%), Antonio M. Marinelli
(7.65%), Phyllis Marinelli (7.65%), Michelle Marinelli (7.06%), Kim
Vreeland (7.06%), Michael X. Marinelli (7.06%), and Michael J.
Marinelli (7.06%). Antonio M. Marinelli, a director of the Company, is
a partner in MSA. Accordingly, the shares owned by MSA may be deemed to
be beneficially owned by each of them. The address of each of the
above-named partners is the same as the address of MSA.
(4) Charles A. Long, Jr. is the record owner of 3,312 shares. Also includes
2,374 shares owned of record by Long Enterprises, Inc. Both Charles A.
Long, Jr., and William J. Long are directors, executive officers, and
controlling shareholders of Long Enterprises, Inc.
(5) William J. Long is the record owner of 257,975 shares. Also includes an
aggregate of 3,040 shares owned of record by William J. Long's wife and
children, and 2,374 shares owned by Long Enterprises, Inc., of which
William J. Long is a director, executive officer, and controlling
shareholder. Mr. Long has pledged 257,706 shares to First Commercial
Bank as security for a loan.
(6) Antonio M. Marinelli is the record owner of 4,659 shares.
(7) Michael X. Marinelli is the record owner of 120 shares. Also includes
400 shares owned of record by Michael X. Marinelli's sons.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Directors Charles A. Long, Jr., and William J. Long, and other members
of the Long family may be deemed to be in control of Assurance Agency, Inc., an
Alabama corporation and an insurance broker ("Assurance"), Long Technologies,
Inc., a research and development company, Integrid, Inc., a consulting company,
Sullivan, Long & Hagerty, and Long Enterprises, Inc.
The Company has had a number of transactions, which are described
below, with the businesses named above. The Company believes that the
transactions were or are on terms that are no less favorable to the Company than
those which could reasonably have been obtained from an unaffiliated party.
In April, 1996, Assurance sold its book of business and certain other
assets to LMJ Corporation. Among other of the terms relating to this sale was
the right of Assurance to receive a percentage of future commissions arising out
of the book of business sold to LMJ by Assurance. With respect to insurance
purchased by the Company from LMJ, LMJ pays 22% of the commissions from such
business to Assurance. During fiscal year 1998, a portion of the Company's
insurance (primarily relating to Director's and Officer's insurance) was
provided through LMJ Corporation for a total of approximately $29,000. For
fiscal years 1996 and 1997, the Company paid Assurance approximately $58,000 and
$66,000, respectively. In April, 1997, much of the Company's insurance was
purchased from an unaffiliated third party, although LMJ retained the portion of
insurance relating to workers'
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<PAGE> 48
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this amended report to be
signed on its behalf by the undersigned, thereunto duly authorized.
ENVIROQ CORPORATION
Date: August 4, 1998 By: /s/ William J. Long
-----------------------------------------
William J. Long, President
and Chief Executive Officer
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<PAGE> 49
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-KSB/A-1
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) [No Fee Required]
OF THE SECURITIES EXCHANGE ACT OF 1934 ---------------
For the fiscal year ended March 28, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) [No Fee Required]
OF THE SECURITIES EXCHANGE ACT OF 1934 ---------------
For the transition period from ___________________ to ________________________
Commission file number 0-25528
ENVIROQ CORPORATION
(Name of small business issuer in its charter)
Delaware 59-3290346
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3918 Montclair Road, Suite 206
Birmingham, Alabama 35213
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (205) 870-0588
Securities registered under Section 12(b) of the Exchange Act:
Title of each class Name of each exchange on which registered
None None
---- ----
Securities registered under Section 12(g) of the Exchange Act:
Common Stock
--------------------
(Title of class)
Check whether the issuer: (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
----- -----
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B is not contained in this form, and no disclosure
will be contained, to the best of registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. [X]
As of June 4, 1998, the aggregate market value of the voting stock of
the Registrant held by non-affiliates was approximately $1,379,414, based on
$3.25 per share being an average of the bid and asked prices listed on the OTC
Bulletin Board system.
State issuer's revenues for its most recent fiscal year: $1,304,357
As of June 4, 1998, the Registrant had issued 1,009,377 shares of
Common Stock, par value $0.01.
Transitional Small Business Disclosure Format YES NO X
--- ---
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<PAGE> 50
PART I
ITEM 1. DESCRIPTION OF BUSINESS
BUSINESS DEVELOPMENT: HISTORY.
Enviroq Corporation, a Delaware corporation (the "Company"),
was incorporated on February 9, 1995. At the time of its
incorporation, the Company was a wholly-owned subsidiary of a Delaware
corporation formerly named Enviroq Corporation ("Old Enviroq"). Prior
to April 18, 1995, the Company was named New Enviroq Corporation ("New
Enviroq"). On April 18, 1995, Old Enviroq distributed all of the issued
and outstanding capital stock of New Enviroq to the holders of the
common stock of Old Enviroq (the "Distribution"). Following the
Distribution, the Company changed its name from New Enviroq Corporation
to Enviroq Corporation. Also following the Distribution, Old Enviroq
merged (the "Insituform Merger") with a subsidiary of Insituform
Mid-America, Inc. ("IMA") and changed its name to Insituform Southeast,
Inc. ("Insituform Southeast"). In a transaction subsequent to and
unrelated to the Insituform Merger, IMA was acquired by Insituform
Technologies, Inc.
The Company's principal executive office is located at 3918
Montclair Road, Suite 206, Birmingham, Alabama 35213, and its
telephone number is (205) 870-0588. The Company's mailing address is
P. O. Box 130062, Birmingham, Alabama 35213.
BUSINESS AND BUSINESS STRATEGY OF ISSUER.
The Company is currently principally engaged in the
development, commercialization, formulation and marketing of
spray-applied resinous products, and in the treatment of municipal
wastewater biosolids. The Company's operations are conducted primarily
through Sprayroq(R), Inc., a Florida corporation of which the Company
owns 50% of the outstanding capital stock ("Sprayroq"). Sprayroq is
engaged in the development, commercialization, manufacture and
marketing of spray-applied resinous materials. The Company also owns
100% of the outstanding capital stock of Synox(R) Corporation, a
Delaware corporation ("Synox"). Synox has been engaged in the
research, development and marketing of a process for the treatment of
municipal wastewater biosolids. During the fiscal year ended March 30,
1996, management of the Company elected to minimize the activities of
Synox and to write off substantially all of the assets of Synox.
During the fiscal year ended March 28, 1998, the Synox demonstration
facility in Jacksonville, Florida was dismantled. As of March 28,
1998, all remaining assets of Synox had been fully depreciated. See
"Description of Business -- Background on Operations of Synox
Corporation." Accordingly, during the fiscal year ended March 28,
1998, most of the income and gross profit of the Company was
attributable to the operations of Sprayroq.
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<PAGE> 51
Pursuant to the Insituform Merger, the Company and IMA
entered into several related agreements which included the Subordinated
Promissory Note (the "Note"), the Covenant Not to Compete Agreement
(the "Covenant'), and the Consulting Agreement. On March 12, 1996, the
Company and IMA executed an agreement (the "Settlement Agreement") to
settle all claims and counterclaims made, or that could have been made,
by the parties to related lawsuits between the parties with respect to
several matters arising out of the Insituform Merger, including the
Subordinated Promissory Note. The Company received $3,335,000 as
payment in full under the Settlement Agreement, which includes the Note
and the Consulting Agreement. In the Settlement Agreement, the parties,
which included the Company, IMA, and Insituform Technologies, Inc.,
released each other, subject to limited exceptions, from all claims
that the parties had or may have had or may have arising out of the
Note, the Merger Agreement (including the Expense Deficit as defined in
the Merger Agreement) and the related lawsuits. In the Settlement
Agreement, the Company was not released from certain obligations under
the related agreements including, without limitation, the Covenant.
RECENT DEVELOPMENTS
The management of the Company believes the strong financial
position of the Company, along with its status as a public company, may
offer opportunities for growth or other strategic alliances, and has
been searching for opportunities to leverage the Company's advantages
to bring additional value to its shareholders. On April 23, 1998,
Enviroq announced that its board of directors has approved entering
into an Agreement and Plan of Reorganization (the "Reorganization
Plan") by which Enviroq will merge with a subsidiary of Intrepid
Capital Corporation ("Intrepid"), a newly-formed corporation. The
merger would be consummated through a transaction in which Enviroq
stockholders would receive shares of Intrepid common stock, as well as
cash. See Item 6, "Management's Discussion and Analysis of Financial
Condition and Results of Operations." The business of Intrepid may or
may not involve the Company's traditional business and markets. The
Reorganization Plan and related transactions are subject to a number of
conditions including, without limitation, the approval of the
stockholders of Enviroq, and there can be no assurance that these
conditions will be fulfilled.
BACKGROUND ON OPERATIONS OF SPRAYROQ, INC.
Sprayroq, Inc. was initially organized in January, 1991 as
Enviroq Resin Development, Inc., a Florida corporation, to be a member
of a joint venture to develop, commercialize, manufacture and market
technology and know-how relating to the spray application of chemicals
and additives in the rehabilitation, repair and reconstruction of
certain pipes, pipelines, manholes, wetwells, drains and wastewater
treatment facilities. The other member of this joint venture was
Replico Development Company, Inc., a Pennsylvania corporation
("Replico"). In February, 1992, the name of Enviroq Resin Development,
Inc. was changed to Sprayroq, Inc. In March, 1992, Replico contributed
all of its rights and interests in the joint venture to Sprayroq in
exchange for 50% of the outstanding common stock of Sprayroq, which
resulted in the Company and Replico each owning fifty percent of the
outstanding capital stock of Sprayroq. Pursuant to the Stockholder
Agreement dated as of March 25, 1992 between the Company (as a
successor to Old Enviroq), Sprayroq and Replico (the "Stockholder
Agreement"), the parties agreed to vote their respective shares to
elect three directors designated by the Company and two directors
designated by Replico. At this same time, Sprayroq assumed all of the
obligations of the joint venture, including the payment
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<PAGE> 52
obligations of the joint venture pursuant to a promissory note dated
March 25, 1992 from the joint venture to the Company in the principal
amount of $181,143.29. The Stockholder Agreement also provides that
the stockholders of Sprayroq may make loans to Sprayroq for legitimate
business purposes.
Since its organization, Sprayroq has engaged in the
development, commercialization, formation and marketing of
spray-applied resinous materials. At the present time, Sprayroq has
developed two products; SprayWall(R) and SprayShield(R). Sprayroq has
also developed additional materials utilizing polyureas, epoxies and
other resin technologies which may have future commercial application.
Sprayroq has entered into licensing agreements with seven installers
to provide for the promotion, sale and installation of SprayWall, and
two installers for the promotion, sale and installation of
SprayShield. Both SprayWall and SprayShield have significant corrosion
and abrasion resistance. SprayWall is a spray-applied resinous
material that can achieve structural strength and is relatively rigid.
SprayWall was initially developed to be utilized for the
reconstruction of manholes. Other SprayWall applications include the
reconstruction of vaults, underground tanks, as a corrosion resistant
lining for underground pipe, etc. SprayShield is a pliable,
spray-applied elastomeric material for waterproofing use in flumes and
tanks, and has also been installed in truck beds of truck trailers for
containment of potential spillage, during shipment, of hazardous
materials. Other uses of SprayShield include installation inside the
bodies of dump trucks to reduce damage from abrasion and the lining of
pipes for corrosion protection.
Sprayroq was organized with minimum capital, and has obtained
operating funds primarily from the Company. Of the total amount owed
to the Company by Sprayroq, $547,219 was loaned by the Company
pursuant to written promissory notes made by Sprayroq to the Company
(collectively, the "Sprayroq Notes"). The Sprayroq Notes became due on
April 1, 1995. On October 15, 1996, the board of directors of Sprayroq
voted to restructure and consolidate this debt with the Company, and a
Consolidated Note evidencing the restructured debt was executed on
October 21, 1996, by Sprayroq. The principal amount of the debt as of
October 21, 1996 was approximately $840,000. The rate of interest on
the debt is 7% per annum, and the debt will be amortized over a
30-year period, with the balance of the principal due, in the form of
a "balloon" payment, on October 1, 2001. As of March 28, 1998, the
balance owed under the Consolidated Note was approximately $492,000.
Under the Stockholder Agreement between the Company and
Replico, the Company is given certain rights of control over Sprayroq,
including the right to designate its executive officers and to elect a
majority of the board of directors. Since the formation of Sprayroq,
the chief executive officer of Sprayroq has also been the chief
executive officer of the Company. Nevertheless, from time to time
during fiscal year 1998 and continuing to the present, one or more of
the principals of Replico has, either on their own behalf or on the
behalf of Replico, raised issues or otherwise questioned the Company's
management of and designation of officers of Sprayroq. Among such
issues and questions is the suggestion of a conflict of interest, as
yet undefined, in connection with the election of William J. Long as
the chief executive officer of both Sprayroq and the Company. Another
such issue relates to the assertion that Replico and/or certain
affiliates of Replico should be free to engage in certain
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<PAGE> 53
ventures that may present opportunities for Sprayroq and/or be
competitive with Sprayroq, or that utilize certain technology and/or
technology rights belonging to Sprayroq, and that the corresponding
responses of Sprayroq's management to Replico might somehow be
improper. Management of the Company believes that all actions taken
have been entirely within the terms and the spirit of the Stockholder
Agreement with respect to the management of Sprayroq, and Sprayroq's
responses to the questions and issues raised by Replico and or its
principals. However, no assurances can be given that Replico or its
affiliates will not pursue claims against Sprayroq, the Company,
and/or their respective affiliates, or that the outcome of such
matters will be favorable to the Company.
BACKGROUND ON OPERATIONS OF SYNOX CORPORATION.
Synox was organized as a Delaware corporation on May 23,
1986, and was acquired by the Company on September 30, 1991. The
primary purpose of Synox was to perform research and development with
respect to processes and methods related to municipal wastewater
treatment, particularly suspended solids and nutrients (known in the
industry and referred to hereafter as "biosolids"). Synox has obtained
a license to utilize technology relating to a process for the
treatment of municipal wastewater biosolids (the "Synox Process(R)"),
and other related processes for producing and managing usable end
products from wastewater biosolids. The intellectual property and
know-how underlying the Synox Process is licensed to Synox by Long
Enterprises, Inc., an Alabama corporation controlled by Charles A.
Long, Jr., a Director of the Company and the father of William J.
Long, the President, Chief Executive Officer and a Director of the
Company ("Long Enterprises").
The research and development activities of Synox included the
creation of a mobile pilot testing unit, as well as efforts to achieve
processes that meet the highest treatment standards of the U.S.
Environmental Protection Agency (the "EPA"). Such processes are known
as Processes that Further Reduce Pathogens ("PFRP"). Synox also
invested approximately $995,000 in the design and construction of a
full scale demonstration plant located in Jacksonville, Florida.
As a result of the lack of activity in the markets addressed
by the Synox Process, the Company elected, during fiscal year 1996, to
reduce substantially the operations at Synox in order to minimize
expense. The two full-time employees of Synox were terminated and the
full scale demonstration plant of Synox located in Jacksonville,
Florida was closed. Substantially all of the assets of Synox were
written off during fiscal year 1996. The demonstration plant was
dismantled during fiscal year 1998. Nevertheless, management of the
Company believes that the Synox Process may become valuable in the
future, provided that, among other factors, a full implementation and
vigorous enforcement of the existing EPA Regulations is realized;
funding becomes available to municipalities to enable municipalities
to implement processes such as the Synox Process; the Synox Process,
at such time in the future, is competitive and viable; and, at such
time in the future, the beneficial use of Class A biosolids is
generally accepted.
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<PAGE> 54
In March of 1993, the Company received notification from the
EPA that a committee of the EPA has recommended PFRP equivalency for
the Synox Process, which means that the Synox Process achieves the
EPA's "Class-A" standard of treatment of municipal wastewater
biosolids (sludge). Under the EPA Regulations, the EPA has reserved
the "Class-A" designation for those processes that can achieve the
highest standards of treatment, allowing beneficial re-use of
biosolids with minimal regulation. The Company believes that the
patented Synox Process is the only "Class-A" designated process that
treats biosolids in a liquid form, is non-biological and does not
require heat or the addition of alkaline materials for disinfection,
resulting in several important advantages. The Synox Process is
relatively fast, achieving Class-A treatment in less than a day. Other
processes may require from several days to several weeks. Unlike most
other processes, Synox treats biosolids in liquid form and does not
require an odor-causing dewatering step prior to treatment. In
addition, the Synox in-vessel process is designed to provide for
pathogen kill and to control objectionable odors.
EPA REGULATIONS.
The treatment and disposal of municipal biosolids are
regulated by the EPA, under authority of Section 405(d) of the Clean
Water Act, as amended (the "CWA"). On February 19, 1993, the EPA
published new regulations relating to the treatment, disposal and
usage of biosolids. These new regulations were, the Company believes,
the result of a major effort by the EPA to develop regulations
containing guidelines for the use and disposal of biosolids, including
standards that are intended to adequately protect public health and
the environment from reasonably anticipated adverse effects from the
use and disposal of biosolids. The EPA has also set performance
standards for owners and operators of sewage treatment works. The EPA
Regulations also provide for other standards such as performance,
long-term storage, vector attraction, reporting, etc.
Management has observed that, to date, the adoption by the
EPA of its new regulations on February 19, 1993 has not resulted in a
meaningful increase in the sales of biosolids equipment. Management
believes that this lack of market activity is primarily the result of
a lack of funding for improvements, required by the new regulations,
to municipal treatment works. Management also believes that full
implementation and vigorous enforcement of the new regulations must be
realized before a potential market for the Synox Process may be
developed. There can be no assurance, however, that vigorous
regulatory enforcement will occur or will lead to a developed market
for the Synox Process or otherwise benefit Synox or the Company.
Management of the Company has seen a trend towards a general reduction
in emphasis (primarily politically) in these regulations which could
adversely impact any future value of the Synox Process.
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<PAGE> 55
SALES AND MARKETING.
The Company's organization includes operations for sales and
marketing. At the present time, Synox Corporation is conducting no
full-time sales and marketing programs, and relies on the senior
officers of the Company to monitor market developments that might
result in potential sales of the Synox Process. Sprayroq Corporation
employs one salesperson to coordinate activities among Sprayroq's
licensees and to secure new licensees. From time to time, the
Company's senior officers and directors also participate in sales and
marketing of the Company's products and services.
The Company and Sprayroq conduct marketing activities, which
typically include: (i) identifying new markets and market strategies,
trade shows, advertising, new releases and other promotional
activities; (ii) brochures, video, Internet "Web" pages, and slide
presentations; and (iii) other sales aids and investor relations.
Sales and marketing activities are directed to potential licensees,
engineers (both in the municipal and industrial sectors), public works
officials, consulting engineers, mayors, and other public officials to
introduce them to, and educate them about, the products and services
offered by the Company.
CUSTOMERS.
Sprayroq's sales are almost exclusively to its licensees. The
majority of Sprayroq's revenues are derived from the sale of resinous
materials, principally SprayWall and SprayShield. Additional revenues
are derived from fees arising out of license agreements, along with
related sales of equipment, spare parts, and technical support. These
licensees market, sell and install Sprayroq products primarily to
municipal and industrial customers. An aggregate of 89% of Sprayroq's
sales for fiscal year 1998 were made to two customers which amounted
to sales totaling approximately $1,007,000 and $151,000, to Insituform
Southeast, Inc. and Slaughter Construction Company, Inc.,
respectively. Synox Corporation currently has no customers.
MARKETS.
Sprayroq.
Sprayroq currently intends to continue to market its products
though its licensed installers and to continue to attempt to obtain
additional licensees for the current Sprayroq products. If additional
products are developed by Sprayroq, such products may be marketed
through existing or new licensed installers. Since Sprayroq products
may be utilized in various ways by various industries, existing
licensed installers may or may not be appropriate to market certain
new Sprayroq products. Depending upon the background and expertise of
any particular licensed installer, Sprayroq may elect to allow that
licensee to market new products, elect to find another organization
which is more suitable, or pursue the marketing of the product
directly.
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The Company believes that the market for spray-applied
resinous materials is large. Any municipality and any larger
industrial plant are among potential customers for Sprayroq products.
In addition, the Company has identified significant potential markets
in the lining of truck beds, containment vessels and/or structures and
subterraneous vaults.
Synox.
The Company decided to minimize the operations of Synox
during fiscal year ended March 30, 1996. If, however, at any time in
the future, the Company determines that it is in the best interest of
the Company to develop and increase the operations of Synox, its
market is likely to primarily consist of 1,000 publicly owned
treatment works treating more than 5 million gallons of wastewater per
day, operated by municipalities in the United States.
COMPETITION.
Sprayroq.
Sprayroq faces competition, either directly from companies
marketing similar resin products, or indirectly, from other techniques
and technologies which accomplish similar results in a different
manner. Other companies provide resin materials which may be
spray-applied, or are similar but which are applied in a different
manner, or are not similar but which provide similar results.
The SprayWall product was developed specifically for use in
the reconstruction of manholes and related structures. Management is
unaware of any product that offers a similar combination of spray
application of polyurethanes, long-term structural performance, and
high resistance to corrosion. There are, however, a number of products
which are utilized in the refurbishment or reconstruction of manholes.
Many of these products are less expensive and offer viable
competition.
The Company is also aware of other products which exhibit
certain of the qualities of SprayShield. The Company believes that
SprayShield has significant adhesive qualities combined with corrosion
and abrasion resistance. Various paints and thin coatings are
available that are easily spray-applied and offer corrosion
protection. The Company is aware of other products which offer similar
abrasion resistance, but is unaware, however, of any product which
offers all of the qualities of SprayShield.
The development of products utilizing urethane, polyesters,
and epoxies is growing rapidly, with the announcement of new products
occurring frequently. Sprayroq's products are not patented and are
protected only to the extent offered as know-how and trade secrets.
There can be no assurance that other competitors will not develop
products similar or superior to those of Sprayroq.
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Management is aware of other processes which may become
significant future competitors of the Company's products. Among such
processes are those that involve techniques based on in-pipe curing or
spray-applied lining. In addition, there are other types and methods
of applied linings and coatings which are competitive to the Company's
products, particularly in the lining of manholes.
Synox.
If the Company determines to develop and increase the
operations of Synox, Synox would be likely to face competition from a
number of suppliers employing more traditional, well-known and
accepted methods of wastewater biosolids treatment. All biosolids
treatment processes, including the Synox Process, have strengths and
weaknesses and no one process is the best choice in all situations.
Competing biosolids treatment processes include alkaline
stabilization/fixation, heat drying/pelletizing, and composting. For
some potential customers, more conventional treatment methods will be
adequate. There are a number of companies marketing specific
technologies that offer many of the same advantages as the Synox
Process over conventional wastewater biosolids treatment techniques.
Many of these companies employ techniques that may produce soil
amendment products or fuel from the treated biosolids. These
companies, which are well established and better financed than Synox,
constitute substantial, direct competition for Synox. See "Description
of Business -- Background on Operations of Synox Corporation."
PATENTS AND LICENSES.
Sprayroq.
Sprayroq currently has not pursued registering any patents
with respect to its products. Management believes that the
formulations of the SprayWall and SprayShield products are proprietary
to Sprayroq and are protected as know-how and trade secrets. Sprayroq
has licensed the formulation of the SprayWall product to Mitsui
Chemical and Toa Grout, Inc. of Japan.
Synox.
Synox is the exclusive licensee under a license agreement
dated May 27, 1986, as amended on May 16, 1991, October 5, 1994,
December 20, 1996, and December 22, 1997 between Synox and Long
Enterprises (the "License Agreement"), pursuant to which Synox has
obtained rights to six U.S. patents relating to the Synox Process.
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The patents and patent applications covered by the License
Agreement, and their expiration dates are listed below:
<TABLE>
<CAPTION>
Number Name Description Expiration
-------------------------------------------------------------------------------------
<S> <C> <C> <C>
4,487,699 Long Sewage Biosolids Treatment Dec. 11, 2001
Apparatus and Process
4,582,612 Long Improved Sewage Biosolids Apr. 15, 2003
Treatment Apparatus
4,659,464 Long Apparatus for Dispersing Apr. 21, 2004
Biosolids With Gas Impingement
4,695,388 Long Apparatus and Process for Sept. 22, 2004
Rapid Sewage Biosolids Separation
4,936,983 Long Sewage Biosolids Treatment June 26, 2007
with Gas Injection
5,147,563 Long Improved Sewage Sludge Treatment Sept. 29, 2009
With Gas Injection
</TABLE>
The License Agreement grants to Synox exclusive rights to
license the Synox Process in the following territory comprising the
states of Maryland, Delaware, Virginia, West Virginia, North Carolina,
South Carolina, Florida, Georgia, Alabama, Kentucky, Tennessee,
California, Texas, Arizona, New Mexico and the District of Columbia.
As amended, the License Agreement expires on September 28,
2011 or the later date of termination of the last to expire of any
patent issued pursuant to the patent applications and continuations in
part relating to the subject matter of the License Agreement in
existence on May 16, 1991, and thereafter prosecuted by the licensor
or its assignor, Charles A. Long, Jr. (the "Long License Expiration").
Under the License Agreement, Synox is obligated to pay
royalties of 4% of the total contract value of each Synox Process
installation (which begins with a storage unit for thickened biosolids
and ends with biosolids thickening and chemical contact), less
allowable deductions, such as the building, site preparation, paving,
land and landscape. No such installations have been completed or are
currently contemplated.
Minimum annual royalties (based on retaining the existing
territory of 15 states listed above) are due each January 1, for the
ensuing calendar year through the Long License Expiration. On January
1, 1995, a minimum royalty payment of $45,168 was made, and the
minimum royalty payments for 1996 and 1997 were waived as the result
of amendments to the License Agreement. The License Agreement was
amended on December 22 1997 to change the expiration date of the
license and to provide that no minimum royalty payment would be due on
January 1, 1998 but that such minimum royalty payments would resume on
January 1, 1999 in accordance with the following schedule:
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<TABLE>
<CAPTION>
Date Due Amount
----------------------------------------------------------------------
<S> <C>
January 1, 1999 $ 90,335.51
January 2, 2000 $ 180,671.02
January 1, 2001 $ 180,671.02
January 1, 2002 and on each January 1
through Long License Expiration $ 225,838.77
</TABLE>
SUPPLIERS.
The Company purchases raw materials and other supplies from a
variety of sources and is not dependent upon any one source. While
Sprayroq does utilize a third party to blend its products, other
companies provide similar blending services. In addition, Sprayroq has
performed such blending in the past and would be able to resume
blending quickly, if required.
OPERATIONAL RISKS AND INSURANCE.
To cover various insurable risks, the Company has in force
$2,000,000 in general liability insurance ($1,000,000 per occurrence),
$1,000,000 in automobile liability insurance, and $1,000,000 in
"umbrella" coverage. In addition, the Company carries various property
coverages and worker's compensation policies as required by each
jurisdiction in which it does business.
At the present time, Sprayroq's principal products are
characterized as polyurethanes and utilize several chemicals,
including diisocyanates. Diisocyanates have been in general use for
many years, in many applications including automobile parts,
insulation, floor coverings, and roofing. Guidelines regarding the use
of diisocyanates were published by the U.S. Department of Health,
Education and Welfare, Public Health Service, Center for Disease
Control, and National Institute for Occupational Safety and Health
(NIOSH) in September, 1978. Additional documentation regarding
recommended precautions and procedures to be used with such chemicals
has been provided by the suppliers of the chemicals, and by Sprayroq,
and Sprayroq instructs all licensees to follow the procedures set
forth in this documentation. Sprayroq's current supplier of
diisocyanates reports that diisocyanates and other such chemicals have
been in general use for more than fifty years, and that the issues
relating to their safe use are well known. There can be no assurance,
however, that NIOSH or other regulatory organizations, governmental
agencies, etc. might, in the future, determine that such chemicals are
hazardous or otherwise harmful, or might otherwise regulate or prevent
their use.
11
<PAGE> 60
Sprayroq's licensee in Denmark had previously reported that
the spraying of diisocyanates in a confined space is not allowed
according to a regulatory agency of the Danish government. During
fiscal year 1997, this licensee reported that the spraying of
diisocyanates was permitted in Denmark. The management of Sprayroq is
not aware of any other similar prohibition of the use of diisocyanates
in other countries. While the management of Sprayroq understands that
the previous objections of the Danish regulatory agency are apparently
no longer in effect, there can be no assurance that such objection
will not persist, nor can assurance be given that similar objections
will not occur in the future in other countries, geographical and/or
political divisions.
EQUIPMENT.
The Company owns or leases a number of trailers, vans, and
other equipment which are necessary to the operations of the Company.
RESEARCH AND DEVELOPMENT.
The Company engages in research and development ("R&D")
efforts to develop new products, improve existing products, reduce its
costs and expand potential applications. The Company incurred R&D
expenses with respect to Sprayroq of approximately $5,000 in the year
ended March 28, 1998 and $23,000 in the year ended March 29, 1997.
EMPLOYEES.
As of May 28, 1998, the Company had three full-time employees
and three part-time employees.
12
<PAGE> 61
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this amended report to be
signed on its behalf by the undersigned, thereunto duly authorized.
ENVIROQ CORPORATION
Date: September 9, 1998 By: /s/ William J. Long
-----------------------------------------
William J. Long, President
and Chief Executive Officer
13
<PAGE> 62
ENVIROQ CORPORATION AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS
ENDED MARCH 28, 1998 AND MARCH 29, 1997
AND INDEPENDENT AUDITORS' REPORT
<PAGE> 63
INDEPENDENT AUDITORS' REPORT
To The Board of Directors and Stockholders of
Enviroq Corporation:
We have audited the accompanying consolidated balance sheets of Enviroq
Corporation and subsidiaries as of March 28, 1998 and March 29, 1997, and the
related consolidated statements of income, stockholders' equity, and cash flows
for the years then ended. 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, such consolidated financial statements present fairly, in all
material respects, the financial position of Enviroq Corporation and
subsidiaries as of March 28, 1998 and March 29, 1997, and the results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles.
Birmingham, Alabama
May 11, 1998
<PAGE> 64
ENVIROQ CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 28, 1998 AND MARCH 29, 1997
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 2,545,100 $ 2,379,613
Accounts receivable (Note 6) 78,404 314,772
Inventories 168,184 52,830
Refundable income taxes 63,470 100,189
Prepaid expenses and other assets 36,884 24,494
----------- -----------
Total current assets 2,892,042 2,871,898
----------- -----------
OTHER ASSETS:
Employee notes receivable 11,858 13,819
Deferred taxes (Note 2) 10,650
----------- -----------
Total other assets 22,508 13,819
----------- -----------
PROPERTY, PLANT AND EQUIPMENT:
Land 310,135 310,135
Operating equipment 44,160 25,563
Other equipment and vehicles 57,917 40,241
----------- -----------
412,212 375,939
Less accumulated depreciation 53,279 45,506
Property, plant and equipment, net 358,933 330,433
----------- -----------
TOTAL $ 3,273,483 $ 3,216,150
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 46,733 $ 69,292
Salaries, wages and related taxes 25,203 18,824
----------- -----------
Total liabilities 71,936 88,116
----------- -----------
COMMITMENTS AND CONTINGENCIES (Note 4)
STOCKHOLDERS' EQUITY (Note 3):
Common stock (par value $.01 per share, authorized
10,000,000 shares, issued and outstanding 1,009,377 shares) 10,094 10,094
Additional paid-in capital 6,190,647 6,190,647
Accumulated deficit (2,999,194) (3,072,707)
----------- -----------
Total stockholders' equity, net 3,201,547 3,128,034
----------- -----------
TOTAL $ 3,273,483 $ 3,216,150
=========== ===========
</TABLE>
See notes to consolidated financial statements.
F-2
<PAGE> 65
ENVIROQ CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED MARCH 28, 1998 AND MARCH 29, 1997
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
REVENUES (Note 6):
Net revenues from sales and support $ 1,284,357 $ 1,152,972
Revenues from licenses 20,000 185,835
----------- -----------
Total revenues 1,304,357 1,338,807
COST OF REVENUES 605,940 738,666
----------- -----------
GROSS PROFIT 698,417 600,141
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES (Note 5) 761,199 759,418
----------- -----------
LOSS FROM OPERATIONS (62,782) (159,277)
----------- -----------
OTHER INCOME:
Interest 124,113 136,958
Other, net 33,017 4,587
----------- -----------
157,130 141,545
----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES 94,348 (17,732)
INCOME TAX (EXPENSE) BENEFIT (Note 2) (20,835) 71,799
----------- -----------
NET INCOME $ 73,513 $ 54,067
=========== ===========
BASIC AND DILUTED NET INCOME PER SHARE $ 0.07 $ 0.05
=========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING 1,009,377 1,009,377
============ ===========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 66
ENVIROQ CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED MARCH 28, 1998 AND MARCH 29, 1997
<TABLE>
<CAPTION>
Additional
Common Paid-In Accumulated
Stock Capital Deficit Total
<S> <C> <C> <C> <C>
BALANCE, MARCH 25, 1996 $10,094 $6,190,647 $(3,126,774) $3,073,967
Net income 54,067 54,067
------- --------- ---------- ---------
BALANCE, MARCH 29, 1997 10,094 6,190,647 (3,072,707) 3,128,034
Net income 73,513 73,513
-------- --------- --------- ---------
BALANCE, MARCH 28, 1998 $10,094 $6,190,647 $(2,999,194) $3,201,547
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 67
ENVIROQ CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MARCH 28, 1998 AND MARCH 29, 1997
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 73,513 $ 54,067
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation 7,774 8,715
Amortization 17,989
Gain on sale of property, plant and equipment (2,000)
Provision for uncollectible notes receivable 10,000
Changes in assets and liabilities provided (used) cash:
Accounts receivable 236,368 (188,375)
Interest receivable 7,890
License fees receivable 4,030
Inventories (115,354) 65,560
Income taxes 36,719 (1,140,693)
Prepaid expenses and other assets (12,391) 514
Other assets (8,689) 3,181
Accounts payable and accrued expenses (22,559) (96,462)
Salaries, wages and related taxes 6,379 9,010
----------- ----------
Net cash provided by (used in) operating activities 201,760 (1,246,574)
----------- ----------
INVESTING ACTIVITIES:
Proceeds from sale of property, plant and equipment 2,000
Additions to property, plant and equipment (36,273) (4,803)
----------- ----------
Net cash used in investing activities (36,273) (2,803)
----------- ----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 165,487 (1,249,377)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 2,379,613 3,628,990
----------- ----------
CASH AND CASH EQUIVALENTS
AT END OF YEAR $ 2,545,100 $2,379,613
=========== ==========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 68
ENVIROQ CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION - Enviroq Corporation (the "Company") was incorporated on
February 9, 1995. Prior to April 18, 1995, the Company was named "New
Enviroq." The Company was initially a wholly-owned subsidiary of a
predecessor company which was named Enviroq Corporation (hereafter
referred to as "Old Enviroq"). On April 18, 1995, a transaction was
completed in which all of the outstanding shares of New Enviroq were
distributed to the shareholders of Old Enviroq (the "Distribution"), and
the name of Old Enviroq was changed to Insituform Southeast, Inc.
Insituform Southeast, Inc. was then merged (the "Merger") into a
subsidiary of Insituform MidAmerica ("IMA"), after which the name of New
Enviroq was then changed to Enviroq Corporation. Also on April 18, 1995,
the stock of Synox Corporation ("Synox"), a wholly-owned subsidiary of Old
Enviroq, and Sprayroq, Inc. ("Sprayroq"), a 50% owned subsidiary of Old
Enviroq, approximately 11 acres of unimproved land and $500,000 in cash
were transferred to the Company, a newly formed public entity effective
April 18, 1995, at their respective book values. Each share of common
stock of Old Enviroq issued and outstanding was converted into a right to
receive a cash payment equal to the pro-rata portion of the merger
consideration of $15,250,000.
NATURE OF OPERATIONS - The Company's operations are conducted primarily
through Sprayroq. Sprayroq is engaged in development, commercialization,
manufacture and marketing of spray-applied resinous materials.
FISCAL YEAR - The Company's 1998 and 1997 fiscal years ended on March 28,
1998 and March 29, 1997, respectively. Fiscal years 1998 and 1997 included
52 weeks.
PRINCIPLES OF CONSOLIDATION - These consolidated financial statements
include the accounts of the Company and its subsidiaries, Synox and
Sprayroq. All significant intercompany transactions are eliminated in
these consolidated financial statements. The Company controls the
operations and activities of Sprayroq. There is no recognition of the
minority interest in this subsidiary because of its accumulated deficit
position.
ACCOUNTING ESTIMATES - 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 periods. Actual
results could differ from those estimates.
CASH EQUIVALENTS - Cash equivalents consist of highly liquid investments
purchased with an original maturity of three months or less.
INVENTORIES - Inventories, consisting of raw materials and supplies, are
valued at the lower of cost (first-in, first-out method) or market.
PROPERTY, PLANT AND EQUIPMENT - Property, plant and equipment is carried
at cost, less accumulated depreciation. Depreciation is provided
principally on the straight-line method over the estimated useful lives of
the assets, which range from three to twenty years. Repairs and
maintenance costs are charged to expense as incurred.
F-6
<PAGE> 69
RESEARCH AND DEVELOPMENT COSTS - Research and development costs are
expensed as incurred. Such costs were $5,170 (1998) and $22,798 (1997).
LICENSES - Sprayroq licenses its technology for use within certain
geographic regions. These licenses allow the licensee use of the
proprietary technology within their territory and are subject to
restrictions as specified in the individual agreements.
REVENUE RECOGNITION - The Company recognises revenue on sales of
materials upon shipment and on support services when the service is
rendered. Revenue on licenses is recognized based on the terms of the
agreement.
NET INCOME PER SHARE - In February 1997, the Financial Accounting
Standards Board ("FASB") issued Statement of Financial Accounting
Standards ("SFAS") No. 128, Earnings Per Share. SFAS No. 128 replaces the
presentation of primary earnings per share with a presentation of basic
earnings per share, requires dual presentation of basic and diluted
earnings per share on the face of the income statement for all entities
with complex capital structures, and provides guidance on other
computational changes. The Company adopted this statement for all periods
presented in the accompanying consolidated statements of income.
RECENTLY ISSUED ACCOUNTING STANDARDS - In June 1997, the FASB issued SFAS
No. 130, Reporting Comprehensive Income, and SFAS No. 131, Disclosures
About Segments of an Enterprise and Related Information, both of which
will be effective for the Company in fiscal year 1999. Management does not
expect the adoption of these Statements to have a material impact on the
Company's financial statements and disclosures.
RECLASSIFICATIONS - Reclassifications have been made to certain 1997
amounts to conform with the 1998 presentation.
2. INCOME TAXES
Income tax (expense) benefit for the years ended March 28, 1998 and March
29, 1997 consists of the following:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Current:
Federal $ (16,789) $ 73,342
State (14,696) (1,543)
--------- --------
Total current (31,485) 71,799
Deferred - Federal 10,650
--------- --------
$ (20,835) $ 71,799
========= ========
</TABLE>
The differences between the income tax (expense) benefit and income taxes
computed using the federal statutory rate are as follows:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Income tax (expense) benefit at federal statutory rate $ (33,268) $ 5,059
State income taxes, net of federal tax benefit (4,214) (1,019)
Benefit of operating loss carryback 71,796
Nondeductible expenses (6,116)
Benefit from lower tax brackets 17,191 3,209
Other (544) (1,130)
--------- --------
Income tax (expense) benefit $ (20,835) $ 71,799
========= ========
</TABLE>
F-7
<PAGE> 70
The types of temporary differences and their related tax effects are
summarized as follows:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Deferred tax assets (long-term):
Net operating loss and credit carryforwards $ 37,238 $ 25,803
Valuation allowance (26,588) (25,803)
-------- --------
Deferred tax assets $ 10,650 $ --
-------- --------
</TABLE>
A valuation allowance has been established against the net deferred income
tax asset. Such valuation allowance can be adjusted in future periods as
the probability of realization of the net deferred tax asset increases.
During 1996, Enviroq elected to waive its right to all but $79,000 of
future use of Synox's net operating loss carryforwards. At March 28, 1998,
Synox had a remaining net operating loss carryforward of approximately
$75,000 which, if not utilized, will expire in 2010. The Company also has
a general business credit carryforward of approximately $9,000 at March
28, 1998, which will expire in March 2009, if not utilized.
3. RETIREMENT AND INCENTIVE PLANS
The Company has a retirement plan for its employees pursuant to Section
401(k) of the Internal Revenue Code. Participants may make contributions
by salary reduction pursuant to Section 401(k) of the Internal Revenue
Code.
Non-employee Directors are entitled to receive options to purchase shares
of the Company's common stock pursuant to a Non-Employee Directors Stock
Option Plan (the "Directors' Plan"). Options for up to 100,000 shares of
common stock are authorized to be issued under the Directors' Plan. The
Directors' Plan allows the Company's Stock Option Committee (the
"Committee") to grant options to non-employee Directors for a price of not
less than eighty-five percent of the fair market value of the Company's
common stock on the dates that the options are granted. Options are
exercisable in whole or in part, from time to time, until five years from
the date of grant, except that, absent a change in control of the Company,
each option terminates upon the discontinuance of the option holder's
service as a Director of the Company for any reason except death or
disability. Sale of common stock purchased upon exercise of an option is
prohibited for two years from the date of exercise or three years from the
date of grant, whichever is later, unless there is a change in control of
the Company or in the event of the Director's death. Each option agreement
under the Directors' Plan provides, among other things, that shares of
Common Stock will be issued and delivered to the Director upon payment to
the Company of the exercise price of such shares and that the option price
and number of shares subject to option will be adjusted for stock splits,
stock dividends or other similar changes in the Company's capital
structure.
The Company also has an Incentive Stock Option Plan (the "ISO Plan")
administered by the Committee which provides for the issuance to key
employees of incentive stock options ("ISOs") within the meaning of
Section 422A of the Internal Revenue Code of 1986, as amended. The
Committee is authorized to issue up to 100,000 shares of common stock
pursuant to the exercise of the ISOs. The option price of each ISO granted
is 100% of the fair market value of the common stock on the date of grant.
If an ISO is granted to an optionee who holds more than 10% of the
combined voting power of all classes of the Company's stock at the date of
the grant, the option price is 110% of fair market value of the common
stock on the date of grant. The ISO Plan provides for the exercise of ISOs
at the maximum rate of 25% in the first 12 months after grant and 25% in
each 12-month period thereafter. To the extent not exercised, an optionee
may accumulate
F-8
<PAGE> 71
his or her ISOs and exercise them, in whole or in part, in any subsequent
period but not later than 10 years from the date on which the option was
granted.
No options have been issued by the Company under the Directors' Plan or
the ISO Plan.
4. COMMITMENTS AND CONTINGENCIES
Synox is the exclusive licensee of certain technology and know-how under a
license agreement with a company controlled by certain affiliates of the
Company. The agreement currently covers 15 states in the license
territory. Under the terms of its license agreement (as amended), Synox is
subject to minimum royalty provisions and to the maintenance of a $50,000
net worth and the performance of other material provisions of the license
agreement. Minimum annual royalties (based upon retaining the 15 states
currently under the agreement) are due each January 1, for the ensuing
calendar year through the license expiration. The license agreement was
amended on December 22, 1997 to change the expiration date of the license
and to provide that no minimum royalty payment would be due on January 1,
1998, but that such minimum royalty payments would resume on January 1,
1999, in accordance with the following schedule.
<TABLE>
<CAPTION>
DUE DATE AMOUNT
<S> <C>
January 1, 1999 $ 90,336
January 1, 2000 180,671
January 1, 2001 180,671
January 1, 2002 through 2009 225,839
</TABLE>
Pursuant to the merger agreement between Old Enviroq and Synox, the
stockholders of Synox at the time of the merger received Old Enviroq
shares valued at $672,000 in the aggregate plus the right to receive
additional shares of Old Enviroq, dependent on the earnings of Synox, up
to a maximum value of $2,017,000. In addition, the then existing
obligations of Synox under promissory notes to certain shareholders
amounting to $767,376 plus additional interest at 7.66%) shall become
payable by Synox in cash only after such time as (i) all the contingent
shares have been issued and (ii) accumulated retained earnings are
available for such payment. Interest shall become payable only to the
extent of available net earnings. Management believes it is unlikely that
Synox will achieve the required levels of retained earnings. Therefore,
these promissory notes are not recorded as liabilities in the accompanying
consolidated balance sheets. As a result of the Distribution of Company
shares referred to in Note 1, the obligation to issue contingent shares
became an obligation of the Company to issue its shares in lieu of Old
Enviroq shares. To the extent additional, contingent shares become
issuable in the future or additional obligations become payable in the
future, such consideration will be recorded at that time at its fair value
and accounted for as additional intangible assets.
5. RELATED PARTY TRANSACTIONS
During fiscal years 1998 and 1997, the Company paid approximately $29,000
and $13,000, respectively, to a marketing and public relations company
controlled by a family member of certain stockholders of the Company.
During fiscal 1997, the Company paid approximately $58,000 to an insurance
agency controlled by stockholders of the Company.
6. SIGNIFICANT CUSTOMERS AND CONCENTRATION OF CREDIT RISK
The Company had sales transactions with two and four unrelated customers
which accounted for approximately 89% and 92% of total sales in fiscal
1998 and 1997, respectively. Trade accounts
F-9
<PAGE> 72
receivable included approximately $77,445 and $303,000 due from these
customers at March 28, 1998 and March 29, 1997, respectively.
7. SUBSEQUENT EVENT
On April 22, 1998, the Company entered into an Agreement and Plan of
Reorganization (the "Merger Agreement") with Institutional Asset
Management, Inc. ("IAM"), a Florida corporation, Capital Research
Corporation ("CRC"), a Florida corporation, Intrepid Capital Corporation
("Intrepid Capital"), a newly formed Delaware corporation and a subsidiary
of the Company, and three wholly-owned subsidiaries of Intrepid Capital
formed to effect the transactions contemplated in the Merger Agreement.
Subject to the terms and conditions of the Merger Agreement, including
without limitation the approval of the stockholders of the Company, the
Company will be merged into a wholly-owned subsidiary of Intrepid Capital,
which will occur simultaneously with similar mergers between wholly-owned
subsidiaries of Intrepid Capital and each of CRC and IAM. As a result of
the simultaneous mergers, the Company, CRC and IAM will become
wholly-owned subsidiaries of Intrepid Capital.
* * * * *
F-10
<PAGE> 73
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-KSB/A-2
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) [No Fee Required]
OF THE SECURITIES EXCHANGE ACT OF 1934 ---------------
For the fiscal year ended March 28, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) [No Fee Required]
OF THE SECURITIES EXCHANGE ACT OF 1934 ---------------
For the transition period from ___________________ to ________________________
Commission file number 0-25528
ENVIROQ CORPORATION
(Name of small business issuer in its charter)
Delaware 59-3290346
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3918 Montclair Road, Suite 206
Birmingham, Alabama 35213
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (205) 870-0588
Securities registered under Section 12(b) of the Exchange Act:
Title of each class Name of each exchange on which registered
None None
---- ----
Securities registered under Section 12(g) of the Exchange Act:
Common Stock
--------------------
(Title of class)
Check whether the issuer: (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
----- -----
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B is not contained in this form, and no disclosure
will be contained, to the best of registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. [X]
As of June 4, 1998, the aggregate market value of the voting stock of
the Registrant held by non-affiliates was approximately $1,379,414, based on
$3.25 per share being an average of the bid and asked prices listed on the OTC
Bulletin Board system.
State issuer's revenues for its most recent fiscal year: $1,304,357
As of June 4, 1998, the Registrant had issued 1,009,377 shares of
Common Stock, par value $0.01.
Transitional Small Business Disclosure Format YES NO X
--- ---
1
<PAGE> 74
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this amended report to be
signed on its behalf by the undersigned, thereunto duly authorized.
ENVIROQ CORPORATION
Date: October 7, 1998 By: /s/ William J. Long
-----------------------------------------
William J. Long, President
and Chief Executive Officer
2
<PAGE> 75
INDEPENDENT AUDITORS' REPORT
To The Board of Directors and Stockholders of
Enviroq Corporation:
We have audited the accompanying consolidated balance sheets of Enviroq
Corporation and subsidiaries as of March 28, 1998 and March 29, 1997, and the
related consolidated statements of income, stockholders' equity, and cash flows
for the years then ended. 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, such consolidated financial statements present fairly, in all
material respects, the financial position of Enviroq Corporation and
subsidiaries as of March 28, 1998 and March 29, 1997, and the results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles.
Birmingham, Alabama
May 11, 1998 /s/ DELOITTE & TOUCHE LLP
<PAGE> 76
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 27, 1998
[_] TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to ________________
Commission file number 0-25528
-------------
ENVIROQ CORPORATION
(Exact name of small business issuer as specified in its charter)
Delaware 59 -3290346
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3918 Montclair Road, Suite 206
Birmingham, Alabama 35213
---------------------------------------- ---------------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (205) 870-0588
--------------
N/A
- ------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer: (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
YES X NO
--- ---
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date:
Common Stock, par value $0.01 1,009,377
----------------------------- ------------------
(Class) (Number of Shares)
Transitional Small Business Disclosure Format (Check one):
Yes [_] No [X]
<PAGE> 77
ENVIROQ CORPORATION AND SUBSIDIARIES
FORM 10-QSB JUNE 27, 1998
<TABLE>
<S> <C>
CONSOLIDATED CONDENSED BALANCE SHEETS -
JUNE 27, 1998 AND MARCH 28, 1998 3
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS -
THREE MONTHS ENDED JUNE 27, 1998 5
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS -
THREE MONTHS ENDED JUNE 27, 1998 6
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 10
PART II - OTHER INFORMATION 12
SIGNATURES 14
</TABLE>
2
<PAGE> 78
ENVIROQ CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
June 27, 1998 March 28, 1998
------------- --------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 2,536,387 $ 2,545,100
Accounts receivable (no allowance considered necessary) 115,344 78,404
License fees receivable 930 -
Inventories 173,393 168,184
Notes Receivable 13,459 -
Refundable Income Taxes 37,622 63,470
Prepaid expenses and other assets 5,495 36,884
------------- -------------
Total current assets 2,882,631 2,892,042
------------- -------------
OTHER ASSETS:
Reorganization Cost 127,670 -
Employee notes receivable 11,858 11,858
Deferred Taxes 10,040 10,650
------------- -------------
Total other assets 149,568 22,508
------------- -------------
PROPERTY, PLANT AND EQUIPMENT, at cost
Land 310,135 310,135
Leasehold Improvements 8,312 -
Operating equipment 38,136 44,160
Other equipment and vehicles 57,917 57,917
------------- -------------
414,500 412,212
Less accumulated depreciation (55,174) (53,279)
------------- -------------
Property, plant and equipment, net 359,325 358,933
------------- -------------
TOTAL ASSETS $ 3,391,525 $ 3,273,483
============= =============
</TABLE>
See accompanying notes to consolidated condensed financial statements
3
<PAGE> 79
ENVIROQ CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
June 27, March 28,
1998 1998
----------- ------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 65,037 $ 46,733
Salaries, wages and related taxes 20,264 25,203
Income taxes payable 71,617 -
----------- ------------
Total current liabilities 156,918 71,936
----------- ------------
COMMITMENTS AND CONTINGENCIES (Note 3)
STOCKHOLDERS' EQUITY
Common stock (par value $.01 per share)
10,000,000 shares, authorized
1,009,377 shares, issued and outstanding 10,094 10,094
Additional paid-in capital 6,190,647 6,190,647
Accumulated deficit (2,966,134) (2,999,194)
----------- -----------
Total stockholders' equity 3,234,607 3,201,547
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 3,391,525 $ 3,273,483
=========== ===========
</TABLE>
See accompanying notes to consolidated condensed financial statements
4
<PAGE> 80
ENVIROQ CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (ALL PERIODS UNAUDITED)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------
JUNE 27, JUNE 28,
1998 1997
<S> <C> <C>
REVENUES
Net revenues from sales and support $ 362,815 $ 233,486
Revenues from licenses - 80,000
------------ -----------
Total Revenues 362,815 313,486
COST OF REVENUES 180,310 201,191
------------ -----------
GROSS PROFIT 182,505 112,296
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 175,413 176,806
------------ -----------
INCOME (LOSS) FROM OPERATIONS 7,092 (64,511)
OTHER INCOME 35,766 31,960
------------ -----------
INCOME (LOSS) BEFORE INCOME TAXES 48,858 (32,550)
INCOME TAX EXPENSE (BENEFIT) 17,159 (4,883)
------------ -----------
NET INCOME (LOSS) $ 31,699 $ (27,667)
============ ===========
NET INCOME (LOSS) PER
SHARE $ 0.03 $ (0.03)
============ ===========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
5
<PAGE> 81
ENVIROQ CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------
JUNE 27, 1998 JUNE 28, 1997
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 31,699 $ (27,667)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 1,895 2,618
Changes in assets and liabilities provided (used) cash (40,019) 82,202
------------- -------------
Net cash provided by (used in) operating activities (6,425) 52,270
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (2,288) -
------------- -------------
Net cash used in investing activities (2,288) (0)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES - -
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (8,713) 52,270
------------- -------------
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 2,545,100 2,379,613
------------- -------------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 2,536,387 $ 2,431,883
============= =============
</TABLE>
See accompanying notes to consolidated condensed financial statements
6
<PAGE> 82
ENVIROQ CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 - MANAGEMENT'S REPRESENTATION
The accompanying unaudited consolidated condensed financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions for Form 10-QSB.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
These unaudited financial statements include all adjustments, consisting of
normal recurring accruals, which Enviroq Corporation considers necessary for a
fair presentation of the financial position and the results of operations for
these periods.
The results of operations for the three months ended June 27, 1998 are not
necessarily indicative of the results to be expected for the full year ending
March 27, 1999. For further information, refer to the financial statements and
footnotes thereto included in the Company's Form 10-KSB for the year ended
March 28, 1998, as filed with the Securities and Exchange Commission.
NOTE 2 - GENERAL
A. COMPANY INFORMATION
Enviroq Corporation, a Delaware corporation (the "Company"), was
incorporated on February 9, 1995. At the time of its incorporation, the
Company was a wholly-owned subsidiary of a Delaware corporation formerly
named Enviroq Corporation ("Old Enviroq"). Prior to April 18, 1995, the
Company was named New Enviroq Corporation ("New Enviroq"). On April 18,
1995, Old Enviroq distributed all of the issued and outstanding capital
stock of New Enviroq to the holders of the common stock of Old Enviroq
(the "Distribution"). Following the Distribution, the Company changed its
name from New Enviroq Corporation to Enviroq Corporation. Also following
the Distribution, Old Enviroq merged with a subsidiary of Insituform
Mid-America, Inc. ("IMA") and changed its name to Insituform Southeast,
Inc. ("Insituform Southeast").
The Company's principal executive office is located at 3918 Montclair
Road, Suite 206, Birmingham, Alabama 35213, and its telephone number is
(205) 870-0588. The Company's mailing address is P. O. Box 130062,
Birmingham, Alabama 35213.
The Company is currently principally engaged in the development,
commercialization, formulation and marketing of spray-applied resinous
products, and in the treatment of municipal wastewater biosolids. The
Company's operations are conducted primarily through Sprayroq(R), Inc., a
Florida corporation ("Sprayroq"), of which the Company owns 50% of the
outstanding capital stock. Sprayroq is engaged in the development,
commercialization, manufacture and marketing of spray-applied resinous
materials. The Company also owns 100% of the outstanding capital stock of
Synox(R) Corporation, a Delaware corporation ("Synox"). Synox has been
engaged in the research, development and marketing of a process for the
treatment of municipal wastewater biosolids. To date, most of the revenue
and operating income for the Company have resulted from the operations of
Sprayroq. While the Company intends to maintain Synox as a subsidiary,
management does not expect any significant revenues or other activity for
the foreseeable future, and intends to minimize expenses*.
7
<PAGE> 83
B. BASIS OF PRESENTATION
Principles of Consolidation - The consolidated financial statements
include the accounts of Enviroq Corporation, Synox and Sprayroq. All
significant intercompany transactions are eliminated. Although the Company
owns 50% of the outstanding capital stock of Sprayroq, all of the
operating results of Sprayroq have been included, without discount or
reduction. No minority interest is shown because of Sprayroq's accumulated
deficit position.
C. INCOME (LOSS) PER SHARE
Income (loss) per share was computed by dividing net income (loss) by the
1,009,377 shares of common stock outstanding as of June 27, 1998,
considering these shares to be outstanding for all periods presented.
NOTE 3 - COMMITMENTS AND CONTINGENCIES
Synox is the exclusive licensee of certain technology and know-how under a
license agreement with a company controlled by certain affiliates of the
Company. The agreement covers 15 states in the license territory.
Under the terms of its license agreement (as amended), Synox is subject to
minimum royalty provisions and to the maintenance of a $50,000 net worth and
the performance of other material provisions of the license agreement. Minimum
annual royalties (based upon retaining the 15 states currently under the
agreement) are due each January 1, for the ensuing calendar year through the
license expiration, according to the following schedule. The license agreement
was amended on December 22, 1997 to change the expiration date of the license
and to provide that no minimum royalty payment would be due on January 1, 1998,
but that such minimum royalty payments would resume on January 1, 1999, in
accordance with the following schedule.
<TABLE>
<CAPTION>
DUE DATE AMOUNT
<S> <C>
January 1, 1999 $ 90,336
January 1, 2000 180,671
January 1, 2001 180,671
January 1, 2002 through 2009 225,839
</TABLE>
Pursuant to the merger agreement between Old Enviroq and Synox, the
stockholders of Synox at the time of the merger received Old Enviroq shares
valued at $672,000 in the aggregate plus the right to receive additional shares
of Old Enviroq, dependent on the earnings of Synox, up to a maximum value of
$2,017,000. In addition, the then existing obligations of Synox under
promissory notes to certain shareholders ($767,376 at December 30, 1991 plus
additional interest at 7.66%) shall become payable by Synox in cash only after
such time as (i) all the contingent shares have been issued and (ii)
accumulated retained earnings are available for such payment. Interest shall
become payable only to the extent of available net earnings. As a result of the
Distribution of Company shares referred to in Note 2.A above, the obligation to
issue contingent shares became an obligation of the Company to issue its shares
in lieu of Old Enviroq shares. To the extent additional contingent shares
become issuable in the future or additional obligations become payable in the
future, such consideration will be recorded at that time at its fair value and
accounted for as additional intangible assets.
The Company and Replico Development Company, Inc. ("Replico") each own 50% of
the outstanding capital stock of Sprayroq, and pursuant to the Stockholder
Agreement dated as of March 25, 1992 between the Company (as successor to Old
Enviroq), Sprayroq and Replico, the parties agreed to vote their respective
shares to elect three directors designated by the Company and two directors
designated by Replico. Sprayroq has obtained its operating funds primarily from
the Company. Prior to October 15, 1996, the Company had made loans to Sprayroq
to fund the working capital and other needs of Sprayroq. On October 15, 1996,
the board of directors of Sprayroq voted to restructure and consolidate this
debt with the Company, and a Consolidated Note
8
<PAGE> 84
evidencing the restructured debt was executed on October 21, 1996 by Sprayroq.
As of June 27, 1998, the principal amount of the debt was approximately
$487,000. The rate of interest on the debt is 7% per annum. The debt will be
amortized over a 30-year period, with the balance of the principal due, in the
form of a "balloon" payment, on October 1, 2001.
* * * * *
9
<PAGE> 85
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS
Revenue
For the three months ended June 27, 1998, the Company generated revenues
of approximately $363,000, as compared to approximately $313,000 for the
three months ended June 28, 1997, representing an increase of
approximately 16%. The increase in revenues for the three-month period is
primarily attributable to an increase in orders for materials from
Sprayroq's licensees.
Cost of Revenues / Gross Profit
Cost of revenues were approximately $180,000 for the three months ended
June 27, 1998, as compared to approximately $201,000 for the three months
ended June 28, 1997, representing a decrease of approximately 10%. Cost of
revenues for the three-month period decreased primarily as all revenues for
the three month period ended June 27, 1998 were derived from orders for
materials and parts from Sprayroq's licensees, which resulted in higher
gross profit margins, whereas a portion of the revenues for the period
ended June 28, 1997 were derived from the sale of a license, which
resulted in lower gross profit margins.
Gross profit margin was approximately 50% for the three months ended June
27, 1998, as compared to approximately 36% for the three months ended June
28, 1997.
Selling, General and Administrative Expenses
Selling, General and Administrative Expenses ("S,G&A") for the three
months ended June 27, 1998 were approximately $175,000, as compared to
approximately $177,000 for the three months ended June 28, 1997, a
decrease of approximately 1%. The decrease in S,G&A for the three month
period is marginal.
Other Income
Other income was approximately $36,000 for the three months ended June 27,
1998, as compared to approximately $32,000 for the three months ended June
28, 1997. For the three month period ended June 27, 1998, most of the
other income resulted from interest income and accrued interest receivable
by the Company from its bank cash deposits, money market accounts, and
other investments.
Net Income (Loss)
For the three months ended June 27, 1998, net income was approximately
$32,000, as compared to net loss of approximately $28,000 for the three
months ended June 28, 1997. The increase in net income for the three
months ended June 27, 1998 was primarily attributable to increased
revenues and improved gross profit margins.
Financial Condition
For the three months ended June 27, 1998, stockholders' equity increased
as compared to the preceding quarter ended March 28, 1998, primarily as a
result of increases in net income.
At June 27, 1998, the Company had approximately $2,726,000 in working
capital and a current ratio of 18.4-to-1, as compared to working capital
of approximately $2,820,000 and a current ratio of 40.2-to-1 at March 28,
1998.
10
<PAGE> 86
At June 27, 1998, the Company's cash and cash equivalents totaled
approximately $2,536,000. In addition, accounts receivable totaled
approximately $115,000. The Company used approximately $9,000 in cash from
operating and investing activities during the three month period ended
June 27, 1998, primarily as a result of increases in accounts receivable
and inventories as well as costs related to the Agreement and Plan of
Reorganization, dated April 22, 1998, by and among the Company and other
entities.
Depreciation expense was approximately $2,000 for the three months ended
June 27, 1998. Net fixed assets were approximately the same on March 28,
1998 and June 27, 1998. The lack of change in net fixed assets is
attributable to the purchase of equipment offsetting the accumulated
depreciation.
The Company does not believe that there is any appreciable seasonal impact
on the business of the Company, although extreme cold weather may impair
installation of spray-applied materials which may result in decreased
resin sales by Sprayroq*.
The Company's undeveloped property in Jacksonville, Florida (approximately
10.6 acres) is currently being offered for sale, which may result in an
increase in the Company's cash*.
Operating cash flow combined with available cash and cash equivalents are
currently expected to be sufficient in amount to provide resources to the
Company's working capital needs during fiscal year 1999*.
11
<PAGE> 87
PART II - OTHER INFORMATION
ITEM 1 - Legal Proceedings
None.
ITEM 2 - Changes in Securities
None.
ITEM 3 - Defaults upon Senior Securities
None.
ITEM 4 - Submission of Matters to a Vote of Security Holders
None.
ITEM 5 - Other Information
On July 14, 1998, the Company entered into an Agreement for Sale and Purchase
of Property with L.J. Development Group, Inc. for the sale of the Company's
real property located on Phillips Highway in Jacksonville, Florida (the "Land
Agreement"). The total purchase price is $4.00 per net square foot of the
approximately 10.6 acres, less any property subsequently determined to be
"Jurisdictional Lands" as defined in the Land Agreement. The closing of the
sale is subject to several terms and conditions as provided in the Land
Agreement.
12
<PAGE> 88
ITEM 6 - Exhibits and Reports on Form 8-K
(a) The following exhibits are included or are incorporated by reference
into this Form 10-QSB:
Description of Exhibits
<TABLE>
<CAPTION>
Item
<S> <C>
*3.01 Certificate of Incorporation of New Enviroq Corporation. Exhibit 3.01 to the Company's
Registration Statement on Form 10-SB/A2 dated April 12, 1995, is incorporated herein by
reference (Commission File No. 0-25528).
*3.02 Certificate of Amendment to Certificate of Incorporation of New Enviroq Corporation. Exhibit
3.02 to the Company's Registration Statement on Form 10-SB/A2 dated April 12, 1995, is
incorporated herein by reference (Commission File No. 0-25528).
*3.03 Bylaws of New Enviroq Corporation. Exhibit 3.03 to the Company's Registration Statement on
Form 10-SB/A2 dated April 12, 1995, is incorporated herein by reference (Commission File No.
0-25528).
*4.01 Certificate of Designation of Rights and Preferences of Series A Preferred Stock. Exhibit 4.01
to the Company's Registration Statement on Form 10-SB/A2 dated April 12, 1995 , is incorporated
herein by reference (Commission File No. 0-25528).
*4.02 Form of Certificate of Common Stock. Exhibit 4.02 to the Company's Registration Statement on
Form 10-SB/A2 dated April 12, 1995, is incorporated herein by reference (Commission File No.
0-25528).
*4.03 Form of Certificate of Series A Preferred Stock. Exhibit 4.03 to the Company's Registration
Statement on Form 10-SB/A2 dated April 12, 1995, is incorporated herein by reference
(Commission File No. 0-25528).
*4.04 Stock Agreement, dated April 22, 1998, by and among certain shareholders of the Company, Institutional
Asset Management, Inc., and Capital Research Corporation. Exhibit 4 to the Report on form 8-K, dated
April 23, 1998, is incorporated herein by reference (Commission File No. 0-25528).
*10.26 Agreement and Plan of Reorganization by and among Intrepid Capital Corporation, the Company,
Freedom Holdings of Alabama, Inc., Institutional Asset Management, Inc., IAM Merger Sub, Inc.
Capital Research Corporation, and CRC Merger Sub, Inc. dated as of April 22, 1998. Exhibit 2
to the Report on Form 8-K, dated April 23, 1998, is incorporated herein by reference
(Commission File No. 0-25528).
27.0 Financial Data Schedule
</TABLE>
* Exhibits incorporated by reference.
(b) Reports on Form 8K filed during the period:
On April 23, 1998, the Company filed a Current Report on Form 8-K with
the Securities and Exchange Commission. In this Form 8-K, the Company
disclosed, pursuant to Item 5, that the Company had entered into an
Agreement and Plan of Reorganization, dated as of April 22, 1998, by
13
<PAGE> 89
and among Enviroq Corporation, Institutional Asset Management,
Inc., Capital Research Corporation, Intrepid Capital Corporation
and certain other entities.
"Safe Harbor" Statement under the Private Securities Litigation
Reform Act of 1995:
With the exception of historical factual information, the matters and
statements discussed, made or incorporated by reference in this Quarterly
Report on Form 10-QSB (including statements regarding trends in the industry
and the business and growth and financing strategies of the Company), as well
as those statements specifically designated with an asterisk (*), constitute
forward-looking statements, contain the words "estimates," "projects,"
"intends," "believes," "anticipates," "expects," and words of similar import,
are based upon current expectations and are made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements and words involve known and unknown assumptions,
risks, uncertainties and other factors which may cause the actual results,
performance or achievements of the Company to be materially different from any
future results, performance, or achievements expressed or implied by such
forward-looking statements or words. Such assumptions, risks, uncertainties and
factors include those associated with general economic and business conditions;
industry trends, cyclicality and seasonality; litigation arising in the course
of the Company's business; dependence on key personnel and favorable
relationships with employees; relationships with and dependence on customers,
and suppliers; changes in the business strategy or development plans of the
Company; the availability, terms and deployment of capital; changes in or the
failure to comply with government regulations; and the inability or failure to
identify or consummate successful acquisitions or to assimilate the operations
of any acquired businesses with those of the Company; and other assumptions,
risks, uncertainties and factors reflected from time to time in the Company's
filings with the Securities and Exchange Commission. The Company expressly
disclaims any obligation to update any forward-looking statements as a result
of developments occurring after the filing of this report.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
ENVIROQ CORPORATION
Date: August 11, 1998 By: /s/ William J. Long
----------------------------------
William J. Long, President
and Chief Executive Officer
(Principal Financial and
Accounting Officer)
14
<PAGE> 90
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-QSB/A
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 27, 1998
[_] TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to ________________
Commission file number 0-25528
-------------
ENVIROQ CORPORATION
(Exact name of small business issuer as specified in its charter)
Delaware 59 -3290346
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3918 Montclair Road, Suite 206
Birmingham, Alabama 35213
---------------------------------------- ---------------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (205) 870-0588
--------------
N/A
- ------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer: (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
YES X NO
--- ---
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date:
Common Stock, par value $0.01 1,009,377
----------------------------- ------------------
(Class) (Number of Shares)
Transitional Small Business Disclosure Format (Check one):
Yes [_] No [X]
<PAGE> 91
ENVIROQ CORPORATION AND SUBSIDIARIES
FORM 10-QSB JUNE 27, 1998
<TABLE>
<S> <C>
CONSOLIDATED CONDENSED BALANCE SHEETS -
JUNE 27, 1998 AND MARCH 28, 1998 3
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS -
THREE MONTHS ENDED JUNE 27, 1998 5
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS -
THREE MONTHS ENDED JUNE 27, 1998 6
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 10
PART II - OTHER INFORMATION 12
SIGNATURES 14
</TABLE>
2
<PAGE> 92
ENVIROQ CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
June 27,
1998 March 28,
Revised 1998
------------- --------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 2,536,387 $ 2,545,100
Accounts receivable (no allowance considered necessary) 115,344 78,404
License fees receivable 930 -
Inventories 173,393 168,184
Notes Receivable 13,459 -
Refundable Income Taxes 37,622 63,470
Prepaid expenses and other assets 5,495 36,884
------------- -------------
Total current assets 2,882,630 2,892,042
------------- -------------
OTHER ASSETS:
Employee notes receivable 11,858 11,858
Deferred Taxes 10,040 10,650
------------- -------------
Total other assets 21,898 22,508
------------- -------------
PROPERTY, PLANT AND EQUIPMENT, at cost
Land 310,135 310,135
Leasehold Improvements 8,312 -
Operating equipment 38,136 44,160
Other equipment and vehicles 57,917 57,917
------------- -------------
414,500 412,212
Less accumulated depreciation (55,174) (53,279)
------------- -------------
Property, plant and equipment, net 359,326 358,933
------------- -------------
TOTAL ASSETS $ 3,263,855 $ 3,273,483
============= =============
</TABLE>
See accompanying notes to consolidated condensed financial statements
3
<PAGE> 93
ENVIROQ CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
June 27,
1998 March 28,
Revised 1998
----------- ------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 65,037 $ 46,733
Salaries, wages and related taxes 20,264 25,203
Income taxes payable 71,617 -
----------- ------------
Total current liabilities 156,918 71,936
----------- ------------
COMMITMENTS AND CONTINGENCIES (Note 3)
STOCKHOLDERS' EQUITY
Common stock (par value $.01 per share)
10,000,000 shares, authorized
1,009,377 shares, issued and outstanding 10,094 10,094
Additional paid-in capital 6,190,647 6,190,647
Accumulated deficit (3,093,804) (2,999,194)
----------- -----------
Total stockholders' equity 3,106,937 3,201,547
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 3,263,855 $ 3,273,483
=========== ===========
</TABLE>
See accompanying notes to consolidated condensed financial statements
4
<PAGE> 94
ENVIROQ CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (ALL PERIODS UNAUDITED)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------
JUNE 27,
1998 JUNE 28,
Revised 1997
<S> <C> <C>
REVENUES
Net revenues from sales and support $ 362,815 $ 233,486
Revenues from licenses - 80,000
------------ -----------
Total Revenues 362,815 313,486
COST OF REVENUES 180,310 201,191
------------ -----------
GROSS PROFIT 182,505 112,296
NON-RECURRING MERGER EXPENSES (127,670)
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 175,413 176,806
------------ -----------
LOSS FROM OPERATIONS (120,578) (64,511)
OTHER INCOME 35,766 31,960
------------ -----------
LOSS BEFORE INCOME TAXES (84,812) (32,550)
INCOME TAX EXPENSE (BENEFIT) 11,159 (4,883)
------------ -----------
NET LOSS $ (95,971) $ (27,667)
============ ===========
NET LOSS PER SHARE $ (0.10) $ (0.03)
============ ===========
WEIGHTED AVERAGE SHARES OUTSTANDING 1,009,377 1,009,377
</TABLE>
See accompanying notes to consolidated condensed financial statements.
5
<PAGE> 95
ENVIROQ CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------
JUNE 27, 1998 JUNE 28, 1997
REVISED
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (95,971) $ (27,667)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 1,895 2,618
Changes in assets and liabilities provided (used) cash 87,651 82,202
------------- -------------
Net cash provided by (used in) operating activities (6,425) 52,270
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (2,288) -
------------- -------------
Net cash used in investing activities (2,288) (0)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES - -
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (8,713) 52,270
------------- -------------
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 2,545,100 2,379,613
------------- -------------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 2,536,387 $ 2,431,883
============= =============
</TABLE>
See accompanying notes to consolidated condensed financial statements
6
<PAGE> 96
ENVIROQ CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 - MANAGEMENT'S REPRESENTATION
The accompanying unaudited consolidated condensed financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions for Form 10-QSB.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
These unaudited financial statements include all adjustments, consisting of
normal recurring accruals, which Enviroq Corporation considers necessary for a
fair presentation of the financial position and the results of operations for
these periods.
The results of operations for the three months ended June 27, 1998 are not
necessarily indicative of the results to be expected for the full year ending
March 27, 1999. For further information, refer to the financial statements and
footnotes thereto included in the Company's Form 10-KSB for the year ended
March 28, 1998, as filed with the Securities and Exchange Commission.
NOTE 2 - GENERAL
A. COMPANY INFORMATION
Enviroq Corporation, a Delaware corporation (the "Company"), was
incorporated on February 9, 1995. At the time of its incorporation, the
Company was a wholly-owned subsidiary of a Delaware corporation formerly
named Enviroq Corporation ("Old Enviroq"). Prior to April 18, 1995, the
Company was named New Enviroq Corporation ("New Enviroq"). On April 18,
1995, Old Enviroq distributed all of the issued and outstanding capital
stock of New Enviroq to the holders of the common stock of Old Enviroq
(the "Distribution"). Following the Distribution, the Company changed its
name from New Enviroq Corporation to Enviroq Corporation. Also following
the Distribution, Old Enviroq merged with a subsidiary of Insituform
Mid-America, Inc. ("IMA") and changed its name to Insituform Southeast,
Inc. ("Insituform Southeast").
The Company's principal executive office is located at 3918 Montclair
Road, Suite 206, Birmingham, Alabama 35213, and its telephone number is
(205) 870-0588. The Company's mailing address is P. O. Box 130062,
Birmingham, Alabama 35213.
The Company is currently principally engaged in the development,
commercialization, formulation and marketing of spray-applied resinous
products, and in the treatment of municipal wastewater biosolids. The
Company's operations are conducted primarily through Sprayroq(R), Inc., a
Florida corporation ("Sprayroq"), of which the Company owns 50% of the
outstanding capital stock. Sprayroq is engaged in the development,
commercialization, manufacture and marketing of spray-applied resinous
materials. The Company also owns 100% of the outstanding capital stock of
Synox(R) Corporation, a Delaware corporation ("Synox"). Synox has been
engaged in the research, development and marketing of a process for the
treatment of municipal wastewater biosolids. To date, most of the revenue
and operating income for the Company have resulted from the operations of
Sprayroq. While the Company intends to maintain Synox as a subsidiary,
management does not expect any significant revenues or other activity for
the foreseeable future, and intends to minimize expenses*.
7
<PAGE> 97
B. BASIS OF PRESENTATION
Principles of Consolidation - The consolidated financial statements
include the accounts of Enviroq Corporation, Synox and Sprayroq. All
significant intercompany transactions are eliminated. Although the Company
owns 50% of the outstanding capital stock of Sprayroq, all of the
operating results of Sprayroq have been included, without discount or
reduction. No minority interest is shown because of Sprayroq's accumulated
deficit position.
C. INCOME (LOSS) PER SHARE
Income (loss) per share was computed by dividing net income (loss) by the
1,009,377 shares of common stock outstanding as of June 27, 1998,
considering these shares to be outstanding for all periods presented.
NOTE 3 - COMMITMENTS AND CONTINGENCIES
Synox is the exclusive licensee of certain technology and know-how under a
license agreement with a company controlled by certain affiliates of the
Company. The agreement covers 15 states in the license territory.
Under the terms of its license agreement (as amended), Synox is subject to
minimum royalty provisions and to the maintenance of a $50,000 net worth and
the performance of other material provisions of the license agreement. Minimum
annual royalties (based upon retaining the 15 states currently under the
agreement) are due each January 1, for the ensuing calendar year through the
license expiration, according to the following schedule. The license agreement
was amended on December 22, 1997 to change the expiration date of the license
and to provide that no minimum royalty payment would be due on January 1, 1998,
but that such minimum royalty payments would resume on January 1, 1999, in
accordance with the following schedule.
<TABLE>
<CAPTION>
DUE DATE AMOUNT
<S> <C>
January 1, 1999 $ 90,336
January 1, 2000 180,671
January 1, 2001 180,671
January 1, 2002 through 2009 225,839
</TABLE>
Pursuant to the merger agreement between Old Enviroq and Synox, the
stockholders of Synox at the time of the merger received Old Enviroq shares
valued at $672,000 in the aggregate plus the right to receive additional shares
of Old Enviroq, dependent on the earnings of Synox, up to a maximum value of
$2,017,000. In addition, the then existing obligations of Synox under
promissory notes to certain shareholders ($767,376 at December 30, 1991 plus
additional interest at 7.66%) shall become payable by Synox in cash only after
such time as (i) all the contingent shares have been issued and (ii)
accumulated retained earnings are available for such payment. Interest shall
become payable only to the extent of available net earnings. As a result of the
Distribution of Company shares referred to in Note 2.A above, the obligation to
issue contingent shares became an obligation of the Company to issue its shares
in lieu of Old Enviroq shares. To the extent additional contingent shares
become issuable in the future or additional obligations become payable in the
future, such consideration will be recorded at that time at its fair value and
accounted for as additional intangible assets.
The Company and Replico Development Company, Inc. ("Replico") each own 50% of
the outstanding capital stock of Sprayroq, and pursuant to the Stockholder
Agreement dated as of March 25, 1992 between the Company (as successor to Old
Enviroq), Sprayroq and Replico, the parties agreed to vote their respective
shares to elect three directors designated by the Company and two directors
designated by Replico. Sprayroq has obtained its operating funds primarily from
the Company. Prior to October 15, 1996, the Company had made loans to Sprayroq
to fund the working capital and other needs of Sprayroq. On October 15, 1996,
the board of directors of Sprayroq voted to restructure and consolidate this
debt with the Company, and a Consolidated Note
8
<PAGE> 98
evidencing the restructured debt was executed on October 21, 1996 by Sprayroq.
As of June 27, 1998, the principal amount of the debt was approximately
$487,000. The rate of interest on the debt is 7% per annum. The debt will be
amortized over a 30-year period, with the balance of the principal due, in the
form of a "balloon" payment, on October 1, 2001.
Note 4 - RESTATEMENT
The financial statements for the quarter ended June 27, 1998 have been restated
to expense amounts which had been previously capitalized. In particular,
approximately $127,000 in reorganization costs were expensed.
* * * * *
9
<PAGE> 99
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS
Revenue
For the three months ended June 27, 1998, the Company generated revenues
of approximately $363,000, as compared to approximately $313,000 for the
three months ended June 28, 1997, representing an increase of
approximately 16%. The increase in revenues for the three-month period is
primarily attributable to an increase in orders for materials from
Sprayroq's licensees.
Cost of Revenues / Gross Profit
Cost of revenues were approximately $180,000 for the three months ended
June 27, 1998, as compared to approximately $201,000 for the three months
ended June 28, 1997, representing a decrease of approximately 10%. Cost of
revenues for the three-month period decreased primarily as all revenues for
the three month period ended June 27, 1998 were derived from orders for
materials and parts from Sprayroq's licensees, which resulted in higher
gross profit margins, whereas a portion of the revenues for the period
ended June 28, 1997 were derived from the sale of a license, which
resulted in lower gross profit margins.
Gross profit margin was approximately 50% for the three months ended June
27, 1998, as compared to approximately 36% for the three months ended June
28, 1997.
Non-Recurring Merger Expenses
Expenses of $127,670 were incurred in connection with the Company's
proposed merger.
Selling, General and Administrative Expenses
Selling, General and Administrative Expenses ("S,G&A") for the three
months ended June 27, 1998 were approximately $175,000, as compared to
approximately $177,000 for the three months ended June 28, 1997, a
decrease of approximately 1%. The decrease in S,G&A for the three month
period is marginal.
Other Income
Other income was approximately $36,000 for the three months ended June 27,
1998, as compared to approximately $32,000 for the three months ended June
28, 1997. For the three month period ended June 27, 1998, most of the
other income resulted from interest income and accrued interest receivable
by the Company from its bank cash deposits, money market accounts, and
other investments.
Net Income (Loss)
For the three months ended June 27, 1998, net loss was approximately
$96,000, as compared to net loss of approximately $28,000 for the three
months ended June 28, 1997. The larger net loss was the result of the
$127,670 in non-recurring merger expenses, which were partially offset by
increased revenues and improved gross profit margins.
Financial Condition
For the three months ended June 27, 1998, stockholders' equity increased
as compared to the preceding quarter ended March 28, 1998, primarily as a
result of increases in net income.
At June 27, 1998, the Company had approximately $2,726,000 in working
capital and a current ratio of 18.4-to-1, as compared to working capital
of approximately $2,820,000 and a current ratio of 40.2-to-1 at March 28,
1998.
10
<PAGE> 100
At June 27, 1998, the Company's cash and cash equivalents totaled
approximately $2,536,000. In addition, accounts receivable totaled
approximately $115,000. The Company used approximately $9,000 in cash from
operating and investing activities during the three month period ended
June 27, 1998, primarily as a result of increases in accounts receivable
and inventories as well as costs related to the Agreement and Plan of
Reorganization, dated April 22, 1998, by and among the Company and other
entities.
Depreciation expense was approximately $2,000 for the three months ended
June 27, 1998. Net fixed assets were approximately the same on March 28,
1998 and June 27, 1998. The lack of change in net fixed assets is
attributable to the purchase of equipment offsetting the accumulated
depreciation.
The Company does not believe that there is any appreciable seasonal impact
on the business of the Company, although extreme cold weather may impair
installation of spray-applied materials which may result in decreased
resin sales by Sprayroq*.
The Company's undeveloped property in Jacksonville, Florida (approximately
10.6 acres) is currently being offered for sale, which may result in an
increase in the Company's cash*.
Operating cash flow combined with available cash and cash equivalents are
currently expected to be sufficient in amount to provide resources to the
Company's working capital needs during fiscal year 1999*.
YEAR 2000 ISSUE
Management of the Company has made an assessment of the Year 2000
compliance status of the Company's computer hardware, computer network
equipment, and computer software. With respect to computer systems utilized
within the Company, management believes that all key systems are currently
Year 2000 compliant and should not pose significant operational problems,
either to the Company or to third parties. The Company relies on third
party vendors for its key computer system components and, as a function of
routine upgrades of such systems, has received assurance of Year 2000
compliance, consequently avoiding any expense directly related to Year 2000
compliance. In addition, the management of the Company expects to complete,
by December 31, 1998, a survey with each key supplier and key customer to
further assess the extent of Year 2000 problems for such companies and any
potential impact upon the Company. At this time, the Company does not
believe it is necessary to have a formal Year 2000 contingency plan in
place. Although it is not possible to reasonably estimate the cost of
compliance, based on management's assessment, the Company believes that the
cost to resolve any third party issues will not have a material impact on
earnings*.
Despite these efforts, there can be no assurance that the systems of other
companies, organizations or governmental agencies upon which the Company
relies, will be addressed successfully or in a timely manner. While the
Company has not identified any specific areas of risk, it is possible that
Year 2000 problems, arising from sources beyond the control of the Company
(including the systems of suppliers and customers), or from general market
Year 2000 problems could result in a negative adverse impact on the Company
and/or its operating results*.
11
<PAGE> 101
PART II - OTHER INFORMATION
ITEM 1 - Legal Proceedings
None.
ITEM 2 - Changes in Securities
None.
ITEM 3 - Defaults upon Senior Securities
None.
ITEM 4 - Submission of Matters to a Vote of Security Holders
None.
ITEM 5 - Other Information
On July 14, 1998, the Company entered into an Agreement for Sale and Purchase
of Property with L.J. Development Group, Inc. for the sale of the Company's
real property located on Phillips Highway in Jacksonville, Florida (the "Land
Agreement"). The total purchase price is $4.00 per net square foot of the
approximately 10.6 acres, less any property subsequently determined to be
"Jurisdictional Lands" as defined in the Land Agreement. The closing of the
sale is subject to several terms and conditions as provided in the Land
Agreement.
12
<PAGE> 102
ITEM 6 - Exhibits and Reports on Form 8-K
(a) The following exhibits are included or are incorporated by reference
into this Form 10-QSB:
Description of Exhibits
<TABLE>
<CAPTION>
Item
<S> <C>
*3.01 Certificate of Incorporation of New Enviroq Corporation. Exhibit 3.01 to the Company's
Registration Statement on Form 10-SB/A2 dated April 12, 1995, is incorporated herein by
reference (Commission File No. 0-25528).
*3.02 Certificate of Amendment to Certificate of Incorporation of New Enviroq Corporation. Exhibit
3.02 to the Company's Registration Statement on Form 10-SB/A2 dated April 12, 1995, is
incorporated herein by reference (Commission File No. 0-25528).
*3.03 Bylaws of New Enviroq Corporation. Exhibit 3.03 to the Company's Registration Statement on
Form 10-SB/A2 dated April 12, 1995, is incorporated herein by reference (Commission File No.
0-25528).
*4.01 Certificate of Designation of Rights and Preferences of Series A Preferred Stock. Exhibit 4.01
to the Company's Registration Statement on Form 10-SB/A2 dated April 12, 1995 , is incorporated
herein by reference (Commission File No. 0-25528).
*4.02 Form of Certificate of Common Stock. Exhibit 4.02 to the Company's Registration Statement on
Form 10-SB/A2 dated April 12, 1995, is incorporated herein by reference (Commission File No.
0-25528).
*4.03 Form of Certificate of Series A Preferred Stock. Exhibit 4.03 to the Company's Registration
Statement on Form 10-SB/A2 dated April 12, 1995, is incorporated herein by reference
(Commission File No. 0-25528).
*4.04 Stock Agreement, dated April 22, 1998, by and among certain shareholders of the Company, Institutional
Asset Management, Inc., and Capital Research Corporation. Exhibit 4 to the Report on form 8-K, dated
April 23, 1998, is incorporated herein by reference (Commission File No. 0-25528).
*10.26 Agreement and Plan of Reorganization by and among Intrepid Capital Corporation, the Company,
Freedom Holdings of Alabama, Inc., Institutional Asset Management, Inc., IAM Merger Sub, Inc.
Capital Research Corporation, and CRC Merger Sub, Inc. dated as of April 22, 1998. Exhibit 2
to the Report on Form 8-K, dated April 23, 1998, is incorporated herein by reference
(Commission File No. 0-25528).
27.0 Restated Financial Data Schedule (for SEC use only)
</TABLE>
* Exhibits incorporated by reference.
(b) Reports on Form 8K filed during the period:
On April 23, 1998, the Company filed a Current Report on Form 8-K with
the Securities and Exchange Commission. In this Form 8-K, the Company
disclosed, pursuant to Item 5, that the Company had entered into an
Agreement and Plan of Reorganization, dated as of April 22, 1998, by
13
<PAGE> 103
and among Enviroq Corporation, Institutional Asset Management,
Inc., Capital Research Corporation, Intrepid Capital Corporation
and certain other entities.
"Safe Harbor" Statement under the Private Securities Litigation
Reform Act of 1995:
With the exception of historical factual information, the matters and
statements discussed, made or incorporated by reference in this Quarterly
Report on Form 10-QSB (including statements regarding trends in the industry
and the business and growth and financing strategies of the Company), as well
as those statements specifically designated with an asterisk (*), constitute
forward-looking statements, contain the words "estimates," "projects,"
"intends," "believes," "anticipates," "expects," and words of similar import,
are based upon current expectations and are made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements and words involve known and unknown assumptions,
risks, uncertainties and other factors which may cause the actual results,
performance or achievements of the Company to be materially different from any
future results, performance, or achievements expressed or implied by such
forward-looking statements or words. Such assumptions, risks, uncertainties and
factors include those associated with general economic and business conditions;
industry trends, cyclicality and seasonality; litigation arising in the course
of the Company's business; dependence on key personnel and favorable
relationships with employees; relationships with and dependence on customers,
and suppliers; changes in the business strategy or development plans of the
Company; the availability, terms and deployment of capital; changes in or the
failure to comply with government regulations; and the inability or failure to
identify or consummate successful acquisitions or to assimilate the operations
of any acquired businesses with those of the Company; and other assumptions,
risks, uncertainties and factors reflected from time to time in the Company's
filings with the Securities and Exchange Commission. The Company expressly
disclaims any obligation to update any forward-looking statements as a result
of developments occurring after the filing of this report.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
ENVIROQ CORPORATION
Date: September 9, 1998 By: /s/ William J. Long
----------------------------------
William J. Long, President
and Chief Executive Officer
(Principal Financial and
Accounting Officer)
14
<PAGE> 1
EXHIBIT (C)(1)
STOCK AGREEMENT
STOCK AGREEMENT (the "Agreement"), dated as of April 22, 1998,
between INSTITUTIONAL ASSET MANAGEMENT INC. ("IAM") and CAPITAL RESEARCH
CORPORATION ("CRC"), both of which are Florida corporations, and the undersigned
STOCKHOLDERS (the "Stockholders") of Enviroq Corporation, a Delaware corporation
(the "Company").
WHEREAS, as of the date hereof the Stockholders own of record an
aggregate of 552,875 shares of common stock, par value $0.01 per share ("Company
Common Stock"), of the Company (all such shares and any shares hereafter
acquired by the Stockholders prior to the termination of this Agreement being
referred to herein as the "Shares");
WHEREAS, concurrently herewith, IAM, CRC and the Company are entering
into an Agreement and Plan of Reorganization (as such Agreement may hereafter be
amended from time to time, the "Merger Agreement"), pursuant to which, upon the
terms and subject to the conditions thereof, certain affiliates of the Company
will be merged (the "Mergers") with and into IAM, CRC and the Company and
resulting in IAM, CRC and the Company becoming wholly-owned subsidiaries of a
common holding company; and
WHEREAS, as a condition to the willingness of IAM and CRC to enter into
the Merger Agreement, IAM and CRC have requested that each Stockholder agree,
and, in order to induce the Purchaser to enter into the Merger Agreement, each
Stockholder has agreed to grant IAM and CRC proxies to vote such Stockholder's
Shares;
NOW, THEREFORE, in consideration of the premises and of the mutual
representations, warranties, covenants and agreements set forth herein and in
the Merger Agreement, the parties hereto, intending to be legally bound, hereby
agree as follows:
ARTICLE 1
SECTION 1.01 TRANSFER OF SHARES. Until the earlier to occur of (i) the
close of business on the date of the special meeting of stockholders of the
Company called to consider and vote upon the Mergers (the "Special Meeting") or
(ii) the termination of the Merger Agreement in accordance with its terms, each
Stockholder agrees not to (a) sell, pledge or otherwise dispose of any of such
Stockholder's Shares, (b) deposit such Shares into a voting trust or enter into
a voting agreement or arrangement with respect to such Shares or grant any proxy
with respect thereto or (c) enter into any contract, option or other arrangement
or undertaking with respect to the direct or indirect acquisition or sale,
assignment, transfer or other disposition of any Company Common Stock.
SECTION 1.02 VOTING OF SHARES; FURTHER ASSURANCES. For such time as
this Agreement remains in effect, each Stockholder agrees, with respect to those
Shares that such
<PAGE> 2
Stockholder owns of record on the record date for voting at the Special Meeting,
to vote such Shares (or to execute written consents with respect to such Shares)
(i) in favor of the adoption of the Merger Agreement and approval of the Mergers
and the other transactions contemplated by the Merger Agreement, (ii) against
any Alternative Proposal (as defined in the Merger Agreement) and (iii) in favor
of any other matter necessary to consummate the transactions contemplated by the
Merger Agreement and considered and voted upon at the Special Meeting. Each
Stockholder agrees to vote the Shares owned by such Stockholder beneficially to
be voted in accordance with the foregoing. Each Stockholder acknowledges receipt
of and has reviewed a copy of the Merger Agreement.
SECTION 1.03 NO SOLICITATION. Prior to the Effective Time, (a) none of
the Stockholders shall initiate, solicit or encourage, directly or indirectly,
any inquiries or the making or implementation of any proposal or offer
(including, without limitation, any proposal or offer to the Company's
stockholders) with respect to an Alternative Proposal (as defined in the Merger
Agreement) or engage in any negotiations concerning, or provide any confidential
information or data to, or have any discussions with, any Person (as defined in
the Merger Agreement) relating to an Alternative Proposal, or otherwise
facilitate any effort or attempt to make or implement an Alternative Proposal
and (b) each Stockholder agrees to notify IAM and CRC immediately if any such
inquiries or proposals are received by, any such information is requested from,
or any such negotiations or discussions are sought to be initiated or continued
with, such Stockholder.
SECTION 1.04 NO FIDUCIARY VIOLATION. Notwithstanding any other
provision of this Agreement, no Stockholder who is a member of the board of
directors of the Company ("Director") or control person thereof, if acting
solely in such Stockholder's capacity as a Director or control person thereof,
shall have any obligation or duty (a) to vote (or cause any Director under its
control to vote) (i) in favor of the Mergers and the other transactions
contemplated by the Merger Agreement or (ii) against any Alternative Proposal
(as defined in the Merger Agreement) or (b) to refrain from voting (or cause any
Director under its control to refrain from voting) to terminate the Merger
Agreement, if such Director (or control person thereof) determines in good
faith, based on advice of the board of directors' outside counsel, that the
failure to terminate the Merger Agreement and the transactions contemplated
therein would be reasonably likely to result in a breach of such Director's
fiduciary duty to the Company's stockholders; provided, however, in the event
that the Merger Agreement has not been terminated prior to the time of the
stockholder vote at the Special Meeting to approve the Mergers and the other
transactions contemplated in the Merger Agreement, such Stockholder shall vote
its Shares in accordance with Section 1.02 hereof. No action of a Stockholder,
if such action is taken solely in the Stockholder's capacity as a Director (or
control person thereof) consistent with the provisions of the immediately
preceding sentence, shall be deemed to violate the provisions of Section 1.03
hereof.
2
<PAGE> 3
ARTICLE 2
SECTION 2.01 NOTICES. All notices and other communications given or
made pursuant hereto shall be in writing and shall be deemed to have been duly
given or made as of the date delivered, mailed or transmitted, and shall be
effective upon receipt, if delivered personally, mailed by registered or
certified mail (postage prepaid, return receipt requested) to the parties at the
following addresses (or at such other address for a party as shall be specified
by like changes of address) or sent by electronic transmission to the telecopier
number specified below:
(a) If to IAM or CRC:
50 North Laura Street, Suite 3550
Jacksonville, Florida 32202
Attention: Forrest Travis
Telephone (904) 350-9999
Facsimile (904) 355-1745
with a copy to:
Rogers & Hardin LLP
2700 International Tower
229 Peachtree Street, N.E.
Atlanta, Georgia 30303
Attention: Steven E. Fox, Esq.
Telephone (404) 420-4603
Facsimile (404) 525-2224
(b) If to a Stockholder:
c/o Enviroq Corporation
3918 Montclair Road
Suite 206
Birmingham, Alabama 35213
Attention: William J. Long
Telephone (205) 870-0588
Facsimile (205) 870-0576
with a copy to:
Bradley Arant Rose & White LLP
2001 Park Place, Suite 1400
Birmingham, Alabama 35203-2736
Attention: John K. Molen, Esq.
Telephone (205) 521-8238
Facsimile (205) 521-8800
3
<PAGE> 4
SECTION 2.02 INTERPRETATION. The headings contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Unless otherwise defined in this Agreement,
capitalized terms used in this Agreement shall have the meanings ascribed to
them in the Merger Agreement.
SECTION 2.03 SEVERABILITY. If any term, condition or other provision of
this Agreement is invalid, illegal or incapable of being enforced by any rule of
law or public policy, all other terms, conditions 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 and by the
Merger Agreement does not have a Material Adverse Effect (defined below) with
respect to any Party or any party to this Agreement. Upon such determination
that any term, condition 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 and the parties
hereto as closely as possible to the fullest extent permitted by applicable law
in an acceptable manner to the end that the transactions contemplated hereby and
by the Merger Agreement are fulfilled to the extent possible. For the purposes
of this Agreement "Material Adverse Effect" means with respect to any of the
Parties, an event, change or occurrence which, individually or together with any
other event, change or occurrence, has or could be expected to have a material
adverse effect on the financial position, business, assets, properties,
operations, results of operations or prospects of such Party.
SECTION 2.04 ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement of the parties and supersedes all prior agreements and undertakings,
both written and oral, between the parties, or any of them, with respect to the
subject matter hereof.
SECTION 2.05 CERTAIN EVENTS. Each Stockholder agrees that this
Agreement and the obligations hereunder shall attach to such Stockholder's
Shares and shall be binding upon any Person to which legal or beneficial
ownership (as such term is applied under Rule 13d-3 promulgated pursuant to the
Securities Exchange Act of 1934, as amended) of such Shares shall pass, whether
by operation of law or otherwise. Notwithstanding the transfer of any Shares,
the transferor shall remain liable for the performance of all obligations under
this Agreement of the transferor.
SECTION 2.06 ASSIGNMENT. This Agreement shall not be assigned by
operation of law or otherwise.
SECTION 2.07 PARTIES IN INTEREST. This Agreement shall be binding upon
and inure solely to the benefit of each party hereto, and nothing in this
Agreement, express or implied, is intended to or shall confer upon any person
any right, benefit or remedy of any nature whatsoever under or by reason of this
Agreement.
SECTION 2.08 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.
4
<PAGE> 5
SECTION 2.09 GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware, without giving
effect to principles of conflicts of laws.
SECTION 2.10 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 2.11 TERMINATION. This Agreement shall terminate automatically
immediately upon termination of the Merger Agreement, and no party hereto shall
have any further obligations hereunder.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
INSTITUTIONAL ASSET MANAGEMENT, INC.
By: /s/ Forrest Travis
-------------------------------------
Name: Forrest Travis
Title: President
CAPITAL RESEARCH CORPORATION
By: /s/ Forrest Travis
-------------------------------------
Name: Forrest Travis
Title: President
WILLIAM J. LONG
/s/ William J. Long
---------------------------------------
MARINELLI SECURITIES ASSOCIATES
By: /s/ Antonio M. Marinelli
-------------------------------------
Name: Antonio M. Marinelli
Title:
----------------------------------
5
<PAGE> 6
SCHEDULE I
William J. Long
Marinelli Securities Associates
6
<PAGE> 1
EXHIBIT (C)(2)
VOTING AGREEMENT
THIS VOTING AGREEMENT, dated as of __________, 1998, ("Agreement") is
made by and among INTREPID CAPITAL CORPORATION, a Delaware corporation
("Corporation"), certain STOCKHOLDERS of Enviroq Corporation, a Delaware
Corporation ("Enviroq") set forth on Schedule A hereto ("Principal Enviroq
Stockholders") and certain SHAREHOLDERS of Institutional Asset Management, Inc.,
a Florida Corporation ("IAM") and Capital Research Corporation, a Florida
Corporation ("CRC") set forth on Schedule B hereto ("Principal IAM/CRC
Shareholders").
R E C I T A L S :
WHEREAS, this Agreement is being delivered pursuant to Sections 8.8,
9.9 and 10.9 of that certain Agreement and Plan of Reorganization, dated as of
April 22, 1998, among Enviroq, CRC, IAM and certain other entities ("Merger
Agreement");
WHEREAS, this Agreement is being executed and delivered by the
Principal Enviroq Stockholders and the Principal IAM/CRC Shareholders prior to
the Effective Time (as that term is defined in the Merger Agreement) and shall
govern the actions of such parties in their capacity as stockholders of the
Corporation after the Effective Time;
WHEREAS, prior to the Effective Time, the Principal Enviroq
Stockholders own an aggregate of 552,875 shares of common stock, par value $0.01
per share, of Enviroq ("Enviroq Common Stock"), representing approximately
54.77% of the issued and outstanding Enviroq Common Stock;
WHEREAS, prior to the Effective Time, the Principal IAM/CRC
Shareholders own an aggregate of 500 shares of common stock, par value $0.01, of
IAM ("IAM Common Stock"), representing all of the issued and outstanding IAM
Common Stock and 500 shares of common stock, par value $25.00 per share, of CRC
("CRC Common Stock"), representing all of the issued and outstanding CRC Common
Stock;
WHEREAS, subject to the terms and conditions of the Merger Agreement,
upon completion of and by virtue of the Redemption and the Mergers (as these
terms are defined in the Merger Agreement), the Enviroq Principal Stockholders
will receive a certain amount of cash (as a result of the Redemption or the
Mergers, in the event such stockholder chooses not to participate in the
Redemption) and 552,875 shares of the common stock, par value $0.01 per share,
of the Corporation ("Stock"), in consideration for their shares of Enviroq
Stock; the 500 shares of IAM Common Stock owned by the IAM/CRC Principal
Shareholders will be converted into 603,074 shares of Stock; and the 500 shares
of CRC Common Stock owned by the Principal IAM/CRC Shareholders will be
converted into 603,074 shares of Stock.
WHEREAS, the parties hereto desire to provide for certain transfer
restrictions and voting agreements among the stockholders of the Corporation who
are parties hereto and to provide for certain other rights to such stockholders;
NOW, THEREFORE, in consideration of the premises and of the mutual
promises set forth herein, and other good and valuable consideration, the
parties hereto hereby agree as follows:
Section A. DEFINITIONS; CONSTRUCTION: For purposes of this Agreement,
the following terms shall have the following meanings:
A. "Affiliate" shall mean, with respect to a Person, any
Person which controls, is controlled by or is under common control with such
Person and any officer, director, shareholder or employee of such Person and any
member of the Immediate Family of any natural person.
B. "Board" shall mean the Board of directors of the
Corporation.
C. "Director" shall mean a member of the Board.
<PAGE> 2
D. "Corporation" shall mean Freedom Capital Corporation, a
corporation organized and existing under the laws of Delaware, and any
corporation that shall succeed to the business and assets of the Corporation in
a transaction (such as a merger, consolidation, or reorganization) in which the
Stock of the Corporation is converted into capital stock of such successor
corporation.
E. "Immediate Family" shall mean, with respect to any natural
person, such natural person's spouse, lineal descendants, grandparent or
grandparents, parent or parents, brother or brothers, and sister or sisters, in
every case including, as appropriate, adoptive relationships.
F. "Person" means an individual, a partnership, a corporation,
an association, a joint stock company, a trust, a joint venture, an
unincorporated organization or association, a limited liability company, a
limited liability partnership, or a government entity (or any department,
agency, or political subdivision thereof);
G. "Principal Enviroq Stockholders" means those stockholders
set forth on Schedule A hereto and any Person who hereafter acquires Stock from
a Principal Enviroq Stockholder and becomes a party hereto;
H. "Principal IAM/CRC Shareholders" means those stockholders
set forth on Schedule B hereto and any Person who hereafter acquires Stock from
a Principal IAM/CRC Shareholder and becomes a party hereto;
I. "Stock" shall mean the authorized shares of the
Corporation's common stock, par value $0.01 per share, and any other authorized
shares of capital stock of the Corporation (of whatever kind, class or
designation), whether now or hereafter authorized, if such shares generally have
the right to elect Directors.
J. "Stockholder" shall mean the any of the Principal Enviroq
Stockholders, any of the Principal IAM/CRC Shareholders or any Person who
hereafter acquires Stock and becomes a party hereto; and the term "Stockholders"
refers collectively to those Persons who, as of any particular time, constitute
all the holders of Stock who are then parties to this Agreement.
Throughout this Agreement, the words "own", "owns" or "ownership" shall include
the ownership of all shares by such Person, whether beneficially, as defined in
Rule 13d-3 promulgated pursuant to the Securities Exchange Act of 1934, as
amended, or of record.
Section 2. GENERAL PROHIBITION AGAINST TRANSFERS. No Stockholder shall
sell, assign, pledge, dispose of, hypothecate, or otherwise transfer (whether by
operation of law or otherwise), or encumber any interest in its Stock ("Proposed
Transfer"), except in accordance with the terms of this Agreement.
Section 3. PERMITTED TRANSFERS. No Stockholder shall consummate any
Proposed Transfer, and no Proposed Transfer shall be deemed effective, unless
and until either (I) with respect to any transfer to a Person that is not an
Affiliate of the Stockholder, the Stockholder shall have provided notice to the
Corporation of the nature of the Proposed Transfer, the name of the Person that
is to be the proposed transferee with respect to such Proposed Transfer and a
statement to the effect that such Person is not an Affiliate of such Stockholder
or (ii) with respect to any Proposed Transfer by operation of law or Proposed
Transfer to an Affiliate of a Stockholder, the Person that is to be the proposed
transferee with respect to the Proposed Transfer shall become a party to this
Agreement, as such may be amended from time to time, by executing a counterpart
of this Agreement in respect of the Stockholder's Stock to be transferred
pursuant to such Proposed Transfer.
Section 4. BOARD COMPOSITION; ELECTION OF DIRECTORS.
(a) As soon as practicable after the Mergers, the Stockholders
shall take all such actions with respect to the voting of their shares of Stock
to cause there to be elected as Directors the seven persons named in Section 2.6
of the Merger Agreement and to establish the maximum number of Directors at
seven persons.
(b) After the election of the initial Board, during any period
where the Stockholders own fifty percent (50%) or more of the issued and
outstanding shares of Stock, the Stockholders shall take all such actions with
respect to the voting of their shares of Stock to keep the maximum number of
Directors at seven persons and,
(i) in the case where the Principal IAM/CRC
Shareholders own the same or greater number of shares of Stock
in comparison to that owned by the Principal Enviroq
Stockholders, to cause there to be on the Board at least four
persons designated as Directors by the Principal IAM/CRC
Shareholders and one person designated as a Director for each
ten percent (10%) or fraction thereof
<PAGE> 3
of the total issued and outstanding shares of Stock that is
owned as a group by the Principal Enviroq Stockholders (that
is, three Directors if the Principal Enviroq Stockholders own
over 20% of the issued and outstanding shares of Stock; two
Directors if they own over 10% but not more than 20% of the
shares of Stock; and one Director if they own 10% or less of
the shares of Stock); provided, however, (A) if the Principal
Enviroq Stockholders as group are entitled to designate fewer
than three Directors, then the Principal IAM/CRC Shareholders
shall be entitled to designate additional Directors until such
point as the total number of Directors to be designated by
this provision equals seven and (B) the maximum number of
Directors that the Principal Enviroq Stockholders shall be
entitled to designate pursuant to this Section 4(b)(I) is
three; or
(ii) in the case where the Principal Enviroq
Stockholders own a greater number of shares of Stock than the
Principal IAM/CRC Shareholders, to cause there to be on the
Board four persons designated as Directors by the Principal
Enviroq Stockholders and one person designated as a Director
for each ten percent (10%) or fraction thereof of the total
issued and outstanding shares of Stock that is owned as a
group by the Principal IAM/CRC Shareholders (that is, three
Directors if the Principal IAM/CRC Shareholders own over 20%
of the issued and outstanding shares of Stock; two Directors
if they own over 10% but not more than 20% of the shares of
Stock; and one Director if they own 10% or less of the shares
of Stock); provided, however, (A) if the Principal IAM/CRC
Shareholders as a group are entitled to designate fewer than
three Directors, then the Principal Enviroq Stockholders shall
be entitled to designate additional Directors until such point
as the total number of Directors to be designated by this
provision equals seven and (B) the maximum number of Directors
that the Principal IAM/CRC Shareholders shall be entitled to
designate pursuant to this Section 4(b)(ii) is three.
(c) After the election of the initial Board, during any period
where the Stockholders own less than fifty percent (50%) of the issued and
outstanding shares of Stock, the Stockholders shall take all such actions with
respect to the voting of their shares of Stock:
(i) in the case where the Principal IAM/CRC
Shareholders own the same or greater number of shares of Stock
in comparison to that owned by the Principal Enviroq
Stockholders, to cause there to be on the Board at least that
number of persons designated as Directors by the Principal
IAM/CRC Shareholders which constitutes a majority of the Board
("IAM Majority");
provided, however, (A) if the Stockholders
do not have sufficient votes to cause there to be on the Board
an IAM Majority, then the Stockholders shall use their best
efforts to designate and elect the maximum possible number of
Directors (that is, without increasing the number of Director
seats then authorized by the Corporation's constituent
documents), all of whom shall be designated by the Principal
IAM/CRC Shareholders; (B) in the event that the Stockholders
have a sufficient number of shares of Stock to cause there to
be on the Board an IAM Majority, then the Stockholders shall
use their best efforts to cause there to be on the Board a
maximum number of additional Directors (that is, without
increasing the number of Director seats then authorized by the
Corporation's constituent documents), who are to be designated
by the Principal Enviroq Stockholders and/or the Principal
IAM/CRC Shareholders, as the case may be, so that the total
number of Directors designated by the Stockholders is
proportional to number of shares of Stock owned by the
Principal Enviroq Stockholders in comparison to the number of
shares of Stock owned by the Principal IAM/CRC Shareholders;
(C) in the event that proviso (B) of this Section 4(c)(I) is
applicable and subject to proviso (E) of this Section 4(c)(I),
the Principal Enviroq Stockholders shall be entitled to
designate at least one Director; (D) subject to proviso (E) of
this Section (4)(c)(I), when determining the number of
Directors to be designated by the Principal Enviroq
Stockholders pursuant to proviso (B) of this Section 4(c)(I),
such number shall be rounded up to the next higher number if
the proportional analysis would result in the Principal
Enviroq Stockholders being entitled to designate a fractional
directorship; and (E) neither proviso (C) nor (D) of this
Section 4(c)(I) shall be interpreted to permit the Principal
Enviroq Stockholders to designate additional Directors if
there would no longer be an IAM Majority on the Board as a
result of such action; or
(ii) in the case where the Principal Enviroq
Stockholders own a greater number of shares of Stock than the
principal IAM/CRC Shareholders, to cause there to be on the
Board at least that number of persons designated as Directors
by the Principal Enviroq Stockholders which constitutes a
majority of the Board ("Enviroq Majority");
<PAGE> 4
provided, however, (A) if the Stockholders
do not have sufficient votes to cause there to be on the Board
an Enviroq Majority, then the Stockholders shall use their
best efforts to designate and elect the maximum possible
number of Directors (that is, without increasing the number of
Director seats then authorized by the Corporation's
constituent documents), all of whom shall be designated by the
Principal Enviroq Stockholders; (B) in the event that the
Stockholders have a sufficient number of shares of Stock to
cause there to be on the Board an Enviroq Majority, then the
Stockholders shall use their best efforts to cause there to be
on the Board a maximum number of additional Directors (that
is, without increasing the number of Director seats then
authorized by the Corporation's constituent documents), who
are to be designated by the Principal Enviroq Stockholders
and/or the Principal IAM/CRC Shareholders, as the case may be,
so that the total number of Directors designated by the
Stockholders is proportional to number of shares of Stock
owned by the Principal IAM/CRC Shareholders in comparison to
the number of shares of Stock owned by the Principal Enviroq
Stockholders; (C) in the event that proviso (B) of this
Section 4(c)(ii) is applicable and subject to proviso (E) of
this Section 4(c)(ii), the Principal IAM/CRC Shareholders
shall be entitled to designate at least one Director; (D)
subject to proviso (E) of this Section 4(c)(ii), when
determining the number of Directors to be designated by the
Principal IAM/CRC Shareholders pursuant to proviso (B) of this
Section 4(c)(ii), such number shall be rounded up to the next
higher number if the proportional analysis would result in the
Principal IAM/CRC Shareholders being entitled to designate a
fractional directorship; and (E) neither proviso (C) nor (D)
of this Section 4(c)(ii) shall be interpreted to permit the
Principal IAM/CRC Shareholders to designate additional
Directors if there would no longer be an Enviroq Majority on
the Board as a result of such action.
Section 5. NOTIFICATION OF DESIGNEES; DIRECTOR RESIGNATION, ETC.;
FURTHER ACTIONS.
(a) A letter executed by the holder(s) of a majority of the
shares of Stock owned by the Principal Enviroq Stockholders and delivered to the
Principal IAM/CRC Shareholders at the address (as may be amended from time to
time) and in the manner set forth in Section 11 hereof shall be deemed to give
notice as to the Principal Enviroq Stockholders' preferred Board designees and
other matters.
(b) A letter executed by the holder(s) of a majority of the
shares of Stock owned by the Principal IAM/CRC Shareholders and delivered to the
Principal Enviroq Stockholders at the address (as may be amended from time to
time) and in the manner set forth in Section 11 hereof shall be deemed to give
notice as to the Principal IAM/CRC Shareholders' preferred Board designees and
other matters.
(c) In the event that a Director resigns, dies or otherwise
ceases to be a Director before the expiration of such Director's term as a
Director, the group which was entitled to designate such Director (either the
Principal IAM/CRC Shareholders or the Principal Enviroq Stockholders, as the
case may be) shall be entitled to designate the person to replace such Director
for the remainder of his or her unexpired term. In the event that Directors
shall be entitled to fill a vacancy on the Board, the Stockholders agree to
cause their respective representative Directors to vote to fill such vacancy in
accordance with the immediately preceding sentence.
(d) The Stockholders agree to work together and take all
actions necessary or advisable to carry out the intent of this Agreement and to
give maximum effect to the provisions hereof, including, without limitation, the
calling of special meetings of the stockholders of the Corporation and the
amendment of the constituent documents of the Corporation, as may be necessary
or advisable.
(e) Whenever there is a change in ownership of the shares of
Stock owned by either the Principal IAM/CRC Shareholders or the Principal
Enviroq Stockholders or other event (such as the issuance of additional shares
of Stock which has a dilutive effect on some of the Stockholders), the effect of
which would result in a change in the number of the Directors that the Principal
IAM/CRC Shareholders and the Principal Enviroq Stockholders, respectively, are
entitled to designate pursuant to Section 3 hereof, it shall be incumbent on the
adversely affected party to notify the other party, as set forth in Section 5(a)
or 5(b), of the action it requests, and, as soon as practicable after such
notification, the Stockholders shall take all such actions necessary or
advisable to adjust the respective number of Directors designated by each party
in accordance with Section 3 hereof.
Section 6. TERMINATION. This Agreement shall terminate upon the
occurrence of any of the following events:
(a) the Corporation shall have (I) applied for or consented to
the appointment of, or the taking of possession by, a receiver, custodian,
trustee or liquidator of itself or of all or a substantial part of its assets;
(ii) made
<PAGE> 5
a general assignment for the benefit of its creditors, (iii) commenced a
voluntary case under the Federal Bankruptcy Code of 1978 ("Code"); (iv) filed a
petition seeking to take advantage of any other law relating to bankruptcy,
insolvency, reorganization, winding-up or composition or readjustment of debts,
(v) failed to controvert within 60 days or in a timely and appropriate manner,
or acquiesced in writing to, any petition filed against it in an involuntary
case under the Code, or (vi) taken any corporate action for the purpose of
effecting the foregoing;
(b) the written consent of all the Stockholders.
(c) the Stockholders own less than twenty percent (20%) of the
issued and outstanding shares of Stock.
(d) either the Principal Enviroq Stockholders or the Principal
IAM/CRC Shareholders own less than ten percent (10%) of the issued and
outstanding shares of Stock.
(e) the date that is twenty-one years after the date of death
of any natural Person who is a party to this Agreement on the date first written
above.
Upon the termination of this Agreement, each Stockholder may surrender to the
Corporation the certificates representing its Stock, and the Corporation shall
issue to it in lieu thereof new certificates for an equal number of shares
without the endorsement set forth in Section 10 hereof.
Section 7. CORPORATION ACTIONS. The Corporation agrees that it will not
make any transfer of shares of Stock on the Corporation's stock transfer books
except in accordance with, and otherwise will not take any action with respect
to the issuance of certificates representing shares of Stock to any proposed
transferee that violates, the terms of this Agreement. The Corporation agrees to
so instruct its transfer agent as to the requirements of this provision and to
issue shares of Stock with the legend set forth in Section 11 hereof, as
appropriate.
Section 8. BINDING EFFECT. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective permitted
successors, assigns, heirs and legal representatives.
Section 9. APPLICABLE LAW. This Agreement shall be governed by and
construed in accordance with the substantive laws of the State of Delaware
without regard to application of the conflicts of laws principles of such
jurisdiction. The respective obligations of the parties hereunder shall be
subject to compliance with all applicable laws and regulations including,
without limitation, the DGCL.
Section 10. COUNTERPARTS. This Agreement may be executed in any number
of counterparts all of which together shall constitute one Agreement.
Section 11. LEGENDS. Each certificate representing shares of Stock
shall have, in addition to any other legends which may be required or
appropriate, endorsed thereon legends in substantially the following forms:
"These securities are subject to the provisions of that
certain Voting Agreement among the corporation, the holder named on this
certificate and certain other stockholders of the corporation, as the same shall
be amended from time to time, and no transfer hereof may be made in violation
thereof. A copy of said Agreement is available for inspection at the offices of
the corporation."
Section 12. NOTICES. All notices and other communications given or made
pursuant hereto shall be in writing and shall be deemed to have been duly given
or made as of the date delivered, mailed or transmitted, and shall be effective
upon receipt, if delivered personally, mailed by registered or certified mail
(postage prepaid, return receipt requested) to the parties at the following
addresses (or at such other address for a party as shall be specified by like
changes of address) or sent by electronic transmission to the telecopier number
specified below:
(a) If to the Corporation:
c/o Enviroq Corporation
3918 Montclair Road, Suite 206
Post Office Box 130062
Birmingham, Alabama 35213
Attention: William J. Long
Telephone: (205) 870-0588
<PAGE> 6
Facsimile: (205)870-0576
with a copy to:
Bradley Arant Rose & White LLP
2001 Park Place, Suite 1400
Birmingham, Alabama 35203-2736
Attention: John K. Molen, Esq.
Telephone (205) 521-8238
Facsimile (205) 521-8800
(b) If to the Principal IAM/CRC Shareholders:
50 North Laura Street, Suite 3550
Jacksonville, Florida 32202
Attention: Forrest Travis
Telephone (904) 350-9999
Facsimile (904) 355-1745
with a copy to:
Rogers & Hardin LLP
2700 International Tower
229 Peachtree Street, N.E.
Atlanta, Georgia 30303
Attention: Steven E. Fox, Esq.
Telephone (404) 420-4603
Facsimile (404) 525-2224
(c) If to the Principal Enviroq Stockholders:
c/o Enviroq Corporation
3918 Montclair Road, Suite 206
Post Office Box 130062
Birmingham, Alabama 35213
Attention: William J. Long
Telephone: (205) 870-0588
Facsimile: (205)870-0576
with a copy to:
Bradley Arant Rose & White LLP
2001 Park Place, Suite 1400
Birmingham, Alabama 35203-2736
Attn: John K. Molen, Esq.
Telephone (205) 521-8238
Facsimile (205) 521-8800
Section 13. SEVERABILITY. The invalidity or unenforceability of any
particular provision of this Agreement shall not affect the other provisions
hereof, and this Agreement shall be construed in all respects as if such invalid
or unenforceable provisions were omitted.
Section 14. AMENDMENT. This Agreement may be amended from time to time
in writing by the consent of all parties to this Agreement at the time of such
amendment. This Agreement will be deemed to be amended each and every time a new
Person (that is, other than the original Stockholders party to this Agreement as
of the date first written above) becomes a party to this Agreement by executing
and delivering a counterpart copy of this Agreement (as may be amended from time
to time).
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
<PAGE> 7
INTREPID CAPITAL CORPORATION
By:/s/
-------------------------------------------------
Name:
----------------------------------------------
Title:
----------------------------------------------
WILLIAM J. LONG
---------------------------------------------------
MARINELLI SECURITIES ASSOCIATES
By:/s/
-------------------------------------------------
Name:
-----------------------------------------------
Title:
----------------------------------------------
FORREST TRAVIS
---------------------------------------------------
MARK F. TRAVIS
---------------------------------------------------
<PAGE> 8
SCHEDULE A
William J. Long
Marinelli Securities Associates
<PAGE> 9
SCHEDULE B
Forrest Travis
Mark F. Travis
<PAGE> 1
EXHIBIT (C)(3)
EMPLOYMENT AGREEMENT
THIS AGREEMENT, made and entered into on this the ____ day of
_______________, 1998, by and between___________________________, a corporation
organized and existing under the laws of the State of __________________
(hereinafter for convenience referred to as the "Employer"), and William J. Long
(hereinafter for convenience referred to as the "Employee"), as follows:
W I T N E S S E T H:
WHEREAS, the Employer desires to employ the Employee and the
Employee desires to become employed by Employer.
NOW, THEREFORE, in consideration of the premises and the
mutual covenants hereinafter set forth, faithfully to be kept by the parties
hereto, it is agreed as follows:
1. The Employer will employ the Employee, and the Employee
agrees to remain in the employ of the Employer, as an employee-at-will until
this Agreement is terminated in accordance with Section 21 hereof.
2. During the continuation of this Agreement, the Employee
shall devote such portion of his/her time during business hours (or as might be
reasonably expected, anticipated or customary for the nature of the employment
of the Employee) as Employee and Employer shall agree for the benefit of the
Employer, either working directly for the Employer or indirectly for its benefit
by devoting his/her time and attention to other activities from which the
Employer can derive a material benefit. The Employee shall use his/her best
efforts to promote the interests and welfare of the Employer in every way. The
Employee shall exercise and carry out all such duties and powers and shall
observe all such directions and restrictions as the Board of Directors of the
Employer or their delegate may, from time to time, confer or impose upon him or
her.
3. The Employee, as compensation for his/her services, shall
be entitled to a salary of One Hundred Thirty Thousand Dollars ($130,000) per
year, payable monthly, during the term of this Agreement, plus such increases
thereto as may from time to time be agreed between the Employer (and approved by
the Board of Directors of Employer) and the Employee. Employee may also receive
bonuses in excess of the salary set forth herein above, as well as, when
eligible, any fringe benefits generally established for employees of the
Employer and such other fringe benefits as may be granted by the Board of
Directors of the Employer provided, however, that it is expressly agreed that
such bonuses and/or fringe benefits may be provided from time to time by
Employer at its sole discretion, and the scope and nature of such bonuses and/or
fringe benefits may be changed and/or eliminated by Employer at any time. It is
expressly understood and agreed by the parties hereto that such bonuses and/or
fringe benefits are not an obligation of the Employer hereunder, nor shall it be
construed that the Employee is entitled hereunder to receive any such bonuses
and/or fringe benefits.
4. In the event the Employee becomes disabled, as hereinafter
defined, the Employer will continue to pay the Employee his/her full monthly
salary for a period of three (3) months from the commencement of such
disability, and for the next three (3) months, he/she will be compensated at the
rate of fifty percent (50%) of his/her monthly salary, at which time his/her
salary shall terminate, provided, however, that all amounts otherwise payable to
Employee pursuant to this Section 4 shall be reduced, on a monthly basis, by all
amounts received by Employee as proceeds from disability insurance policies, the
premiums of which were paid by the Employer, whether such premiums were paid
directly by the Employer or indirectly through a medical expense reimbursement
plan and by any amounts payable under retirement plan of the Employer from time
to time in effect for the Employee.
<PAGE> 2
The term "disability" shall mean the inability to perform
substantially all of the duties required of the Employee by the Employer because
of mental or physical illness or accident for a continuous period of 120 days.
Successive periods of sickness or injury or disability due to the same or
related shall be considered as one period of disability unless such period is
separated by the Employee's return to employment for twelve (12) months or
longer. Should the Employee recover partially from such disability so that
he/she can be productive to the Employer, the Board of Directors of the Employer
will discuss with the Employee terms upon which the Employee may be reemployed
by the Employer at compensation level to be agreed upon at that time.
5. The Employee shall be entitled to fifteen (15) working days
of vacation time during each fiscal year; and may, in his discretion, take
vacations at any time during the year subject to the demands of his/her
employment, and the Employee will coordinate his/her vacations with other
employees of the Employer at least one month in advance of such vacation.
In addition, the Employee shall be entitled to such holidays
as Board of Directors may approve.
6. The Employee shall be provided a designated place of work
and such other facilities and services as may be suitable to his/her position
and adequate for the performance of his/her duties and, if appropriate to the
nature of the work performed by Employee, may be provided with an office,
stenographic and technical help. The Employee may be expected to travel from
time to time.
7. The Employee is encouraged and is expected from time to
time to attend meetings, conventions, and other courses and seminars, related to
the business of Employer and to the nature of the employment of Employee, in
furtherance of his/her service to the Employer. Employee may be allowed a
reasonable amount of time, at the discretion of the President of Employer, for
attendance at such meetings or classes. The Employer agrees to pay reasonable
expenses for travel and other costs incurred by the Employee in connection with
such activities as shall be authorized and approved by the Board of Directors.
8. The Employee is encouraged and is expected, from time to
time, to incur reasonable expenses for promoting the business the Employer,
including expenses for civic club membership participation, entertainment,
travel, and similar items. The cost of such activities shall be at the expense
of the Employer.
9. Employee shall hold in confidence and shall not, during
term of this Agreement or after its termination, use (other than in connection
with the performance of services under the Agreement) communicate or divulge to
any other person, persons, entity, partnership or corporation (except for
marketing purposes only during the term the Agreement) any proprietary
information of Employer or its affiliated companies including, but not limited
to, business plans, customer identity, financial information, product details,
employment terms, etc. Justification for disregarding the obligations of
confidentiality by using any such information to, conduct a search of publicly
available documents and information, selecting a series of unrelated items and
fitting them together in an integrated disclosure shall not be permitted.
10. Employee shall at all times treat as confidential, shall
not at any time disclose, copy, duplicate, record, otherwise reproduce, in whole
or in part, in any form (including electronic storage), or otherwise make
available to any unauthorized person or source, the contents of manual,
document, or other technical information or writing provided by or behalf of
Employer.
11. Should Employee conceive, make, design, develop, devise or
invent any process, device, equipment or technology for use in conjunction with
the business of the Employer, or as a development, improvement or modification
of any aspect of the business of Employer, whether or not patentable or subject
to copyright law, then Employee shall promptly disclose same to Employer fully
and in writing and shall sell to Employer all of his/her right, title interest
in said process, device, equipment or technology, including patent rights or
copyrights, if any, for the sum of TEN DOLLARS and, whenever requested to do so
by Employer, shall execute all applications and/or other documents, and shall
otherwise provide proper assistance, which Employer shall deem necessary to
protect, defend or
<PAGE> 3
enforce Employer's interest therein. These obligations shall continue beyond the
termination of the Agreement with respect to processes, devises, equipment or
technology was conceived, made or developed during the term of the Agreement.
12. Upon termination of Employee's employment, however caused,
Employee will deliver to the Employer, without retaining copies, notes or
excerpts thereof, all records, lists, notes, data, customer lists, memoranda,
designs, drawings, models, and all other documents or materials made or compiled
by Employee, or made available to Employee by the Employer during Employee's
employment, which are in Employee's possession and/or control and which are the
property of the Employer or which relate to Employee's employment or to the
business, activities, or facilities of the Employer.
13. Employee agrees that, during Employee's employment with
the Employer, Employee will not engage, either on Employee's own behalf or on
behalf of or with any other person, firm, corporation or other entity, directly
or indirectly, in any business competitive with the business of the Employer.
14. In the event that Employee's employment with the Employer
is terminated, whether said termination is voluntary or involuntary and
regardless of the reason therefor, Employee will not (i) for a period of two (2)
years after said termination either for Employee's own benefit or for or on
behalf of any other party, engage in any business competitive with the Employer.
During the period after Employee's employment is terminated and for so long as
Employee is prohibited from competing with Enviroq Corporation pursuant to this
Section 14, Employer shall pay to Employee, in accordance with its payroll
practices, the sum of $50,000 per annum; provided, however, that Employer shall
not be required to make such payments if (i) Employee is in violation of any of
the non-competition provision contained in this Agreement, or (ii) if this
Agreement terminated by Employer pursuant to subparagraphs 21a., or 21e.,
hereof.
15. In addition to the obligations contained in Section 14
above, in the event Employee's employment with the Employer is terminated,
whether said termination is voluntary or involuntary and regardless of the
reason therefor, Employee will not, period of two (2) years after said
termination:
(i) In any way interfere with the Employer's relationships
with any of its customers who have done business with the Employer
during the last five years of the Employee's employment with the
Employer;
(ii) Solicit, place, accept, or aid in the solicitation,
placement, or acceptance of any business competitive with Employer's
from or for any person, partnership, corporation, or other entity who
has been a customer of the Employer;
(iii) Solicit, place, accept, or aid in the solicitation,
placement, or acceptance of any competitive with Employer from or for
any person, partnership, corporation, or other entity with Employee had
any contact as an employee of the Employer which was a prospective
customer of the Employer during the last five years of the Employee's
employment with the Employer.
16. As used in this Agreement, engaging in any competitive
business shall include engaging in business as Owner, stockholder, partner or
agent, or as employee of any person, firm or corporation engaged in such
business, or in being interested, directly or indirectly, in any such business
conducted by any person, firm or corporation.
17. Employee agrees that Employee shall not, during Employee's
employment with the Employer and for the period of two (2) years thereafter,
directly or indirectly, induce or attempt to induce any employee of the
Employer, at the time they are employed by Employer, to leave such employment or
to gain or seek employment elsewhere, and Employee shall not, during such
period, whether or not Employee has engaged in any such inducement,
<PAGE> 4
employ any who has been employed by the Employer and who had access during said
employment to the confidential business information of the Employer.
18. Employee agrees and acknowledges that any breach by
Employee of his/her obligations under any of Sections 11 through 15, inclusive,
or Section 17 above, will cause severe and irreparable harm to the Employer for
which the Employer will have no adequate remedy at law, due in part to the
inability to ascertain and measure precisely the monetary damages resulting from
any such breach. Employee further agrees and acknowledges that the Employer
shall be entitled, in addition to any other and additional and equitable relief
to which it may be entitled to temporary and permanent injunctive relief
restraining and prohibiting the Employee from engaging in or committing any
breach or breach of any of Sections 11 through 15, inclusive, or Section 17
above.
19. In any action brought to enforce this Agreement, the scope
of any term or provision hereof shall be modified or reduced to such extent, and
only to such extent, as is necessary to render such term or provision
enforceable. Should any term or hereof (even if modified or reduced as
hereinabove provided) be held contrary to, prohibited by or invalid under
applicable laws or regulations, such term or provision shall be inapplicable and
deemed omitted here from, but shall not invalidate the remaining terms and
provisions hereof.
It is the intent of the parties respecting Sections 12 through
18 to enter into a reasonable non-competition agreement for the maximum period
and of the maximum extent enforceable under Alabama law as consideration for
continued employment of the Employee by the Employer after the date of execution
hereof, and if said geographic or chronological restrictions should be deemed
unreasonable by a court; of competent jurisdiction, the parties intend that such
court should, in light of the facts and circumstances, reform this agreement
specifying the maximum permissible scope (in time, location and subject matter)
in the provisions of Sections 12 through 18 shall be enforceable against the
Employee.
20. The Employee agrees to observe and comply with the and
regulations of the Employer as adopted by the Employer's Board of Directors,
either orally or in writing, respecting the performance of his/her duties, and
to carry out and to perform orders, directions and policies announced to him or
her by the Employer from time to time, either orally or in writing.
21. The employment of Employee shall be terminated upon the
happening of any of the following events:
a. If the Employee is charged with the commission of a felony
under the laws of any state or the United States;
b. Whenever the Employer and the Employee shall mutually agree
in writing to terminate this Agreement;
c. If the Employee shall suffer a permanent disability. For
purpose of this Agreement, "permanent disability" shall be defined as
the Employee's inability, by reason of physical or mental illness, or
other cause, to perform the majority of his/her usual duties for a
period of six (6) months or more;
d. Notwithstanding any of the provisions of Agreement, upon at
least thirty (30) days prior written notice served by either the
Employer or the Employee upon the other;
e. Upon the death of the Employee.
<PAGE> 5
Except as otherwise provided in Section 14, upon any
termination, the Employee shall be entitled to receive only the compensation
accrued but unpaid as of the date of his/her termination and shall not be
entitled to additional compensation, except in case of any termination of
employment of the Employee by Employer under Section 21(d) which is not for good
cause, the Employer shall pay to the Employee, on the first day of each of 12
months beginning after notice was given under Section 21(d) amount equal to
one-twelfth (1/12) of the basic annual salary which the Employee was earning at
the time of the giving of such notice, without any bonus except for that which
may be due on account of the immediately prior fiscal year of the Employer.
22. This Agreement is conditioned upon the approval of a
majority of the members of the Board of Directors serving in capacity at the
date of execution of this Agreement.
23. This Agreement shall not be modified or amended except a
writing signed by both parties.
24. This Agreement shall be binding upon and inure to the
benefit of any successor to the Employer and such successor be deemed
substituted for the Employer under the terms of this Agreement. As used in this
Agreement, the term "successor" shall include any person, firm, employer or
other business entity which at any time, whether by merger, purchase or
otherwise, acquires or substantially all the assets of the business of the
Employer.
This Agreement shall also be binding upon and inure to the
benefit of the Employee, his/her heir., executors and administrators.
25. This Agreement shall be subject to and construed under
laws of the State of Florida.
IN WITNESS WHEREOF, the parties hereto have caused this
instrument to be executed as of the day and year first above written.
ATTEST:
By:/s/ By:/s/
-------------------------------- ------------------------------------
Secretary President
("EMPLOYEE")
By:/s/ By:/s/
-------------------------------- ------------------------------------
William J. Long
--------------------------------
As To Employee
<PAGE> 1
Exhibit (D)
October 21, 1998
Enviroq Corporation
3918 Montclair Road, Suite 206
Birmingham, AL 35213
Ladies and Gentlemen:
You have requested our opinion as to the federal income tax
consequences to certain of your stockholders on the proposed redemption by
Enviroq Corporation, a Delaware corporation (the "Company"), of certain of its
authorized, issued and outstanding shares of common stock ("Company Stock") from
certain electing stockholders, as well as the exchange by the Company
stockholders of their Company shares for shares of Intrepid Capital Corporation,
a Delaware corporation ("NewCo").
In rendering this opinion, we have (with your permission)
reviewed and relied upon and have based our opinion on, inter alia, the accuracy
of (i) the information contained in the Agreement and Plan of Reorganization
among NewCo, the Company, Institutional Asset Management, Inc., a Florida
corporation ("IAM"), Capital Research Corporation, a Florida corporation ("CRC")
and certain other entities, dated April 22, 1998 (the "Merger Agreement"); and
(ii) certain assumptions which we have deemed necessary and essential to our
opinion and which are contained herein. Any material variation or difference in
the facts or assumptions, as stated or incorporated in the materials just
referred to, might affect our conclusions. Furthermore, any issues which may
arise as a result of the transaction described herein but which are not
expressly addressed herein are outside the scope of our opinion.
What follows is a summary of the essential facts of the
transactions:
ESSENTIAL FACTS
The Company was incorporated on February 9, 1995. At the time
of its incorporation, the Company was a wholly-owned subsidiary of a Delaware
corporation formerly named Enviroq Corporation ("Old Enviroq"). Prior to April
18, 1995, the Company was named New Enviroq Corporation ("New Enviroq"). On
April 18, 1995, Old Enviroq distributed all of the issued and outstanding
capital stock of New Enviroq to the holders of the common stock of Old Enviroq
(the "Distribution"). Following the Distribution, the Company changed its name
from New Enviroq Corporation to Enviroq Corporation. Also following the
Distribution, Old Enviroq merged (the "Merger") with a subsidiary of Insituform
Mid-America, Inc. ("IMA") and changed its name to Insituform Southeast, Inc.
("Insituform Southeast"). In a transaction subsequent to, and unrelated to the
Merger, IMA was acquired by Insituform Technologies, Inc.
The Company's principal executive office is located at 3918
Montclair Road, Suite 206, Birmingham, Alabama 35213.
The Company is principally engaged in the development,
commercialization, formulation and marketing of spray-applied resinous products,
and in the development of processes related to the treatment of municipal
wastewater biosolids. The Company's operations are conducted primarily through
Sprayroq, Inc., a Florida corporation of which the Company owns 50% of the
outstanding capital stock ("Sprayroq"). The Company also owns 100% of the
outstanding capital stock of Synox Corporation, a Delaware corporation
("Synox"). Sprayroq is engaged in the development, commercialization,
manufacture and marketing of spray-applied resinous materials. Synox has been
engaged in the research, development and marketing of a process for the
treatment of municipal wastewater biosolids. Almost all of the operations of the
Company are the result of the operations of Sprayroq. The operations of Synox
are minimal and substantially all of the assets of Synox have been written off.
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<PAGE> 2
NewCo is a newly-formed corporation which is a wholly-owned
subsidiary of the Company. NewCo, in turn, owns all of the issued and
outstanding stock in Freedom Holding of Alabama, Inc., a Delaware corporation
("Sub 1"), IAM Merger Sub, Inc., a Florida corporation ("Sub 2") and CRC Merger
Sub, Inc., a Florida corporation ("Sub 3"). NewCo, Sub 1, Sub 2 and Sub 3 were
formed solely to effectuate the transactions set forth below. The Company files
its corporate income tax return on the basis of a fiscal year end of March 28.
As part of one integrated plan, the Company, IAM, CRC, Sub 1,
Sub 2 and Sub 3 intend to enter into the following transactions:
STEP 1
The Company will make an offer (the "Redemption Offer") to
redeem up to 42.698013% of the shares of Company Stock at a price of $5.22061144
per share ("Redemption Price"). The Redemption Offer will be made to holders of
record of Company Stock as of a certain record date. Each stockholder of the
Company ("Company Stockholder") will be given the opportunity to have Enviroq
redeem exactly 42.698013% of the shares of Company Stock tendered by such
Company Stockholder pursuant to the Redemption Offer (the "Redemption"). Those
Company Stockholders who participate in the Redemption will hereinafter be
referred to as the "Redeeming Stockholders". All other Company Stockholders will
be referred to as the "Non-Redeeming Stockholders."
The Company will make available an amount equal to the
Redemption Price times the number of shares of Company Stock to be redeemed in
the Redemption, plus any ancillary amount to cover rounding to the nearest whole
cent. Amounts actually paid out to Redeeming Stockholders shall hereafter be
referred to as the "Redemption Proceeds." Payment of the Redemption Proceeds
will take place immediately prior to Step 2.
STEP 2
Sub 1 will merge with and into the Company (the "Company
Merger"). The Company will survive the Company Merger, and Sub 1 will cease to
exist as a separate corporate entity. As a result of the Company Merger, each of
the following will occur:
(a) Each issued and outstanding share of the common stock
of Sub 1 will be converted into, and become, one
share of Company Stock.
(b) Subject to a holder's right of dissent, each share of
Company Stock owned by a Redeeming Stockholder after
the Redemption and before the Company Merger which
was tendered but not redeemed in the Redemption will
be canceled and converted into the right to receive
1.74514041 shares of NewCo Common Stock ("NewCo
Stock"). Subject to a holder's right to dissent, each
share of Company Stock owned by a Redeeming
Stockholder after the Redemption and before the
Company Merger which was not tendered in the
Redemption and each share of Company Stock owned by a
Non-Redeeming Stockholder will be canceled and
converted into the right to receive one share of
NewCo Stock and $2.22909775 in cash. Each Redeeming
and Non-Redeeming Stockholder will receive cash in
lieu of any fractional share of NewCo stock to which
he or she is entitled.
All such shares of Company Stock will no longer be
outstanding and will automatically be canceled and
retired.
(c) All shares of Company Stock owned as treasury stock
by the Company shall be canceled and retired, and no
NewCo Stock, or other consideration, will be
delivered in exchange therefor.
Simultaneously, Sub 2 will merge with and into IAM (the "IAM
Merger"). IAM will survive the IAM Merger, and Sub 2 will cease to exist as a
separate corporate entity. As a result of the IAM Merger, each of the following
will occur:
(a) Each issued and outstanding share of the common stock
of Sub 2 will be converted into, and become, one
share of common stock of IAM.
(b) Each issued and outstanding share of the common stock
of IAM before the IAM Merger will be converted into
the right to receive 1,206.149 shares of NewCo Stock.
Each IAM
C-2
<PAGE> 3
Stockholder will receive cash in lieu of any
fractional share of NewCo stock to which he or she is
entitled. All such shares of IAM common stock will no
longer be outstanding and will automatically be
canceled and retired.
(c) All shares of IAM common stock owned as treasury
stock by IAM shall be canceled and retired, and no
NewCo Stock, or other consideration, will be
delivered in exchange therefor.
Simultaneously, with the Company Merger and the IAM Merger,
Sub 3 will merge with and into CRC (the "CRC Merger"). CRC will survive the CRC
Merger, and Sub 3 will cease to exist as a separate corporate entity.
As a result of the CRC Merger, each of the following will occur:
(a) Each issued and outstanding share of the common stock
of Sub 3 will be converted into, and become, one
share of common stock of CRC.
(b) Each issued and outstanding share of the common stock
of CRC before the CRC Merger will be converted into
the right to receive 1,206.149 shares of NewCo Stock.
Each CRC Stockholder will receive cash in lieu of any
fractional share of NewCo stock to which he or she is
entitled. All such shares of CRC common stock will no
longer be outstanding and will automatically be
canceled and retired.
(c) All shares of CRC common stock owned as treasury
stock by CRC shall be canceled and retired, and no
NewCo Stock, or other consideration, will be
delivered in exchange therefor.
The Company Merger, the IAM Merger and the CRC Merger will
hereinafter be referred to collectively as the "Mergers."
At the time of the Mergers, all shares of NewCo Stock owned by
the Company shall be canceled and retired, and no consideration will be
delivered in exchange therefor.
STEP 3
Immediately subsequent to the Mergers, the Company will
distribute by means of a cash dividend to NewCo an amount sufficient to pay the
cash portion of the Company Merger proceeds to Company Stockholders, minus any
amount that would otherwise be paid to a Company Stockholder except for the fact
that such Company Stockholder perfected and did not withdraw a demand for
payment of "fair or appraised" value pursuant to such holder's right to dissent.
These funds will be used to pay the cash portion of the Company Merger proceeds
to Company Stockholders.
ESSENTIAL ASSUMPTIONS
1. The Redeeming Stockholders have no plan or intention to
reacquire additional Company Stock (except through the
exercise of currently owned rights to acquire Company Stock)
or to purchase additional rights to acquire Company Stock.
2. The Company has no warrants and options outstanding except
those that are exercisable by the holders thereof, based upon
the passage of time and continuing employment with the
Company.
3. The Company is not a "collapsible corporation" within the
meaning of ss.341(b).
4. The cash received from the Company by the Redeeming
Stockholders will, in each instance, be approximately equal to
the fair market value of the Company Stock surrendered in
exchange therefor.
5. The Company Stockholders (taking into account the attribution
rules of ss.318 as modified by ss.304(b)) will not own 50% or
more of the Company's Stock following the Mergers.
6. The Redeeming Stockholders will receive shares of NewCo and
cash, as the case may be, approximately equal in value to the
Company Stock transferred by them to NewCo in the Company
Merger.
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<PAGE> 4
7. The Non-Redeeming Stockholders will receive shares of NewCo
and cash approximately equal in value to the Company Stock
transferred by them to NewCo in the Company Merger.
8. No stock will be issued for services rendered by Company
Stockholders to or for the benefit of NewCo in connection with
the proposed transaction.
9. The Company Stockholders will not retain any rights in the
Company Stock transferred to NewCo other than indirectly as
stockholders of NewCo.
10. Any liabilities to be expressly assumed by NewCo were incurred
in the ordinary course of business and are associated with the
Company Stock to be transferred.
11. None of the Company Stock to be transferred to NewCo was
received by the Company Stockholders as part of a plan of
liquidation of another corporation.
12. Taking into account any issuance of additional shares of
NewCo; any issuance of stock for services; the exercise of any
NewCo stock rights, warrants, or subscriptions, a public
offering of shares of NewCo; and the sale, exchange, transfer
by gift, or other disposition of any shares of NewCo to be
received in the exchange, the Company Stockholders, the IAM
Stockholders and the CRC Stockholders will, when taken
together, be in "control" of NewCo within the meaning of
ss.368(c), because they will hold at least 80 percent of the
NewCo voting stock and at least 80 percent of each other class
of shares of NewCo.
13. There is no indebtedness between the Company Stockholders, the
IAM Stockholders or the CRC Stockholders, on the one hand, and
NewCo, on the other, and there will be no indebtedness created
in favor of the Company Stockholders, the IAM Stockholders and
the CRC Stockholders as a result of the transaction.
14. NewCo will remain in existence and retain and use the property
transferred to it. There is no plan or intention by NewCo to
dispose of any of the stock of the Company, IAM or CRC other
than in the ordinary course of business.
15. There is no plan or intention on the part of NewCo to redeem
or otherwise reacquire any stock to be issued in the proposed
transaction.
16. The total adjusted basis and the fair market value of the
stock of the Company, IAM and CRC to be transferred by the
Company Stockholders, the IAM Stockholders and the CRC
Stockholders, respectively, will, in each instance, be equal
to or exceed the sum of the liabilities to be assumed by NewCo
plus any liabilities to which the stock of the Company, IAM
and CRC are subject.
17. NewCo will not be an investment company within the meaning of
ss.351(e)(1) and Regs ss.1.351- 1(c)(1)(ii), because less than
80 percent of NewCo's assets will consist of readily
marketable stocks or securities, or regulated investment
companies or real estate investment trusts. For purposes of
this test, stock owned by NewCo in the Company, IAM and CRC
will be ignored, and the assets of those companies will be
considered owned directly by NewCo.
18. Each of the parties to the transaction will pay its own
expenses, if any, other than expenses solely and directly
related to the proposed transaction.
C-4
<PAGE> 5
ISSUES CONSIDERED
I. How should the distribution by the Company of cash to the Redeeming
Stockholders in exchange for Company Stock be characterized by such
Redeeming Stockholders for federal income tax purposes?
II. What are the federal income tax consequences to the Redeeming
Stockholders of the Company resulting from the treatment reflected in
(I) above?
III. What are the federal income tax consequences to the Redeeming
Stockholders of the exchange by them of their Company Stock for shares
of NewCo and cash, as the case may be, and to the Non-Redeeming
Stockholders of the exchange by them of their Company Stock for shares
of NewCo and cash in the Company Merger?
CONCLUSION REACHED
I. For federal income tax purposes, the distribution by the Company of
cash in exchange for certain of its shares of Company Stock will be
characterized as a distribution in redemption of stock to which ss.302
applies.
II. With respect to the Company Stock redeemed in the Redemption, each
Redeeming Stockholder will be treated as having such Redeeming
Stockholder's Company Stock redeemed in a transaction to which
ss.302(a) applies by virtue of the application of ss.302(b)(3). Any
gain or loss realized by a Redeeming Stockholder will be recognized as
capital gain or loss in accordance with ss.1001 provided the shares of
Common Stock redeemed by the Company are held as a capital asset on the
day of the exchange. Any gain recognized on the exchange of Company
Stock will be treated as long term capital gain in accordance with
ss.1223(3) provided that the shares of Company Stock redeemed have had
the requisite holding period and will be subject to the rates reflected
in ss.1(h).
III. The Redeeming and Non-Redeeming Stockholders will be treated as
transferors for purposes of the control requirement of ss.ss.351(a) and
368(c).
No gain or loss will be recognized by the Redeeming Stockholders upon
the transfer of their Company Stock to NewCo in exchange solely for
stock of NewCo. The basis of the shares of NewCo to be received by such
Redeeming Stockholders in the Company Merger will be the same as the
basis of the Company Stock transferred by such Redeeming Stockholders
to NewCo.
Gain, but not loss, will be recognized by Redeeming Stockholders upon
the transfer of their Company Stock to NewCo in exchange for stock of
NewCo and other property (i.e. the cash portion of the Company Merger
proceeds, if any, and cash received in lieu of fractional shares of
stock of NewCo) to the extent of the fair value of the other property
received. The basis of the shares of NewCo to be received by such
Redeeming Stockholders in the Company Merger will be the same as the
basis of the Company Stock transferred by such Redeeming Stockholders
to NewCo, increased by the amount of any gain recognized in the
exchange, and reduced by the fair market value of the other property
received in the exchange.
Gain, but not loss, will be recognized by the Non-Redeeming
Stockholders upon the transfer of their Company Stock to NewCo in
exchange for stock of NewCo and other property (i.e. the cash portion
of the Company Merger proceeds, and cash received in lieu of fractional
shares of stock of NewCo) to the extent of the fair value of the other
property received. The basis of the shares of NewCo to be received by
such Non-Redeeming Stockholders in the Company Merger will be the same
as the basis of the Company Stock transferred by such Non-Redeeming
Stockholders to NewCo, increased by the amount of any gain recognized
in the exchange, and reduced by the fair market value of the other
property received in the exchange.
The holding period of the shares of NewCo to be received by the
Redeeming and Non-Redeeming Stockholders will include the period during
which each such stockholder held the Company Stock
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<PAGE> 6
that was transferred to NewCo, provided that the Company Stock was held
by the respective stockholder as a capital asset.
DISCUSSION
I. If a corporation acquires its stock from a shareholder in exchange for
property, then the stock is treated for tax purposes as having been
redeemed by the corporation regardless of whether the stock so acquired
is canceled, retired or held as treasury stock. Furthermore, "property"
for purposes of the preceding sentence means money, securities and any
other distributed property except that it does not include stock of the
corporation making the distribution. Therefore, the distribution by the
Company of cash in cancellation of a portion of its own shares
constitutes a distribution in redemption of stock for federal income
tax purposes.
II. Every distribution of property by a corporation in redemption of its
stock constitutes a distribution to which ss.301 applies and will be
treated as a dividend (assuming the distributing corporation has
adequate earnings and profits) unless one of the enumerated exceptions
in ss.302(b) applies to the exchange. Section 302(b) applies, and a
redemption of stock is to be treated as being a distribution in part or
full payment for the stock surrendered, if the transaction fits into
any one of the following four categories:
(i) a redemption that is not essentially equivalent to a dividend
under ss.302(b)(1);
(ii) a substantially disproportionate redemption under ss.302(b)(2);
(iii) a redemption of all the shareholder's stock under ss.302(b)(3);
and
(iv) a partial liquidation under ss.302(b)(4).
The Redemption and the Mergers Treated as One Integrated Transaction.
In determining the proper tax treatment to a redeeming shareholder,
other transactions (e.g., sales) occurring as part of the overall plan
are relevant in determining whether the Redemption Proceeds are
equivalent to a dividend. It has long been recognized, by both the
courts and the Internal Revenue Service (the "Service"), that a
redemption transaction may obtain capital gain or loss treatment if it
is combined with other steps pursuant to one overall plan.
First, it is appropriate to consider how the Mergers will be
characterized for federal income tax purposes. Although the Mergers
have been structured as mergers pursuant to state law, the existence of
Sub 1, Sub 2 and Sub 3, respectively, should be disregarded for tax
purposes. Thus, the Company Stockholders, the IAM shareholders and the
CRC shareholders should be viewed as having transferred their
shareholdings in the Company, IAM and CRC, respectively, directly to
NewCo in exchange for NewCo Stock. This is the case whether or not the
Mergers qualify as tax-free reorganizations under ss.ss.368(a)(1)(A)
and (a)(2)(E).
It is well established that where a series of transactions take place
pursuant to one integrated plan, all of the transactions should be
considered together in determining the treatment of redeeming
shareholders under ss.302. In the landmark decision of Zenz v.
Quinlivan, Mrs. Zenz, the sole shareholder of a corporation, had her
corporation redeem the balance of her shares after a portion of her
shares were sold to an unrelated party. The Service had argued that if
the corporation had redeemed Mrs. Zenz's shares before the sale, the
redemption would have been treated as a dividend because she continued
to own all of its then outstanding shares. The Court found that the
redemption and sale transactions were an integral part of an overall
plan and therefore had to be analyzed as a single transaction for
purposes of testing the redemption under ss.302(b), regardless of
whether the redemption preceded or followed the sale. So viewed, Mrs.
Zenz's redemption could not be viewed as essentially equivalent to a
dividend because her entire interest in the corporation had been
eliminated. The Service said it would follow Zenz under similar
circumstances.
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Subsequent court cases as well as published and private letter rulings
of the Service indicate that not only has the principal of Zenz been
embraced, namely, that a capital ss.302(a) redemption may be achieved
via a multistep transaction, but that it extends to capital redemption
transactions which do not constitute a complete termination of interest
within the meaning of ss.302(b)(3), as well as to ss.304 transactions
generally. Thus, the Service relied upon Zenz to conclude that for
purposes of determining whether the "substantially disproportionate"
test contained in ss.302(b)(2) is met, the sequence in which either a
redemption and sale of stock on the one hand or a redemption and a
"buy-in" of stock on the other hand occur is irrelevant so long as
both events are clearly part of an overall, integrated plan. Moreover,
consistent with Zenz, the Service in this and other rulings has
indicated that the overall financial plan which allows for the
integration of various steps need not be undertaken pursuant to a
written agreement between the redeeming shareholder and third parties
but rather that the redeeming shareholder needs to evince an intention
to bring about a reduction or elimination of his stock holdings and
that such intent is demonstrated when a "plan" is found.
The Service applied Zenz principles to reach a non-dividend conclusion
under ss.356 in a recapitalization context when the effect of the
overall plan, applying analogous redemption concepts, would have
qualified as "not essentially equivalent to a dividend" within the
meaning of ss.302(b)(1). The Tax Court similarly applied Zenz to reach
a ss.302(b)(1) conclusion in the context of a multi-year redemption
plan. Redemption transactions involving ss.304 have applied the same
principles for determining capital treatment vs. dividend equivalence.
Although the Service and the Courts are in general agreement that under
certain circumstances, the tax effect of a redemption must take into
account other transactions occurring as an integral part of the
redemption plan, the Service and the Courts enunciate the proper test
to be applied differently. Thus, the Service, in a number of the
authorities alluded to above, refers to one overall financial plan with
the intent of the redeeming shareholder being paramount and with the
circumstances surrounding the actual redemption being taken into
account as a reflection of the manifestation of that shareholder's
intention. The Courts, on the other hand, for the most part, have
essentially focused on whether the steps sought to be integrated were
part of a "firm and fixed" plan. In one case, however, the Court
required the taxpayer to prove that "an overall financial plan existed"
before the Court was prepared to consider the impact of certain public
offerings of the acquiring corporation which took place subsequent to
the ss.304 redemption transaction and which had the effect of reducing
the taxpayer's relevant stock interest -- something the taxpayer could
not do. Interestingly enough, in that case however, the Service and the
Tax Court took the first public offering into account in determining
the tax effect of the ss.304 sale itself because there, inter alia, the
ss.304 sale anticipated that public offering occurring, which it did.
Moreover, that public offering was contemporaneous with the ss.304 sale
itself. In contrast, the Service argued and the Tax Court found that
the second public offering took place more than 2 years after the first
one and was not considered when the ss.304 sale took place.
Accordingly, it could have no bearing on the tax treatment accorded to
the redeeming shareholders.
In reviewing the facts of the instant case, we are cognizant that
whether a "firm and fixed plan" for the Mergers to take place existed
at the time the Company redeemed certain of its shares of Company Stock
is a question of fact. Phrasing the inquiry in terms of whether an
"overall financial plan" to reduce the Redeeming Stockholders' interest
in the Company is likewise dependent on a factual determination. We are
persuaded, however, that the objective facts and circumstances
surrounding the Company's redemption of certain of its shares of
Company Stock, particularly (i) the documentation of the overall plan
of the Company; and (ii) the relatively short time between the time of
the redemption and the time of the Mergers, warrant that the tax
treatment resulting from the transaction take into account the effect
of the Mergers on the Redeeming Stockholders' actual and constructive
ownership in the Company because the requisite plan existed at the time
of the redemption of Company's Stock. Assuming the correctness of that
observation, each of the Redeeming Stockholders' interests in the
Company, both actually and constructively, was reduced.
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Complete Terminations.
Section 302(b)(3) provides that a redemption will be treated as an
exchange pursuant to ss.302(a) if it is in complete redemption of all
of the stock of the corporation owned by the stockholder. Accordingly,
any Redeeming Stockholder who owns no Company Stock after the
Redemption and the Mergers have taken place will be considered to have
disposed of his or her shares of Company Stock in a sale or exchange,
and will recognize a capital gain or loss accordingly.
For purposes of testing a redemption under ss.302, the stock
attribution rules of ss.318(a) apply when making computations of stock
ownership before and after the redemption. Under ss.318, in addition to
stock which a shareholder actually owns, he is also considered to own
constructively stock owned by certain other persons. The attribution
rules operate to attribute stock to a distributee, not away from him to
other shareholders. Further, a person can be considered to own stock by
attribution from other persons under ss.318 even if he actually owns no
stock in the corporation. These rules of constructive ownership operate
inflexibly under ss.302(b)(1)-(4).
For purposes of ss.302, the existence of relationships that may or may
not give rise to constructive ownership under ss.318 are to be
determined at the date on which the redemption occurs (as distinct, for
example, from the date on which an executory agreement to redeem stock
is entered into with a specified "closing date" on which the actual
exchange will occur).
There is attribution based on familial relationships - i.e. an
individual is deemed to own stock owned by certain family members.
Ownership of stock is also attributed between entities and their
owners. Stock owned by a partnership or estate is considered owned
proportionately by its partners or beneficiaries. Stock owned by a
trust (other than an employee trust under ss.401(a)) is considered
owned by the trust beneficiaries in proportion to their actuarial
interests in the trust (even if remote or contingent). Stock owned by a
corporation is considered owned by its 50% or more (by value)
shareholders to the extent of a proportion equal to the shareholder's
percentage interest (by value) in the corporation.
Since no Redeeming Stockholder will own 50% or more of the shares of
NewCo Stock, no Redeeming Stockholder will be deemed to own any stock
in the Company after the Mergers. Thus, we have concluded that all
Redeeming Stockholders will be considered to have completely terminated
their interest in the Company.
III. The Company Stockholders' contribution of Company Stock, the IAM
Stockholders' contribution of IAM Stock, and the CRC Stockholders'
contribution of CRC Stock are part of one integrated plan as described
in the Merger Agreement. However, we have excluded from this opinion
the tax consequences to the IAM and CRC Stockholders in connection with
this transaction other than as expressly stated herein.
Section 351(a) provides that no gain or loss will be recognized if
property is transferred to a corporation by one or more persons solely
in exchange for stock in such corporation and immediately after the
exchange such person or persons are in control of the corporation.
Section 368(c) defines control, for purposes of ss.351, to mean the
ownership of stock possessing at least 80 percent of the total combined
voting power of all classes of stock entitled to vote and at least 80
percent of the total number of shares of all other classes of the
corporation's stock. Section 351 does not apply unless the transferor
or transferors hold control, as defined in ss.368(c), of the transferee
corporation immediately after the transfer, i.e., at least 80 percent
of the vote and 80 percent of each class of nonvoting stock. Regulation
ss. 1.351-1(a)(1) clarifies that the phrase "immediately after the
exchange" does not necessarily require simultaneous exchanges by two or
more persons, but comprehends a situation where the rights of the
parties have been previously defined and the execution of the agreement
proceeds with an expedition consistent with orderly procedure. In the
present case, the receipt of shares of NewCo by the Company
Stockholders in exchange for Company Stock, the receipt of shares of
NewCo by the IAM Stockholders in exchange for IAM Stock, and the
receipt of shares of NewCo by the CRC Stockholders in exchange for CRC
Stock should be viewed as one integrated transaction since the rights
of the parties have been clearly defined in advance by
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the Merger Agreement. Accordingly, the control test of ss.368(c) should
be applied after all of the Mergers have been completed.
In order to qualify under ss.351, the Company Stockholders, the IAM
Stockholders, and the CRC Stockholders must be considered transferors,
so that the transferors own at least 80 percent of the common stock of
NewCo. Since the proposed transaction, in form, consists of three
simultaneously- executed reverse mergers, the Company Stockholders, the
IAM Stockholders, and the CRC Stockholders are not transferring their
Company Stock, IAM Stock and CRC Stock directly to NewCo. However, Sub
1, Sub 2 and Sub 3, and their role in the Mergers should be
disregarded, and the Company Stockholders, the IAM Stockholders, and
the CRC Stockholders will be treated as having transferred property
(i.e. their respective shareholdings in the Company, IAM and CRC) to
NewCo in exchange for shares of NewCo.
In Rev. Rul. 67-448, pursuant to a plan of reorganization, a parent
corporation issued some of its voting shares to its new subsidiary and
the subsidiary immediately merged into an unrelated corporation, with
unrelated corporation's shareholders receiving parent stock and the
parent receiving 80 percent or more of the unrelated corporation's
stock. The Service held that the existence of the transitory subsidiary
was disregarded and the transaction was to be viewed, in substance, as
an acquisition by the parent, in exchange solely for part of its voting
stock, of the unrelated corporation's stock within the meaning of
ss.368(a)(1)(B). See also Rev. Rul. 73-427, in which the transitory
subsidiary in a reverse merger was disregarded and the transaction
treated as a taxable stock acquisition. Thus, under Rev. Rul. 67-448,
the shareholders of Company, IAM and CRC can be considered transferors
because the existence of Sub 1, Sub 2 and Sub 3 would be disregarded
due to its transitory nature. See Rev. Rul. 68-357, in which the
Service held that in a transaction which is treated as a
reorganization, a transferor in the reorganization can also be treated
as a transferor in a ss. 351 transaction. See also Rev. Rul. 76-123.
In 1970 Congress enacted ss.368(a)(2)(E), which addresses the tax
consequences of a reverse triangular merger. In a transaction
qualifying under ss.368(a)(2)(E), the transitory existence is not
disregarded and the shareholders of Company, IAM and CRC would not be
considered transferors. Inasmuch as Rev. Rul. 67-448 has never been
revoked, a transaction can qualify as both a reorganization under
ss.368(a)(2)(E) and as a reorganization under ss.368(a)(1)(B) or a
transfer under ss.351. Using the shareholders of Company, IAM and CRC
as transferors is also consistent with the position of the Service in
PLR 9143025 (July 24, 1991) where the transaction qualified under
ss.368(a)(2)(E), but the Service held that, solely for purposes of
determining whether the 80% requirement had been met so as to qualify
for treatment under ss.351, the target's shareholders would be
considered "transferors" described in ss.351. Although private letter
rulings cannot be cited as authority they at least indicate the
Service's current thinking.
In Rev. Rul. 84-44, the Service held that stock of a parent
corporation, received by shareholders of a target corporation in a
merger under ss.ss.368(a)(1)(A) and 368(a)(2)(D), will not be
aggregated with stock of the parent received by a transferor of
property to the parent in determining whether the control requirement
of ss.351 is met. In a merger under ss.ss.368(a)(1)(A) and
368(a)(2)(D), the target is merged into a subsidiary of the parent
corporation whose stock is exchanged. Since the parent did not receive
any property for the stock it issued in the merger under
ss.ss.368(a)(1)(A) and 368(a)(2)(D), the stock received in the merger
cannot count towards the control requirement.
As stated above, if the form of the transaction is followed, the
Company Stockholders, the IAM Stockholders, and the CRC Stockholders
would not be considered transferors for purposes of the control
requirement. However, based on Rev. Ruls. 67-448 and 73-427, the
transitory existence of Sub 1, Sub 2 and Sub 3 can be ignored and the
transaction treated as a transfer of the stock of the Company, IAM and
CRC to NewCo in exchange for shares of NewCo. Unlike a merger that
qualifies as a reorganization under ss.ss.368(a)(1)(A) and
368(a)(2)(D), there are no revenue rulings that recast a merger that
qualifies as a reorganization under ss.ss.368(a)(1)(A) and 368(a)(2)(E)
as a stock sale.
In PLRs 8817079 (February 4, 1988) and 8822062 (March 7, 1988), the
Service stated in footnotes that if a merger qualifies under
ss.ss.368(a)(1)(A) and 368(a)(2)(E), the stock of the controlling
parent
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corporation received in these transaction will not count toward the
control requirement of ss.351, because, following the form, the
controlling parent corporation did not receive any property in the
transaction. Since the Service has not revoked Rev. Rul. 67-448, we
believe that these rulings are contrary to the Service's published
position as to the qualification of a merger under ss.ss.368(a)(1)(A)
and 368(a)(2)(E) which also qualifies under ss.368(a)(1)(B). These
letters are also inconsistent with the Service's position taken in a
later private letter ruling, PLR 9143025 (discussed above). The Service
has acknowledged that a transaction can qualify under more than one
reorganization provision. In Rev. Rul. 75-161, the Service recognized
that a transaction can qualify as both a ss.368(a)(1)(A) and a
ss.368(a)(1)(D) reorganization at the same time. See also Rev. Rul.
79-289 (involving a ss.368(a)(1)(D) and 368(a)(1)(F) overlap) and Prop.
Reg. ss. 1.358-6(c)(5) (where the service acknowledges that a
ss.368(a)(2)(E) and 368(a)(1)(B) overlap can occur) which, we believe,
revoked the Service's position sub silento in PLRs 8817079 and 8822062.
In Rev. Rul. 68-349, the Service held that the transfer of property by
an individual to a newly formed corporation does not qualify under
ss.351 where another corporation simultaneously transfers its assets to
the new corporation for the purpose of qualifying the individual's
transfer thereunder. This revenue ruling is distinguishable from the
present facts since the new corporation was merely considered to be a
continuation of the old corporation while in our facts, we have a new
corporate structure. (Compare Rev. Rul. 68-357, above.)
Thus, for purposes of determining whether the 80 percent control
requirement has been met so as to qualify the Company Stockholders for
treatment under ss.351, the IAM Stockholders, and the CRC Stockholders
should be considered to be transferors described in ss.351, and
accordingly, the IAM and CRC Stockholders' ownership of NewCo Stock
should be included in the computation of control.
The combined ownership of the transferors (i.e. the Stockholders of the
Company, IAM and CRC) will exceed 80 percent because the transferors
will own 100 percent of NewCo's stock. Since the Company Stockholders
will receive shares of NewCo, the transaction should qualify for
treatment under ss.351. Thus no gain or loss will be recognized by the
Redeeming Stockholders upon the transfer of Company Stock to NewCo in
exchange solely for stock of NewCo, under ss.351(a). Non- Redeeming
Stockholders will recognize gain, but not loss, to the extent of any
cash received under the Merger Agreement, under ss.351.
Section 1032(a) provides that no gain or loss shall be recognized to a
corporation on the receipt of money or other property in exchange for
stock (including treasury stock) of such corporation. Since NewCo will
issue its stock for property, no gain or loss should be recognized to
NewCo.
Section 358(a)(1) provides that, in the case of an exchange to which
ss.351 applies, the basis of the property permitted to be received
under such section without the recognition of gain or loss shall be the
same as that of the property exchanged, decreased by (i) the fair
market value of any other property (except money) received by the
taxpayer, (ii) the amount of money received by the taxpayer, and (iii)
the amount of loss to the taxpayer which was recognized on such
exchange, and increased by (i) the amount which was treated as a
dividend, and (ii) the amount of gain to the taxpayer which was
recognized in such exchange (not including any portion of such gain
which was treated as a dividend). Since this transaction will
constitute an exchange to which ss.351 applies, the basis of the shares
of NewCo to be received by the Redeeming Shareholders in the proposed
transaction will be the same as their basis in the Company Stock that
they transferred to NewCo. The basis of the shares of NewCo to be
received by the Non-Redeeming Shareholders in the proposed transaction
will be the same as their basis in the Company Stock that they
transferred to NewCo, increased by the amount of any gain recognized by
virtue of the transaction, and decreased by the amount of boot
received.
Section 1223(1) provides that, in determining the period for which the
taxpayer has held property received in an exchange, there shall be
included the period for which the taxpayer held the property exchanged
if the property has, for the purpose of determining gain or loss from a
sale or exchange, the same basis (in whole or in part) in its hands as
the property exchanged, provided the property exchanged at the time of
such exchange is a capital asset as defined in ss.1221 or property
described in ss.1231. Since the basis of the shares of NewCo held by
the Company Stockholders will have the
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same basis (in whole or in part) as the Company Stock exchanged
therefor, in determining the period for which the Company Stockholders
have held such shares of NewCo, the holding period will include the
period for which they held their Company Stock, provided that the
Company Stock was a capital asset on the date of the exchange.
The transaction described herein has not been analyzed to determine
whether it also qualifies in whole, or in part, as a reorganization
under ss.368(a)(1)(A) and ss.368(a)(2)(E). However, the federal income
tax consequences to the Company Stockholders will be unaffected by such
a determination.
If applicable, ss.304 would potentially recharacterize any cash
received by a Non-Redeeming Stockholder, pursuant to the Merger
Agreement, as a redemption. However, ss.304 only applies where, inter
alia, the controlling shareholders (i.e. the Company Stockholders), as
a group, own 50% or more of the voting power or value of the acquiror
(i.e. NewCo) at any point in time during a multi-step transaction.
Issues may also arise as to whether the post-merger dividend from the
Company to NewCo will be respected by the Service. If it were not,
Non-Redeeming Stockholders receiving cash pursuant to the Merger
Agreement would be deemed to have received a dividend directly from the
Company prior to the Company Merger. However, the facts and
circumstances surrounding the proposed dividend from the Company to
NewCo are potentially distinguishable from situations in which the
Service has recharacterized such a dividend.
No tax ruling from the Service has or will be obtained with respect to
the particular issues addressed by this opinion. Accordingly, we can
give no assurance that the Service will not take a position contrary to
this opinion. The opinion represents our considered judgment as to the
proper tax treatment to the parties concerned based upon the law as it
existed at the time the transaction was consummated and the facts as
they were presented to us. Our opinion is not binding upon the Service
or the courts. However, because it is consistent with the relevant
published precedents of the Service in the areas discussed, and follows
the Treasury Department's own regulations governing these matters, both
the Service and the courts should be receptive to our analysis. Based
on the foregoing, it is our opinion that, if the issues were fairly and
completely presented in litigation, the result would be that the
redemption by the Company of certain shares of Company Stock would be
treated for federal income tax purposes as a sale or exchange resulting
in the recognition of capital gain or loss, and the Redeeming
Stockholders would be entitled to report the transaction accordingly.
It is also our opinion that no gain or loss would be recognized by the
Redeeming Stockholders upon the transfer of their Company Stock to
NewCo in exchange solely for stock of NewCo, and that gain, but not
loss, would be recognized by the Non-Redeeming Stockholders upon the
transfer of their Company Stock to NewCo in exchange for stock of NewCo
and other property (i.e. the cash portion of the Company Merger
proceeds) to the extent of the fair value of the other property
received. In the event of any change to the applicable law or relevant
facts, we would of necessity need to reconsider our views.
This opinion is for the sole benefit of the Company and the
Company Stockholders and may not be relied upon by any other persons.
Furthermore, this opinion may not be referenced by any person other than the
Company and the Company Stockholders without our express written consent. We
hereby consent to the inclusion of this opinion as an exhibit to the
Registration Statement on Form S-4 filed by NewCo with the Securities and
Exchange Commission relating to the transactions described in this opinion, as
amended (the "Registration Statement").
Should you wish any further assistance in connection with this
or any other matter, we will be happy to provide it.
Very truly yours,
/s/ DELOITTE & TOUCHE, LLP
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