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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended May 31, 1997.
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from to
Commission File No. 0-18716
MATRIX SERVICE COMPANY
(Exact name of registrant as specified in its charter)
Delaware (State or other jurisdiction of incorporation or organization)
10701 East Ute Street
Tulsa, Oklahoma
(Address of Principal Executive Offices)
73-1352174 (I.R.S. Employer Identification No.)
74116 (Zip Code)
Registrant's telephone number, including area code: (918) 838-8822.
Securities Registered Pursuant to Section 12(b) of the Act: None
Securities Registered Pursuant to Section 12(g) of the Act: Common Stock,
par value $0.01 per share (Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports) and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]
The approximate aggregate market value of the registrant's common stock
(based upon the August 26, 1997 closing sale price of the common stock
as reported by the NASDAQ National Market System) held by non-affiliates
as of August 26, 1997 was approximately $72,370,042.
The number of shares of the registrant's common stock outstanding as of
August 26, 1997 was 9,491,153 shares.
Documents Incorporated by Reference
Certain sections of the registrant's definitive proxy statement relating
to the registrant's 1996 annual meeting of stockholders, which definitive
proxy statement will be filed within 120 days of the end of the registrant's
fiscal year, are incorporated by reference into Part III of this Form 10-K.
TABLE OF CONTENTS
Part I
Item 1. Business
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
Part II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters
Item 6. Selected Financial Data
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
Part III
Item 10. Directors and Executive Officers of the Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and
Management
Item 13. Certain Relationships and Related Transactions
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
PART I
Item 1. Business
TABLE OF CONTENTS
Part I
Page
----
Item 1. Business 1
Item 2. Properties 14
Item 3. Legal Proceedings 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Part II
Item 5. Market for the Registrant's Common Equity and
Related Stockholder Matters 15
Item 6. Selected Financial Data 16
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 17
Item 8. Financial Statements and Supplementary Data 22
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 22
Part III
Item 10. Directors and Executive Officers of the Registrant 23
Item 11. Executive Compensation 23
Item 12. Security Ownership of Certain Beneficial
Owners and Management 23
Item 13. Certain Relationships and Related Transactions 23
Part IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K 24
PART I
Item 1. Business
Background
Matrix Service Company (the "Company") provides specialized on-site
maintenance and construction services for petroleum refining and storage
facilities and water storage tanks and systems for the municipal and
private industry sector. Owners of these facilities use the Company's
services in an effort to improve operating efficiencies and to comply with
stringent environmental and safety regulations. Through its subsidiaries
Matrix Service, Inc.("Matrix"), San Luis Tank Piping Construction Co., Inc.,
and an affiliated company West Coast Industrial Coatings, Inc. (collectively
"San Luis"), Heath Engineering, Ltd., and an affiliated company ("Heath"),
Brown Steel Contractors, Inc. and affiliated companies (collectively, "Brown")
and Mayflower Vapor Seal Corporation ("Mayflower"), the Company provides
maintenance and construction services and related products for large
aboveground storage tanks ("ASTs") holding petroleum, petrochemical and
other products and piping systems located at petroleum refineries and bulk
storage terminals. Also, the Company provides field-erected, elevated and
ground-level water tanks for the municipal and private industry sector.
Through its subsidiaries, Midwest Industrial Contractors, Inc. ("Midwest"),
and Colt Construction Company ("Colt"), the Company provides maintenance and
construction services for refineries. Midwest and Colt specialize in
performing "turnarounds", which involve complex, time-sensitive maintenance
of the critical operating units of a refinery. The Company focuses on
fluid catalytic cracking units and process heaters, but has the ability to
work on all units within a refinery.
The Company was incorporated in Delaware in 1989 to become a holding company
for Matrix, which was incorporated in Oklahoma in 1984, and Petrotank
Equipment Inc. ("Petrotank"), which was incorporated in Oklahoma in 1988.
In October 1990, the Company acquired through a subsidiary substantially all
of the assets and operations of Midwest. In June 1991, the Company acquired
San Luis (the "San Luis Acquisition"). In December 1992, the Company acquired
through a subsidiary substantially all of the assets and operations of Colt.
In June 1993, the Company acquired substantially all of the assets and assumed
certain liabilities of Heath. In July 1993, the Company entered into a joint
venture (Al Shafai-Midwest Constructors) with a Saudi Arabian company to
perform mechanical contracting services in the Kingdom of Saudi Arabia.
Al Shafai-Midwest Constructors is 49% owned by Midwest International, Inc.,
a wholly-owned subsidiary of the Company. Al Shafai-Midwest Constructors was
issued a commercial license to perform services in Saudi Arabia in June 1993.
In May 1995, the Company discontinued operations in Saudi Arabia, and is in
the process of liquidating the joint venture. In April 1994, the Company
acquired Brown. In August 1994 the Company acquired certain assets of
Mayflower Vapor Seal Corporation. Unless the context otherwise requires,
all references herein to the Company include Matrix Service Company and its
subsidiaries. The Company's principal executive offices are located at
10701 East Ute Street, Tulsa, Oklahoma 74116, and its telephone number at
such address is (918) 838-8822.
Recent Development - The MainServ Acquisition
On June 17, 1997, the Company acquired (the "MainServ Acquisition") General
Service Corporation and affiliated companies (collectively, "MainServ").
MainServ provides services and products similar to those provided by Matrix
and operates primarily in the Northeast part of the United States, with
products sales to U.S. and foreign customers. The aggregate consideration
payable for the MainServ Acquisition is up to$7.75 million, including
certain potential future payments. A portion of the consideration was
payable by delivery at the closing of the transaction of (i) $4.75 million
in cash, and (ii) a $250,000 promissory notes payable in 12 equal quarterly
installments. In addition, the stockholders and stock appreciation rights
holders of MainServ are entitled to receive in the future up to an additional
$2.75 million in cash if MainServ satisfies certain earnings requirements.
The MainServ Acquisition will be accounted for under the "Purchase" method
of accounting and will result in the creation of approximately $2.9 million
of intangibles (excluding goodwill that would be attributable to the $2.75
million contingent earnout payment if it is paid), of which $2.3 million,
representing the goodwill, will be amortized by the Company over a 40-year
period and $600 thousand, attributable to noncompetition covenants, will be
amortized over a three-year period. See the Notes to the Company's
consolidated financial statements included elsewhere in this annual report.
Aboveground Storage Tank Operations
The Company's AST operations include the maintenance, repair, inspection,
design and construction of ASTs, and the equipping of these tanks with
devices mandated by current and proposed environmental regulations. These
devices include a variety of floating roof and seal assemblies, tank bottoms
and secondary containment systems, each of which is designed to enable tank
owners and operators to comply with federal and state air and water quality
guidelines and regulations regarding leaks and spills of petroleum products
from storage facilities.The Company manufactures and sells certain of these
devices, including a line of patented floating roof seals. These seals,
which are marketed under the Company's Flex-A-Seal and Flex-A-Span trademarks,
reduce losses of stored petroleum products through evaporation and,
consequently, reduce air pollution. In addition, the seals reduce the amount
of rainwater that enters the tanks, reduce the hazards of rim fires thereby
reducing product contamination, lowering waste-water disposal costs, and
reduce tank owner's overall risk. The Company's secondary containment
systems allow tank owners to detect leaks in the tanks at an early stage,
before groundwater or surface water contamination has occurred. In addition,
the systems help to control leakage until the tank can be repaired.
AST Market and Regulatory Background
The American Petroleum Institute has estimated that there are approximately
700,000 ASTs in the United States that store crude oil, condensate, lube
oils, distillates, gasolines and various other petroleum products. These
tanks range in capacity from 26 barrels (42 gal/barrel) to in excess of
1,000,000 barrels. The Company's principal focus is inspecting,
maintaining, repairing, designing and constructing large ASTs, with
capacities ranging from approximately 50 to 1,000,000 barrels. The Company
believes, based on industry statistics, that there are over 120,000 of
these large tanks currently in use, accounting for more than 70% of the
domestic petroleum product storage capacity. These ASTs are employed
primarily by the refining and storage segments of the petroleum industry.
The petrochemical industry also employs a significant number of large ASTs.
Historically, many AST owners limited capital expenditures on ASTs to new
construction and periodic maintenance on an as-needed basis. Typically,
these expenditures decreased during periods of depressed conditions in the
petroleum and petrochemical industries, as AST owners sought to defer
expenditures not immediately required for continued operations.
In the two most recent years, there has been some increased demand for AST
services; however, during fiscal years 1995 and 1994 there was a decrease
in the overall demand for AST services, generally related to conditions in
the petroleum industry. During the last three years, several factors have
shifted new responsibilities to AST service companies. First, increased
safety and health requirements have caused owners of the facilities to rely
on outside sources who have the safety equipment and training to provide
repair and maintenance services. Second, increasingly stringent federal and
state regulations regarding air, soil and water contamination from petroleum
storage facilities, and the related potential liability associated with
responsibility for environmental damage, have led AST owners to rely on
service companies to provide more preventive maintenance and equip their
ASTs with various pollution control devices. Third, many technical personnel
left the petroleum and petrochemical industries resulting in a loss of in-house
AST management expertise. Fourth, recent changes in the marketing of gasoline
and changes in the supply of refined petroleum products resulting from the
closing of certain refineries have caused an increase in demand for new
tankage to provide storage facilities at new locations. Fifth, environmental
requirements for oxygenated fuels has also created a demand for new tanks.
The principal environmental regulations that affect AST owners generally
fall within two categories - air pollution regulations and soil and water
contamination regulations. See "Business - Other Business Matters -
Regulation." Regulations adopted by the United States Environmental
Protection Agency ("EPA") and several states provide incentives to owners
and operators of ASTs to maintain and inspect their tanks on a regular
basis and, in some cases, to install double tank bottoms and other
secondary containment systems to prevent contamination of soil and water
and allow for early detection of leaks. The EPA and numerous states have
also adopted regulations generally requiring facilities that hold petroleum
products, petrochemicals and other volatile liquids be equipped with roof
and seal assemblies that substantially decrease atmospheric emissions from
these liquids. Because many existing ASTs were designed with a floating
roof assembly that contained only a single roof seal, these regulations
have required many AST owners to retrofit their tanks with new roof and
seal assemblies. See "Aboveground Storage Tank Operations - AST Services
and Products" and "Other Business Matters - Regulation."
On March 29, 1990, the EPA published the Toxicity Characteristic Leachate
Procedure (the "TCLP") regulation, which provided new guidelines for
identifying certain wastes as "hazardous" under the Resource Conservation
Recovery Act of 1976 ("RCRA"). The TCLP regulation continues to be
amended. The regulation generally provides that a waste will be considered
hazardous if the leachate from the TCLP leaching procedure test contains
any one of several identified substances at concentrations higher than
prescribed levels. These substances include benzene, a common component
of petroleum wastes from refineries. Benzene was not included in the prior
EPA leaching procedure test, which has been replaced by the TCLP. The
Company believes that regulations pursuant to the TCLP and RCRA have been,
and will continue to be, beneficial to its business by requiring its
customers to construct new storage tanks to replace existing surface
impoundments. See "Other Business Matters - Regulation."
In January 1991, the American Petroleum Institute ("API") adopted industry
standards for the maintenance, inspection and repair of existing ASTs. The
API standards provide the industry for the first time with uniform guidelines
for the maintenance and repair of ASTs. The Company believes that these
standards have resulted, and will continue to result, in an increased
level of AST maintenance and repair on the part of many AST owners.
AST Services and Products
The Company provides its customers with a comprehensive range of AST
services and products. The Company specializes in maintenance and repair
of ASTs and retro-fitting existing ASTs with a variety of pollution control
devices as part of its general maintenance services. In addition, the
Company constructs new ASTs, provides AST inspection and manufactures tank
appurtenances.
New Construction
The Company designs, fabricates and constructs new ASTs to both petroleum
and water industry standards and customer specifications. These tanks
range in capacity from approximately 50 barrels to 1,000,000 barrels.
Clients require new tanks in conjunction with expansion plans, replacement
of old or damaged tanks, storage for additional product lines to meet
environmental requirements, replacement of surface impoundments and changes
in population.
Maintenance and Modification
The Company derives a significant portion of its revenues from providing
AST maintenance, repair and modification services. The principal services
in this area involve the design, construction and installation of floating
roof and seal assemblies, the design and construction of secondary
containment systems (double bottoms), and the provision of a variety of
services for underground and aboveground piping systems. The Company also
installs, maintains and modifies tank appurtenances, including spiral
stairways, platforms, water drain-off assemblies, roof drains, gauging
systems, fire protection systems, rolling ladders and structural supports.
Floating Roof and Seal Assemblies. Many ASTs are equipped with a floating
roof and seal assembly. A floating roof consists of a circular piece of
welded steel or thin aluminum that floats on the surface of the stored
petroleum product. The floating roof is required by environmental
regulations to minimize vapor emissions and reduce fire hazard. A floating
roof also prevents losses of stored petroleum products. The seal spans the
gap between the rim of the floating roof and the tank wall. The seal
prevents vapor emissions from an AST by creating the tightest possible seal
around the perimeter of the roof while still allowing movement of the roof
and seal downward and upward with the level of stored product. In
addition, the Company's seal system prevents substantially all rain water
from entering the tank. The type of seal assembly the Company most
commonly installs consists of a primary mechanical "shoe" seal and a
secondary flexible seal mounted above the shoe seal. A mechanical shoe
seal is a metal sheet connected to the outer rim of a floating roof and
held vertically against the wall of the storage vessel by hangers and
springs system. A flexible coated "vapor" fabric spans the space between
the metal shoe and the floating roof. The secondary seal is composed of a
flexible tip and an additional vapor fabric mounted on a metallic
compression plate attached to the rim of the floating roof. The Company's
seals are manufactured from a variety of materials designed for
compatibility with specific petroleum products. All of the seals installed
by the Company may be installed while the tank is in service, which reduces
tank owners' maintenance, cleaning and disposal costs. In addition to a
mechanical shoe seal coupled with a secondary flexible seal, the Company
also installs a variety of other types of seal systems designed to meet
customer specifications.
Secondary Containment Systems. The Company constructs a variety of
secondary containment systems under or around ASTs according to its own
design or the design provided by its customers. Secondary leak detection
systems allow tank owners to detect leaks in the tanks at an early stage
before groundwater contamination has occurred. In addition, the systems
help to contain leakage until the tank can be repaired.
The most common type of secondary containment system constructed involves
installing a liner of high-density polyethylene, reinforced polyurethane
or a layer of impervious clay under the steel tank bottom. The space
between the liner and elevation of the new bottom is then filled with
a layer of concrete or sand. A cathodic protection system may be installed
between the liner and the new bottom to help control corrosion. Leak
detection ports are installed between the liner and steel bottom to
allow for visual inspection while the tank is in service.
The Company believes that during the 1990's a substantial number of AST
owners have installed, and will continue to install, secondary containment
systems.
Elevated Tanks
In April 1994, as a result of the Company's efforts to expand its product
base, the Company purchased Brown Steel, which designs, fabricates and
erects elevated tanks for water storage for municipalities and industrial
customers. Brown's facilities in Georgia include fabrication equipment,
and buildings containing 184,350 square feet support the elevated tank
operations. The equipment gives Brown the ability to produce two-dimension
roll in steel for the fabrication of spherical shaped tanks. This facility
is qualified to perform services on equipment that requires American Society
of Mechanical Engineering Code Stamps ("ASME Codes"). Demand for these types
of tanks is expected to increase given the current upturn in housing starts
resulting in a corresponding increase in the demand for water.
Manufacturing
The Company owns and operates a "state-of-the-art" fabrication facility
located on 13 acres at the Tulsa Port of Catoosa. The Company owns the
building and equipment. This facility has the capacity to fabricate new
tanks, new tank components and all maintenance, retrofit and repair parts
including fixed roofs, floating roofs, seal assemblies, shell plate and
tank appurtenances. The Tulsa Port has transportation service via railroad
and Mississippi River barge facilities in addition to the interstate highway
system, making it economical to transport heavy loads of raw material and
fabricated steel. This facility is qualified to perform services on
equipment that requires ASME Codes. Many state agencies and insurance
carriers require that certain equipment be ASME coded. Many of the
Company's competitors are not ASME code qualified, forcing them to
subcontract portions of a project, giving the Company an advantage on this
type of work.
The Company leases two manufacturing facilities in California and owns a
manufacturing facility in Georgia. See "Business - Aboveground Storage
Tank Operations - Elevated Tanks" for a description of the facility in
Georgia. The Company rents the real estate and owns the equipment in the
two leased facilities in California which is used for fabricating new tanks
and tank components.
Hydrocarbon Process Operations
The Company provides specialized maintenance and construction services to
the domestic petroleum refining industry and, to a lesser extent, to the
gas processing and petrochemical industries. The Company specializes in
routine and supplemental plant maintenance, turnarounds and capital
construction services, which involve complex, time-sensitive maintenance of
the critical operating units of a refinery. The Company concentrates on
performing these services for the more structurally complex components in a
refinery. See "Hydrocarbon Process Operations - Hydrocarbon Process
Components".
Hydrocarbon Process Market Overview
The domestic petroleum refining industry presently consists of approximately
163 operating refineries. To ensure the operability, environmental compliance,
efficiency and safety of their plants, refiners must maintain, repair or
replace process equipment, operating machinery and piping systems on a
regular basis. Major maintenance and capital projects require the shutdown
of an operating unit, or in some cases, the entire refinery. In addition to
routine maintenance, numerous repair and capital improvement projects are
undertaken during a turnaround. Depending on the type, utilization rate,
and operating efficiency of a refinery, turnarounds of a refinery unit
typically occur at scheduled intervals ranging from six months to four years.
The U.S. refinery industry has undergone significant changes in the last 16
years. From 1981 to 1997, crude oil refining capacity dropped from a peak
of approximately 18.6 million barrels per day in 1981, to approximately
15.3 million barrels per day by the end of 1996, due primarily to the
closure of many inefficient refineries. The closings were the result of
increased international competition, reduced demand for domestic petroleum
products, which resulted in declining product prices during the first part
of this period, and the inability of some refineries to cost effectively
finance capital improvements required to produce cleaner burning fuels and
meet environmental regulations.
Since 1993, a combination of increased demand for petroleum products and a
stabilization in refining capacity has led to a substantial increase in
refinery utilization. In addition, an improvement in refining profitability
during the last two years has also provided an incentive for refiners to
maintain high levels of utilization at their facilities. The high utilization
rates have accelerated the physical deterioration of existing refineries,
intensifying the need for repair and maintenance services. In addition, due
to the high cost and environmental opposition associated with the construction
of new refineries, any increase in current refining capacity is likely to
involve refurbishing old refineries and expanding existing facilities, which
will require specialized construction services. Increased utilization rates
and increased refining profitability provide an incentive for refineries to
minimize the duration of maintenance turnarounds. In addition, increased
public awareness of environmental issues, potential liability for exposure to
hazardous working conditions, toxic materials, and environmental contamination,
have resulted in increased stringent regulations which dictate that refineries
clean, inspect and maintain process and storage facilities more frequently.
Further, refineries have been subject to increasing regulatory pressure to
upgrade their emission control systems.
These factors have encouraged refineries to increase their reliance on
outside contractors who can perform specialized turnaround services within
strict time constraints. The Company believes, for example, that
substantially all fluid catalytic cracking unit turnarounds are currently
performed by outside contractors. Additional specialized modifications to
many existing refineries may be required to produce cleaner burning,
reformulated gasolines and desulphurized diesel fuel based on amendments to
the Clean Air Act. See "Other Business Matters - Regulation." Management
believes that projects related to pollution control are contributing a
significant part of the Company's refinery-related revenues.
Hydrocarbon Process Components
The Company's principal refinery services are related to turnaround projects
at petroleum refineries. The size and complexity of a turnaround project
depends on the type of refinery unit being maintained or modified and the
nature of any necessary modifications. The following paragraphs describe
the major units involved in a typical refinery. The Company performs
turnaround services with respect to each of the units described below, all
of which must be maintained on a regular basis to ensure safe and efficient
refinery operations.
Crude Distillation Unit. In the refining process, hydrocarbon raw materials
(primarily crude oil) are heated to approximately 275 degrees Farenheit.
The crude is then treated to remove salt and then heated further, resulting
in partial vaporization. The vapors are then routed to a crude distillation
unit, where they are further heated. The hydrocarbon compounds that comprise
crude oil separate, or "fractionate", when subjected to high temperatures.
The crude distillation unit fractionates the hydrocarbons into several
intermediate products, several of which undergo further processing in various
downstream units, the most important of which are discussed below.
Fluid Catalytic Cracking Unit. Catalytic cracking greatly enhances the
efficiency of a refinery by converting a greater percentage of hydrocarbon
compounds to gasoline and other light distillates. The Fluid Catalytic
Cracking Unit ("FCCU") mixes straight-run heavy gas oil with a fine
powdered catalyst in the presence of extreme heat (650 degrees farenheit to
1,050 degrees farenheit). The larger hydrocarbon molecules "crack apart"
under such conditions, and can then be fractionated into light gases,
gasoline and light and heavy cycle oils. Spent catalyst is delivered to a
regenerator where carbon deposits are burned so the catalyst can be used
again.
Delayed Coker Unit. Delayed coking is a thermal cracking process in which
residual substances are heated to high temperatures and allowed time to
decompose into hydrocarbon vapors and a solid residue coke product. A full
range of light hydrocarbon gases, including hydrogen and olefins, are
produced by the coking reaction. These gases, in addition to gasoline
boiling range material ("naphtha") cracked products, are compressed and
cooled at sufficiently high pressure to condense the volatile light
hydrocarbons. The liquified petroleum gases are then routed to an Alkylation
Unit, which is described below. Coker gas oil is produced as a side product
from the coker fractionator with a vaporization temperature of approximately
900 degrees Farenheit. This oil is routed to the FCCU. Petroleum coke from
the Delayed Coker Unit is used for fuel, for electrodes and for special
purposes such as manufacturing graphite.
Catalytic Reformer Unit. The Catalytic Reformer Unit upgrades the octane
of the naphtha produced in the Delayed Coker Unit. The octane of the
naphtha is approximately 52, compared with the average refinery gasoline
pool octane of 87.9. Straight-run and cracked refinery naphthas boiling
between 160 degres Farenheit and 390 degrees Farenheit are catalytically
reformed to improve motor fuel properties. Prior to entering the Catalytic
Reformer Unit, naphtha is fractionated into light, medium and heavy naphtha
streams. The two lighter streams are selectively blended into gasoline and
military jet fuel. The heavy naphtha fraction is routed to a naphtha
hydro-treating unit prior to catalytic reforming. The principal product of
the reformer is reformat, a high octane gasoline blending stock.
Alkylation Unit. The Alkylation Unit is used to alkylate or chemically
combine isobutane with propylene and butylene to form high octane gasoline.
The process utilizes hydrofluoric acid or sulfuric acid as the alkylation
catalyst. The feedstock for the Alkylation Unit is produced by the FCCU
and the Delayed Coker Unit and contains saturated propane, isobutane, and
normal butane in addition to propylene and butylene. The feed stream also
contains significant amounts of hydrogen sulfide, which is extracted and
routed to a sulfur recovery unit. The reactor effluent is partially
vaporized through a heat exchanger to provide refrigeration for the
reactor-contractor. The vapors are compressed and then fractionated into
propane, isobutane and normal butane, and alkylate.
Butamer Unit. A Butamer Unit converts normal butane to isobutane. A
refinery needs a source of supplemental isobutane on a year-round basis to
balance the requirements of the Alkylation Unit. Most of the normal butane
produced in a refinery is blended into gasoline to increase vapor pressure.
During the summer months, when gasoline vapor pressure specifications are low,
the refinery generally has adequate or surplus supplies of normal butane.
During the winter months, when gasoline vapor pressure specifications are
high, a refinery buys normal butane from outside sources.
Process Heaters. A process heater is a large, specialized furnace used to
heat hydrocarbons to varying temperatures within each of the refining units
described above. Each of such units includes at least one heater, and
frequently includes several heaters.
Hydrocarbon Process Services
The Company's principal refinery services include turnarounds for the
complete refinery with integrated process units, the FCC Units within a
refinery, and complete construction and maintenance services.
Turnarounds
FCCU Turnarounds. The Company's principal refinery operations involve
turnarounds of FCCUs. FCCUs require a high level of maintenance because of
the extremely high temperatures inside the unit - in excess of 1000 degrees
Farenheit - and due to abrasive catalysts flow and their many internal
parts, which consist generally of stainless steel components and refractory
lined systems. Refractory is a heat and erosion resistant lining that
insulates the inner shell of the unit vessels. The main pieces of equipment
in an FCCU are the reactor, the regenerator and the flue gas handling system.
Most of the repair and revamp work during a turnaround is performed on this
equipment. Major revamp work is required to increase efficiencies of the FCCU
with changing technology and to reduce air pollution from the unit, as required
by constantly changing laws. In most cases, the mechanical work - involving
the disassembly and repair of the unit components - and the refractory work -
involving the installation of the refractory material onto the inside of
the units vessels - is performed by different contractors. The Company
provides all of these services. Total Unit Turnarounds. The Company also
performs total unit turnarounds involving maintenance of crude distillation
units, catalytic reformer units, delayed coker units, alkylation units,
reformers, FCCUs and butamer units. These services also involve the
maintenance and modification of heat exchangers, heaters, vessels and
piping.
Heat Exchanger Services
The Company provides heat exchanger service to the refining industry,
which involves the removal, testing, repairing and reinstallation of heat
exchangers. The Company owns specialized equipment to extract and reinstall
heat exchangers from both ground levels and aerial installations. In addition,
the Company owns retubing equipment, hydraulic bolt torquing equipment and
specialized transport carriers for moving these heat exchangers throughout
the facilities.
Process Heaters
The Company constructs new refinery process heaters and repairs and revamps
existing heaters. These units require skilled craftsmen and supervisors
and specialized construction techniques. Through associations with various
heater manufacturing companies, the Company also offers turnkey fabrication
and erection of process heaters. The Company has performed field erection
work for most of the major heater design companies in the U.S.
Other Support Services
Emergency Response Services. The Company also performs substantial repair
and revamp services in connection with refinery unit failures, fires,
explosions and other accidents. The Company believes that it has enhanced
its relationships with its customers by responding quickly to these types of
emergencies and by providing timely repair services, returning the affected
plants to normal operations without substantial delays.
Manufacturing. The Company owns and operates a 40,000 square foot fabrication
shop in Tulsa, Oklahoma and operates a 30,000 square foot facility in
Bellingham, Washington and a 12,000 square foot facility in Carson, California
that it uses to support its turnaround projects. At these facilities, the
Company constructs piping,heater coils and components, and FCCU equipment
installed during turnarounds. The Company also performs emergency fabrication
at these facilities when necessary to assist its customers. In many instances,
the facilities are operated 24 hours per day to assist a turnaround project.
Refractory. The Company also owns and operates a 15,000 square foot shop,
located at the Tulsa, Oklahoma facility used for performing refractory
installation. The shop, which supports the Company's mechanical turnaround
services, contains specialized equipment and is operated by the Company's
refractory department.
ASME Code Stamp Services. The Company is qualified to perform services on
equipment that contains American Society of Mechanical Engineer Code Stamps
("ASME codes"). Many state agencies and insurance companies require that
qualified ASME code installers perform services on ASME coded equipment.
Many of the Company's competitors are not ASME code qualified, which forces
them to subcontract portions of a project involving work with coded equipment.
Daily and Routine Supplemental Maintenance. The Company provides supplemental
and routine daily maintenance services for operating refineries. Daily work
crews at the refineries range in size from 120 to over 165 per refinery.
The Company provides a wide range of supplemental services including equipment
operations and complete daily maintenance services and repairs. Moreover,
the pressure to reduce the overall cost of maintaining the refineries has
initiated a trend of restructuring the daily and routine maintenance forces.
Refineries are seeking outside supplemental maintenance forces with proven
programs for increasing unit and equipment reliability, and a history of
performing work safely. The Company has entered into two multi-year
maintenance agreements. The Company believes there is a substantial market
for a quality maintenance workforce that places an emphasis on safety and
that can forge partnerships with refinery personnel to reduce maintenance
expenses.
Other Business Matters
Customers and Marketing
The Company derives most of its revenues from performing services for the
major integrated oil companies. The Company also performs services for
independent petroleum refining and marketing companies, architectural and
engineering firms and for several major petrochemical companies. In
addition, the Company builds water tanks for private and municipal water
facilities. The Company is typically engaged by the manager of the facility
at which the work is being performed, although on occasion the Company
contracts with one of its customers to perform services at several facilities.
The Company did not have any one customer accounting for more than 10% of
revenues in 1997 and 1995. During fiscal 1996, ARCO USA accounted for more
than 10% of the Company's revenues. The Company sold its products and
services to approximately 311 customers during fiscal 1997.
The Company markets its services and products primarily through its marketing
personnel, senior professional staff and its management. The marketing
personnel concentrate on developing new customers and assist management and
staff with existing customers. The Company generally is required to bid
competitively for work on a project-by-project basis. Projects are typically
awarded after a bidding process spanning two weeks to four months, and are
generally awarded based on price considerations, work quality, safety and
efficiency. The Company bids for projects on both a fixed price basis and
on a detailed time and materials basis. During 1997 the Company entered
into an alliance contract with a major oil company to be the sole supplier
of tank repair and maintenance services for this customer. The Company has
had discussions with other customers for maintenance alliances.
Competition
The AST and refinery service industries are highly fragmented and
competition is intense within these industries. Competition is based on,
among other factors, work quality and timeliness of performance, safety and
efficiency, availability of personnel and equipment, and price. The
Company believes that its expertise and its reputation for providing timely
services allow it to compete effectively. Although many companies that are
substantially larger than the Company have entered the market from time to
time in competition with the Company, the Company believes that the level
of expertise necessary to perform complicated, on-site maintenance and
construction operations presents an entry barrier to these companies and
other competitors with less experience than the Company.
Backlog
At May 31, 1997, the Company had an estimated backlog of work under
contracts believed to be firm of approximately $ 69.1 million, as compared
with an estimated backlog of approximately $71.9 million as of May 31,
1996. Virtually all of the projects comprising this backlog are expected
to be completed within fiscal year 1998. Because many of the Company's
contracts are performed within short time periods after receipt of an
order, the Company does not believe that the level of its backlog is a
meaningful indicator of its sales activity.
Insurance
The Company maintains worker's compensation insurance, general liability
insurance and auto liability insurance in the primary amount of $2.0
million, and an umbrella policy with coverage limits of $ 20.0 million in
the aggregate. The Company also maintains policies to cover its equipment
and other property with coverage limits of $59.9 million and policies for
care, custody and control with coverage limits of $2.7 million in the
aggregate. Most of the Company's policies provide for coverage on an
occurrence basis, not a "claims made" basis. The Company's liability
policies are subject to certain deductibles, none of which is higher than
$100,000. The Company maintains a performance and payment bonding line of
$45.0 million. The Company also maintains key-man insurance policies
covering certain of its executive officers, and professional liability
insurance.
Many of the Company's contracts require it to indemnify its customers for
injury, damage or loss arising in connection with their projects, and
provide for warranties of materials and workmanship. There can be no
assurance that the Company's insurance coverage will protect it against
the incurrence of loss as a result of such contractual obligations.
Employees
At May 31, 1997, the Company had approximately 272 non-field, full-time
employees. The Company also employed up to approximately 1,174 additional
persons on a project-by-project basis during fiscal 1997. In its refinery
turnaround operations, the Company employed up to approximately 830 persons
at its job sites during the most active periods of 1997. Approximately 361
of the employees of Matrix Service Mid-Continent, Inc., a subsidiary of the
Company, are covered by a collective bargaining agreement. In addition,
substantially all of the temporary employees of Midwest are employed under
collective bargaining agreements. The Company believes that its relations
with its employees are good, and has not experienced any significant strikes
or work stoppages.
Patents and Proprietary Technology
The Company holds two issued U.S. patents, which cover its Flex-A-Seal and
Flex-A-Span roof seal products. The Company's Flex-A-Seal patent is held
jointly with an English company, which markets the Flex-A-Seal products in
the United Kingdom. The Flex-A-Seal patent expires in August 2000 and the
Flex-A-Span patent expires in August 2008. The Company also holds the
patents for Flex-A-Seal and Flex-A-Span in Holland and in Canada. The
Company holds a U.S. patent which covers its ThermoStor, a diffuser system
that receives, stores and dispenses both chilled and warm water in and from
the same storage tank. The ThermoStor patent expires in March 2010. The
Company also holds a patent for a Floating Deck Support Apparatus for
aluminum roofs. This patent expires on January 24, 2001. The Company has
applied for patents for two other products it has developed. The Company
has developed the RS 1000 Tank Mixer which controls sludge build-up in crude
oil tanks through resuspension. Also the Company has designed the Firesafe
which is an environmentally safe alternative to underground storage tanks
that meets the stringent requirements of UFC 77-203 (d)(2), NFPA 30, EPA and
Underwriter's Laboratories. While the Company believes that the protection
of its patents is important to its business, it does not believe that these
patents are essential to the success of the Company.
Regulation
Various environmental protection laws have been enacted and amended during
the past 20 years in response to public concern over the environment. The
operations of the Company and its customers are subject to these evolving
laws and the related regulations, which are enforced by the EPA and various
other federal, state and local environmental, safety and health agencies
and authorities. Although the Company believes that its operations are in
material compliance with such laws and regulations, there can be no
assurance that significant costs and liabilities will not be incurred due
to increasingly stringent environmental restrictions and limitations.
Historically, however, the cost of measures taken to comply with these laws
has not had a material adverse effect on the financial condition of the
Company. In fact, the proliferation of such laws has led to an increase in
the demand for some of the Company's products and services. A discussion
of the principal environmental laws affecting the Company and its customers
is set forth below.
Air Emissions Requirements. The EPA and many state governments have
adopted legislation and regulations subjecting many owners and operators of
storage vessels and tanks to strict emission standards. The regulations
prohibit the storage of certain volatile organic liquids ("VOLs") in
open-top tanks and require tanks which store VOLs to be equipped with primary
and/or secondary roof seals mounted under a fixed or floating roof. Related
regulations also impose continuing seal inspection and agency notification
requirements on tank owners and prescribe certain seal requirements. Under
the latest EPA regulations, for example, floating roofs on certain large
tanks constructed or modified after July 1984 must be equipped with one of
three alternative continuous seals mounted between the inside wall of the
tank and the edge of the floating roof. These seals include a foam or
liquid-filled seal mounted in contact with the stored petroleum product; a
combination of two seals mounted one above the other, the lower of which
may be vapor mounted; and a mechanical shoe seal, composed of a metal sheet
held vertically against the inside wall of the tank by springs and
connected by braces to the floating roof. The EPA is in the process of
developing further regulations regarding seals and floating roofs.
Though Company facilities themselves are generally not subject to such
requirements, these and other similar regulations have resulted in the
implementation of ongoing tank maintenance and inspection programs by
many owners and operators of ASTs. These programs also generally result
in additional tank repairs, maintenance and modifications which provide a
market for the Company's services.
Amendments to the federal Clean Air Act adopted in 1990 require, among
other things, that refineries produce cleaner burning gasoline for sale
in certain large cities where the incidence of volatile organic compounds
in the atmosphere exceeds prescribed levels leading to ozone depletion.
Refineries are undergoing extensive modifications to develop and produce
acceptable reformulated fuels that satisfy the Clean Air Act Amendments.
Such modifications are anticipated to cost refineries several billion dollars,
and require the use of specialized construction services such as those provided
by the Company. A significant number of refineries have completed changes to
produce "reformulated fuels", principally refineries serving specific areas
of the U.S.; however, there are a substantial number of refineries that have
not made the change.
Water Protection Regulations. Protection of groundwater and other water
resources from spills and leakage of hydrocarbons and hazardous substances
from storage tanks and pipelines has become a subject of increasing legislative
and regulatory attention, including releases from ASTs. Under federal Clean
Water Pollution Control Act regulations, owners of most ASTs are required to
prepare spill prevention, control and countermeasure ("SPCC") plans detailing
steps that have been taken to prevent and respond to spills and to provide
secondary containment for the AST to prevent contamination of soil and
groundwater. These plans are also subject to review by the EPA, which has
authority to inspect covered ASTs to determine compliance with SPCC
requirements. Various states have also enacted groundwater legislation that
has materially affected owners and operators of petroleum storage tanks.
The adoption of such laws has prompted many companies to install double
bottoms on their storage tanks to lessen the chance that their facilities
will discharge or release regulated chemicals. State statutes regarding
protection of water resources have also induced many petroleum companies
to excavate product pipelines located in or near marketing terminals, to
elevate the pipelines aboveground and to install leak detection systems
under the pipelines. These laws and regulations have generally led to an
increase in the demand for some of the Company's products and services.
In the event hydrocarbons are spilled or leaked into groundwater or surface
water from an AST that the Company has constructed or repaired, the Company
could be subject to lawsuits involving such spill or leak. To date, the
Company has not suffered a material loss resulting from such litigation.
Hazardous Waste Regulations. The Resource Conservation and Recovery Act of
1976 ("RCRA") provides a comprehensive framework for the regulation of
generators and transporters of hazardous waste, as well as persons engaged
in the treatment, storage and disposal of hazardous waste. Under state and
federal regulations, many generators of hazardous waste are required to
comply with a number of requirements, including the identification of such
wastes, strict labeling and storage standards, and preparation of a manifest
before the waste is shipped off site. Moreover, facilities that treat, store
or dispose of hazardous waste must obtain a RCRA permit from the EPA, or
equivalent state agency, and must comply with certain operating, financial
responsibility and site closure requirements.
In 1990, the EPA issued its Toxicity Characteristic Leaching Procedure
("TCLP") regulations. Under the TCLP regulations, which have been amended
from time to time, wastes containing prescribed levels of any one of
several identified substances, including organic materials found in
refinery wastes and waste-waters (such as benzene), will be characterized
as "hazardous" for RCRA purposes. As a result, some owners and operators
of facilities that produce hazardous wastes are being required to make
modifications to their facilities or operations in order to remain outside
the regulatory framework or to come into compliance with the Subtitle C
requirements. Many petroleum refining, production, transportation and
marketing facilities are choosing to replace existing surface impoundments
with storage tanks and to equip certain of the remaining impoundments with
secondary containment systems and double liners. Accordingly, the Company
believes that the promulgation of the TCLP regulations are having a
positive impact on its tank construction and modification business.
Amendments to RCRA require the EPA to promulgate regulations banning the
land disposal of hazardous wastes, unless the wastes meet certain treatment
standards or the particular land disposal method meets certain waste
containment criteria. Regulations governing disposal of wastes identified
as hazardous under the TCLP, for example, could require water drained from
the bottom of many petroleum storage tanks to be piped from the tanks to a
separate facility for treatment prior to disposal. Because the TCLP
regulations can, therefore, provide an incentive for owners of petroleum
storage tanks to reduce the amount of water seepage in the tanks, the
Company believes that the regulations have and will continue to positively
influence sales of its Flex-A-Seal roof seals, which materially reduce the
amount of water seepage into tanks.
CERCLA. The Comprehensive Environmental Response, Compensation and
Liability Act of 1980 ("CERCLA"), also known as "Superfund", authorizes
the EPA to identify and clean up sites contaminated with hazardous
substances and to recover the costs of such activities, as well as damages
to natural resources, from certain classes of persons specified as liable
under the statute. Such persons include the owner or operator of a site
and companies that disposed or arranged for the disposal of hazardous
substances at a site. Under CERCLA, private parties which incurred
remedial costs may also seek recovery from statutorily responsible persons.
Liabilities imposed by CERCLA can be joint and several where multiple
parties are involved. Many states have adopted their own statutes and
regulations to govern investigation and cleanup of, and liability for,
sites contaminated with hazardous substances or petroleum products.
Although the liabilities imposed by CERCLA (and other environmental
legislation) are more directly related to the activities of the Company's
clients, they could under certain circumstances give rise to liability on
the part of the Company if the Company's efforts in completing client
assignments were considered arrangements related to the transport or
disposal of hazardous substances belonging to such clients. In the opinion
of management, however, it is unlikely that the Company's activities will
result in any liability under either CERCLA or other environmental regulations
in an amount which will have a material adverse effect on the Company's
operations or financial condition, and management is not aware of any current
liability of the Company based on such a theory.
Oil Pollution Act. The Oil Pollution Act of 1990 ("OPA") established a new
liability and compensation scheme for oil spills from onshore and offshore
facilities. Section 4113 of the OPA directed the President to conduct a
study to determine whether liners or other secondary means of containment
should be used to prevent leaking or to aid in leak detection at onshore
facilities used for storage of oil. The Company believes that its business
would be positively affected by any regulations eventually promulgated by
EPA that required liners and/or secondary containment be used to minimize
leakage from ASTs. While the regulation has not, to date, been enacted, the
industry designs secondary containment in all new tanks being built and, in
general, secondary containment is installed in existing tanks when they are
taken out of service for other reasons, in anticipation of this regulation.
Health and Safety Regulations. The operations of the Company are subject
to the requirements of the Occupational Safety and Health Act ("OSHA") and
comparable state laws. Regulations promulgated under OSHA by the
Department of Labor require employers of persons in the refining and
petrochemical industries, including independent contractors, to implement
work practices, medical surveillance systems, and personnel protection
programs in order to protect employees from workplace hazards and exposure
to hazardous chemicals. In addition, in response to recent accidents in the
refining and petrochemical industries, new legislation and regulations
including OSHA's Process Safety Management Standard ("PSM") requiring
stricter safety requirements have been enacted. Under PSM, employers and
contractors must ensure that their employees are trained in and follow all
facility work practices and safety rules and are informed of known potential
hazards. The Company has established comprehensive programs for complying
with health and safety regulations. While the Company believes that it
operates safely and prudently, there can be no assurance that accidents will
not occur or that the Company will not incur substantial liability in
connection with the operation of its business.
The State of California has promulgated particularly stringent laws and
regulations regarding health and safety and environmental protection. The
Company's operations in California are subject to strict oversight under
these laws and regulations and the failure to comply with these laws and
regulations could have a negative impact on the Company.
Executive Officers of the Company
The executive officers of the Company and their ages and positions are
listed below.
Name Age Position
- ------------------ ----- -------------------------------------------------
Doyl D. West 55 Chairman, President & Chief Executive Officer
C. William Lee 57 Vice President-Finance, Chief Financial Officer
Bradley S. Vetal 41 President, Matrix Service, Inc.
Martin L. Rinehart 59 Assistant to President, Matrix Service, Inc.
Robert B. Wagoner 54 Vice President-Engineering, Matrix Service,Inc.
James D. Baker 49 President, Midwest Industrial Contractors, Inc.
Tim S. Selby 49 President, San Luis Tank Piping Construction, Inc.
Bruce M. Lierman 37 President, Colt Construction Co., Inc.
Robert A. Heath 50 President, Heath Engineering, Ltd.
Sample D. Brown 62 Chief Executive Officer, Brown Steel
Contractors, Inc.
Mark A. Brown 40 President, Brown Steel Contractors, Inc.
Doyl D. West is a founder of the Company and has served as a director since
the Company's inception in 1984. Mr. West served as President of the
Company from 1984 to November 1992. Mr. West reassumed the duties of
President and Chief Executive Officer in September 1994. Prior to founding
the Company, Mr. West served in various capacities with Tank Service, Inc.,
most recently as President. Tank Service, Inc. was engaged in repair and
maintenance of the tankage in refineries and marketing and pipeline terminals.
C. William Lee is a founder of the Company and has served as its Vice
President-Finance and as a director since the Company's inception. Prior
to 1984, Mr. Lee served as Vice President-Finance and Secretary/Treasurer
of Tank Service, Inc.
Bradley S. Vetal has been with the Company since January 1987 and has
served as President of Matrix Service, Inc. since June 1, 1992. From June
1991 through May 1992, he served as Vice President of Eastern Operations of
Matrix Service Mid-Continent, Inc. From January 1987 to June 1991, Mr.
Vetal served in various capacities within Matrix. Effective June 1, 1996
Mr. Vetal assumed a newly created position of Vice President-Tank Division
of Matrix Service Company. This position is responsible for all AST
operations.
Martin L. Rinehart is a founder of the Company and served as the Vice
President-Operations of the Company from its inception to June 1992. Since
June 1992, he has served as Assistant to the President of Matrix Service,
Inc. From 1980 until 1984, Mr. Rinehart served as Executive Vice President
of Tank Service, Inc.
Robert B. Wagoner has served as Matrix Service, Inc.'s Vice President-
Engineering since 1985. From 1979 to 1984, Mr. Wagoner served as
Vice President-Operations and Manager of Operations Services for Tank
Service, Inc.
James D. Baker served as President of Midwest Industrial Contractors
since June 1, 1995. From 1993 to June 1995, Mr. Baker has served as
Manager of Engineering and Estimating for Midwest. From 1988 to 1993,
Mr. Baker served as Manager of Capital Construction and Maintenance-
Turnaround Planning for Sun Refining & Marketing Company. Prior to
working for Sun, Mr. Baker worked for Edecon, Inc. and Refractory
Construction, Inc. as an engineer and estimator involved in maintenance
and capital work for the petrochemical industry. Mr. Baker holds a BSME
degree from Lawrence Institute of Technology.
Tim Selby is a founder of San Luis Tank Piping Construction, Inc. and has
served as its President since 1975. Mr. Selby graduated from Fresno State
University in 1970 with a degree in Business Administration.
Bruce M. Lierman has served as President of Colt Construction Company since
March 1997. Mr. Lierman held numerous positions with Colt since its formation
in 1984. His diversified experience within Colt includes developing and
managing turnaround, construction and maintenance work groups for the
company. After attending Washington State University, Mr. Lierman went
to work for Crown Zellerbach Corporation of Portland, Oregon in January 1982.
From June 1983 to September 1985, Mr. Lierman worked for the family owned
electrical construction business, Lierman Electric.
Robert A. Heath has served as President of Heath Engineering, Ltd. since
1976. He graduated in 1971 from Queen's University in Kingston, Ontario
Canada with a degree of Bachelor Science in Electrical Engineering. Upon
graduation, Mr. Heath worked with his father, William Heath in management
of William R. Heath Company. When his father retired, Mr. Heath became
President and started Heath Engineering Ltd. He has been registered with
the Association of Professional Engineers since July 19, 1973.
Sample D. Brown has served as Chief Executive Officer of Brown Steel
Contractors, Inc. since 1992. After graduating from Auburn University in
1956, Mr. Brown joined the company and has served in various management
positions, including President and Chairman of the Board. Mr. Brown is a
son of Mr. & Mrs. E.W. Brown, Sr., the co-founders of Brown Steel.
Mark A. Brown has served as President of Brown Steel Contractors, Inc.
since 1992. After graduating from Auburn University in 1979, Mr. Brown
joined the company and has served in various management capacities in all
phases of company operations. Mr. Brown is a grandson of the original
company founders, and the son of Sample D. Brown.
Item 2. Properties
The executive offices of the Company are located in a 20,400 square foot
facility owned by the Company and located in Tulsa, Oklahoma. A 3,000
square foot warehouse and engineering testing shop is located on the
premises and is also owned by the Company. The Company also owns a 13,500
square foot facility in Tulsa where its Midwest operations are headquartered,
a 40,000 square foot fabrication shop and 25,000 square feet of warehouse and
maintenance shop space adjacent to Midwest's executive offices. The
Company owns a 64,000 square foot facility located on 13 acres of land
leased from the Tulsa Port of Catoosa which is used for the fabrication of
tanks and tank parts. The Company also owns a 22,000 square foot facility
located on 14 acres of land in Tulsa, Oklahoma for Tulsa regional operations,
a 13,300 square foot facility in Temperance, Michigan for the Michigan
regional operations and a 8,800 square foot facility in Houston, Texas for
Houston regional operations. The Company owns 143,300 square foot and
41,000 square foot facilities, located on 6.5 acres and 31.8 acres,
respectively, in Newnan, Georgia which are used for the fabrication of
elevated tanks. The Company owns a 30,000 square foot facility located on
5.0 acres of land in Bellingham, Washington. Also, the Company owns a 1,806
square foot facility located in Sarnia, Ontario, Canada. The Company leases
offices in Anaheim, Bay Point, Carson and Paso Robles, California and
Bristol, Pennsylvania. The aggregate lease payments for these leases during
fiscal 1997 were approximately $592 thousand. The Company believes that its
facilities are adequate for its current operations.
Item 3. Legal Proceedings
The Company and its subsidiaries are named defendants in several lawsuits
arising in the ordinary course of their business. While the outcome of
lawsuits cannot be predicted with certainty, management does not expect
these lawsuits to have a material adverse impact on the Company.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders of the Company
during the fourth quarter of the Company's fiscal year ended May 31, 1997.
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters
Price Range of Common Stock
The Common Stock has traded on the National Market System of the National
Association of Securities Dealers, Inc. Automated Quotation ("NASDAQ")
System since the Company's initial public offering on September 26, 1990.
The trading symbol for the Common Stock is "MTRX". The following table sets
forth the high and low closing sale prices for the Common Stock on the
National Market System as reported by NASDAQ for the periods indicated:
Fiscal Year Fiscal Year
1997 1996
----------- -----------
High Low High Low
---- ---- ---- ---
First Quarter................. $6.75 $5.00 $4.63 $3.00
Second Quarter................ 6.63 5.25 5.38 3.88
Third Quarter................. 7.81 5.50 4.88 4.00
Fourth Quarter................ 9.75 7.00 7.13 4.38
Fiscal Year
1998
------------
High Low
---- ----
First Quarter
through August 26, 1997) $8.75 $6.63
As of August 27, 1997 there were approximately 110 holders of record of the
Common Stock. The Company believes that the number of beneficial owners of
its Common Stock is substantially greater than 110.
Dividend Policy
The Company has never paid cash dividends on its Common Stock. The Company
currently intends to retain earnings to finance the growth and development
of its business and does not anticipate paying cash dividends in the
foreseeable future. Any payment of cash dividends in the future will
depend upon the financial condition, capital requirements and earnings of
the Company as well as other factors the Board of Directors may deem
relevant. Certain of the Company's credit agreements restrict the
Company's ability to pay dividends.
Item 6. Selected Financial Data
The following table sets forth selected historical financial information
for the Company covering the five years ended May 31, 1997. See the Notes
to the Company's consolidated financial statements.
[CAPTION]
STOCK PURCHASE AGREEMENT
AMONG
MATRIX SERVICE COMPANY,
GENERAL SERVICE CORPORATION,
JAMES D. HAMMOND,
JAMES D. HAMMOND, AS TRUSTEE,
TIMOTHY E. HAMMOND,
VICTORIA A. HAMMOND
AND
DEBORAH E. HAMMOND
Dated: June 17, 1997
TABLE OF CONTENTS
STOCK PURCHASE AGREEMENT
Page
ARTICLE I GENERAL ----
Section 1.1 Definitions 1
Section 1.2 Agreement to Purchase and Sell 7
Section 1.3 Purchase Price 7
Section 1.4 Payment of Purchase Price 7
Section 1.5 Earnout Procedures 9
Section 1.6 Delivery of Certificates Representing the Shares 10
Section 1.7 Employment and Non-Competition Agreements 10
ARTICLE II
REPRESENTATIONS AND WARRANTIES
Section 2.1 Representations and Warranties of Sellers 11
Section 2.2 Representations and Warranties of Purchaser 30
ARTICLE III
CONDUCT AND TRANSACTIONS PRIOR TO CLOSING
Section 3.1 Access to Records and Properties; Confidentiality 32
Section 3.2 Operation of Seller Corp. 33
Section 3.3 Consents 34
Section 3.4 No Public Announcements or Negotiation with Others 34
Section 3.5 Best Efforts to Satisfy Conditions 34
Section 3.6 Antitrust Law Compliance 35
Section 3.7 Update Sellers' Disclosure Letter 35
Section 3.8 Tax Matters 35
Section 3.9 Personal Guarantees 36
ARTICLE IV
CONDITIONS OF CLOSING
Section 4.1 Conditions of Obligations of Purchaser 36
Section 4.2 Conditions of Obligations of Sellers 37
Section 4.3 HSR Act Approval 38
Section 4.4 Opportunity to Cure 38
ARTICLE V
CLOSING DATE AND TERMINATION OF AGREEMENT
Section 5.1 Closing Date 39
Section 5.2 Termination of Agreement 39
ARTICLE VI
INDEMNIFICATION
Section 6.1 Indemnity 40
Section 6.2 Notice, Participation and Duration 40
Section 6.3 Indemnification if Negligence of Indemnitee 41
Section 6.4 Reimbursement 41
Section 6.5 Offset 41
Section 6.6 No Third Party Beneficiaries 41
Section 6.7 Limitations on Indemnification 42
ARTICLE VII
MISCELLANEOUS
Section 7.1 Further Actions 42
Section 7.2 No Broker 42
Section 7.3 Expenses 42
Section 7.4 Entire Agreement 43
Section 7.5 Descriptive Headings 43
Section 7.6 Notices 43
Section 7.7 Governing Law 44
Section 7.8 Assignability 44
Section 7.9 Waivers and Amendments 44
Section 7.10 Third Party Rights 44
Section 7.11 Illegalities 45
Section 7.12 Counterparts 45
Section 7.13 Survival; Exclusivity of Remedies 45
Section 7.14Representations and Warranties of Sellers 45
Section 7.15 Alternative Dispute Resolution 45
ANNEXES
Annex A Sellers' Disclosure Letter
Appendix 1.1(a) Backlog Orders
Appendix 1.1(b) Bank Debt
Appendix 1.1(c) Equipment
Appendix 1.1(d) Intangible Assets
Appendix 1.1(e) Permitted Encumbrances
Appendix 1.1(f) Scheduled Contracts
Appendix 1.1(g) Vehicles
Appendix 2.1(a) Organization and Good Standing of Seller Corp. and Subsidiaries
Appendix 2.1(b) Consents
Appendix 2.1(c) Capitalization
Appendix 2.1(d)-1 Financial Statements
Appendix 2.1(d)-2 Liabilities
Appendix 2.1(e) Bank Accounts
Appendix 2.1(f) Insurance
Appendix 2.1(g) Litigation
Appendix 2.1(i) Intangible Assets
Appendix 2.1(j) Instruments in Full Force
Appendix 2.1(k)-1 Employee Plans
Appendix 2.1(k)-2 Plan Payments
Appendix 2.1(k)-3 Termination of Plans
Appendix 2.1(l)-1 Labor Agreements
Appendix 2.1(l)-2 Union Organizing Activities
Appendix 2.1(l)-3 Strikes
Appendix 2.1(l)-4 Grievances
Appendix 2.1(l)-5 Employee Litigation
Appendix 2.1(n) Absence of Certain Changes
Appendix 2.1(o) Subsidiaries
Appendix 2.1(p) Material Contracts
Appendix 2.1(q) Licenses and Permits
Appendix 2.1(r) Environmental Matters
Appendix 2.1(v) Competing Lines of Business
Appendix 3.2(g) Indebtedness of Sellers
Appendix 7.2 Scott-Macon, Ltd. Fees and Expenses
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement") is made and entered into
as of this 17th day of June, 1997 by and among MATRIX SERVICE COMPANY, a
Delaware corporation ("Purchaser"), JAMES D. HAMMOND, JAMES D. HAMMOND, as
Trustee under a Voting Trust Agreement dated February 1, 1991, TIMOTHY E.
HAMMOND, VICTORIA A. HAMMOND and DEBORAH E. HAMMOND (the "Sellers"), and
GENERAL SERVICE CORPORATION, a Delaware corporation ("Seller Corp.").
WHEREAS, Seller Corp. is engaged in the business of (i) the construction,
repair and maintenance of above ground storage tanks ("ASTs"), (ii) the
fabrication and installation of liners for ASTs, and (iii) the design,
fabrication, installation, repair and maintenance of aluminum roof products
for ASTs (the "Business"); and
WHEREAS, the Sellers own, or as of the Closing Date will own, all of the
issued and outstanding shares of capital stock of Seller Corp. (together
with all shares of the capital stock of Seller Corp. issued from the date
hereof through the Closing Date (as defined herein), the "Shares"); and
WHEREAS, Purchaser desires to purchase the Shares from the Sellers, and the
Sellers desire to sell the Shares to Purchaser, in each case upon the terms
and subject to the conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the mutual benefits to be derived and
the representations and warranties, conditions and promises herein
contained, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and intending to be legally
bound hereby, the parties hereto hereby agree as follows:
ARTICLE I
GENERAL
Section 1.1 Definitions. Unless otherwise stated in this Agreement, the
following terms shall have the following meanings (the following
definitions to be equally applicable to both the singular and plural forms
of any of the terms herein defined):
"Accounts": All accounts receivable of Seller Corp. and all other rights
of Seller Corp. to payment for goods sold or leased or for services
rendered, including without limitation those which are not evidenced by
instruments or chattel paper, whether or not they have been earned by
performance or have been written off or reserved against as a bad debt or
doubtful account in any Financial Statements; together with all instruments
and all documents of title representing any of the foregoing, all rights in
any merchandise or goods which any of the same represent, and all rights,
title, security and guaranties in favor of Seller Corp. with respect to any
of the foregoing, including, without limitation, any right of stoppage in
transit.
"Affiliate": Any Person that, directly or indirectly, controls, or is
controlled by or under common control with, another Person. For the
purposes of this definition, "control" (including the terms "controlled by"
and "under common control with"), as used with respect to any Person, means
the power to direct or cause the direction of the management and policies
of such Person, directly or indirectly, whether through the ownership of
voting securities or by contract or otherwise.
"Agreement": As defined in the first paragraph hereof.
"Assets": The Vehicles, the Equipment, the Permits, the Intangible Assets,
the Scheduled Contracts, the Inventories, the Backlog Orders, the Accounts,
Seller Corp.'s cash, bank accounts, marketable securities and other cash
equivalents, the Records and all other assets of Seller Corp.
"Audited Balance Sheet": As defined in Section 2.1(d)(1).
"Audited Financial Statements": As defined in Section 2.1(d)(1).
"Backlog Orders": All of Seller Corp.'s backlog of orders for products
manufactured or sold by Seller Corp., which are (i) accepted by Seller
Corp. in the ordinary course of business as of the Closing or (ii) listed
in Appendix 1.1(a) to the Sellers' Disclosure Letter and, in each case, not
invoiced or shipped or canceled as of the Closing.
"Balance Sheets": As defined in Section 2.1(d).
"Bank Debt": The indebtedness of Seller Corp. to PNC Bank, Delaware
described on Appendix 1.1(b) to the Sellers' Disclosure Letter.
"Business": As defined in the recitals of this Agreement.
"CERCLA": The Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended, 42 U.S.C. Section 9601, et seq.
"Claim": As defined in Section 6.2(a).
"Closing": As defined in Section 5.1(a).
"Closing Date": As defined in Section 5.1(a).
"Code": The Internal Revenue Code of 1986, as amended.
"Customer Data": All of Seller Corp's customer lists, sales records and
other customer data (including credit data) relating to the Business.
"Damages": As defined in Section 6.1(a).
"Defined Benefit Plan": As defined in Section 2.1(k)(1).
"Department": As defined in Section 3.6.
"Earnout": As defined in Section 1.4(c).
"Earnout Companies": As defined in Section 1.4(c).
"EBIT": As defined in Section 1.4(c).
"Employees": As defined in Section 2.1(k)(1).
"Employment and Non-Competition Agreements": As defined in Section 1.6.
"Environmental Event": As defined in Section 2.1(r).
"Environmental Laws": As defined in Section 2.1(r).
"Environmental Material": As defined in Section 2.1(r).
"Equipment": All of Seller Corp.'s furniture, equipment, machinery,
apparatus, tools, dies, appliances, vehicles, implements, spare parts,
supplies and all other tangible personal property of every kind and
description (other than the Vehicles and the Inventories) insofar as any of
the foregoing relates to the Business. The Equipment includes, without
limitation, all of the items listed in Appendix 1.1(c) to the Sellers'
Disclosure Letter.
"ERISA": Employee Retirement Income Security Act of 1974, as amended.
"Financial Statements": As defined in Section 2.1(d).
"FTC": As defined in Section 3.6.
"GAAP": As defined in Section 2.1(d).
"Governmental Approval": As defined in Section 2.1(r).
"Governmental Authority": As defined in Section 2.1(r).
"Governmental Body": Any court or any federal, state, municipal or other
governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign.
"HSR Act": As defined in Section 3.6.
"Indemnitee": As defined in Section 6.2(a).
"Indemnitor": As defined in Section 6.2(a).
"Instruments": As defined in Section 2.1(j).
"Intangible Assets": All right, title and interest of Seller Corp. in, to
and under all patents, trademarks, technology, know-how, data, copyrights,
tradenames, servicemarks, licenses, covenants by others not to compete,
rights and privileges used in the conduct of the Business and the right to
recover for infringement thereon and all goodwill associated with the
Business in connection with which the marks are used. The Intangible
Assets include, without limitation, all of the items listed in
Appendix 1.1(d) to the Sellers' Disclosure Letter.
"Inventories": All of Seller Corp.'s inventories insofar as any of the
foregoing relates to the Business, including, without limitation, finished
goods, work-in-progress, raw materials, supply inventories, and other
inventories.
"IRS": The Internal Revenue Service.
"Lien": All mortgages, deeds of trust, liens, security interests, pledges,
leases, conditional sale contracts, claims, rights of first refusal,
options, charges, liabilities, obligations, agreements, privileges,
liberties, easements, rights-of-way, limitations, reservations,
restrictions and other encumbrances of any kind.
"Material Adverse Effect": (a) Any change, development or effect
(individually or in the aggregate) in the general affairs, management,
business, results of operations, condition (financial or otherwise), assets
or liabilities that would be material and adverse to Seller Corp. and
Subsidiary, taken as whole, after giving effect to the Transaction, or (b)
any fact or development that would (individually or in the aggregate),
after giving effect to the Transaction, impair Seller Corp.'s ability or
obligations to perform on a timely basis all material obligations it has
under this Agreement; provided, however, that if the result thereof is
covered by insurance, such insurance shall be taken into account.
"Maximum Earnout Payment": As defined in Section 1.4(c).
"Multi-Employer Plan": As defined in Section 2.1(k)(1).
"Notes": As defined in Section 1.4(b).
"Operative Documents": This Agreement and all other agreements,
instruments, documents, and certificates executed and delivered by or on
behalf of Seller Corp., Sellers, or Purchaser at or before the Closing
pursuant to this Agreement.
"Order": Any order, writ, injunction, decree, judgment, award or
determination of any Governmental Body.
"PBGC": The Pension Benefit Guaranty Corporation.
"Permits": All permits, authorizations, certificates, approvals,
registrations, variances, exemptions, rights-of-way, franchises,
privileges, immunities, grants, ordinances, licenses and other rights of
every kind and character (a) under any (1) federal, state, local or foreign
statute, ordinance or regulation, (2) Order or (3) contract with any
Governmental Body or (b) granted by any Governmental Body.
"Permitted Encumbrances": (a) The Liens described or referred to in
Appendix 1.1(e) to the Sellers' Disclosure Letter, (b) Liens for current
Taxes and assessments not yet due and payable, including, but not limited
to, Liens for nondelinquent ad valorem Taxes, nondelinquent statutory Liens
arising other than by reason of any default on the part of Seller Corp. or
Subsidiary, (c) purchase money Liens if incurred in the ordinary course of
business, and (d) such liens, minor imperfections of title, or easements on
real property, leasehold estates, or personalty as do not in any material
respect detract from the value thereof and do not interfere with the
present use of the property subject thereto.
"Person": An individual, partnership, joint venture, corporation, bank,
trust, unincorporated organization or a Governmental Body.
"Plan": As defined in Section 2.1(k).
"Products": All products manufactured, produced, marketed or distributed
by Seller Corp.
"Purchase Price": As defined in Section 1.3.
"Purchaser": As defined in the opening paragraph of this Agreement.
"Purchaser Indemnitees": As defined in Section 6.1(a).
"Records": All of Seller Corp's books, records, papers and instruments of
whatever nature and wherever located that relate to the Business or the
Assets or which are required or necessary in order for Purchaser to conduct
the Business from and as of the Closing in the manner in which it is
presently being conducted, including, without limitation, corporate minute
books and stock records, blueprints, specifications, plats, maps, surveys,
building and machinery diagrams, accounting and financial records,
maintenance and production records, personnel and labor relations records,
environmental records and reports, income, sales and property Tax records
and returns, sales records, the Customer Data and the Supplier Data.
"Scheduled Contracts": All right, title and interest of Seller Corp. in,
to and under the contracts and agreements described in Appendix 1.1(f) to
the Sellers' Disclosure Letter and all rights (including rights of refund
and offset), privileges, deposits, claims, causes of action and options
relating or pertaining to the Scheduled Contracts or any thereof.
"Seller Corp.": As defined in the opening paragraph of this Agreement.
"Seller Corp. Sites": As defined in Section 2.1(r)(1).
"Seller Indemnitees": As defined in Section 6.1(b).
"Sellers": As defined in the opening paragraph of this Agreement.
"Sellers' Disclosure Letter": The disclosure letter delivered by Sellers
to Purchaser prior to the execution and delivery of this Agreement, and a
"Supplement" thereto means a supplemental disclosure letter delivered
pursuant to Section 3.7.
"Shares": As defined in the recitals of this Agreement.
"Subsidiary": As defined in Section 2.1(o).
"Supplement": As defined in Section 3.7.
"Supplier Data": All of Seller Corp.'s supplier lists and other supplier
data relating to the purchase of raw materials, utilities and other
supplies used in connection with the Business.
"Tax Returns": As defined in Section 2.1(h)(1).
"Taxes": Any federal, state, local, foreign or other net income, gross
income, gross receipts, sales, use, ad valorem, transfer, franchise,
profits, license, lease, service, service use, withholding, payroll,
employment, excise, severance, stamp, occupation, premium, property,
customs, duties, or other taxes, fees, assessments or charges of any nature
whatsoever (including without limitation interest, penalties, additions to
tax, or additional amounts with respect thereto) imposed by any law, rule
or regulation which are attributable or relating to the Assets or the
business of Seller Corp. for any periods ending on or as of the Closing.
"Territory": All states that are located north of Tennessee and North
Carolina and east of Minnesota, Iowa and Missouri,
"Transaction": The sale and purchase of the Shares and performance of
covenants, in each case as contemplated by this Agreement.
"U.S.": The United States of America.
"Unaudited Balance Sheet": As defined in Section 2.1(d)(2).
"Unaudited Financial Statements": As defined in Section 2.1(d)(2).
"Vehicles": All the trucks, trailers and other certificated vehicles
described in Appendix 1.1(g) to the Sellers' Disclosure Letter.
Section 1.2 Agreement to Purchase and Sell. On the Closing Date and upon
the terms and subject to the conditions set forth in this Agreement, the
Sellers shall sell, assign, transfer, convey and deliver the Shares to
Purchaser, free and clear of all Liens, and Purchaser shall purchase and
accept the Shares from the Sellers.
Section 1.3 Purchase Price. The aggregate purchase price for the Shares
(the "Purchase Price") shall be up to $6,258,927 payable as set forth in
Section 1.4.
Section 1.4 Payment of Purchase Price. The Purchase Price shall be
allocated pro rata among the Sellers in proportion to the number of Shares
beneficially owned by each Seller as of the Closing Date as set forth on
Appendix 2.1(c) to the Sellers' Disclosure Letter and shall be payable to
the Sellers as follows:
(a) At the Closing Purchaser shall deliver to the Sellers $3,889,259 in
cash, to be paid by certified or cashier's checks.
(b) At the Closing Purchaser shall deliver to the Sellers promissory notes
in the aggregate principal amount of $197,472 (the "Notes") in the form of
Exhibit 1.4 hereto.
(c) Sellers shall also be entitled to receive from Purchaser an aggregate
amount of cash (the "Earnout") equal to 50% of the amount, if any, by which
the earnings before taxes and interest expense (the "EBIT") of Seller
Corp., the Michigan Regional Operations of Matrix Service Mid Continent,
Inc. and the New Jersey Regional Operations of Matrix Service Mid
Continent, Inc. and to the extent not included in any of the foregoing (i)
all earnings before taxes and interest from the aluminum roof operations of
the Purchaser and Seller Corp., both domestic and international, including
future aluminum product introductions by the Purchaser and Seller Corp.
such as, but not limited to, geodesic dome products, but not including any
such aluminum roof operations and aluminum products of companies,
businesses or assets acquired by the Purchaser after the Closing; (ii) all
earnings before taxes and interest from the field erection portion of
elevated water tanks constructed by the Earnout Companies (excluding the
estimating, contracting, design, purchasing and shop fabrication of such
projects performed by Brown Steel) and (iii) all earnings before taxes and
interest from the flat bottom new tanks constructed by merit shop
operations of Purchaser inside the Territory (collectively, the "Earnout
Companies"), combined in the fiscal years set forth below exceeds the
amount indicated below as the Earnout threshold for that year. In no event
shall the cumulative amount of all cash payments made pursuant to this
subparagraph (c) exceed $2,172,196 (the "Maximum Earnout Payment").
Fiscal Year Earnout
Ending May 31 Threshold
------------- ---------
1998 2,000,000
1999 2,250,000
2000 2,500,000
2001 2,500,000
2002 2,500,000
2003 2,500,000
2004 2,500,000
For purposes of calculating EBIT, the EBIT from the Michigan Regional
Operations will be the greater of (a) $1,209,000 or (b) the EBIT from the
Michigan Regional Operations for the fiscal year in which the Earnout is to
be calculated.
For purposes of calculating EBIT, no reduction shall be made for (1)
interest charges on any indebtedness, (2) costs attributable to the
acquisition of Seller Corp., (3) any federal, state or local income taxes,
(4) any management fees charged by Purchaser to the Earnout Companies that
are not normal and customary, (5) adjustments related to the business and
activities of the Earnout Companies that under GAAP should have been made
in fiscal years prior to fiscal year 1998 or (6) payments made to the
holders of the stock appreciation rights relating to the shares of Seller
Corp. Common Stock. In addition, the parties agree that earnings shall be
equivalent to "operating income" as that term is defined and calculated
pursuant to GAAP.
The Earnout Companies shall have a right of first refusal on (i) all tank
maintenance, repair and seal jobs located in the Territory and (ii) all
jobs in the facilities currently owned and operated by British Petroleum,
Ashland Oil, IMTT, Mobil Team East, Citgo and Colonial Pipe Line.
In the event (i) that the Purchaser merges with or is acquired by another
company that is not an Affiliate of Purchaser or (ii) of the divestiture of
a material portion of the assets of the Earnout Companies, whether directly
or indirectly (through a transfer of such assets, a sale of stock, a merger
or otherwise), so as to, in the reasonable judgment of Sellers, have an
adverse effect on their receipt of the Maximum Earnout Payment (a "Change
in Control"), each Seller may, at such Seller's option, either:
(a) continue the Earnout as outlined in Section 1.4(c), or
(b) receive, at the time of a Change in Control, an amount equal to 70% of
the sum of (a) such Seller's pro rata portion of the Maximum Earnout
Payment less (b) all prior Earnout Payments paid by the Purchaser to such
Seller.
The amount, if any, payable in respect of each of the fiscal years set
forth shall be payable, without interest, as soon as practicable after the
completion of the audit for such fiscal year, but in any event within 120
days following the end of such fiscal year.
Section 1.5 Earnout Procedures. (a) Purchaser agrees to maintain
accounting records sufficient to allow the computation and verification of
the computation of the payments by the Purchaser to the Sellers under
Section 1.4(c) (each, an "Earnout Payment").
(b) In connection with the making of each Earnout Payment the Purchaser
shall deliver to the Sellers a copy of the audited consolidated financial
statements of Matrix Service Company, together with certain supplemental
income data of the Earnout Companies, a schedule setting forth the
computation of such payment and a copy of any other financial information
used in making such computation. The Sellers shall have the right
following their receipt of an Earnout Payment to cause an accounting firm
chosen by the Sellers (the "Sellers' Accountants") to conduct an accounting
audit of the Earnout Companies at Sellers' expense (except as provided
below) solely for the purpose of determining the amount of such Earnout
Payment, provided that such audit shall be conducted upon reasonable
advance notice at Matrix Service Company at 10701 East Ute Street, Tulsa,
Oklahoma 74116, during normal business hours and in a manner which does not
unduly interfere with the business operations of the Earnout Companies.
The Sellers shall give the Purchaser written notice of such an accounting
audit within twenty days following Sellers' receipt of the Earnout Payment
and the accompanying required schedule and financial information (the
"Delivery Date"). The Purchaser's computation of any Earnout Payment shall
be conclusive and binding upon the parties hereto unless, within twenty
days following the Delivery Date or, if Sellers have elected to have an
accounting audit conducted, within ten days of Sellers' receipt of the
report from Sellers' Accountants regarding the Earnout Payment, any Seller
notifies the Purchaser in writing (the "Seller's Notice") that such Seller,
either individually or on behalf of such Seller and the other Sellers
identified in the Seller's Notice (individually or collectively, as the
case may be, the "Notifying Seller"), disagrees with the Purchaser's
computation of the Earnout Payment. The Seller's Notice shall include a
schedule setting forth the Notifying Seller's computation of the Earnout
Payment, together with a copy of any financial information, other than that
previously supplied by the Purchaser to the Sellers, used in making the
Notifying Seller's computation. The Notifying Seller shall send a copy of
the Seller's Notice to each Seller who is not a Notifying Seller.
The Notifying Seller's computation of the Earnout Payment under this
Section 1.5(b) shall be conclusive and binding upon the parties hereto
unless, within twenty days following the Purchaser's receipt of the
Seller's Notice, the Purchaser notifies the Sellers in writing that it
disagrees with the Notifying Seller's computation of the Earnout Payment.
If the Purchaser disagrees with the Notifying Seller's computation of the
Earnout Payment, the Purchaser and the Notifying Seller shall request a
national firm of independent certified public accountants mutually
agreeable to the Purchaser and the Notifying Seller to compute the amount
of the Earnout Payment as promptly as possible, which computation shall be
conclusive and binding upon the Purchaser and the Notifying Seller. In the
event that the Purchaser and the Notifying Seller cannot agree on such a
national firm of independent certified public accountants, then the names
of the national accounting firms, exclusive of any such firm which is
rendering or has within the past three years rendered services to the
Purchaser or the Notifying Seller or their Affiliates, shall be selected by
lottery until one such firm is willing to compute the disputed payment for
purposes of this Agreement. The expenses of any computation by any such
national accounting firm selected by the Purchaser and the Notifying Seller
to resolve computational disputes hereunder shall be borne half by the
Purchaser and half by the Notifying Seller.
In the event the amount of Earnout Payment to be paid by the Purchaser to
the Sellers in accordance with Section 1.4(c) is recomputed in accordance
with this Section 1.5, the adjustment to the amount of the Earnout Payment
shall be paid by the Purchaser to the Notifying Sellers within ten business
days after the date of final recomputation of such payment. If any final
determination of the Earnout Payment shall exceed the Purchaser's original
computation of such Earnout Payment by more than ten percent (10%), then
the Earnout Payment shall also include interest on such difference from the
date upon which the original computation was delivered by the Purchaser to
the Sellers to the date of payment of the Earnout Payment, at a per annum
rate equal to the rate of the Note and the Purchaser shall reimburse the
Notifying Sellers or pay directly for the fees and expenses of Sellers'
accountants.
Sellers who are not Notifying Sellers may become Notifying Sellers by
delivering a written request to be treated as such to the Notifying Seller
and the Purchaser within ten days of receipt of the Seller's Notice given
by the Notifying Seller, whereupon such Seller shall be deemed to have been
a Notifying Seller identified in the Seller's Notice, with all rights and
obligations of a Notifying Seller provided in this Section 1.5.
Each of the Sellers hereby appoints James D. Hammond to serve as the
Notifying Seller on his or her behalf with full power and authority to make
the determinations and to take or refrain from taking the actions within
the authority of the Notifying Seller. Each Seller shall have the right to
withdraw said appointment upon written notice to the Purchaser and each of
the other Sellers.
Section 1.6 Delivery of Certificates Representing the Shares. At the
Closing, the Sellers shall deliver to Purchaser stock certificates
representing the Shares, duly endorsed in blank for transfer or accompanied
by appropriate stock powers duly executed in blank with all taxes, direct
or indirect, attributable to the transfer of such Shares paid or provided
for.
Section 1.7 Employment and Non-Competition Agreements. At the Closing,
James D. Hammond, James W. Buhler, Tor F. Larson, and Douglas P. Leh shall
enter into employment and non-competition agreements (the "Employment and
Non-Competition Agreements") with Purchaser in the form of Exhibit 1.7
hereto.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
Section 2.1 Representations and Warranties of Sellers. Sellers severally
represent and warrant to Purchaser that the following are true and correct
on and as of the date of this Agreement and will be true and correct in all
material respects as of the Closing as if made on and as of that date:
(a) Organization and Good Standing of Seller Corp. Seller Corp. and each
Subsidiary is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware and is qualified to
transact business and is in good standing as a foreign corporation in the
jurisdictions (which are listed in Appendix 2.1(a) to the Sellers'
Disclosure Letter) where it is required to qualify in order to conduct its
businesses as presently conducted. Seller Corp. and each Subsidiary has
the corporate power and authority to own, lease or operate all properties
and Assets now owned, leased or operated by it and to carry on its
businesses as now conducted except where the failure to be qualified would
not have a Material Adverse Effect. Seller Corp. and each Subsidiary has
heretofore delivered to Purchaser complete and correct copies of its
Certificate of Incorporation and Bylaws, as amended and in effect on the
date hereof.
(b) Consents, Authorizations and Binding Effect.
(1) Sellers and Seller Corp. may execute, deliver and perform this
Agreement (including without limitation execution, delivery and performance
of the Operative Documents to which each of them is a party) without the
necessity of any of Sellers or Seller Corp. obtaining any consent,
approval, authorization or waiver or giving any notice or otherwise, except
for such consents, approvals, authorizations, waivers and notices which (i)
have been, or prior to Closing will be, obtained and are unconditional and
are in full force and effect and such notices which have been given; (ii)
are described on Appendix 2.1(b) to the Sellers' Disclosure Letter; or
(iii) the failure to have will not have a Material Adverse Effect.
(2) Seller Corp. has the corporate power and authority to enter into this
Agreement and the Operative Documents to which it is a party and to carry
out its obligations hereunder and thereunder. Sellers have the power,
authority and capacity to enter into this Agreement and the Operative
Documents to which they are a party and to carry out their obligations
hereunder and thereunder. This Agreement has been duly authorized,
executed and delivered by Seller Corp. and each Seller and constitutes the
legal, valid and binding obligation of Seller Corp. and each Seller,
enforceable against each of them in accordance with its terms, except as
the enforceability thereof may be limited by bankruptcy, reorganization,
fraudulent conveyance, insolvency and similar laws of general application
relating to or affecting the enforcement of rights of creditors or general
principles of equity.
(3) The execution, delivery and performance of this Agreement by Seller
Corp. and Sellers do not and will not:
(i) constitute a violation of the Certificate of Incorporation, as amended,
or Bylaws, as amended, of Seller Corp.;
(ii) result in any Lien against the Shares or the Assets;
(iii) constitute a violation of any statute, judgment, order, decree or
regulation or rule of any Governmental Body applicable or relating to
Seller Corp., any of Sellers, the Assets or the business of Seller Corp. or
the Shares; or
(iv) conflict with, or constitute a breach or default under, or give rise
to any right of termination, cancellation or acceleration under, any term
or provision of any contract, agreement, lease, mortgage, deed of trust,
commitment, license, franchise, Permit, authorization or any other
instrument or obligation to which Seller Corp. or any of Sellers is a party
or by which their respective assets are bound, or an event which with
notice, lapse of time, or both, would result in any such conflict, breach,
default or right, except as are described on Appendix 2.1(b) to the
Seller's Disclosure Letter or as would not, singly or in the aggregate,
have a Material Adverse Effect.
(4) Without limiting the foregoing, the execution, delivery and performance
of the Operative Documents to which Seller Corp is a party, and
consummation of the transactions contemplated thereby, have been duly
authorized and approved by the Board of Directors and stockholders of
Seller Corp. without dissent.
(c) Capitalization of Seller Corp.; Title to the Shares. The authorized
capital stock of Seller Corp. consists of 120,000 shares of common stock,
no par value, of which 6,000 shares are issued and outstanding; and the
capital stock listed on Appendix 2.1(c) to the Sellers' Disclosure Letter
will constitute all of the issued and outstanding capital stock of Seller
Corp. as of the Closing Date and is held of record and beneficially by the
Persons identified thereon. All of the issued and outstanding shares of
capital stock of the Subsidiaries are held of record and beneficially by
Seller Corp. The Shares and the outstanding shares of capital stock of
each Subsidiary have been duly authorized and validly issued and are fully
paid and nonassessable, and no personal liability attaches to the ownership
thereof. Except for this Agreement and as set forth in Appendix 2.1(c) to
the Sellers' Disclosure Letter, there are no outstanding options, warrants,
rights, agreements, conversion rights, preemptive rights or other rights to
subscribe for, purchase or otherwise acquire any of the Shares, any
unissued or treasury shares of capital stock of Seller Corp. or any shares
of capital stock of any Subsidiary. Appendix 2.1(c) to the Sellers'
Disclosure Letter contains a true, correct and complete list of all holders
of stock appreciation rights, the number of performance units held by each
such holder and the payments which each such holder is entitled to as a
result of the consummation of the transactions contemplated by this
Agreement. The Sellers have, and will have at the Closing, valid and
marketable title to all the Shares, free and clear of any Liens.
(d) Financial Statements, Etc. The following audited and draft unaudited
financial statements of Seller Corp. have been delivered to Purchaser and
are attached as Appendix 2.1(d)-l to the Sellers' Disclosure Letter:
(1)the audited consolidated balance sheets of Seller Corp. as of March 31,
1996 (the "Audited Balance Sheet") and 1995 and the related audited
statements of operations, of stockholder's equity and of cash flows for the
three-year period ended March 31, 1996 (together with related notes and
schedules), which financial statements contain a report of independent
auditors, reporting thereon (such balance sheets, the related statements of
operations, of stockholder's equity and of cash flows, and the related
notes and schedules being hereinafter together referred to as the "Audited
Financial Statements"); and
(2) the draft unaudited consolidated balance sheet of Seller Corp. as of
March 31, 1997 (the "Unaudited Balance Sheet") and the related draft
unaudited statement of operations, of stockholder's equity and of cash
flows for the twelve-month period then ended (together with related notes
and schedules) (such draft balance sheet, the related statement of
operations, of stockholder's equity and of cash flows, and the related
notes and schedules being hereinafter together referred to as the
"Unaudited Financial Statements").
The Audited Financial Statements and the Unaudited Financial Statements
(collectively, the "Financial Statements"), including the related notes and
schedules, have been prepared from the books and records of Seller Corp. in
conformity with generally accepted accounting principles applied on a basis
consistent with preceding years and throughout the periods involved
("GAAP") and present fairly the financial position of Seller Corp. as of
the dates of such statements, subject to year-end adjustments made
consistent with GAAP with respect to the Unaudited Financial Statements.
The trade accounts and other receivables of Seller Corp. which are
classified as current assets on the Audited Balance Sheet, the Unaudited
Balance Sheet (collectively, the "Balance Sheets") or the accounting
records of Seller Corp. as of Closing are bona fide receivables, were
acquired in the ordinary course of business, are stated in accordance with
GAAP and, subject to the reserve for doubtful accounts, need not be written
off as uncollectible.
The inventories of Seller Corp. reflected on the Balance Sheets have been
valued in accordance with GAAP, and the value of obsolete materials and
materials of below standard quality has been written down or reserved
against in accordance with GAAP. There have been no write-ups of
inventories or other assets.
Seller Corp. has no liabilities other than:
(i) those set forth or reserved against in the Unaudited Balance Sheet;
(ii) those incurred since the date of the Unaudited Balance Sheet in the
ordinary course of business; and
(iii) those disclosed on Appendix 2.1(d)-2 to the Sellers' Disclosure
Letter.
As of the Closing the aggregate amount of receivables of Seller Corp. owed
by Affiliates of Seller Corp. will not exceed the amount thereof shown in
the Unaudited Balance Sheet.
Seller Corp.'s books of account have been kept accurately in all material
respects in the ordinary course of business, the transactions entered
therein represent bona fide transactions, and the revenues, expenses,
assets and liabilities of Seller Corp. have been properly recorded in such
books in all material respects.
(e) Title and Condition of Assets. Seller Corp. has good and marketable
title to the tangible and intangible personal property owned by it that
comprise the Assets, free and clear of Liens, other than:
(1) Permitted Encumbrances; or
(2) Liens which will be released or discharged at or as of the Closing.
No improvement or structure on any real property leased by Seller Corp.
encroaches on any adjacent property. No improvement or structure on any
real property leased by Seller Corp. has been damaged by any casualty or
act of God, or been subject to any condemnation proceedings which, singly
or in the aggregate, would have a Material Adverse Effect.
The Equipment (i) is in good operating condition, order and repair, subject
to ordinary wear and tear, (ii) is capable of being used in the Business as
presently being conducted without present need for repair or replacement
except in the ordinary course of the Business, (iii) conforms in all
material respects with all applicable legal requirements, and (iv) in the
aggregate provides the capacity to enable Seller Corp. to engage in
commercial operation on a continuous basis (subject to normal maintenance
and repair outages in the ordinary course).
Since the date of the Unaudited Balance Sheet, Seller Corp. has not sold,
transferred, leased, distributed or otherwise disposed of any of its
Assets, or agreed to do so except for the disposition of Assets in the
ordinary course of business or which in the reasonable judgment of
management are not necessary or advisable to the efficient operations of
Seller Corp.
All items of raw materials, work-in-process and finished goods included in
the Inventories are in such condition that they can be readily converted
into merchantable finished goods by industry standard processing procedures
currently used by Seller Corp., all items of finished goods are of good
standard and merchantable quality, and none of the items is obsolete or
defective, except in each case for items which have been written off and so
reflected on the Unaudited Balance Sheet. The quantities of each category
and type of the Inventories not written off or reserved against are
reasonable and warranted in the present circumstances of Seller Corp. and
are not excessive. The Assets constitute all material assets and
properties, real, personal, tangible and intangible, that are necessary for
the continued conduct of the Business as presently being conducted.
Appendix 2.1(e) to the Sellers' Disclosure Letter contains a true and
correct list of the names of each bank, savings and loan or other financial
institution in which Seller Corp. or Subsidiary has an account, including
cash contribution accounts, safe deposit boxes and lock box arrangements,
and the names of all Persons authorized to draw thereon or to have access
thereto.
All temporary cash investments reflected in the Unaudited Balance Sheet
constitute time deposits or checking accounts with PNC Bank, Delaware.
(f) Insurance. Appendix 2.1(f) to the Sellers' Disclosure Letter contains
a list of all policies of insurance maintained as of the date of this
Agreement by Seller Corp., or maintained by Sellers in respect of the
business and Assets of Seller Corp., including without limitation insurance
providing benefits for employees, in effect as of the date of this
Agreement. No Seller has received notice from any insurance carrier of the
intention of such carrier to discontinue any insurance coverage afforded to
Seller Corp.
(g) Litigation and Compliance With Laws, Etc. There are no claims,
actions, suits or proceedings, whether in equity or at law, or governmental
or administrative investigations pending or, to the knowledge of any
Seller, threatened against Seller Corp. or any Asset, except: (1) as
described on Appendix 2.1(g) to the Sellers' Disclosure Letter, or as may
arise with respect to any of the matters described thereon; (2) for any
claims, actions, suits or proceedings which pertain to routine claims by
Persons other than Governmental Bodies that are covered by insurance
(subject to the applicable insurance deductibles); (3) for minor product or
service warranty claims arising in the usual and ordinary course of
business for repair of products manufactured by Seller Corp. which in the
aggregate may be satisfied at nominal cost to Seller Corp.; and (4) for any
other claims, actions, suits or proceedings which, singly or in the
aggregate, would not have a Material Adverse Effect.
Except as described on Appendix 2.1(g) to the Sellers' Disclosure Letter,
as of the date of this Agreement:
(1) Seller Corp. is in compliance in all material respects with, has
conducted for the past two years and does conduct its business and
operations in compliance in all material respects with, and is not in
default or violation in any respect under any law, regulation, writ,
injunction, decree or order applicable to Seller Corp. or its Assets,
including without limitation all safety and health, antitrust, consumer
protection, labor, equal opportunity or discrimination laws, rules and
regulations;
(2) there are no judgments outstanding and unsatisfied against Seller Corp.
or its Assets; and
(3) to its knowledge, there is no valid claim against or liability of
Seller Corp. on account of product or service warranties or with respect to
the manufacture or sale of defective products or the sale of services
(other than minor claims arising in the usual and ordinary course of
business which may be satisfied at nominal cost to Seller Corp.); provided
that Seller Corp. and Purchaser acknowledge that the business of Seller
Corp. regularly involves dealings with customers' claims in a manner that
takes into account the importance of preserving longer term business
relationships.
(h) Taxes.
(1) Sellers have properly completed and filed when due all Tax reports,
returns, declarations, statements, and other documents required to be filed
in respect of Taxes (collectively "Tax Returns") in connection with and in
respect of Seller Corp.'s business, Assets, and employees. All such Tax
Returns were correct and complete in all respects. All Taxes owed by
Seller Corp. (whether or not shown on any Tax Return) have been paid. An
extension of time within which to file a Tax Return that has not been filed
has not been requested or granted. No claim has ever been made by an
authority in a jurisdiction where Seller Corp. does not file Tax Returns
that it is or may be subject to taxation by that jurisdiction. Sellers
have made available to Purchaser, all Tax Returns of Seller Corp. for the
six most recent periods ending prior to the date hereof.
(2) With respect to all amounts in respect of Taxes imposed on Seller Corp.
or for which Seller Corp. is liable, whether to taxing authorities (as, for
example, under local law) or to other persons or entities (as, for example,
under tax allocation agreements), with respect to all taxable periods or
portions of periods ending on or before the Closing Date, all applicable
tax laws and agreements have been fully complied with, and all such amounts
required to be paid by Sellers in respect of Seller Corp. to taxing
authorities or others on or before the date hereof have been paid.
(3) No issues have been raised (and are currently pending) by any taxing
authority in connection with any of the Tax Returns. No waivers of
statutes of limitation have been given by or requested from Seller Corp.
All deficiencies asserted or assessments made as a result of any
examinations have been fully paid, or are fully reflected as a liability in
the financial statements of Seller Corp., or are being contested and an
adequate reserve therefor has been established and is fully reflected in
the Financial Statements.
(4) There are no Liens for Taxes on the Assets of Seller Corp.
(5) None of the Assets is property that is required to be treated as being
owned by any other person pursuant to the "safe harbor lease" provisions of
former Section 168(f)(8) of the Code.
(6) None of the Assets directly or indirectly secures any debt the interest
on which is tax-exempt under Section 103(a) of the Code.
(7) None of the Assets is "tax-exempt use property" within the meaning of
Section 168(h) of the Code.
(8) Seller Corp. is not a person other than a U.S. person within the
meaning of the Code.
(9) The transaction contemplated by this Agreement is not subject to the
tax withholding provisions of Section 3406 of the Code or of any other
provision of law.
(10) Seller Corp. has not filed a consent under Section 341(f) of the Code
concerning collapsible corporations. Seller Corp. has not made any
payments, is not obligated to make any payments, nor is a party to any
agreement that under certain circumstances could obligate it to make any
payments that will not be deductible under Section 280G of the Code.
Seller Corp. has not been a U.S. real property holding corporation within
the meaning of Section 897(c)(2) of the Code during the applicable period
specified in Section 897(c)(1)(A)(ii) of the Code. Seller Corp. has
disclosed on its federal income Tax Returns all positions taken therein
that could give rise to a substantial understatement of federal income Tax
within the meaning of Section 6662 of the Code. Seller Corp. has not
entered into any Tax allocation or sharing agreement. Seller Corp. (A) has
not been a member of an affiliated group, within the meaning of Section
1504(a) of the Code, filing a consolidated federal income Tax Return (other
than a group the common parent of which was Seller Corp.) and (B) does not
have any liability for the Taxes of any person or entity (other than of
Seller Corp. and Subsidiary) under Treasury Regulation section 1.1502-6 (or
any similar provision of state, local, or foreign law), as transferee or
successor, by contract, or otherwise.
Consummation of the transactions herein contemplated will not result in the
imposition or creation of any Tax liabilities on Seller Corp. or the
Assets, except for: (1) Tax liabilities which remain the liability of
Sellers; or (2) Tax liabilities resulting from any Tax election made by
Purchaser as of the Closing.
(i) Intangible Assets. Appendix 2.1(i) to the Sellers' Disclosure Letter
sets forth
(1) all patents, patent applications, trademarks, trademark registrations,
applications for trademark registrations, trade names and copyrights (i)
which Seller Corp. or any Subsidiary owns, or (ii) which are used by Seller
Corp. or any Subsidiary in any way in, or are necessary for the conduct by
Seller Corp. or any Subsidiary of, the Business; and
(2) all license agreements with respect to any of the foregoing as to which
Seller Corp. is licensor or licensee.
Except as set forth in Appendix 2.1(i) to Sellers' Disclosure Letter, (i)
there are no pending or, to the knowledge of Sellers, threatened
infringement claims against Seller Corp. by any Person with respect to any
of the items listed on Appendix 2.1(i) to the Sellers' Disclosure Letter,
nor has any such item been declared invalid or been limited by any court or
agreement; (ii) the Intangible Assets will afford Seller Corp. at all times
as of the Closing the rights to use all patents, technology, proprietary
information, know-how, data, designs, inventions, trademarks, copyrights,
tradenames and servicemarks owned by Seller Corp. or others necessary for
the conduct of the Business as presently being conducted; and (iii) the use
of the Intangible Assets will not and, the conduct of the Business as
presently conducted does not, infringe on the rights of any other Person.
(j) Instruments in Full Force and Effect; Possession under Leases. The
Scheduled Contracts and other material commitments, agreements and
obligations (including without limitation licenses, royalties, assignments
and similar agreements with respect to the Intangible Assets) constituting
a part of the Assets ("Instruments") are valid, binding and in full force
and effect, except as the enforceability thereof may be limited by
bankruptcy, reorganization, fraudulent conveyance, insolvency and similar
laws of general application relating to or affecting the enforcement of
rights of creditors and general principles of equity, and have not been
amended or supplemented in any manner or respect except as disclosed on
Appendix 2.1(j) to the Sellers' Disclosure Letter and are enforceable by
Seller Corp. in accordance with their respective terms. There are no
defaults by Seller Corp. thereunder and Seller Corp. knows of no defaults
thereunder by any other party thereto, and Sellers know of no event that
has occurred that with the lapse of time or action or inaction by any party
thereto would result in a violation thereof or a default thereunder.
Except for the need to obtain the consents contemplated by Section 2.1(b),
none of the rights under the Instruments will be impaired by the
consummation of the transactions contemplated by this Agreement, and all
such rights will inure to and be enforceable by Seller Corp. as of the
Closing without the authorization, consent, approval, permit or licenses
of, or filing with, any other Person. Seller Corp. enjoys peaceful and
undisturbed possession under all leases included in the Scheduled
Contracts.
(k)Employee Plans and Agreements.
(1) Appendix 2.1(k)-1 to the Sellers' Disclosure Letter (i) lists all of
the pension plans, all of the profit sharing plans, and all of the
retirement, stock option, stock purchase, incentive, bonus, life, medical,
vision, health, disability or accident plans, deferred compensation plans,
and other employee compensation or benefit plans, agreements, policies,
contracts, arrangements or commitments, including without limitation
severance agreements, holiday, vacation or other similar matters, other
"employee welfare benefit plans" (as defined in Section 3(1) of ERISA),
"employee pension benefit plans" (as defined in Section 3(2) of ERISA and
not exempted under Sections 4(b) or 201 of ERISA) and labor union
agreements, relating to officers or employees (including former officers or
employees) of Seller Corp. or any of its affiliates who perform services
to, in the name of or for the benefit of the Business ("Employees")
(collectively the "Plans" and individually a "Plan"), (ii) identifies each
Plan which is a defined benefit plan as defined in Section 3(35) of ERISA
(a "Defined Benefit Plan") or is a multi-employer plan within the meaning
of Section 3(37) of ERISA (a "Multi-Employer Plan"), (iii) identifies each
of the Plans which purports to be a tax qualified plan under Section 401(a)
of the Code and identifies any trust funding any of such plans which
purports to be a tax exempt trust under Section 501(c)(9) of the Code, and
(iv) in the case of each Multi-Employer Plan, sets forth the Seller Corp.
contributions made to such Plan for the last plan year ending prior to the
date of this Agreement. Seller Corp. has delivered, or will deliver prior
to the Closing, to Purchaser the following documents as in effect on the
date hereof: (A) true, correct and complete copies of each Plan, including
all amendments thereto, which is an employee pension benefit or welfare
benefit plan (within the meaning of Sections 3(1) or 3(2) of ERISA), and in
the case of any unwritten Plans, descriptions thereof, (B) with respect to
any Plans or Plan amendments described in the foregoing clause (A), (i) the
most recent determination letter issued by the IRS after September 1, 1974,
if any, (ii) all trust agreements or other funding agreements, including
insurance contracts, (iii) with respect to each Defined Benefit Plan, all
notices of intent to terminate any such Employee Plan and all notices of
reportable events with respect to any such Employee Plan as to which the
PBGC has not waived the thirty (30) day notice requirement, (iv) the most
recent actuarial valuations, annual reports, summary plan descriptions,
summaries of material modifications and summary annual reports, if any, and
(v) with respect to any Multi-Employer Plan, a schedule of the amount of
potential withdrawal liability if Seller Corp. incurred a partial or
complete withdrawal (as defined in Sections 4205 and 4203 of ERISA,
respectively) as of the Closing Date, calculated according to the
information made available under Section 4221(e) of ERISA.
(2) Each of the Plans that purports to be qualified under Section 401(a) of
the Code is qualified and any trusts under such Plans are exempt from
federal income Tax under Section 501(a) of the Code. The retroactive cure
period with respect to any Plan amendments not yet submitted to the IRS has
not expired. The Plans each comply in all material respects with all other
applicable laws (including, without limitation, ERISA, the Age
Discriminations in Employment Act, the Omnibus Budget Reconciliation Act of
1986, the Consolidated Budget Reconciliation Act of 1986, and the Omnibus
Budget Reconciliation Act of 1987) of the United States and any applicable
collective bargaining agreement. Each of the trusts that purports to be a
tax exempt trust under Section 501(c)(9) of the Code has received a
favorable ruling or determination letter as to its tax-exempt status.
Other than claims for benefits submitted by participants or beneficiaries
or appeals from denial thereof, there is no litigation, legal action, suit,
investigation, claim, counterclaim or proceeding pending or, to Sellers'
knowledge, threatened against any Employee Plan.
(3) With respect to any Plan, no prohibited transaction (within the meaning
of Section 406 of ERISA and/or Section 4975 of the Code) exists which could
subject Seller Corp. or Purchaser to any material liability or civil
penalty assessed pursuant to Section 502(i) of ERISA or a material Tax
imposed by Section 4975 of the Code. Neither Seller Corp., nor any of its
respective Affiliates, nor any administrator or fiduciary of any Plan (or
agent of any administrator or fiduciary of any Plan (or agent of any of the
foregoing) has engaged in any transaction or acted or failed to act in a
manner which is likely to subject Seller Corp. to any liability for a
breach of fiduciary or other duty under ERISA or any other applicable law.
The transactions contemplated by the Operative Documents will not be, or
cause any, prohibited transaction.
(4) No Defined Benefit Plan has been terminated or partially terminated
after September 1, 1974.
(5) No plan termination liability to the PBGC or to any other person or
withdrawal liability to any Multi-Employer Plan has been or is expected to
be incurred with respect to any Plan or with respect to any employee
benefit plan sponsored by any entity under common control (within the
meaning of Section 414 of the Code) with Seller Corp. by reason of any
action taken by any Seller, or any of their respective affiliates prior to
the Closing Date. The PBGC has not instituted, and is not expected to
institute, any proceedings to terminate any Plan. As of the Closing, each
Defined Benefit Plan (other than a Multi-Employer Plan) to which Title IV
of ERISA applies could be terminated in a standard termination under
Section 4041(b) of ERISA. There has been no "reportable event" (within the
meaning of Section 4043(b) or ERISA and the regulations thereunder) with
respect to any Plan, and there exists no condition or set of circumstances
which makes the termination of any Plan by the PBGC likely. Seller Corp.
has not received any written notice that any Multi-Employer Plan is in
reorganization, that increased contributions may be required to avoid a
reduction in Plan benefits or the imposition of any excise tax or that the
plan is or may become insolvent. Seller Corp. has paid all premiums (and
interest charges and penalties for late payment, if applicable) due to the
PBGC with respect to any Plan. No amendment to any Plan has occurred which
has required or could require the provision of security to any such Plan
under Section 401(a)(29) of the Code.
(6) All filings required by ERISA and the Code as to each Plan have been
timely filed and all notices and disclosures to participants required by
ERISA or the Code have been timely provided.
(7) Except as indicated in Appendix 2.1(k)-2 to the Sellers' Disclosure
Letter, Seller Corp. has made full and timely payment of all amounts
required under the terms of each of the Plans that are employee pension
benefit plans, including the Multi-Employer Plans, to have been paid as
contributions to such plans for the last plan year ended prior to the date
of this Agreement and all prior plan years. All installment contributions
required pursuant to Section 412(m) of the Code with respect to any Plan
have been paid by Seller Corp. on or before the due date for such
contributions. No accumulated funding deficiency (as defined in Section
302 of ERISA and Section 412 of the Code), whether or not waived, exists
with respect to any Plan as of the end of such plan year. Further, Seller
Corp. has made or shall make full and timely payment of or has accrued or
shall accrue all amounts which are required under the terms of the Plans to
be paid as a contribution to each such Plan with respect to the period from
the end of the last plan year ending before the date of this Agreement to
the Closing Date.
(8) All contributions made to or accrued with respect to all Plans are
deductible under Section 404 or 162 of the Code. No amounts, nor any
assets or any Plan are subject to Tax as unrelated business taxable income
under Section 511, 512, or 419A of the Code.
(9) Seller Corp. can unilaterally terminate all Plans other than the Plans
identified on Appendix 2.1(k)-3 to the Sellers' Disclosure Letter without
incurring any material liability.
(10) No Plan provides (or has any obligation or commitment to provide)
health, medical, disability, life or other similar benefits with respect to
any current or former employees (or beneficiary thereof) of Seller Corp.
beyond their retirement or other termination of service (other than
coverage mandated by Title I, Subtitle B, Part 6 of ERISA, which coverage
is fully paid by the former employee or his dependents).
(l) Labor and Employee Relations.
(1) Except as listed in Appendix 2.1(l)-1 to the Seller's Disclosure
Letter, there exists no collective bargaining agreement or other labor
union contract applicable to any employee of Seller Corp. and no such
agreement or contract has been requested by any employee or group of
employees of Seller Corp., nor has there been any discussion with respect
thereto by management of Seller Corp. or Subsidiary with any employees of
Seller Corp. Neither Seller Corp. nor Subsidiary has received any written
notification of any unfair labor practice charges or complaints currently
pending before any agency having jurisdiction thereof nor are there any
current union representation claims involving any of the employees of
Seller Corp. Further, Sellers are not aware of any such threatened charges
or claims.
(2) Except as set forth in Appendix 2.1(l)-2 to the Seller's Disclosure
Letter, Sellers are not aware of any union organizing activities or
proceedings involving, or any pending petitions for recognition of, a labor
union or association as the exclusive bargaining agent for, or where the
purpose is to organize, any group or groups of employees of Seller Corp.
There is not currently pending, with regard to any of its facilities, any
proceeding before the National Labor Relations Board, wherein any labor
organization is seeking representation of any employees of Seller Corp.
(3) Except as set forth in Appendix 2.1(l)-3 to the Sellers' Disclosure
Letter, Sellers are not aware of any strikes, work stoppages, work
slowdowns or lockouts nor of any threats thereof, by or with respect to any
of the employees of Seller Corp. Since January 1, 1988 there have been no
labor disputes, strikes, slowdowns, work stoppages, lockouts or similar
matters involving employees of Seller Corp.
(4) Except as set forth in Appendix 2.1(l)-4 to the Sellers' Disclosure
Letter, there are not pending any grievances filed by employees of Seller
Corp. within any collective bargaining unit or by representatives of
employees within any collective bargaining unit. Further, there are no
arbitration decisions, settlement agreements, injunctions, consent decrees
or conciliation agreements which affect the operation of the Business other
than those specifically listed in Appendix 2.1(l) to the Sellers'
Disclosure Letter.
(5) Except as set forth in Appendix 2.1(l)-5 to the Sellers' Disclosure
Letter, there exists (i) no charges of discrimination or lawsuits involving
alleged violations of any fair employment law, wage payment law, or
occupational safety and health law, (ii) no threatened or pending
litigation arising out of employment relationships, or other
employment-related law, whether federal, state or local, and (iii) no
threatened or pending litigation arising out of employment relationships,
presently threatened or pending, by any employee or former employee of
Seller Corp. or any representative of any such Person or Persons. No
charges or claims involving any of the facilities or employees of Seller
Corp. are pending before any administrative agency, local, state or
federal, and no lawsuits involving any of such facilities or employees are
pending with respect to equal employment opportunity, age discrimination,
occupational safety, or any other form of alleged employment practice or
unfair labor practice.
(6) Seller Corp. and Subsidiary comply in all material respects with all
applicable laws, rules and regulations relating to the employment of labor,
including, but without limitation, those relating to wages, hours,
concerted activity, non-discrimination, occupational health and safety and
the payment and withholding of Taxes, and Seller Corp. has no accrued
liability for any arrears of wages or any Taxes or penalties for failure to
comply with any of the foregoing.
(7) The only labor union or labor organization or association which has
been certified to represent any of the employees of Seller Corp., or which
Seller Corp. now recognizes, or in the past two (2) years has recognized,
as representing any of the employees of Seller Corp. is (i) The
International Brotherhood of Boilermakers, Iron Ship Builders, Blacksmiths,
Forgers and Helpers, (ii) International Union of Operating Engineers, AFL-
CIO, Local 542 and (iii) Laborers' International Union of North America,
AFL-CIO. Appendix 2.1(l)-1 to the Sellers' Disclosure Letter contains an
accurate description of the applicable union agreements.
(m) Real Property.
(1) Seller Corp. owns no real property.
(n) Absence of Certain Changes, Etc. Except as disclosed in the Interim
Financial Statements or on Appendix 2.1(n) to the Sellers' Disclosure
Letter, since March 31, 1996, there has been no material adverse change in
the business, financial condition or results of operations of Seller Corp.
from that reflected in the Audited Financial Statements.
Since March 31, 1996 and except as disclosed on Appendix 2.1(n) to the
Sellers' Disclosure Letter, Seller Corp. has
(1) conducted its operations in the ordinary course;
(2) not entered into any material transaction or contract, or amended or
terminated any material transaction or contract, except normal transactions
or contracts consistent in nature and scope with prior practices and
entered into in the ordinary course of business, and except for
transactions or contracts not exceeding $25,000;
(3) not mortgaged, sold, transferred, distributed or otherwise disposed of
any of its material Assets, except in the ordinary course of business and
except for transactions or contracts not exceeding $25,000, or acquired a
material amount of the assets or capital stock of another Person;
(4)not experienced any damage, destruction or loss to or of any of its
material Assets except (i) in the ordinary course of business, (ii) Assets
not exceeding $25,000 in the aggregate, (iii) to the extent that any Asset
damaged, destroyed or lost has been repaired or replaced and (iv) where the
failure to repair or replace any Asset damaged would not result in a
Material Adverse Effect;
(5) not made or agreed to make any capital expenditures for additions to
property, plant or equipment, except for vehicle leases and expenditures
and commitments not exceeding $25,000 in the aggregate;
(6)not made or agreed to make any change in the compensation payable to any
employee, except for increases in compensation in the ordinary course of
business substantially consistent with past practices of Seller Corp.;
(7) not declared or paid any dividends or distributions to, or redeemed
stock from, its stockholders;
(8) not reduced its cash or short-term investments, other than to meet cash
needs arising in the ordinary course of business;
(9) not made any change in its accounting methods or practices;
(10) except for short-term bank borrowings in the ordinary course of
business and drawdowns on an equipment line to finance the purchase of
certain Vehicles, not incurred indebtedness for borrowed money;
(11) not granted credit to any material customer or distributor on terms
materially more favorable than the terms on which credit has been extended
to such customer or distributor in the past nor materially changed the
terms of any credit previously extended; or
(12) not accepted any order that involves a customer that is more than 120
days delinquent in an account receivable of Seller Corp.
(o) Subsidiaries.
(1) Except for Maintenance Services, Inc. and Mainserv-Allentech, Inc.,
each a Delaware corporation (collectively "Subsidiary"), there is no
corporation, partnership, joint venture, business trust or other legal
entity in which Seller Corp., either directly or indirectly through one or
more intermediaries, owns or holds beneficial or record ownership of at
least a majority of the outstanding voting shares.
(2) Subsidiary is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware (the jurisdiction of
its incorporation) and has full corporate power and authority to carry on
its business as it is now being conducted, to own or hold under lease the
assets which it owns or holds under lease and to perform all its agreements
and instruments to which it is a party or by which it is bound.
(3) Except as set forth in Appendix 2.1(o) to the Sellers' Disclosure
Letter, the representations set forth elsewhere in this Section 2.1 are
hereby restated herein by this reference as to Subsidiary and are true and
correct as to Subsidiary, but are subject to the same qualifications and
conditions as are applicable to Seller Corp.
(p) Material Contracts, Etc. Appendix 2.1(p) to the Sellers' Disclosure
Letter lists all contracts, leases, agreements and instruments material to
the Business or requiring the performance by Seller Corp. of any material
obligations of Seller Corp. after the date hereof, except the following:
(1) employment agreements terminable at will and contracts for
miscellaneous services terminable at will without the payment of any
penalty (except that all employment agreements with executive officers of
Seller Corp. are listed on Appendix 2.1(p) to Sellers' Disclosure Letter);
(2) purchase orders and contracts with suppliers and customers entered into
in the ordinary course of business; and
(3) miscellaneous contracts, leases, agreements and instruments (with
Persons unaffiliated with Sellers) involving liabilities under all such
contracts, leases, agreements and instruments of not more than $25,000 each
in the aggregate.
Sellers have heretofore delivered or made available to Purchaser or its
counsel complete copies of all contracts, leases, agreements and
instruments listed on Appendix 2.1(p) to the Sellers' Disclosure Letter.
There are no existing defaults by Seller Corp., or to the knowledge of any
Seller, other parties, under any of the contracts, leases, agreements and
instruments listed on Appendix 2.1(p) to the Sellers' Disclosure Letter
which would, singly or in the aggregate, cause a Material Adverse Effect.
Except as set forth in Appendix 2.1(p) to the Sellers' Disclosure Letter,
Seller Corp. is not a party to any agreement, contract or covenant limiting
the freedom of Seller Corp. or any party contracting with Seller Corp. from
competing in any line of business or with any Person in any geographic
area.
(q) Licenses and Permits. Seller Corp. and certain employees of Seller
Corp. possess all the Permits listed in Appendix 2.1(q) to the Sellers'
Disclosure Letter, copies of all of which have been delivered to Purchaser.
Such Permits constitute all the Permits necessary under law or otherwise
for Seller Corp. to conduct the Business as now being conducted and to
construct, own, operate, maintain and use the Assets in the manner in which
they are now being constructed, operated, maintained and used, except for
those Permits that failure to have does not have a Material Adverse Effect.
Each of such Permits and Seller Corp.'s rights with respect thereto (1) is
valid and subsisting, in full force and effect, and enforceable by Seller
Corp., and (2) following consummation of the transactions contemplated
hereby, will continue to be valid and subsisting in full force and effect,
and enforceable by Seller Corp. without any consent or approval of any
Governmental Body or third party; or, in lieu of such existing Permits,
replacement or substitute Permits, except as set forth in Appendix 2.1(q)
to the Sellers' Disclosure Letter, will be available to or obtainable by
Seller Corp. Seller Corp. is in compliance in all material respects with
the terms of such Permits. None of such Permits have been, or to the
knowledge of Sellers, are threatened to be, revoked, canceled, suspended or
modified.
(r) Environmental Matters. Except as set forth in Appendix 2.1(r) to the
Sellers' Disclosure Letter:
(1) There have been no circumstances or events arising from or caused by
the business of Seller Corp. or on real property, equipment and fixtures
presently or formerly owned, leased or operated by Seller Corp. ("Seller
Corp. Sites") while owned, leased or operated by Seller Corp. which caused
any Environmental Event with respect to the Seller Corp. Sites, any nearby
properties or off-site treatment, storage, recycling, reclaiming or
disposal sites;
(2) No Environmental Materials have migrated or threatened to migrate from
other properties upon, about or beneath a Seller Corp. Site;
(3) There is no proceeding pending, no notice, notification, demand,
request for information, citation, summons or order has been issued, no
complaint has been filed, no penalty has been assessed, and no
investigation or review is pending or threatened by any Governmental
Authority or other person:
(i) with respect to any violation of any Environmental Law in connection
with the Assets of the Seller Corp., or operations or conduct of the
business of Seller Corp.;
(ii) with respect to any failure of Seller Corp. or any Subsidiary to have
any required Governmental Approval relating to Environmental Materials or
Environmental Events; or
(iii) with respect to any generation, treatment, storage, recycling,
reclaiming, transportation, or disposal of any Environmental Material that
could cause an Environmental Event, generated by the operations or business
of Seller Corp. or located on Assets of Seller Corp., or any Seller Corp.
Site;
(4) No Person has placed, held, located or released any Environmental
Material on any Assets of Seller Corp. or Seller Corp. Site, equipment or
fixtures so as to cause an Environmental Event;
(5) The Seller Corp. Sites, equipment and fixtures have been operated in
material compliance with all Environmental Laws;
(6) There are no underground or aboveground storage tanks, pits, sumps or
impoundments, active or abandoned, situated on any Seller Corp. Site;
(7) Neither the Seller Corp. nor any Subsidiary has transported or arranged
for the transportation, storage, and/or disposal (directly or indirectly)
of any Environmental Material to or at any location that is listed or
proposed for listing on the CERCLA National Priority List or any comparable
state list, or that is the subject of an Environmental Event;
(8) There are no environmental liens on the Assets of Seller Corp. and
Seller has not received any written notice of any actions taken by any
Governmental Authority that could subject any of the Assets of Seller Corp.
to an environmental lien under any Environmental Law.
(9) All notices required by all Environmental Laws have been given to the
required agencies and/or authorities except such notices the failure to
give would not result in a Material Adverse Effect;
(10) Seller Corp. holds, is and has been in compliance with all necessary
environmental Governmental Approvals, there is no condition that is
reasonably likely to prevent or materially interfere in the near future
with compliance with the Governmental Approvals by Seller Corp. on the
Closing Date, and all permit fees are paid and current; and
(11) All financial assurances required by Environmental Laws are properly
in place and are fully funded to the extent presently required by
Environmental Laws.
As used in this Agreement,
(A) "Environmental Event" shall mean the spilling, discharging, leaking,
pumping, draining, pouring, interring, emitting, emptying, injecting,
escaping, dumping, disposing, abandoning, migration or other release of any
kind of Environmental Materials (whether legal or illegal at the time)
which may results in a violation of any Environmental Laws. "Environmental
Event" shall also include (i) the occurrence of any judicial, quasi-
judicial or administrative proceedings pursuant to any Environmental Laws;
and (ii) any claims, demands, actions, causes of actions, remedial and/or
abatement response, remedial investigations/feasibility studies, ecological
studies, screening level studies, risk assessments, facility studies,
environmental studies, natural resource damage claims, damages, judgments,
or settlements instituted by a Governmental Authority in accordance with
Environmental Law.
(B) "Environmental Laws" means any and all laws (including, but not limited
to, the Comprehensive Environmental Response, Compensation and Liability
Act (CERCLA) and corresponding state acts), statutes, ordinances, rules,
regulations, memoranda of understanding, orders, licenses, judicial
decrees, or administrative orders, treaties or permit conditions of any
Governmental Authority pertaining to the workplace and/or health or the
environment in effect in the jurisdiction in which the Seller Corp. Sites
and/or the Seller Corp. are located, and all statutory and common law
environmental theories, including but not limited to negligence, strict
liability, nuisance and trespass.
(C) "Environmental Material" shall include all substances whatsoever which
could cause the occurrence of an Environmental Event.
(D) "Governmental Approval" means any authorizations, consents, approvals,
waivers, exemptions, variances, franchises, permits and licenses issued by
any Governmental Authority.
(E) "Governmental Authority" means any federal, state, local, or foreign
government, or political subdivision thereof, exercising competent
jurisdiction.
(F) "On" or "in", when used with respect to real property means "on, in,
under, above or about."
(s) Absence of Certain Business Practices. Neither Seller Corp. nor any
officer, employee or agent of Seller Corp., nor any other Person acting on
its behalf, has, directly or indirectly, within the past five years, given
or agreed to give any gift or similar benefit to any customer, supplier,
government employee or other Person who is or may be in a position to help
or hinder the business of Seller Corp. (or to assist Seller Corp. in
connection with any actual or proposed transaction) which (1) might subject
Seller Corp. to any damage or penalty in any civil, criminal or
governmental litigation or proceeding, (2) if not given in the past, might
have had a Material Adverse Effect on the assets, business or operations of
Seller Corp. as reflected in the Audited Financial Statements, or (3) if
not continued in the future, might materially adversely effect the Assets,
business operations or prospects of Seller Corp. or which might subject
Seller Corp. to suit or penalty in a private or governmental litigation or
proceeding.
(t) Corporate Name. The use of the corporate name of Mainserv-Allentech,
Inc. does not infringe the right of any third party nor is it confusingly
similar with the corporate name of any third party. After the Closing
Date, no Person or business entity other than Purchaser will be authorized
directly or indirectly to use the corporate name of Seller Corp. or any
name deceptively or confusingly similar thereto.
(u) Customers and Suppliers. Sellers have delivered to Purchaser prior to
the date hereof (1) a true and correct list of (i) the ten (10) largest
customers of Seller Corp. in terms of sales during the fiscal year ended
March 31, 1996, and (ii) the ten (10) largest customers of Seller Corp. in
terms of sales during the nine months ended December 31, 1996, showing the
approximate total sales to each such customer during each of such periods;
(2) a true and correct list of (x) the ten (10) largest suppliers of Seller
Corp. in terms of purchases during the fiscal year ended March 31, 1996 and
(y) the ten (10) largest suppliers of Seller Corp. in terms of purchases
during the nine months ended December 31, 1996, showing the approximate
total purchases from each such supplier during such respective periods.
Except to the extent set forth in such list, there has not been any
material adverse change in the business relationship of Seller Corp. with
any customer or supplier so named in the Sellers' Disclosure Letter.
Except for the customers and suppliers identified in such list, Seller
Corp. has not had any customer which accounted for more than 5% of its
sales during the period from March 31, 1995 through and including the date
hereof, or any supplier from whom it purchased more than 5% of the total
goods or services purchased by it during such period.
(v) Competing Lines of Business. Except as set forth in Appendix 2.1(v) to
the Sellers' Disclosure Letter, no Affiliate of Seller Corp. owns, directly
or indirectly, any interest in (excepting not more than a 5% holding for
investment purposes in securities of publicly held and traded companies),
or is an officer, director, employer or consultant of or otherwise receives
remuneration from, any Person which is, or is engaged in business as, a
competitor, lessor, lessee, customer or supplier of Seller Corp. Seller
Corp. does not have, and no officer or director or stockholder of Seller
Corp. or any Affiliate of Seller Corp. has nor, during the period beginning
January 1, 1993 through, to and including the date hereof, had any interest
in any property, real or personal, tangible or intangible, used in or
pertaining to the Business. None of the Sellers has any claim against
Seller Corp. except as set forth in Appendix 2.1(v) to the Sellers'
Disclosure Letter.
(w) Disclosure.
(1) No representation or warranty of Sellers contained in this Agreement or
statement in the Sellers' Disclosure Letter omits to state a material fact
necessary in order to make the statements herein or therein, in light of
the circumstances under which they were made, not misleading.
(2) No supplement to the Sellers' Disclosure Letter made pursuant to
Section 3.8 will omit to state a material fact necessary in order to make
the statements therein or in this Agreement, in light of the circumstances
under which they were made, not misleading.
(3) Notwithstanding paragraphs (1) and (2) above, neither Sellers nor
Seller Corp. make any representation or warranty concerning the accuracy of
any financial projections delivered to Purchaser or the likelihood that
Seller Corp. will perform as stated therein.
(4) There is no particular fact known to any Seller which has specific
application to any Seller, Seller Corp. or the Business (other than general
economic or industry conditions) and which materially adversely affects or
materially threatens, the Assets, business, financial condition or results
of operations of Seller Corp. considered as a whole which has not been set
forth in this Agreement or the Sellers' Disclosure Letter.
Section 2.2 Representations and Warranties of Purchaser. Purchaser
represents and warrants to Sellers that the following are true and correct
on and as of the date of this Agreement and will be true and correct as of
the Closing as if made on and as of that date:
(a) Organization and Good Standing of Purchaser. Purchaser is a
corporation duly organized, validly existing and in good standing under the
laws of the state of Delaware and is qualified to transact business and is
in good standing as a foreign corporation in the jurisdictions where it is
required to qualify in order to conduct its businesses as presently
conducted. Purchaser has the corporate power and authority to own, lease
or operate all properties and assets now owned, leased or operated by it
and to carry on its businesses as now conducted.
(b) Consents, Authorizations and Binding Effect.
(1) Purchaser may execute, deliver and perform this Agreement without the
necessity of Purchaser obtaining any consent, approval, authorization or
waiver or giving any notice or otherwise, except for such consents,
approvals, authorizations, waivers and notices which have been obtained and
are unconditional and are in full force and effect and such notices which
have been given.
(2) Purchaser has the corporate power and authority to enter into this
Agreement and the Operative Documents to which it is a party and to carry
out its obligations hereunder and thereunder. This Agreement has been duly
authorized, executed and delivered by Purchaser. This Agreement
constitutes the legal, valid and binding obligation of Purchaser,
enforceable in accordance with its terms, except as may be limited by
bankruptcy, reorganization, insolvency and similar laws of general
application relating to or affecting the enforcement of rights of
creditors.
(3) The execution, delivery and performance of this Agreement do not and
will not
(i) constitute a violation of the Certificate of Incorporation, as amended,
or the Bylaws, as amended, of Purchaser;
(ii) constitute a violation of any statute, judgment, order, decree or
regulation or rule of any Governmental Body applicable or relating to
Purchaser or the business of Purchaser;
(iii) conflict with, or constitute a breach or default under, or give rise
to any right of termination, cancellation or acceleration under, any term
or provision of any contract, agreement, lease, mortgage, deed of trust,
commitment, license, franchise, Permit, authorization or any other
instrument or obligation to which Purchaser is a party or by which its
assets are bound, or an event which with notice, lapse of time, or both,
would result in any such conflict, breach, default or right, except as
would not, singly or in the aggregate, have a Material Adverse Effect on
Purchaser.
(c) Financial Statements. The audited and unaudited financial statements
(the "Financial Statements") of Purchaser included in the Purchaser's Form
10-K for the fiscal year ended May 31, 1996 and the Purchaser's Form 10-Q
for the quarterly period ended February 28, 1997 have been delivered to
Sellers. The Financial Statements have been prepared from the books of
Purchaser in conformity with GAAP and present fairly the financial position
of Purchaser as of the dates of such statements. Since the date of the
most recent Financial Statements, there has not been any material adverse
change in the financial condition of the Purchaser. The financial
information delivered to Sellers regarding the Michigan and New Jersey
operations of Purchaser is true and correct in all material respects.
(d) Financing. Purchaser has the financing necessary to fulfill its
obligation to pay the Purchase Price.
ARTICLE III
CONDUCT AND TRANSACTIONS PRIOR TO CLOSING
Section 3.1 Access to Records and Properties; Confidentiality.
(a) Between the date of this Agreement and as of the Closing, Sellers shall
cause Seller Corp. to give, and Seller Corp. shall give, to Purchaser and
its advisors such access to the premises, books and records of Seller
Corp., and to cause the officers, employees and accountants of Seller Corp.
to furnish such financial and operating data and other information with
respect to Seller Corp. as Purchaser shall from time to time reasonably
request. Without limiting the generality of the foregoing, Sellers shall
cause Seller Corp. to give, and Seller Corp. shall give, to Purchaser and
its representatives access during normal business hours to the facilities
and operations of Seller Corp. so that Purchaser may (1) obtain evaluations
of the Assets and (2) perform any and all assessing, testing, monitoring
and investigating that Purchaser deems necessary in its sole discretion
with respect to environmental matters concerning Seller Corp., its Assets
and the operation of the Business. Any investigation pursuant to this
Section 3.1 shall be conducted in such manner as not to interfere
unreasonably with the business and operations of Seller Corp.
(b)In connection with the transactions contemplated by this Agreement, in
addition to, and not by way of limitation of, any other obligations of
Purchaser under or pursuant to any other agreement, whether written or
oral, with any Seller or any other obligations of Purchaser at law or in
equity, all information furnished to a party will be kept confidential by
such party and its associates, Affiliates, agents, employees, consultants
and advisors prior to the Closing Date, or in the event the Closing does
not occur at all times, and will not be used in any manner adverse to the
furnishing party. During such time, each party will hold and will cause
its associates, Affiliates, agents, employees, consultants and advisors to
hold in strict confidence, unless compelled to disclose by judicial or
administrative process or, in the opinion of its counsel, by other
requirements of law, all documents and information concerning another party
furnished to it by such other party or its representatives in connection
with the transactions contemplated by this Agreement (except to the extent
that such information can be shown to have been (1) previously available to
the party to which it was furnished on a non-confidential basis prior to
its disclosure, (2) in the public domain or (3) available on a
non-confidential basis from a Person other than a Person not bound by any
confidentiality agreement). Purchaser may release or disclose such
information to its associates, Affiliates, agents, employees, consultants
and advisors in connection with this Agreement prior to the Closing Date or
in the event the Closing does not occur only if such associates,
Affiliates, agents, employees, consultants and advisors are informed of the
confidential nature of such information and they agree to such confidential
treatment of all such information. If the transactions contemplated by
this Agreement are not consummated, Purchaser agrees to remain bound by the
Nonsolicitation and Confidentiality Agreement previously executed by
Purchaser, a copy of which is attached hereto as Exhibit 3.1-1 and
incorporated herein for all purposes. Notwithstanding the foregoing, if a
party has been requested or is required (by oral questions,
interrogatories, requests for information or documents, subpoena, civil
investigative demand or similar process) to disclose any information, the
party so being required will promptly notify the other parties so that such
other parties may seek an appropriate protective order. Each party
warrants that it will cooperate fully with the other parties in seeking
such a protective order.
Section 3.2 Operation of Seller Corp. Between the date hereof and as of
the Closing, except as contemplated herein or except with the prior consent
of Purchaser, Sellers shall:
(a) cause Seller Corp. to operate the Business as presently operated, only
in the ordinary course, and in material compliance with all laws,
regulations, writs, injunctions, decrees or orders applicable to Seller
Corp. or its Assets, including without limitation all environmental, safety
and health, antitrust, consumer protection, labor, equal opportunity or
discrimination laws, rules and regulations;
(b) cause the tangible Assets to be maintained and repaired in accordance
with past practices of Seller Corp.;
(c) not dispose of, or commit to dispose of, any Assets other than in the
ordinary course of business, including without limitation, the liquidation
of Accounts and the sale and delivery of Inventory and products covered by
Backlog Orders, all in the ordinary and customary course of Seller Corp's
business;
(d) actively market the Products and services of Seller Corp. in accordance
with its usual practices;
(e) continue in effect as of the Closing all present insurance coverage
with respect to the Assets, the Business and the Employees;
(f) not take any of the actions identified in Section 2.1(n); and
(g) repay in full any indebtedness to Seller Corp. set forth in Appendix
3.2(g) to Sellers' Disclosure Letter.
Sellers shall not effect any amendment to the Certificate of Incorporation
or the Bylaws of Seller Corp. and shall not cause or permit the issuance of
any additional shares of the capital stock or equity interests (or options,
warrants or other rights to acquire capital stock or equity securities) of
Seller Corp.
Sellers shall use best efforts to operate and maintain, or to cause to be
operated and maintained, the Business and the Assets in such a manner so
that the representations and warranties of Sellers contained herein shall
continue to be true and correct in all material respects on and as of the
Closing as if made on and as of the Closing.
Section 3.3 Consents. Sellers shall use their respective best efforts to
obtain any consents of Governmental Bodies, suppliers, distributors, and
other Persons required in order for Sellers to sell and transfer the Shares
pursuant to this Agreement. Purchaser shall use its best efforts to assist
Sellers in obtaining such consents.
Section 3.4 No Public Announcements or Negotiation with Others.
(a) Except as required by law, the parties hereto shall not issue any press
release or make any public statement regarding the transactions
contemplated by this Agreement without obtaining the prior consent of the
other party, which consent shall not be unreasonably withheld. In the
event a press release or a public statement regarding the transactions is
required by law, the party required to make such statement shall permit the
other party to review and comment upon such statement.
(b) Unless and until this Agreement shall have been terminated by Purchaser
or Sellers pursuant to Section 5.2, neither Sellers, Seller Corp. nor any
of the officers or directors of Seller Corp., nor any Affiliates of any of
them whom they are able to influence shall:
(1) directly or indirectly, encourage, solicit, initiate or participate in
any negotiations with any corporation, partnership, Person or other entity
or group (other than to Purchaser or an Affiliate or an associate of
Purchaser) concerning any merger, sale of substantial assets, business
combination, sale of shares of capital stock or similar transactions
involving the business of Seller Corp. or any Asset, whether by providing
non-public information or otherwise (an "Acquisition Proposal"); or
(2) disclose, directly or indirectly, any information not customarily
disclosed to any Person concerning their business and properties, afford to
any other Person access to their properties, books or records or otherwise
assist or encourage any Person in connection with any of the foregoing;
provided, however, that in response to an unsolicited Acquisition Proposal,
Seller Corp. may furnish or cause to be furnished information concerning
itself and any Subsidiary and its business, properties or assets to a third
party and engage in discussions or negotiations with such third party
regarding such Acquisition Proposal to the extent that the Board of
Directors of Seller Corp. shall determine on the basis of the advice of
counsel that the fiduciary duties of the Board of Directors require such
action.
In the event Sellers shall receive any offer for a transaction of the type
referred to in this Section 3.4, Sellers shall promptly inform Purchaser as
to any such offer.
Section 3.5 Best Efforts to Satisfy Conditions. Sellers and Seller Corp.
shall use their respective reasonable best efforts to cause the conditions
to the obligations of Purchaser contained in Section 4.1 to be satisfied to
the extent that the satisfaction of such conditions is in the control of
Sellers or Seller Corp., and Purchaser shall use its reasonable best
efforts to cause the conditions to the obligations of Sellers contained in
Section 4.2 to be satisfied to the extent that the satisfaction of such
conditions is in the control of Purchaser.
Section 3.6 Antitrust Law Compliance. Sellers and Purchaser shall prepare
and file with the United States Department of Justice (the "Department")
and the Federal Trade Commission (the "FTC") the notification and report
form with respect to the transactions contemplated by this Agreement as
required pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended (the "HSR Act"). Sellers, Seller Corp. and Purchaser
shall each cooperate with the other in preparation of such filings and
shall promptly comply with any reasonable request by the Department or the
FTC for supplemental information and shall use their best efforts to obtain
early termination of the waiting period under the HSR Act.
Section 3.7 Update Sellers' Disclosure Letter. Sellers shall advise
Purchaser promptly in writing of any condition or circumstance, known to
any Seller, occurring from the date hereof up to and as of the Closing that
would cause the respective representations and warranties of Sellers
contained herein to become untrue in any material respect. Sellers shall
deliver to Purchaser a Supplement to the Sellers' Disclosure Letter (a
"Supplement") promptly after any Seller becomes aware of any event which
changes in any material respect any representation or warranty made by
Sellers in this Agreement or any statement made in the Sellers' Disclosure
Letter or in any Supplement.
Section 3.8 Tax Matters. (a) Sellers promise and covenant the following
with respect to Tax matters:
(1)No new elections with respect to Taxes or any changes in current
elections with respect to Taxes affecting the Assets shall be made after
the date of this Agreement without the prior written consent of Purchaser.
(2) As a condition precedent to the consummation of the transactions
contemplated by this Agreement, Sellers shall provide Purchaser with a
clearance certificate or similar document(s) that may be required by any
state taxing authority in order to relieve Purchaser of any obligation to
withhold any portion of the Purchase Price.
(3) Sellers shall furnish Purchaser an affidavit, stating, under penalty of
perjury, the transferor's United States taxpayer identification number and
that the transferor is not a foreign person, pursuant to Section 1445(b)(2)
of the Code.
(b) Purchaser shall not make an election under Section 338 of the Code with
respect to the Transaction.
Section 3.9 Personal Guarantees. The Purchaser, with the assistance of
Seller Corp. and James D. Hammond, shall cause the personal guarantees of
James D. Hammond and Elizabeth D. Hammond described on Exhibit 3.10 to be
fully released within five business days of the Closing.
ARTICLE IV
CONDITIONS OF CLOSING
Section 4.1 Conditions of Obligations of Purchaser. The obligations of
Purchaser to consummate the purchase and sale under this Agreement are
subject to the satisfaction of the following conditions, each of which may
be waived in writing by Purchaser:
(a) Representations and Warranties; Performance of Obligations.
(1) The representations and warranties of Sellers set forth in Section 2.1
hereof and in each certificate, agreement, document or instrument delivered
pursuant hereto on or before the Closing Date or in connection with the
transactions contemplated hereby on the Closing Date shall have been and
shall be true and correct in all material respects on and as of the date of
this Agreement and shall be true and correct in all material respects on
and as of the Closing Date, as though made on and as of the Closing Date.
(2) Sellers shall have performed in all material respects the covenants,
agreements and obligations required to be performed by them under this
Agreement prior to and on the Closing Date.
(3) Sellers shall have delivered to Purchaser their certificate confirming
the satisfaction of the conditions set forth in subparagraphs (1) and (2)
above and such other matters that Purchaser may reasonably request.
(b) Delivery of Instruments. Sellers shall have delivered to Purchaser the
duly endorsed certificates representing the Shares, and such other
documents that Purchaser may reasonably request to effect the transfer and
conveyance of the Shares to Purchaser.
(c) Opinion of Counsel to Sellers. Purchaser shall have received the
opinion of Sellers' counsel, dated the Closing Date, in form reasonably
acceptable to Purchaser.
(d) Environmental Review Reports. Purchaser shall have received, at
Purchaser's expense, an environmental review report from a Person
satisfactory to Purchaser as to the absence of any Environmental Event that
could materially affect the Business or Assets to be acquired.
Additionally, at least thirty (30) days prior to the Closing, Seller shall
have provided to Purchaser all environmental reports regarding the business
and operations of Seller Corp., the Assets of Seller Corp. and all Seller
Corp. Sites. Environmental reports shall include all consultants'
assessments and reports, internal company audits and memoranda and
correspondence with any Governmental Body regarding any Environmental
Event.
(e) Consents, Notices and Approvals. All consents and approvals of all
Persons necessary for the consummation of the Transaction under Seller
Corp.'s certificate of incorporation or bylaws or any agreement, permit,
law or regulation shall have been received and delivered to Purchaser, and
all notices to any Person required by any of the foregoing to be given in
respect of the Transaction prior to the Closing shall have been duly given.
(f) Purchaser's Investigation. The investigations by Purchaser and its
representatives in connection with the proposed transactions shall not have
caused Purchaser or its representatives to become aware of any facts or
circumstances relating to the business, operations, Assets, properties,
liabilities, financial condition, results of operations or affairs of
Seller Corp., any of the Seller Corp. Sites or any of its other Assets,
that, in the sole judgment of Purchaser, make it inadvisable for Purchaser
to proceed with the transactions contemplated by this Agreement.
(g) Employment and Non-Competition Agreements. James D. Hammond, James W.
Buhler, Tor F. Larson, and Douglas P. Leh shall have delivered the duly
authorized and executed Employment and Non-Competition Agreements pursuant
to Section 1.6.
(h) Stock Appreciation Rights. Seller Corp. shall have paid the amounts
due as of the Closing Date to the holders of Seller Corp. stock
appreciation rights as a result of the change of control of Seller Corp.
(i) Other Matters. Sellers shall have delivered to Purchaser, in form and
substance reasonably satisfactory to counsel for Purchaser, such
certificates and other evidence as Purchaser may reasonably request as to
the satisfaction of the conditions contained in this Section 4.1.
Section 4.2 Conditions of Obligations of Sellers. The obligations of
Sellers to consummate the sale and purchase under this Agreement are
subject to the satisfaction of the following conditions, each of which may
be waived in writing by Sellers:
(a) Representations and Warranties; Performance of Obligations. (1) The
representations and warranties of Purchaser set forth in Section 2.2 hereof
and in each certificate, agreement, document or instrument delivered
pursuant hereto on or before the Closing Date or in connection with the
transactions contemplated hereby on the Closing Date shall have been and be
true and correct in all material respects on and as of the date of this
Agreement and as of the Closing Date as though made on and as of the
Closing Date.
(2) Purchaser shall have performed in all material respects the covenants,
agreements and obligations necessary to be performed by it under this
Agreement prior to the Closing Date.
(3) Purchaser shall have delivered to Sellers its certificate confirming
the satisfaction of the conditions set forth in subparagraphs (1) and (2)
above and such other matters that Sellers may reasonably request.
(b) Purchase Price and Other Payments. Purchaser shall have delivered to
Sellers the Purchase Price required to be made as of the Closing Date
pursuant to Article I hereof.
(c) Consents, Notices and Approvals. All consents and approvals of all
Persons necessary for the consummation of the Transaction under Purchaser's
certificate of incorporation or bylaws or any agreement, permit, law or
regulation shall have been received and delivered to Sellers, and all
notices to any Person required by any of the foregoing to be given in
respect of the Transaction prior to the Closing shall have been duly given.
(d) Employment and Non-Competition Agreements. Purchaser shall have
delivered the duly authorized and executed Employment and Non-Competition
Agreements pursuant to Section 1.6.
(e) Opinion of Counsel to Purchaser. Sellers shall have received the
opinion of Purchaser's counsel, dated the Closing Date, in form reasonably
acceptable to Sellers.
(f) Other Matters. Purchaser shall have delivered to Sellers, in form and
substance reasonably satisfactory to Sellers' counsel, such certificates
and other evidence as Sellers may reasonably request as to the satisfaction
of the conditions contained in this Section 4.2.
Section 4.3 HSR Act Approval. The respective obligations of all
of the parties hereto to consummate the purchase and sale under this
Agreement are subject to the expiration or earlier termination of the
waiting period (including any extensions) under the HSR Act.
Section 4.4 Opportunity to Cure. In the event that Purchaser shall notify
Sellers, or Sellers shall notify Purchaser, of its decision not to
consummate the sale and purchase of the Shares hereunder due to the failure
of any of the conditions contained in Sections 4.1, 4.2 or 4.3 hereof to be
satisfied, Sellers, or Purchaser, as the case may be, shall have the
opportunity for a reasonable period of time to take such actions as may be
necessary to remedy the circumstances which have resulted in the failure of
such conditions to be satisfied.
ARTICLE V
CLOSING DATE AND TERMINATION OF AGREEMENT
Section 5.1 Closing Date. Subject to the right of (1) Sellers and (2)
Purchaser to terminate this Agreement pursuant to Section 5.2 hereof, the
closing for the consummation of the purchase and sale contemplated by this
Agreement (the "Closing") shall, unless another date or place is agreed to
in writing by Sellers and Purchaser, take place at the offices of Richards,
Layton & Finger, 920 King Street, Wilmington, Delaware 19801, at 2:00 p.m.,
time on June 17, 1997, or such other date as the parties may agree upon
(the "Closing Date").
Section 5.2 Termination of Agreement.
(a) This Agreement may, by written notice given at or prior to the Closing
in the manner hereinafter provided, be terminated or abandoned:
(1) in the event that the Closing shall not have occurred on or before
June 30, 1997, by Sellers or by Purchaser;
(2) by Purchaser if a material default or breach shall be made by Sellers
with respect to the due and timely performance of any of their covenants
and agreements contained herein, or with respect to the correctness of or
due compliance with any of their representations and warranties contained
in Article II hereof, and such default cannot be cured as provided in
Section 4.4 and has not been waived;
(3) by Sellers if a material default or breach shall be made by Purchaser
with respect to the due and timely performance of any of its covenants and
agreements contained herein, or with respect to the correctness of or due
compliance with any of its representations and warranties contained in
Article II hereof, and such default cannot be cured as provided in Section
4.4 and has not been waived;
(4)by mutual written consent of Sellers and Purchaser; or
(5) by Purchaser if any Supplement to the Sellers' Disclosure Letter
contains disclosures of any fact or condition which makes untrue, or shows
to have been untrue, in any material respect any representation or warranty
by Sellers in this Agreement or any statement made in the Sellers'
Disclosure Letter, unless concurrently with the delivery of the Supplement
Sellers represent and warrant that the disclosed fact or condition can and
will be corrected at Sellers' expense prior to the Closing.
(b) No termination of this Agreement, whether pursuant to this Section 5.2
(other than a termination by mutual written consent of Sellers and
Purchaser pursuant to Section 5.2(a)(4)) or otherwise, shall terminate or
impair any claim by Sellers or by Purchaser against the other based upon
any breach of Section 3.5 hereof, nor shall it terminate any obligations of
any party to the other with respect to confidentiality under Section 3.1(b)
hereof.
ARTICLE VI
INDEMNIFICATION
Section 6.1 Indemnity.
(a) Sellers, jointly and severally, agree to indemnify and hold Purchaser
and Purchaser's officers, directors, stockholders, Affiliates, employees,
agents and employee plan fiduciaries ("Purchaser Indemnitees") harmless
from any and all damages, losses (which shall include any diminution in
value), shortages, liabilities (joint or several), payments, obligations,
penalties, claims, litigation, demands, defenses, judgments, suits,
proceedings, costs, disbursements or expenses (including without
limitation, the reasonable fees, disbursements and expenses of attorneys,
accountants and other professional advisors and of expert witnesses and
costs of investigation and preparation) of any kind or nature whatsoever
(collectively "Damages"), to the extent directly or indirectly resulting
from, relating to or arising out of:
(1) any breach of or inaccuracy in any representation or warranty of
Sellers made in such person's capacity as a Seller and not otherwise,
contained in Section 2.1 or in any other Operative Document; and
(2) any breach or non-performance, partial or total, by any Seller of any
covenant or agreement of Sellers made in such person's capacity as a Seller
and not otherwise contained in this Agreement or in any other Operative
Document.
(b) Purchaser shall indemnify and hold Sellers and Seller Corp.'s officers,
directors and stockholders ("Seller Indemnitees") harmless from, any and
all Damages resulting from or arising out of:
(1) any breach of or inaccuracy in any representation or warranty of
Purchaser contained in Section 2.2 or in any Operative Document; and
(2) any breach or non-performance, partial or total, of any covenant or
agreement of Purchaser contained in this Agreement, any Operative Document
or any instrument or agreement delivered pursuant to this Agreement.
Section 6.2 Notice, Participation and Duration.
(a) If a claim by a third party is made against a party indemnified
pursuant to this Article VI ("Indemnitee"), and if such Indemnitee intends
to seek indemnity with respect thereto under this Article VI, the
Indemnitee shall promptly, and in any event within 60 days of the assertion
of any claim or the discovery of any fact upon which Indemnitee intends to
base a claim for indemnification under this Agreement ("Claim"), notify the
party or parties from whom indemnification is sought ("Indemnitor") of such
Claim. In the event of any Claim, Indemnitor, at its option, may assume
(with legal counsel reasonably acceptable to the Indemnitee) the defense of
any claim, demand, lawsuit or other proceeding in connection with the
Indemnitee's Claim, and may assert any defense of Indemnitee or Indemnitor;
provided that Indemnitee shall have the right at its own expense to
participate jointly with Indemnitor in the defense of any claim, demand,
lawsuit or other proceeding in connection with the Indemnitee's Claim. In
the event that Indemnitor elects to undertake the defense of any Claim
hereunder, Indemnitee shall cooperate with Indemnitor to the fullest extent
possible in regard to all matters relating to the Claim (including, without
limitation, corrective actions required by applicable law, assertion of
defenses and the determination, mitigation, negotiation and settlement of
all amounts, costs, actions, penalties, damages and the like related
thereto) so as to permit Indemnitor's management of same with regard to the
amount of Damages payable by the Indemnitor hereunder. Neither Purchaser
nor any Seller shall be entitled to settle any Claim without the prior
written consent of the other, which consent shall not unreasonably be
withheld.
(b) No claim for indemnification under this Section 6.2 may be made after
the third anniversary of the Closing, except that claims for
indemnification in respect of breaches of the representations and
warranties contained in Sections 2.1(c), (h) and (r) hereof may be made so
long as any claim may be made in respect of such matters under any
applicable statute of limitations; provided, however, that the foregoing
shall not affect any Claim made in accordance with this Article VI and in
good faith prior to the date of such expiration.
Section 6.3 Indemnification if Negligence of Indemnitee. The
indemnification provided in this Article VI shall be applicable whether or
not negligence of the Indemnitee is alleged or proven. The parties
acknowledge that any arbitrators appointed pursuant to Section 7.15 of this
Agreement may consider such negligence in arbitrating any disputes among
the parties.
Section 6.4 Reimbursement. In the event that the Indemnitor shall
undertake, conduct or control the defense or settlement of any Claim and it
is later determined that such Claim was not a Claim for which the
Indemnitor is required to indemnify the Indemnitee under this Article VI,
the Indemnitee shall reimburse the Indemnitor for all its costs and
expenses with respect to such settlement or defense, including reasonable
attorneys' fees and disbursements.
Section 6.5 Offset. Purchaser shall have the right to offset any amounts
for which it is entitled to indemnification under this Article VI against
any amounts payable by Purchaser to Sellers in their capacity as such,
pursuant to any Operative Document. Sellers shall have the right to offset
any amounts for which they are entitled to indemnification under this
Article VI against any amounts payable by Sellers pursuant to any Operative
Documents.
Section 6.6 No Third Party Beneficiaries. The foregoing indemnification is
given solely for the purpose of protecting the parties to this Agreement,
the Purchaser Indemnitees and the Seller Indemnitees and shall not be
deemed extended to, or interpreted in a manner to confer any benefit, right
or cause of action upon, any other Person.
Section 6.7 Limitations on Indemnification. The indemnification provided
for in Section 6.1 shall be subject to the following:
(1) Sellers shall not be obligated to pay any amounts for indemnification
under Section 6.1 until the aggregate amount of Damages actually incurred
by the Purchaser Indemnitees, measured in the chronological order of their
incurrence, exceeds $25,000, whereupon Sellers shall be obligated to pay
all Damages actually incurred by the Purchaser Indemnitees including such
$25,000;
(2) Sellers' obligation for indemnification under Section 6.1 shall be
limited to payment of the Purchase Price for the Shares.
ARTICLE VII
MISCELLANEOUS
Section 7.1 Further Actions. From time to time, as and when requested by
Purchaser, Sellers shall execute and deliver, or cause to be executed and
delivered, such documents and instruments and shall take, or cause to be
taken, such further or other actions as may be reasonably necessary to
transfer, assign and deliver to Purchaser or its permitted assigns the
Business (or to evidence the foregoing) and to consummate and to effect the
other transactions expressly required to be performed by Sellers hereunder.
Section 7.2 No Broker. Each of Sellers and Purchaser represent and warrant
to the other that they have no obligation or liability to any broker or
finder by reason of the transactions which are the subject of this
Agreement except that Sellers have retained the services of Scott-Macon,
Ltd. for which the Sellers and not Seller Corp. shall be responsible. Set
forth on Appendix 7.2 to the Sellers' Disclosure Letter is an accurate and
complete list of all fees and expenses that have been paid by Seller Corp.
to Scott-Macon, Ltd. from May, 1996 to April, 1997 for its services as
advisor to Seller Corp. on matters unrelated to the transactions
contemplated by this Agreement. Sellers represent and warrant to Purchaser
that no other fees or expenses have been paid by Seller Corp. to Scott-
Macon, Ltd. Each of (a) Sellers and (b) Purchaser agree to indemnify the
other against, and to hold the others harmless from, at all times after the
date hereof, any and all liabilities and expenses (including without
limitation legal fees) resulting from, related to or arising out of any
claim by any Person for brokerage commissions or finder's fees, or rights
to similar compensation, on account of services purportedly rendered on
behalf of Sellers or Purchaser, as the case may be, in connection with this
Agreement or the transactions contemplated hereby.
Section 7.3 Expenses. Except as otherwise specifically provided herein,
Sellers and Purchaser shall each bear their own legal fees, accounting fees
and other costs and expenses with respect to the negotiation, execution and
the delivery of this Agreement and the consummation of the transactions
hereunder.
Section 7.4Entire Agreement. This Agreement, the Exhibits hereto
(including without limitation the Nonsolicitation and Confidentiality
Agreement referred to in Section 3.1(b)), the Sellers' Disclosure Letter
and any Supplement thereto contain, and are intended by the parties as a
final expression of, the entire agreement between Sellers and Purchaser
with respect to the transactions contemplated by this Agreement and, except
as provided in Section 3.1(b), supersedes all prior oral or written
agreements, arrangements or understandings with respect thereto.
Section 7.5 Descriptive Headings. The descriptive headings of this
Agreement are for convenience only and shall not control or affect the
meaning or construction of any provision of this Agreement.
Section 7.6 Notices. All notices or other communications which are
required or permitted hereunder shall be in writing and shall be delivered
either personally or by telegram, telex, telecopy or similar facsimile
means, by registered or certified mail (postage prepaid and return receipt
requested), or by express courier or delivery service, addressed as
follows:
If to Sellers:
James D. Hammond
P.O. Box 298
Kemblesville, Pennsylvania 19347
Timothy E. Hammond
862 Joann Court
Rohrer Meadows
Carmel, Indiana 46032
Victoria A. Hammond
1937 Variations Drive
Atlanta, Georgia 30329
Deborah E. Hammond
668 Alanon
Ridgewood, New Jersey 07450
With a copy to:
Richards, Layton & Finger
One Rodney Square
920 King Street
Wilmington, Delaware 19801
Attention: Cynthia D. Kaiser
Telecopy No.: (302) 658-6548
If to Purchaser:
Matrix Service Company
10701 East Ute Street
Tulsa, Oklahoma 74116
Attention: President
Telecopy No.: (918) 838-8822
With copies to:
Andrews & Kurth L.L.P.
4200 Texas Commerce Tower
Houston, Texas 77002
Attention: Melissa M. Martin
Telecopy No.: (713) 220-4285
or at such other address and number as either party shall have previously
designated by written notice given to the other party in the manner
hereinabove set forth. Notices shall be deemed given when received, if
sent by telegram, telex, telecopy or similar facsimile means (confirmation
of such receipt by confirmed facsimile transmission being deemed receipt of
communications sent by telex, telecopy or other facsimile means); and when
delivered and receipted for (or upon the date of attempted delivery where
delivery is refused), if hand-delivered, sent by express courier or
delivery service, or sent by certified or registered mail.
Section 7.7 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware (other than
the choice of law principles thereof).
Section 7.8 Assignability. This Agreement shall not be assignable
otherwise than by operation of law by any party without the prior written
consent of the other parties, and any purported assignment by any party
without the prior written consent of the other parties shall be void.
Section 7.9 Waivers and Amendments. Any waiver of any term or condition of
this Agreement, or any amendment or supplementation of this Agreement,
shall be effective only if in writing. A waiver of any breach or failure
to enforce any of the terms or conditions of this Agreement shall not in
any way affect, limit or waive a party's rights hereunder at any time to
enforce strict compliance thereafter with every term or condition of this
Agreement.
Section 7.10 Third Party Rights. Notwithstanding any other provision of
this Agreement, this Agreement shall not create benefits on behalf of any
Person who is not a party to this Agreement (including without limitation
any broker or finder, notwithstanding the provisions of Section 7.2
hereof), and this Agreement shall be effective only as between the parties
hereto, their successors and permitted assigns; provided, however, that
Purchaser Indemnitees and Seller Indemnitees are intended third party
beneficiaries hereof to the extent provided in Sections 6.1 and 6.6.
Section 7.11 Illegalities. In the event that any provision contained in
this Agreement shall be determined to be invalid, illegal or unenforceable
in any respect for any reason, the validity, legality and enforceability of
any such provision in every other respect and the remaining provisions of
this Agreement shall not, at the election of the party for whose benefit
the provision exists, be in any way impaired.
Section 7.12 Counterparts. This Agreement may be executed in any number of
counterparts, and each such counterpart hereof shall be deemed to be an
original instrument, but all such counterparts together shall constitute
but one Agreement.
Section 7.13 Survival; Exclusivity of Remedies. The representations and
warranties, covenants and agreements of the parties hereto shall survive
the Closing, and the indemnification provided by Section 6.1 shall not be
the exclusive remedy available to the parties hereto.
Section 7.14 Representations and Warranties of Sellers. Except with
respect to Sections 2.1(a), (b)(1) and (2), (c), (f), (h), (m), and (o)(1)
and (2), (a) the representations and warranties of the Sellers are given
based solely on the actual knowledge of such Sellers, (b) the Sellers,
other than James D. Hammond, have made no investigation in preparation for
making such representations and warranties, and (c) James D. Hammond has
consulted with James Buhler, Tor Larson and Douglas Leh in connection with
making such representations and warranties and his actual knowledge
consists of his own actual knowledge and the content of such discussions.
Section 7.15 Alternative Dispute Resolution. The parties hereto agree that
any disputes under this Agreement which are not resolved by discussions,
shall be submitted to binding arbitration upon the service of a Notice of
Demand for Arbitration to the other party. Any such arbitration shall be
conducted under the Commercial Arbitration Rules of the American
Arbitration Association by a committee of three arbitrators (one appointed
by the Sellers, one appointed by the Purchaser and one appointed by the
other two so appointed). Each party shall notify the other party of their
appointed arbitrator within 10 days of the receipt of the Notice of Demand
for Arbitration. The third arbitrator shall be appointed within 20 days of
the receipt of the Notice of Demand for Arbitration. Any disputes as to
the arbitrability of any matter or the manner of such arbitration shall be
determined in such arbitration. Such arbitration shall be held at a
neutral site to be agreed by the parties. The hearing shall be completed
within 30 days of the appointment of the third arbitrator. The decision of
the arbitrators shall be made within 20 days after completion of the
hearing on the arbitration. The parties shall each pay one half of the
arbitrators' expenses and fees. Each party shall otherwise be responsible
for all other expenses incurred by it in connection with the arbitration,
including counsel fees.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date first above written.
PURCHASER:
MATRIX SERVICE COMPANY
By: /s/Doyl D. West
---------------
Name: Doyl D. West
Title: Chief Executive Officer
SELLERS:
/s/James D. Hammond
- -------------------
JAMES D. HAMMOND
/s/James D. Hammond
- -------------------
JAMES D. HAMMOND, as Trustee under that
certain Voting Trust Agreement dated
February 1, 1991
/s/Timothy E. Hammond
- ---------------------
TIMOTHY E. HAMMOND
/s/Victoria A. Hammond
- ----------------------
VICTORIA A. HAMMOND
/s/Deborah E. Hammond
- ---------------------
DEBORAH E. HAMMOND
GENERAL SERVICE CORPORATION
By: /s/James D. Hammond
-------------------
Name: JAMES D. HAMMOND
Title: President
Annex A
SELLERS' DISCLOSURE LETTER
June 17, 1997
Matrix Service Company
10701 East Ute Street
Tulsa, Oklahoma 74116
Gentlemen:
We refer to the Stock Purchase Agreement (the "Purchase Agreement") to be
entered into today among Matrix Service Company, General Service
Corporation, James D. Hammond, James D. Hammond, as Trustee under that
certain Voting Trust Agreement dated February 1, 1991, Timothy E. Hammond,
Victoria A. Hammond and Debora E. Hammond pursuant to which Sellers have
agreed to sell to Purchaser, and Purchaser has agreed to purchase from
Sellers, all of the outstanding capital stock of Seller Corp. described
therein on the terms and conditions set forth therein.
Terms defined in the Purchase Agreement are used with the same meaning in
this Sellers' Disclosure Letter. References herein to Appendices are to
the Appendices to this Sellers' Disclosure Letter.
This letter constitutes the Sellers' Disclosure Letter referred to in
Section 1.1 of the Purchase Agreement. The representations and warranties
of Sellers in Article II of the Purchase Agreement are made and given
subject to the disclosures in this Sellers' Disclosure Letter. The
disclosures in this Sellers' Disclosure Letter are to be taken as relating
to the representations and warranties in the Section of the Purchase
Agreement to which they expressly relate and to no other representation or
warranty in the Purchase Agreement.
By reference to Article I and Article II of the Purchase Agreement, the
following matters are disclosed (with the Appendix and subsection
designations used herein corresponding to the specific Section or
subsection of the Purchase Agreement to which such disclosure relates):
Very truly yours,
SELLERS:
/s/James D. Hammond
- -------------------
JAMES D. HAMMOND
/s/James D. Hammond
- -------------------
JAMES D. HAMMOND, as Trustee under that
certain Voting Trust Agreement dated
February 1, 1991
/s/ Timothy E. Hammond
- ----------------------
TIMOTHY E. HAMMOND
- ----------------------
/s/Victoria A. Hammond
VICTORIA A. HAMMOND
- ---------------------
/s/Deborah E. Hammond
DEBORAH E. HAMMOND
We acknowledge receipt of the Sellers' Disclosure Letter of which this is a
duplicate (including the Appendices referred to therein).
Dated: June 17, 1997
MATRIX SERVICE COMPANY
By: /s/C. William Lee
-----------------
Name: C. William Lee
Title: Vice President-Finance
FIRST AMENDMENT TO CREDIT AGREEMENT
THIS FIRST AMENDMENT TO CREDIT AGREEMENT ("Amendment") is made and entered
into this 19th day of June, 1997, by and among MATRIX SERVICE COMPANY, a
Delaware corporation (hereinafter referred to as "Matrix"), MATRIX
SERVICE, INC., an Oklahoma corporation (hereinafter to as "MSI"), MIDWEST
INDUSTRIAL CONTRACTORS, INC., a Delaware corporation (hereinafter referred
to as "MIC"), MATRIX SERVICE MID-CONTINENT, INC., an Oklahoma corporation
(hereinafter referred to as "MSM"), PETROTANK EQUIPMENT, INC., an Oklahoma
corporation (hereinafter referred to as "PEI"), TANK SUPPLY INC., an
Oklahoma corporation (hereinafter referred to as "TSI"), SAN LUIS TANK
PIPING CONSTRUCTION CO., INC., a Delaware corporation (hereinafter
referred to as "SLT"), COLT CONSTRUCTION CO., INC., a Delaware corporation
(hereinafter referred to as "CCC"), MIDWEST INTERNATIONAL, INC., a Delaware
corporation (hereinafter referred to as "MII"), GEORGIA STEEL ACQUISITION
CORPORATION, an Oklahoma corporation (hereinafter referred to as "GSAC"),
GEORGIA STEEL FABRICATORS, INC., a Georgia corporation (hereinafter
referred to as "GSF"), BROWN STEEL CONTRACTORS, INC., a Georgia corporation
(hereinafter referred to as "BSC"), WEST COAST INDUSTRIAL COATINGS, INC., a
California corporation (hereinafter referred to as "WCI"), MIDWEST SERVICE
COMPANY, a Delaware corporation (hereinafter referred to as "MSC"), HEATH
ENGINEERING, LTD., an Ontario corporation (hereinafter referred to as
"HEL"), HEATH (TANK MAINTENANCE) ENGINEERING, LTD., a United Kingdom
corporation (hereinafter referred to as "HTM"), MAYFLOWER VAPOR SEAL
CORPORATION, an Oklahoma corporation (hereinafter referred to as ("MVS"),
GENERAL SERVICE CORPORATION, a Delaware corporation (hereinafter referred
to as "GSC"), MAINSERVE-ALLENTECH, INC., a Delaware corporation
(hereinafter referred to as "MA"), MAINTENANCE SERVICES, INC., a Delaware
corporation (hereinafter referred to as "MSERV"), and LIBERTY BANK AND
TRUST COMPANY OF TULSA, NATIONAL ASSOCIATION (hereinafter referred to as
the "Bank"). Matrix, MSI, MIC, MSM, PEI, TSI, SLT, CCC, MII, GSAC, GSF,
BSC, WCI, MSC, HEL, HTM, MVS, GSC, MA and MSERV are hereinafter
collectively referred to as the "Borrowers" and individually as a
"Borrower."
RECITALS
A. The Borrowers (except for GSC, MA and MSERV) are parties to that
certain Credit Agreement dated August 30, 1994 (the same as amended,
supplemented or otherwise modified from time to time, being hereinafter
referred to as the "Credit Agreement"), pursuant to which the Bank has
established in favor of the Borrowers, on the terms and conditions set
forth therein, (i) a revolving credit facility in the principal amount not
to exceed $15,000,000.00, and (ii) a term loan facility in the original
principal amount not to exceed $5,000,000.00.
B. The Borrowers have requested that the Bank (i) extend the maturity
of the Revolving Credit Facility from October 31, 1998 to October 31,
1999, (ii) establish a new $5,000,000 term acquisition facility, (iii) add
GSC, MA and MSERV as Borrowers under the Credit Agreement and as a co-maker
on the Notes, and (iv) modify certain financial covenants and other
provisions in the Credit Agreement, all as hereinafter set forth.
C. The Bank has agreed to the foregoing, subject to the terms and
conditions hereinafter set forth.
NOW THEREFORE, in consideration of the foregoing, and for other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, and subject to the terms and conditions set forth herein, the
parties agree to amend the Credit Agreement, effective as of the date
hereof, as follows:
1. TERMS DEFINED IN THE CREDIT AGREEMENT.
1.1 Definitions Incorporated by Reference. Capitalized terms used
herein and not otherwise defined have the respective meanings assigned to
them in the Credit Agreement.
1.2 Definitions Used Only in This Amendment. For purposes of this
Amendment only, the following terms have the meanings indicated below:
Replacement Revolving Note. "Replacement Revolving Note" shall mean the
promissory note to be executed and delivered by the Borrowers, in
substantially the form attached hereto as Exhibit "A-1."
Replacement Term Note. "Replacement Term Note" shall mean the promissory
note to be executed and delivered by the Borrowers, in substantially the
form attached hereto as Exhibit "B-1."
The parties agree that, from and after the date of this Amendment, unless
the context otherwise requires: (i) all references to the "Revolving Note"
and the "Term Note" appearing in the Credit Agreement or any other Loan
Documents shall mean and refer to the Replacement Revolving Note and the
Replacement Term Note, respectively, together with any and all renewals,
extensions or replacements thereof, amendments or modifications thereto or
substitutions therefore, and (ii) the term "Loan Documents" shall include
the Replacement Revolving Note and the Replacement Term Note.
2. ADDITION OF GSC AND SUBSIDIARIES AS BORROWERS. Pursuant to this
Amendment, GSC, MA and MSERV agree to execute this Amendment, the
Replacement Revolving Note, the Replacement Term Note, the Acquisition Note
and a Security Agreement, and hereafter all references in the Credit
Agreement to the term "Borrowers" shall be deemed to include GSC, MA and
MSERV.
3. ESTABLISHMENT OF ACQUISITION LOAN FACILITY. The Bank hereby agrees
to establish a new term loan in favor of the Borrowers in the principal
amount of $5,000,000.00. In order to effectuate the foregoing, the Credit
Agreement is amended as of the date hereof in the following respects:
3.1 Amended Definitions. The definitions of the following terms
appearing in Subsection 1.2 of the Credit Agreement are hereby amended to
read as follows:
Credit Facilities. "Credit Facilities" shall mean,
collectively, the Revolving Credit Facility, the Term Loan
Facility and the Acquisition Loan Facility, and "Credit Facility" shall
mean either one of the Credit Facilities.
Notes. "Notes" shall mean collectively, the Revolving Note, the Term Note
and the Acquisition Note, and "Note" shall mean any one of the Notes.
3.2 New Definitions. The following definitions of "Acquisition Loan
Facility," "Acquisition Note" and "GSC Purchase Agreement" are hereby added
to paragraph 1.2 of the Credit Agreement (to be inserted in alphabetical
order):
Acquisition Loan Facility. "Acquisition Loan Facility"
shall mean the term loan facility to be established by the Bank in favor
of the Borrowers pursuant to Subsection 2.1.3 hereof.
Acquisition Note. "Acquisition Note" shall mean the promissory note to
be executed by the Borrowers in order to evidence all Advances made
under the Acquisition Loan Facility pursuant to Subsection 2.6.4 hereof,
substantially in the form of Exhibit "J" attached hereto, as the same
may be amended, modified, supplemented, renewed or extended from time to time.
GSC Purchase Agreement. "GSC Purchase Agreement" shall mean that certain
Purchase Agreement dated June 17, 1997 between Matrix and the shareholders of
GSC for the purchase of 100% of the outstanding issued shares of stock in
GSC.
3.3 Modified Subsections Required for Acquisition Loan Facility. In
order to effectuate the terms and conditions of the Acquisition Loan
Facility the Credit Agreement shall be modified in accordance with the
following:
A. Modifications to Subsection 2.1. Subsection 2.1 of the Credit
Agreement is hereby modified and shall hereafter be deemed to include the
following Subsection 2.1.3:
2.1.3 Acquisition Loan Facility. The Bank agrees, upon satisfaction of
the Conditions set forth in Subsection 6 of the Amendment, to establish
a term loan facility, to be designated as the "Acquisition Loan Facility,"
in an aggregate principal amount not to exceed Five Million and No/100
Dollars ($5,000,000.00).
B. Modification to Subsection 2.2. Subsection 2.2 of the Credit
Agreement is hereby modified and shall hereafter be deemed to
include the following Subsection 2.2.3:
2.2.3 Acquisition Loan Facility. Proceeds of the Acquisition Loan
Facility shall be used by Borrowers solely for the purpose of paying down
Advances under the Revolving Credit Facility which were incurred in the
Borrowers' acquisition of the ownership of GSC (and its subsidiaries) and
the refinancing of equipment owned by GSC.
C. Modifications to Subsection 2.6. Subsection 2.6 of the Credit
Agreement is hereby modified and shall hereafter be deemed to include the
following Subsection 2.6.4:
2.3.4 Acquisition Note. The balance outstanding under the Acquisition
Loan Facility shall be evidenced by the Acquisition Note, which shall be
made, executed and delivered by the Borrowers as a condition of this
Amendment.
D. Modifications to Subsection 2.7.3(c) and (g). Subsections 2.7.3(c)
and (g) of the Credit Agreement shall hereafter be modified to read in
their entirety as follows:
(c) no Interest Period shall extend beyond October 31, 1999 (in the case
of outstanding Advances under the Revolving Note), August 31, 1999 (in the
case of outstanding Advances under the Term Note), and June 19, 2002 (in
the case of the outstanding principal balance under the Acquisition Note);
(g) notwithstanding any provisions herein to the contrary, the Borrowers
may select an Interest Period of less than 30 days for Advances included
within the Prime Tranche if such shorter period ends on October 31, 1999
(in the case of outstanding Advances under the Revolving Note), and August
31, 1999 (in the case of outstanding Advances under the Term Note), and
the Borrowers may select an Interest Period of less than 30 days when
continuing or converting any portion of the outstanding balance under the
Acquisition Loan Facility included within the Prime Tranche if such
shorter period ends on June 19, 2002.
D. Modification to Subsection 2.7. Subsection 2.7 of the Credit
Agreement is hereby modified and shall hereafter be deemed to include the
following Subsection 2.7.6:
2.7.6 Acquisition Note.
(a) Interest Rate Election. Prior to the effectiveness of this
Amendment, the Borrowers shall irrevocably elect in writing either a fixed
rate of interest (in accordance with the provisions of Subsection 2.7.6 (b)
hereof) or a variable rate of interest (in accordance with the provisions
of Subsection 2.7.6(c) hereof) to apply to the amounts outstanding under
the Acquisition Note.
(b) Fixed Rate Option. If the Borrowers elect a fixed rate pursuant to
Subsection 2.7.6(a) hereof, the unpaid amounts outstanding under the
Acquisition Note shall bear interest at a fixed rate per annum equal to the
sum of the Two-Year Treasury Rate plus two percent (2%). In the event of
any Event of Default and until cured to the satisfaction of the Bank, the
unpaid principal amount and all accrued and unpaid interest outstanding
under the Acquisition Note shall bear interest at a fixed rate per annum
equal to the sum of the Two-Year Treasury Rate plus four percent (4%).
(c) Variable Rate Option. If the Borrowers elect a variable rate
pursuant to Subsection 2.7.6(a) hereof, the unpaid principal amounts
outstanding under the Acquisition Note shall bear interest at a variable
rate per annum determined by reference to the Prime Rate or the LIBOR Rate,
as selected by the Borrowers pursuant to a Rate Election made in accordance
with the provisions of Subsection 2.7.3 hereof, as follows:
(i) Amounts outstanding under the Acquisition Note included within the
Prime Tranche shall bear interest at a fluctuating rate per annum equal to
the Prime Rate, adjusted as of the date of each change therein.
(ii) Amounts outstanding under the Acquisition Note included within the
LIBOR Tranche shall bear interest at a rate per annum equal to the sum of
the LIBOR Rate applicable to such LIBOR Tranche plus two percent (2%).
(iii) In the event of any Event of Default and until cured to the
satisfaction of the Bank, the unpaid principal amount outstanding under
the Acquisition Term Note shall bear interest at a fluctuating rate per
annum equal to the Prime Rate plus two percent (2%), adjusted as of the
date of each change therein.
E. Modifications to Subsection 2.8. Subsection 2.8 of the Credit
Agreement is hereby modified and shall hereafter be deemed to include the
following Subsection 2.8.4:
2.8.4 Acquisition Loan Facility Fee. As a condition of this Amendment,
the Borrowers shall pay to the Bank a nonrefundable "Acquisition Loan
Facility Fee" in the amount of $12,500.00.
F. Modifications to Subsection 2.9. Subsection 2.9 of the Credit
Agreement is hereby modified and shall hereafter be deemed to include the
following Subsection 2.9.3:
2.9.3 Acquisition Note. The outstanding balance under the Acquisition
Note shall be due and payable in six (6) monthly installments of interest
only, and thereafter in fifty-four (54) monthly installments of principal
and interest, calculated on the basis of a sixty (60) month amortization,
which installments shall be made on the first Business Day of each calendar
month beginning on the first Business Day of the first calendar month
following the date hereof. The final maturity of the Acquisition Note
shall be June 19, 2002, and on that date the outstanding principal balance
and all accrued and unpaid interest under the Acquisition Note shall be due
and payable.
4. EXECUTION OF REPLACEMENT REVOLVING NOTE AND EXTENSION OF REVOLVING
CREDIT FACILITY MATURITY DATE.
4.1 Execution of Replacement Revolving Note. The Revolving Note, as in
effect on the date hereof, has a maturity date of October 31, 1999, and
the Borrowers hereby agree to execute the Replacement Revolving Note to
add GSC, MA and MSERV as co-makers on the Revolving Note, which shall
retain a maturity date of October 31, 1999.
4.2 Extension of Revolving Credit Facility Maturity Date. Approval from
a Participating Lender is required in order to effectuate an extension of
the termination date of the Revolving Credit Facility in accordance with
Subsection 2.13 of the Credit Agreement. Upon obtaining requisite
approvals from any participating lenders, the Borrowers agree to execute
and deliver a replacement to the Replacement Revolving Note, which note
shall have a maturity date of October 31, 1999, and upon delivery of such
note to the Bank, all references in the Credit Agreement to the termination
date or maturity date of the Revolving Note shall thereafter be deemed to
refer to October 31, 1999.
5. MODIFICATIONS TO FINANCIAL COVENANTS.
5.1 Tangible Net Worth. Subsection 7.11.1 of the Credit Agreement is
hereby modified and amended and shall hereafter be deemed to include the
additional requirement that after May 31, 1997, the Borrowers will not
permit their consolidated tangible net worth (determined in accordance
with GAAP) to be less than $45,000,000.00.
5.2 Working Capital. Subsection 7.11.2 of the Credit Agreement is hereby
modified and amended to delete the dollar amount stated as "$12,500,000.00"
and replace that dollar amount with the dollar amount stated as
"$18,000,000.00."
5.3 Cash Flow Coverage Ratio. From and after the date hereof, the Bank
agrees to waive the Borrowers' compliance with the Cash Flow Coverage
Ratio contained in Subsection 7.11.4 of the Credit Agreement until
February 28, 1998, and the Borrowers agree that from and after February
28, 1998 the Borrowers shall be subject to and in compliance with
Subsection 7.11.4 of the Credit Agreement.
6. CONDITIONS. The amendments to the Credit Agreement set forth in this
Amendment shall be effective from and after the date hereof, but subject
to the Borrowers' satisfaction of each of the following conditions precedent:
6.1 GSC Purchase Agreement. The Bank shall have received a final copy of
the GSC Purchase Agreement (the terms of which must be satisfactory to the
Bank), and the closing of the transactions contemplated by the GSC Purchase
Agreement (including the equipment refinancing) shall have occurred.
6.2 Loan Amendment Documents. The Borrowers shall have duly and validly
authorized, executed and delivered to the Bank, the following documents,
all in form and substance satisfactory to the Bank:
(a) This Amendment;
(b) The Acquisition Note;
(c) The Replacement Revolving Note;
(d) The Replacement Term Note;
(e) Security Agreements, executed by GSC, MA and MSERV, respectively, in
favor of the Bank; and
(f) Appropriate UCC-1 financing statements, executed by GSC, MA and
MSERV.
6.3 Corporate Documents. With respect to GSC, MA and MSERV, the Bank
shall have received: (i) a true and correct copy of their Articles or
Certificate of Incorporation, as amended; (ii) a true and correct copy of
their Bylaws, as amended; and (iii) a good standing certificate issued by
the Secretary of State or equivalent public official of the state or
jurisdiction of their incorporation, as to their due incorporation and
good standing under the laws of such state or jurisdiction.
6.4 Resolutions. With respect to each of the Borrowers, the Bank shall
have received a true and correct copy of the resolutions adopted by its
Board of Directors duly authorizing the borrowings contemplated hereunder
and the execution, delivery and performance of the Loan Documents to which
it is a party.
6.5 Incumbency Certificates. With respect to each of the Borrowers, the
Bank shall have received a certificate executed by its duly elected and
acting corporate secretary stating the names and titles and containing
specimen signatures of the officers authorized to execute and deliver the
Loan Documents to which it is a party.
6.6 Payoff Letter. The Bank shall have received a satisfactory payoff
letter from the holder of the existing equipment financing facility with
GSC, (i) stating the amount necessary to pay off the principal balance of
and accrued interest on such equipment financing facility, (ii) setting
froth payment instruction for remitting the payoff amount, (iii) stating
that, immediately upon receipt of the payoff amount, said holder will
release any Liens which it may have in or to the Collateral (or any
portion thereof) and will deliver or cause to be filed UCC termination
statements with respect to all currently effective financing statement of
file in any UCC office naming GSC, MA or MSERV as debtor and covering the
Collateral (or any portion thereof), and (iv) acknowledging that, upon
such holder's receipt of the payoff amount, it will no longer have and
Lien on the Collateral (or any portion thereof) to secure any Debt now or
hereafter owing to it by GSC, MA or MSERV.
6.7 Lien Searches. The Bank shall have received certified responses to
UCC lien search requests reflecting that there are no effective UCC
financing statements on file in any filing office in the State of Oklahoma
or any other states or jurisdictions in which GSC, MA and MSERV maintain
their principal place of business naming GSC, MA or MSERV as debtor and
covering the Collateral, other than (i) financing statements in favor of
the Bank, and (ii) financing statements relating to Permitted Liens.
6.8 Insurance Policies. The Bank shall have received copies of such
insurance policies, or binders or certificates of insurance, in form and
substance satisfactory to the Bank evidencing that GSC, MA and MSERV have
obtained and are maintaining the minimum insurance coverages required by
the Credit Agreement, as amended by this Amendment.
6.9 Other Matters. The Borrowers shall have provided the Bank with such
reports, information, financial statements, and other documents as the Bank
has reasonably requested to evidence the Borrowers' compliance with the
terms and conditions of this Agreement and the Loan Documents.
6.10 Legal Matters. All legal matters incident to the Loan Documents and
the Credit Facilities shall be satisfactory to the Bank and its counsel.
6.11 No Defaults. There shall not have occurred and be continuing any
Default or Event of Default.
7. REPRESENTATIONS AND WARRANTIES. All representations and warranties
of the Borrowers contained in Section 5 of the Credit Agreement are hereby
remade and restated as the date hereof and shall survive the execution and
delivery of this Amendment. The Borrowers (including GSC, MA and MSERV)
further represent and warrant to the Bank that:
7.1 Authority. The Borrowers have all corporate power and authority and
have been duly authorized to execute, deliver and perform its obligations
under this Amendment, the Credit Agreement (as amended by this Amendment),
and Acquisition Note.
7.2 Binding Obligations; Enforceability. This Amendment, the Credit
Agreement (as amended by this Amendment), and each of the Notes are valid
and legally binding obligations of the Borrowers (including GSC, MA and
MSERV), enforceable in accordance with their respective terms, except as
limited by applicable bankruptcy, insolvency or other laws affecting the
enforcement of creditors' rights generally.
7.3 No Conflicts. The execution, delivery and performance of this
Amendment, the Credit Agreement (as amended by this Amendment), and the
Acquisition Note by the Borrowers do not and will not (a) conflict with,
result in a breach of the terms, conditions or provisions of, constitute a
default under, or result in any violation of the Borrowers' Certificates
of Incorporation, as amended, or Bylaws, or any agreement, instrument,
undertaking, judgment, decree, order, writ, injunction, statute, law, rule
or regulation to which either of the Borrowers is subject or by which the
assets of either of the Borrowers are bound or affected, (b) result in the
creation or imposition of any lien, charge or encumbrance on, or security
interest in, any property now or hereafter owned by the Borrowers,
pursuant to the provisions of any mortgage, indenture, security agreement,
contract, undertaking or other agreement to which either of the Borrowers
is a party, other than the obligations of the Borrowers in favor of the
Bank created by the Loan Documents, or (c) require any authorization,
consent, license, approval or authorization of, or other action by, notice
or declaration to, registration with, any court or any administrative or
governmental body (domestic or foreign), or, to the extent any such consent
or other action may be required, it has been validly procured or duly
taken.
7.4 No Subsidiaries. Each of MA and MSERV is a wholly-owned Subsidiary
of GSC. Except for the foregoing ownership interests of GSC in MA and
MSERV, none of GSC, MA or MSERV (i) has any Subsidiaries, (ii) owns any
stock in any other corporation, or (iii) is a partner or joint venturer in
or equity owner of any partnership, joint venture or other business
association.
8. MISCELLANEOUS.
8.1 Effect of Amendment. Except as expressly modified and amended by
this Amendment, all other terms of the Credit Agreement shall continue in
full force and effect in accordance with their original stated terms and
are hereby reaffirmed in every respect as of the date hereof. To the
extent that the terms of this Amendment are inconsistent with the terms of
the Credit Agreement, this Amendment shall control and the Credit
Agreement shall be amended, modified or supplemented so as to give full
effect to the transactions contemplated by this Amendment.
8.2 Exhibits. (a) The form of Acquisition Note attached hereto as
Exhibit "I" is hereby added as an Exhibit to the Credit Agreement, (b) the
form of Replacement Revolving Note attached hereto as Exhibit "A-1" is
hereby substituted for Exhibit "A" to the Credit Agreement, and (c) the
form of Replacement Term Note attached hereto as Exhibit "B-1" is hereby
substituted for Exhibit "B" to the Credit Agreement.
8.3 Descriptive Headings. The descriptive headings of the several
paragraphs of this Amendment are inserted for convenience only and shall
not be used in the construction or the content of this Amendment.
8.4 Reimbursement of Expenses. The Borrowers agree to pay all reasonable
out-of-pocket expenses, including, without limitation, filing fees,
recording costs and reasonable attorney's fees and expenses, incurred by
the Bank in connection with the preparation of this Amendment and the
documents contemplated hereby.
8.5 Reaffirmation of Security Agreements. By signing below, the
Borrowers hereby ratify and reaffirm the Security Agreements and agree
that the Security Agreements shall continue in full force and effect in
accordance with their terms as security for payment and performance of all
Indebtedness arising under or in connection with the Credit Agreement (as
amended hereby), including, without limitation, all Indebtedness arising
under, in connection with or evidenced by Acquisition Note. All
references to the term "Indebtedness" contained in the Credit Agreement,
the Security Agreements and other Loan Documents shall hereafter be deemed
to include all liabilities, obligations and indebtedness of the Borrowers
to the Bank arising out of or relating to this Amendment or the
Acquisition Note and any and all extensions and renewals thereof.
IN WITNESS WHEREOF, the Borrowers and the Bank have caused this Agreement
to be duly executed in multiple counterparts, each of which shall be
considered an original, effective the date and year first above written.
MATRIX SERVICE COMPANY,
a Delaware corporation
By: /s/C. William Lee
-----------------
Name: C. William Lee
Title: Secretary
MATRIX SERVICE, INC.,
an Oklahoma corporation
By: /s/C. William Lee
-----------------
Name: C. William Lee
Title: Secretary
MIDWEST INDUSTRIAL CONTRACTORS, INC.,
a Delaware corporation
By: /s/C. William Lee
-----------------
Name: C. William Lee
Title: Secretary
MATRIX SERVICE MID-CONTINENT, INC.,
an Oklahoma corporation
By: /s/C. William Lee
-----------------
Name: C. William Lee
Title: Secretary
PETROTANK EQUIPMENT, INC.,
an Oklahoma corporation
By: /s/C. William Lee
-----------------
Name: C. William Lee
Title: Secretary
TANK SUPPLY, INC.,
an Oklahoma corporation
By: /s/C. William Lee
-----------------
Name: C. William Lee
Title: Secretary
SAN LUIS TANK PIPING CONSTRUCTION CO., INC.,
a Delaware corporation
By: /s/C. William Lee
-----------------
Name: C. William Lee
Title: Secretary
COLT CONSTRUCTION CO., INC.,
a Delaware corporation
By: /s/C. William Lee
-----------------
Name: C. William Lee
Title: Secretary
MIDWEST INTERNATIONAL, INC.,
a Delaware corporation
By: /s/C. William Lee
-----------------
Name: C. William Lee
Title: Secretary
GEORGIA STEEL ACQUISITION CORPORATION,
an Oklahoma corporation
By: /s/C. William Lee
-----------------
Name: C. William Lee
Title: Secretary
GEORGIA STEEL FABRICATORS, INC.,
a Georgia corporation
By: /s/C. William Lee
-----------------
Name: C. William Lee
Title: Secretary
BROWN STEEL CONTRACTORS, INC.,
a Georgia corporation
By: /s/C. William Lee
-----------------
Name: C. William Lee
Title: Secretary
WEST COAST INDUSTRIAL COATINGS, INC.,
a California corporation
By: /s/C. William Lee
-----------------
Name: C. William Lee
Title: Secretary
MIDWEST SERVICE COMPANY,
a Delaware corporation
By: /s/C. William Lee
-----------------
Name: C. William Lee
Title: Secretary
HEATH ENGINEERING, LTD.,
an Ontario corporation
By: /s/C. William Lee
-----------------
Name: C. William Lee
Title: Secretary
HEATH (TANK MAINTENANCE) ENGINEERING, LTD.,
an United Kingdom corporation
By: /s/C. William Lee
-----------------
Name: C. William Lee
Title: Secretary
MAYFLOWER VAPOR SEAL CORPORATION,
an Oklahoma corporation
By: /s/C. William Lee
-----------------
Name: C. William Lee
Title: Secretary
GENERAL SERVICE CORPORATION,
a Delaware corporation
By: /s/C. William Lee
-----------------
Name: C. William Lee
Title: Secretary
MAINSERVE-ALLENTECH, INC.,
a Delaware corporation
By: /s/C. William Lee
-----------------
Name: C. William Lee
Title: Secretary
MAINTENANCE SERVICES, INC.,
a Delaware corporation
By: /s/C. William Lee
-----------------
Name: C. William Lee
Title: Secretary
LIBERTY BANK AND TRUST COMPANY
OF TULSA, NATIONAL ASSOCIATION
By: /s/Kevin C. Short
-----------------
Name: Kevin C. Short
Title: Banking Officer
EXHIBITS
Exhibit "A-1" - Form of Replacement Revolving Note
Exhibit "B-2" - Form of Replacement Term Note
Exhibit "J" - Form of Acquisition Note
SECURITY AGREEMENT
This Security Agreement ("Agreement") is made and entered into this 19th
day of June, 1997, by GENERAL SERVICE CORPORATION, a Delaware corporation
("Debtor"), in favor of LIBERTY BANK AND TRUST COMPANY OF TULSA, NATIONAL
ASSOCIATION ("Secured Party").
RECITALS
A. Pursuant to that certain Credit Agreement dated August 30, 1994, as
amended by that certain First Amendment to Credit Agreement dated as of
even date herewith (the same, as amended, supplemented or otherwise
modified from time to time, being hereinafter referred to as the "Credit
Agreement"), among Debtor as a Borrower (as such term is defined in the
Credit Agreement), the other Borrowers and Secured Party, Secured Party has
established in favor of the Borrowers, on the terms and conditions set
forth therein, (i) a revolving credit facility in the principal amount not
to exceed $15,000,000, (ii) a term loan facility in the principal amount
not to exceed $5,000,000, and (iii) an acquisition term loan facility in
the principal amount of $5,000,000.
B. It is a condition precedent to the obligations of Secured Party under
the Credit Agreement that Debtor shall have executed and delivered this
Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt of which
is hereby acknowledged and in order to induce Secured Party to make loans
and other extensions of credit under the Credit Agreement, Debtor hereby
agrees as follows:
ARTICLE I
DEFINITIONS
1.1 Terms Defined in Credit Agreement. Capitalized terms used herein and
not otherwise defined have the respective meanings assigned to them in the
Credit Agreement.
1.2 Defined Terms. The following terms used herein shall have the meanings
indicated:
Accounts. "Accounts" shall mean and include all accounts (as such term is
defined in Article 9 of the UCC) of Debtor, of every nature, whether now
existing or hereafter arising, including, without limitation, all accounts
receivable and other rights to payment for goods sold or leased or for
services rendered.
Collateral. "Collateral" shall mean and include (i) all Accounts,
(ii) all Inventory, (iii) all General Intangibles, (iv) all books, records,
ledger cards, electronic data processing materials and other general
intangibles relating to the foregoing property, and (v) all Proceeds of
the foregoing property.
General Intangibles. "General Intangibles" shall mean and include (i)
all general intangibles (as such term is defined in Article 9 of the UCC)
of Debtor, of every nature, whether now owned or existing or hereafter
arising or acquired, including, without limitation, all books,
correspondence, credit files, records, computer programs, source codes,
computer tapes, computer cards, computer disks, Permits, know-how,
technologies, trade secrets, claims (including, without limitation, claims
for income tax and other refunds), causes of action, choses in action,
judgments, goodwill, patents, copyrights, brand names, trademarks,
tradenames, service names, service marks, logos, licensing agreements,
franchises, royalty payments, settlements, partnership interests (whether
general, limited or special), interests in joint ventures, contracts,
contract rights and monies due under any contract or agreement, (ii) all
chattel paper of the Borrowers, whether now owned or existing or hereafter
arising or acquired, and (iii) all papers and documents evidencing or
constituting any of the foregoing.
Governmental Authority. "Governmental Authority" shall mean any court or
any administrative or governmental department, commission, board, bureau,
authority, agency or body of any governmental entity, whether foreign or
domestic, and whether national, federal, state, county, city, municipal or
otherwise.
Indebtedness. "Indebtedness" shall mean and include all liabilities,
obligations and indebtedness of the Borrowers to Secured Party, of every
kind and description, now existing or hereafter incurred, direct or
indirect, absolute or contingent, due or to become due, matured or
unmatured, and whether or not of the same or a similar class or
character as the Credit Facilities and whether or not currently
contemplated by Secured Party or the Borrowers, including, without
limitation, (i) all Advances, Letters of Credit and Check Payment Letters
(including interest accruing thereon and fees payable in respect thereof),
(ii) all Reimbursement Obligations, (iii) all liabilities, obligations and
indebtedness of the Borrowers to the Bank arising out of or relating to
the Credit Agreement, this Agreement, the Credit Facilities, the Notes,
the L/C Agreements or any other of the Loan Documents, (iv) any overdrafts
by any of the Borrowers on any deposit account maintained with the Bank,
and (v) any and all extensions and renewals of any of the foregoing.
Inventory. "Inventory" shall mean and include all inventory (as such term
is defined in Article 9 of the UCC) of Debtor, now existing or hereafter
acquired and wherever located, including, without limitation, (i) raw
goods and raw materials, (ii) goods in process, (iii) finished goods, (iv)
materials, supplies, containers, boxes and packaging materials, (v)
materials used or consumed in the course of business, and (vi) all other
goods held or stored for sale or lease or furnished or to be furnished
under contracts of service.
Permit. "Permit" shall mean any permit, certificate, consent, franchise,
concession, license, authorization, approval, filing, registration or
notification from or with any Governmental Authority or other Person.
Person. "Person" shall mean any individual, sole proprietorship,
partnership, joint venture, trust, unincorporated organization, association,
corporation, limited liability company, institution, entity, party or
Governmental Authority.
Proceeds. "Proceeds" shall mean all proceeds of all or any portion of the
Collateral within the meaning of Article 9 of the UCC, including, without
limitation, (i) all proceeds of any insurance, judgment, indemnity,
warranty or guaranty payable to or for the account of Debtor with respect
to all or any portion of the Collateral, (ii) all proceeds in the form of
accounts, collections, contract rights, documents, instruments, chattel
paper or general intangibles relating in whole or in part to the Collateral,
and (iii) all payments, in any form whatsoever, made or due and payable to or
for the account of Debtor in connection with any requisition, confiscation,
condemnation, seizure or forfeiture of all or any portion of the Collateral
by any Governmental Authority.
"UCC" shall mean the Uniform Commercial Code as in effect from time to time
in the State of Oklahoma.
1.3 Interpretations. Unless otherwise defined herein, (i) terms defined
in the UCC are used herein as so defined, and (ii) the singular shall be
deemed to include the plural and the plural shall be deemed to include the
singular.
ARTICLE II
GRANT OF SECURITY INTEREST
In order to secure the prompt and complete payment and performance when due
(whether at the stated maturity, upon a mandatory prepayment, by acceleration
or otherwise) of the Indebtedness, Debtor hereby assigns, transfers and
pledges unto Secured Party, and grants to Secured Party a continuing security
interest in, the Collateral.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Debtor hereby represents and warrants to Secured Party that:
3.1 Ownership; Free of Encumbrances. Debtor is and will remain the legal
and beneficial owner of the Collateral, free and clear of any prior Liens,
except the security interest created hereby and except as set forth in
Subsection 5.6 of the Credit Agreement. Debtor will defend the Collateral
against all claims and demands of all persons at any time claiming the
Collateral or any interest therein, other than persons holding Liens
permitted under Subsection 5.6 of the Credit Agreement. No security
agreement, financing statement or other public notice with respect to all
or any part of the Collateral is on file or of record in any public office
except such as may have been filed pursuant to this Agreement and except as
set forth in Schedule I attached hereto. Debtor has exclusive possession
and control of the Collateral.
3.2 Conflicting Agreements and Charter Provisions. Neither the execution
and delivery of this Agreement, nor fulfillment nor compliance with the
terms and provisions hereof, will conflict with, or result in a breach of
the terms, conditions or provisions of, or constitute a default under, or
result in any violation of, the charter or bylaws of Debtor, or any
agreement, instrument, judgment, decree, statute, law, rule or regulation
to which Debtor is subject or by which the Collateral is bound or
affected, or require any authorization, consent, approval or other action
by, or notice to any Governmental Authority. No consent or authorization
of or filing with or other act by and in respect of any other Person is
required in connection with the execution, delivery, performance, validity
or enforceability of this Agreement.
3.3 Actions and Proceedings. There is no action or proceeding against or
investigation of Debtor, pending or threatened, which questions the
validity of this Agreement or any of the Loan Documents or which is likely
to have a Material Adverse Effect.
3.4 Organization; Authority. Debtor is and will remain a corporation,
duly organized, validly existing, and in good standing under the laws of
the state of Oklahoma and is duly qualified to conduct business and in
good standing under the laws of the state of Georgia and all other states
or jurisdictions in which it does business. Debtor now has and will have
at all material times requisite corporate power and authority to enter
into this Agreement and to carry out the terms and provisions hereof.
This Agreement has been duly authorized by all necessary corporate action
on the part of Debtor, has been duly executed and delivered by Debtor's duly
authorized officers, and constitutes the legal, valid and binding obligation
of Debtor, enforceable in accordance with its terms (except as enforceability
may be limited by (i) applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting creditors' rights generally, and
(ii) general principles of equity).
3.5 Location of Principal Office; Records. The chief place of business
and chief executive office of Debtor and the offices where Debtor keeps
its records concerning the Accounts and the original copies of all contracts
that evidence or constitute Collateral are located at the following address:
57 East Broad St.
Newnan, Georgia 30264
Schedule II attached hereto contains a complete and accurate list of the
locations of all Inventory. Within the last four months, Debtor has not
changed its name, identity or corporate structure (by reorganization or
otherwise), or its address.
3.6 Tradenames. Schedule III attached hereto contains a complete and
accurate list of (i) all names under which Debtor is or has been doing
business within the last twelve months, including, without limitation,
tradenames, division names, and fictitious names, (ii) all tradenames
owned by Debtor or that Debtor is licensed to use, and (iii) all tradenames
that Debtor has established the right to use.
3.7 Instruments. None of the Accounts is currently evidenced by a
promissory note or other instrument.
3.8 Accounts. The amount represented to Secured Party from time to time
as owing by each account debtor or by all account debtors in respect of
the Accounts will at no time be other than the correct amount actually
owing by such account debtor or debtors thereunder. No consent of any
account debtor in respect of any account is required, or purports to be
required, in connection with the execution, delivery and performance of
this Agreement by Debtor. Each of the Accounts is in full force and effect
and constitutes a valid and legally enforceable obligation of the account
debtor in respect thereof.
3.9 Law and Ordinances. Debtor has not violated and will not violate any
applicable statute, regulation or ordinance of any Governmental Authority
in any material adverse respect as to the ownership, acquisition, use and
operation of the Collateral including, without limitation, any Environmental
Laws.
3.10 Permits. Debtor has acquired or will acquire at appropriate times,
and is in compliance with the terms of, all Permits which in any respect
are necessary for the ownership, maintenance, use or operation of the
Collateral, and all such Permits shall be valid and subsisting at all
pertinent times.
ARTICLE IV
COVENANTS
Debtor covenants and agrees with Secured Party that, from and after the
date of this Agreement until the Indebtedness is paid in full:
4.1 Insurance. Debtor, at its cost and expense, shall maintain in full
force and effect liability and casualty insurance on the Inventory as
required under the terms of the Credit Agreement.
4.2 Recordings, Filings, Further Assurances. Debtor agrees that from
time to time, at the expense of Debtor, Debtor will promptly execute and
deliver all further instruments and documents, and take all further action
that may be necessary or desirable, or that Secured Party may reasonably
request, in order to continue, perfect and protect any security interest
granted hereby or to enable Secured Party to exercise and enforce its
rights and remedies hereunder with respect to any Collateral. Without
limiting the generality of the foregoing, Debtor will: (i) mark
conspicuously each item of chattel paper included in the Accounts with a
legend in form and substance satisfactory to Secured Party, indicating that
such chattel paper is subject to the security interest granted hereby; (ii)
if any of the Accounts shall be evidenced by a promissory note or other
instrument, deliver and pledge to Secured Party such note or instrument
duly endorsed and accompanied by duly executed instruments of transfer or
assignment, all in form and substance satisfactory to Secured Party; (iii)
execute and file such financing or continuation statements or amendments
thereto and such other instruments or notices as may be necessary or
desirable, or as Secured Party may request, in order to perfect and
preserve the security interest granted or purported to be granted hereby;
(iv) deliver to Secured Party promptly upon receipt thereof all promissory
notes and other instruments representing or evidencing any of the
Collateral; and (v) prepare and furnish to Secured Party upon request such
lists of the Accounts as Secured Party may, from time to time, reasonably
request. Debtor hereby authorizes Secured Party to file one or more
financing or continuation statements and amendments thereto relative to all
or part of the Collateral without the signature of Debtor, where permitted
by law and to execute the same as attorney-in-fact for Debtor to the extent
Debtor's signature is required by law.
4.3 Records and Inspection; Field Audits. Debtor shall keep and shall
make available to Secured Party at reasonable times, accurate and complete
books and records with respect to the Collateral and Debtor's business
generally, in accordance with generally accepted accounting principles or
other reasonable and sound business practices, including a record of all
payments received and any credits granted on any of the Accounts, and
Secured Party shall have the right to inspect and copy such records and to
inspect the Collateral at reasonable times. Without limiting the
generality of the foregoing, Debtor will: (i) permit Secured Party,
through its authorized representatives, to conduct periodic field audits
of Debtor and to review Debtor's operations, books and records, accounts
receivable methods and controls, and other matters relating to the value
and maintenance of the Collateral and Debtor's financial reporting, and
(ii) afford any authorized representative of Secured Party with access to
any Property owned by Debtor, during business hours and upon reasonable
notice. For the further security of Secured Party, Secured Party shall
have a security interest in all such books and records pertaining to the
Collateral, and after any Event of Default Debtor shall turn over any such
books and records to Secured Party or to its representatives during normal
business hours at the request of Secured Party.
4.4 Location of Office and Records; Change of Name. Debtor shall keep
its chief place of business and chief executive office, and the offices
where it keeps its records concerning the Accounts and the original copies
of all contracts and chattel paper that evidence or constitute Collateral,
at the location therefor specified in Subsection 3.5 above and shall
notify Secured Party at least thirty (30) days prior to any change from
said location. Debtor will not change its name, identity or corporate or
other structure to such an extent that any financing statement filed by
Secured Party in connection with this Agreement would become seriously
misleading, unless it shall have given Secured Party at least thirty (30)
days prior written notice thereof and prior to effecting any such change
taken such steps as Secured Party may deem necessary or advisable to
continue the perfection and priority of the security interest granted
pursuant hereto.
4.5 Removal of Inventory. Debtor shall keep the Inventory at the
locations listed on Schedule II or, with the prior written consent of
Secured Party, at such other location in a jurisdiction in which all
actions required by Subsection 4.2 shall have been taken with respect to
the Collateral as Debtor may have advised Secured Party at least thirty
(30) days prior to such removal.
4.6 Debtor Remains Liable. Debtor shall remain liable under all
contracts or other agreements included in the Collateral to the extent set
forth therein to perform all of its duties and obligations thereunder to
the same extent as if this Agreement had not been executed. The exercise
by Secured Party of any of the rights hereunder shall not release Debtor
from any of its duties or obligations under such contracts or agreements
included in the Collateral. Secured Party shall not have any obligation or
liability under such contracts or agreements included in the Collateral by
reason of this Agreement, nor shall Secured Party be obligated to perform
any of the obligations or duties of Debtor thereunder or to take any action
to collect or enforce any claim for payment assigned hereunder. Debtor
shall at its expense perform and observe all of the terms and provisions of
such contracts to be performed or observed by it to maintain such contracts
in full force and effect, enforce such contracts in accordance with their
terms, and take all such action to such ends as may from time to time be
reasonably requested by Secured Party.
4.7 Debtor to Pay Taxes. Debtor will pay promptly when due all property
and other taxes, assessments, and governmental charges or levies imposed
upon and claims (including claims for labor, materials and supplies)
against the Collateral, except to the extent (i) the validity thereof is
being contested in good faith and by proper proceedings, (ii) proper
reserves are being maintained in connection therewith, in accordance with
generally accepted accounting principles, consistently applied, and (iii)
the proceedings referred to in clause (i) above could not subject Secured
Party to any civil or criminal penalty or liability or involve any risk of
sale, forfeiture or loss of any of the Collateral.
4.8 Transfers and Other Liens. Debtor shall not: (a) sell, assign, or
otherwise dispose of or grant any option with respect to any of the
Collateral (except as permitted by Subsection 7.2 of the Credit
Agreement), or (b) create or suffer to exist any lien upon or with respect
to any of the Collateral (except as permitted by Subsection 7.1 of the
Credit Agreement).
4.9 Limitations on Modifications, Waivers or Extensions of Agreements
Giving Rise to Accounts. Debtor will not (i) amend, modify, terminate or
waive any provision of any agreement giving rise to an Account in any
manner which could reasonably be expected to materially adversely affect
the value of such Account as Collateral, or (ii) fail to exercise promptly
and diligently each and every material right which it may have under each
agreement giving rise to an Account (other than any right of termination).
Debtor will deliver to Secured Party a copy of each material demand,
notice or document sent or received by it relating in any way to any
amendment, modification, termination or waiver of any provision of any
agreement giving rise to an Account.
4.10 Secured Party's Rights and Duties. Debtor shall remain liable under
the Accounts to observe and perform all the conditions and obligations to
be observed and performed by it thereunder, all in accordance with and
pursuant to the terms and provisions of each Account. Secured Party shall
not have any obligation or liability under any Accounts by reason of or
arising out of this Agreement, or the receipt by Secured Party of any
payment relating to any Account pursuant hereto, nor shall Secured Party
be required or obligated in any manner to perform or fulfill any of the
obligations of Debtor under or pursuant to any Account or to make any
payment, or to make any inquiry as to the nature or the sufficiency of any
payment received by Secured Party or the sufficiency of any performance by
any party under any Account or to present or file any claim, or to take
any action to collect or enforce any performance or the payment of any
amounts which have been assigned to Secured Party or to which Secured
Party may be entitled at any time or times.
4.11 Collection of Accounts and Proceeds. Debtor shall cause all payments
from account debtors on any of the Accounts to be remitted directly to a
"lockbox" maintained with Secured Party. Until further notice from
Secured Party, any proceeds of Accounts remitted to the lockbox, whether
consisting of checks, notes, drafts, bills of exchange, money orders,
commercial paper of any kind whatsoever, or other documents received in
payment of any Accounts or in payment for any Inventory, shall be
deposited by Secured Party in an operating account maintained by Matrix
with Secured Party (subject to Secured Party's established policies on
availability of uncollected funds). Such proceeds when deposited shall
continue to be collateral security for all of the Indebtedness and shall
not constitute payment thereof until applied as hereinafter provided. Upon
the occurrence and during the continuation of an Event of Default, Secured
Party may apply all or any part of the funds on deposit in said operating
account on account of the principal of and/or interest on any of the
Indebtedness, the order and method of any such application to be in the
sole discretion of Secured Party. If an Event of Default shall have
occurred and be continuing, at Secured Party's request Debtor shall deliver
to Secured Party all original and other documents evidencing and relating
to the sale and delivery of Inventory or the performance of labor or
services which created the Accounts, including, but not limited to, all
original orders, invoices, and shipping receipts. Secured Party may, at
any time after the occurrence and during the continuation of any Event of
Default, notify account debtors that the Accounts have been assigned to
Secured Party and that payment shall be made directly to Secured Party, and
Debtor will so notify such account debtors on the request of Secured Party.
Secured Party may in its own name or in the name of others, at any time
after the occurrence and during the continuation of any Event of Default,
communicate with account debtors in order to verify with them the existence,
amount, and terms of any Accounts.
ARTICLE V
DEFAULT
The term "Event of Default" for all purposes of this Agreement shall mean
the occurrence of an "Event of Default" as defined in the Credit Agreement.
ARTICLE VI
REMEDIES
6.1 Acceleration of Indebtedness. Upon the occurrence of any Event of
Default, Secured Party may, at its option, without notice or demand,
terminate its obligations to Debtor (including the Revolving Commitment as
defined in the Credit Agreement) and declare the Indebtedness to be
immediately due and payable, whereupon the same shall become forthwith due
and payable.
6.2 Other Remedies. Upon the occurrence and during the continuation of
any Event of Default, Secured Party shall be entitled to exercise all
remedies available to it under the Loan Documents (as defined in the
Credit Agreement) or otherwise under applicable law, including, without
limitation, the following:
6.2.1All Legal Remedies. Proceed to selectively and successively enforce
and exercise any and all rights and remedies which Secured Party may have
under this Agreement, any other applicable agreement or applicable law,
including, without limitation: (i) commencing one or more actions against
Debtor and reducing the claims of Secured Party against Debtor to judgment,
(ii) foreclosing, realizing upon, or otherwise enforcing Secured Party's
security interest in the Collateral, or any portion thereof, or other
enforcing Secured Party's rights and remedies in respect of the Collateral,
through judicial action or otherwise, including all available remedies under
the applicable provisions of the UCC, and (iii) paying or discharging of any
claim or Lien, prior or subordinate, in respect of or affecting the
Collateral.
6.2.2Cash Equivalent Items. As regards any portion of the Collateral
consisting of cash equivalent items (i.e., checks, drafts or other items
convertible at face), immediately apply them against the Indebtedness and
for this purpose Debtor agrees that such items will be considered identical
in character to cash proceeds.
6.2.3Disposition. Sell, lease or otherwise dispose of the Collateral at
private or public sale, in bulk or in parcels and, where permitted by law,
without having the Collateral present at the place of sale. Unless the
Collateral is perishable or it appears that the value of the Collateral
will decline speedily or the Collateral is a type customarily sold on a
recognized market, or unless Debtor has signed a statement (after the
occurrence of an Event of Default) renouncing or modifying Debtor's right
to notice, Secured Party will give Debtor reasonable notice of the time
and place of any public sale or other disposition thereof or the time
after which any private sale or other disposition thereof is to be made.
The requirements of reasonable notice shall be met if such notice is given
to Debtor at least ten (10)days before the time of any such sale or
disposition.
6.2.4Costs and Expenses. Recover from Debtor an amount equal to all costs,
expenses and attorney's fees incurred by Secured Party in connection with
the exercise of the rights contained or referred to herein, together with
interest on such sums at the default rate applicable to the Term Note from
time to time.
6.2.5Collections. Exercise any and all rights and remedies of Debtor
relating to the Collateral, including, but not by way of limitation, the
right to collect, demand, receive, settle, compromise, adjust or sue for
all amounts due thereon or thereunder and the right either in Secured
Party's own name or in the name of Debtor, to take such legal or other
action as Debtor might have taken except for this Agreement.
6.3 Letters of Credit. Upon the acceleration of the Indebtedness after
an Event of Default an amount equal to the aggregate stated amount of all
outstanding Letters of Credit issued by Secured Partyfor the account of
the Borrowers shall, at Secured Party's option and without demand upon or
further notice to Debtor, be deemed (as between Secured Party and the
Borrowers) to have been paid or disbursed by Secured Party under the Letters
of Credit (notwithstanding that such amounts may not in fact have been so
paid or disbursed), and a loan to the Borrowers in the amount of such Letters
of Credit to have been made and accepted, which loan shall be immediately
due and payable and shall bear interest at the post default rate provided in
the Revolving Note. In lieu of the foregoing, at the election of Secured
Party, Debtor and/or the other Borrowers shall, upon Secured Party's demand,
deliver to Secured Party cash, or other collateral of a type satisfactory to
Secured Party, having a value, as determined by Secured Party, equal to the
aggregate outstanding Letters of Credit. Any such collateral and/or any
amounts received by Secured Party in payment of the loan made pursuant to
this Section shall be held by Secured Party in a separate account
appropriately designated as a cash collateral account in relation to this
Agreement and the Letters of Credit and retained by Secured Party as
collateral security for the Indebtedness and each of the Letters of Credit.
Such amounts shall not be used by Secured Party to pay any amounts drawn or
paid under or pursuant to any Letter of Credit, but may be applied to
reimburse Secured Party for drawings or payments under or pursuant to Letters
of Credit which Secured Party has paid or, if no such reimbursement is
required, to payment of suchother Indebtedness as Secured Party shall
determine. At the option ofSecured Party, proceeds of sale of the
Collateral may be used to fund thecash collateral account herein provided
for. Any amounts remaining in any cash collateral account established
pursuant to this Section following payment in full of the Indebtedness,
which amounts are not (as determined by Secured Party) to be applied to
reimburse Secured Party for amounts actually paid by Secured Party in
respect of a Letter of Credit, shall be returned to the Borrowers (after
deduction of Secured Party's reasonable and necessary expenses).
6.4 Selective Enforcement. In the event Secured Party shall elect to
selectively and successively enforce its rights and remedies in respect of
any of the Collateral, pursuant to any applicable agreements or otherwise,
such action shall not be deemed a waiver or discharge of any other right,
remedy, lien or encumbrance until such time as Secured Party shall have
been paid in full the Indebtedness.
6.5 Waiver of Default. Secured Party may, by an instrument in writing
signed by Secured Party, waive any Event of Default which shall have
occurred and any of the consequences thereof and, in such event, Secured
Party and Debtor shall be restored to their respective former positions,
rights and obligations. Any Event of Default so waived shall, for all
purposes of this Agreement, be deemed to have been cured and not to be
continuing, but no such waiver shall extend to any subsequent or other
default or impair any consequence thereof.
6.6 Deposits; Setoff. Regardless of the adequacy of any other Collateral
held by Secured Party, any deposits or other sums credited by or due from
Secured Party to Debtor shall at all times constitute collateral security
for the Indebtedness and may be set off against the Indebtedness. The
rights granted in this subsection shall be in addition to the rights of
Secured Party under any statutory banker's lien or common law right of
setoff.
6.7 Application of Payments. During the continuance of any Event of
Default, all payments received by Secured Party in respect of the
Indebtedness, whether from Debtor, any of the other Borrowers, any
guarantor, recoveries upon any portion of the Collateral or otherwise, may
be applied by Secured Party to any liabilities, obligations or indebtedness
included in the Indebtedness selected by Secured Party in its sole and
exclusive discretion.
6.8 Secured Party's Satisfaction of Debtor's Obligations. Upon the
occurrence of any event which, but for the giving of notice or the passage
of time, would constitute an Event of Default, Secured Party may, but
shall not be obligated to, pay, satisfy or cure any liability or
obligation of Debtor arising out of or relating to this Agreement or the
Notes, upon prior notice to Debtor, and Debtor will from time to time
within ten (10) days after a request made by Secured Party, reimburse
Secured Party for all amounts expended, advanced or incurred by Secured
Party in connection with such payment, cure or satisfaction, together with
interest on such sums at the default rate applicable to the Term Note from
time to time.
ARTICLE VII
MISCELLANEOUS
From and after the date of this Agreement and until the Indebtedness is paid
in full:
7.1 Power of Attorney. Debtor hereby irrevocably constitutes and appoints
Secured Party, with full power of substitution, as its full and lawful
attorney-in-fact with full irrevocable power and authority in the place
and stead of Debtor and in the name of Debtor or in its own name from time
to time in Secured Party's discretion, for the purposes of carrying out this
Agreement, to take any and all appropriate action and to execute any and all
documents and instruments which may be necessary or desirable to accomplish
the purposes of this Agreement and, without limiting the generality of the
foregoing, Debtor hereby gives Secured Party the power and right on behalf of
Debtor, without notice to or assent by Debtor to do the following:
(a) At any time when any Event of Default shall have occurred and be
continuing, to take possession of and endorse and collect any checks,
drafts, notes, acceptances, or other instruments for the payment of money
due under or with respect to any Collateral and to file any claim or to
take any other action or proceeding in any court of law or equity or
otherwise deemed appropriate by Secured Party for the purpose of collecting
any and all such monies due or with respect to such Collateral whenever
payable;
(b) Upon the occurrence and during the continuance of any Event of Default,
(i) to direct any party liable for any payment under any of the Collateral
to make payment of any and all monies due or to become due thereunder
directly to Secured Party, or as Secured Party shall direct; (ii) to ask
for or demand, collect, receive payment of and receipt for, any and all
monies, claims and other amounts due or to become due at any time in
respect of or arising out of any Collateral; (iii) to assign and endorse
any invoices, freight or express bills, bills of lading, storage or
warehouse receipts, drafts against debtors, assignments, verifications,
notices and other documents in connection with any of the Collateral;
(iv) to commence and prosecute any suits, actions, or proceedings at law
or in equity in any court of competent jurisdiction to collect the
Collateral or any portion thereof and to enforce any other right in respect
of any Collateral; (v) to defend any suit, action, or proceeding brought
against such Debtor with respect to any Collateral; and (vi) to settle,
compromise or adjust any suit, action or proceeding described in the
preceding clause and, in connection therewith, to give such discharges
or releases as Secured Party may deem appropriate.
All acts of such attorney or designee are hereby ratified and approved and
such attorney or designee shall not be liable for any acts of omission or
commission nor for any error of judgment or mistake of fact or law. This
power of attorney being coupled with an interest is irrevocable while any
of the Indebtedness shall remain unpaid.
7.2 Amendment; Entire Agreement. This Agreement cannot be amended,
modified or supplemented, except by an agreement in writing signed by the
party or parties against whom enforcement of any waiver, change,
amendment, modification or discharge is sought. This Agreement constitutes
the entire agreement of the parties hereto with respect to the matters
dealt with herein, except as expressly indicated to the contrary herein.
7.3 Notices. All notices, requests and demands required or authorized
hereunder shall be given in the manner set forth in Subsection 10.3 of the
Credit Agreement.
7.4 Waivers; Consents. Debtor hereby (i) consents to all extensions and
renewals of the Indebtedness, (ii) consents to the addition, release or
substitution of any person other than Debtor liable on any portion of the
Indebtedness, (iii) waives all demands, notices and protests of any action
taken by Secured Party pursuant to this Agreement or in connection with
the Indebtedness, (iv) waives any indulgence by Secured Party, and (v)
consents to any substitutions for, exchanges of or releases of the Collateral
or any portion thereof or of any other property securing the
Indebtedness.
7.5 Survival of Representations and Warranties. All representations and
warranties of Debtor contained herein or made in writing by Debtor in
connection herewith shall continue and shall survive the execution and
delivery of this Agreement.
7.6 Successors and Assigns. All covenants and agreements in this Agreement
made by Debtor and Secured Party shall inure to the benefit of and shall be
binding upon Secured Party and Debtor and their respective successors and
assigns, whether so expressed or not.
7.7 Descriptive Headings. The descriptive headings of the Sections of
this Agreement are inserted for convenience only and do not constitute a
part of the Agreement.
7.8 Governing Law. THIS AGREEMENT HAS BEEN DELIVERED TO AND ACCEPTED BY
SECURED PARTY IN THE STATE OF OKLAHOMA, IS TO BE PERFORMED IN THE STATE OF
OKLAHOMA, SHALL BE DEEMED A CONTRACT MADE UNDER THE LAWS OF THE STATE OF
OKLAHOMA, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, AND THE
RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE LAWS OF THE STATE OF
OKLAHOMA.
7.9 Severability. In the event any one or more of the provisions contained
in this Agreement shall, for any reason, be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision hereof.
7.10 Indemnity and Expenses. Debtor agrees to indemnify Secured Party
from and against any and all claims, losses, liabilities or expenses
(including without limitation legal fees and expenses) (i) arising out of
or resulting from this Agreement (including, without limitation, enforcement
of this Agreement), (ii) resulting from any delay in paying excise, sales or
other taxes in connection with the Collateral, or (iii) with respect to or
resulting from any failure to comply with any requirement of law with respect
to the Collateral, except claims, losses or liabilities resulting from
Secured Party's gross negligence or willful misconduct. Debtor will, upon
demand, pay to Secured Party the amount of any and all expenses, including
the fees and disbursements of its counsel and of any experts and agents
which Secured Party may reasonably incur in connection with (i) the execution
and delivery of this Agreement, (ii) any proposed amendment or modification
of this Agreement, (iii) the custody, preservation, use or operation of, or
the sale of, collection from, or other realization upon any of the Collateral,
(iv) the exercise or enforcement of any of the rights of Secured Party
hereunder, or (v) failure of Debtor to perform or observe any of the
provisions hereof.
7.11 Preservation of Collateral. Secured Party's sole duty with respect
to the custody, safekeeping and physical preservation of the Collateral in
its possession under Section 9-207 of the UCC, or otherwise, shall be to
deal with it in the same manner as Secured Party deals with similar
property for its own account. Neither Secured Party nor any of its
directors, officers, employees, or agents shall be liable for failure to
demand, collect, or realize upon all or any part of the Collateral, or for
any delay in doing so, or shall be under any obligation to sell or otherwise
dispose of any Collateral upon the request of Debtor, or otherwise.
7.12 No Waiver by Secured Party. Secured Party shall not by any act (except
by a written instrument pursuant to Subsection 7.2 hereof), delay,indulgence,
omission, or otherwise, be deemed to have waived any right orremedy
hereunder or to have acquiesced in any Event of Default, or in any breach of
any of the terms and conditions hereof. No failure to exercise, nor any
delay in exercising, on the part of Secured Party, any right, power, or
privilege hereunder, shall operate as a waiver thereof. No single or partial
exercise of any right, power or privilege hereunder shall preclude any other
or further exercise thereof, or the exercise of any other right, power or
privilege. A waiver by Secured Party of any right or remedy hereunder on
any one occasion shall not be construed as a bar to any right or remedy which
Secured Party would otherwise have on any future occasion.
7.13 Jurisdiction and Venue. All actions or proceedings with respect to this
Agreement may be instituted in any state or federal court sitting in Tulsa
County, Oklahoma, as Secured Party may elect, and by execution and delivery
of this Agreement Debtor irrevocably and unconditionally (i) submits to the
nonexclusive jurisdiction (both subject matter and person) of each such
court, and (ii) waives (a) any objection that Debtor may now or hereafter
have to the laying of venue in any of such courts, and (b) any claim that
any action or proceeding brought in any such court has been brought in an
inconvenient forum.
7.14 Financing Statements. A carbon, photographic or other reproduction of
this instrument or any financing statement in connection herewith shall
be sufficient as a financing statement for any and all purposes.
IN WITNESS WHEREOF, Debtor has executed and delivered this Agreement to and
in favor of Secured Party as of the date first set forth above.
GENERAL SERVICE CORPORATION,
a Delaware corporation
By: /s/C. William Lee
-----------------
Name: C. William Lee
Title: Secretary
LIBERTY BANK AND TRUST COMPANY OF TULSA,
NATIONAL ASSOCIATION
By: /s/Kevin C. Short
-----------------
Name: Kevin C. Short
Title: Banking Officer
PROMISSORY NOTE
(Revolving Note)
Due: October 31, 1999
$15,000,000.00 Tulsa, Oklahoma June 19, 1997
FOR VALUE RECEIVED, the undersigned ("Makers") jointly and severally
promise to pay to the order of LIBERTY BANK AND TRUST COMPANY OF TULSA,
NATIONAL ASSOCIATION ("Bank"), on or before October 31, 1999, the principal
sum of Fifteen Million and No/100 Dollars ($15,000,000.00), or so much
thereof as shall be advanced and remain outstanding hereunder.
Makers also promise to pay interest on the unpaid principal amount hereof
from time to time outstanding from the date hereof until maturity (whether
at the stated maturity date, by acceleration or otherwise) and after
maturity until paid in full at the rates per annum specified in the Credit
Agreement (as hereinafter defined).
All payments of principal and interest hereunder shall be made on the
dates and in the amounts specified in the Credit Agreement to Bank at its
principal office in Tulsa, Oklahoma, on or before 2:00 p.m. (Tulsa time),
on the date due, in immediately available funds. Whenever a payment is due
on a day other than a Business Day, the due date shall be extended to the
next succeeding Business Day and interest (if any) shall accrue during such
extension.
This Note is executed and delivered by Makers pursuant to, and is entitled
to the benefits of, that certain Credit Agreement dated as of August 30,
1994, as amended by that certain First Amendment to Credit Agreement dated
as of even date herewith (as amended, modified or supplemented from time
to time, the "Credit Agreement"), between Makers and Bank. Reference is
hereby made to the Credit Agreement for a complete statement of the
repayment terms of this Note, including the prepayment rights and
obligations of Makers and the right of the holder of this Note to
accelerate the maturity hereof on the occurrence of certain Events of
Default (as defined therein), and for all other pertinent purposes.
Capitalized terms used herein and not otherwise defined have the respective
meanings assigned to them in the Credit Agreement. This Note is the
"Revolving Note" referred to in the Credit Agreement.
This Note is made, executed and delivered by Makers and accepted by Bank
in renewal and extension of and substitution for, but not in payment or
satisfaction of (or as a novation of), that certain Promissory Note
(Revolving Note) of Makers dated as of October 31, 1996, payable to the
order of Bank in the principal amount of $15,000,000.00 (the "Prior
Revolving Note"). By acceptance of this Note, Bank hereby confirms that the
termination date of the Revolving Credit Facility has been extended
pursuant to Subsection 2.13 of the Credit Agreement to October 31, 1999.
All Security Agreements and other Loan Documents securing payment of the
Prior Revolving Note shall continue in full force and effect as security
for payment of the indebtedness evidenced hereby.
Upon the occurrence and during the continuation of any Event of Default,
the holder of this Note may apply payments received on any amount due
hereunder or under the terms of any instrument now or hereafter evidencing
or securing any said indebtedness as said holder may determine.
It is the intent of Bank and Makers to conform strictly to all applicable
usury laws, and any interest on the principal balance hereof in excess of
that allowed by said usury laws shall be subject to reduction to the
maximum amount of interest allowed under said laws. If any interest in
excess of the maximum amount of interest allowable by said usury laws is
inadvertently paid to the holder hereof, at any time, any such excess
interest shall be refunded by the holder to the party or parties entitled
to the same after receiving notice of payment of such excess interest.
The records of the holder of this Note shall be prima facie evidence of
the amount owing on this Note.
If, and as often as, this Note is placed in the hands of an attorney for
collection or to defend or enforce any of the holder's rights hereunder,
Makers will pay to the holder hereof its reasonable attorneys' fees,
together with all court costs and other expenses paid by such holder.
Makers, endorsers, sureties, guarantors and all other parties who may
become liable for all or any part of this Note severally waive demand,
presentment, notice of dishonor, protest, notice of protest, and notice of
non-payment, and consent to: (a) any and all extensions of time for any
term or terms regarding any payment due under this Note, including partial
payments or renewals before or after maturity; (b) changes in interest
rates; (c) any substitutions or release of collateral; and (d) the
addition, substitution or release of any party liable for payment of this
Note.
No waiver of any payment or other right under this Note or any related
agreement shall operate as a waiver of any other payment or right. All of
the holder's rights hereunder are cumulative and not alternative. This
Note shall inure to the benefit of the successors and assigns of Bank or
other holder and shall be binding upon the successors and assigns of Makers.
This Note has been delivered to and accepted by the Bank in the State of
Oklahoma, is to be performed in the State of Oklahoma, shall be deemed a
contract made under the laws of the State of Oklahoma, and shall be
governed by, and construed and enforced in accordance with, the laws of the
State of Oklahoma. All actions or proceedings with respect to this Note
may be instituted in any state or federal court sitting in Tulsa County,
Oklahoma, as Bank may elect, and by execution and delivery of this Note,
Makers irrevocably and unconditionally (i) submit to the non-exclusive
jurisdiction (both subject matter and person) of each such court, and (ii)
waive (a) any objection that Makers might now or hereafter have to the
laying of venue in any of such courts, and (b) any claim that any action or
proceeding brought in any of such courts has been brought in an inconvenient
forum.
IN WITNESS WHEREOF, the undersigned have executed this instrument effective
as of the date first above written.
MATRIX SERVICE COMPANY,
a Delaware corporation
By: /s/C. William Lee
------------------
Name: C. William Lee
Title: Secretary
MATRIX SERVICE, INC.,
an Oklahoma corporation
By: /s/C. William Lee
------------------
Name: C. William Lee
Title: Secretary
MIDWEST INDUSTRIAL CONTRACTORS, INC.,
a Delaware corporation
By: /s/C. William Lee
------------------
Name: C. William Lee
Title: Secretary
MATRIX SERVICE MID-CONTINENT, INC.,
an Oklahoma corporation
By: /s/C. William Lee
------------------
Name: C. William Lee
Title: Secretary
PETROTANK EQUIPMENT, INC.,
an Oklahoma corporation
By: /s/C. William Lee
------------------
Name: C. William Lee
Title: Secretary
TANK SUPPLY, INC.,
an Oklahoma corporation
By: /s/C. William Lee
------------------
Name: C. William Lee
Title: Secretary
SAN LUIS TANK PIPING CONSTRUCTION CO., INC.,
a Delaware corporation
By: /s/C. William Lee
------------------
Name: C. William Lee
Title: Secretary
COLT CONSTRUCTION CO., INC.,
a Delaware corporation
By: /s/C. William Lee
------------------
Name: C. William Lee
Title: Secretary
MIDWEST INTERNATIONAL, INC.,
a Delaware corporation
By: /s/C. William Lee
------------------
Name: C. William Lee
Title: Secretary
GEORGIA STEEL ACQUISITION CORPORATION,
an Oklahoma corporation
By: /s/C. William Lee
------------------
Name: C. William Lee
Title: Secretary
GEORGIA STEEL FABRICATORS, INC.,
a Georgia corporation
By: /s/C. William Lee
------------------
Name: C. William Lee
Title: Secretary
BROWN STEEL CONTRACTORS, INC.,
a Georgia corporation
By: /s/C. William Lee
------------------
Name: C. William Lee
Title: Secretary
WEST COAST INDUSTRIAL COATINGS, INC.,
a California corporation
By: /s/C. William Lee
------------------
Name: C. William Lee
Title: Secretary
MIDWEST SERVICE COMPANY,
a Delaware corporation
By: /s/C. William Lee
------------------
Name: C. William Lee
Title: Secretary
HEATH ENGINEERING, LTD.,
an Ontario corporation
By: /s/C. William Lee
------------------
Name: C. William Lee
Title: Secretary
HEATH (TANK MAINTENANCE) ENGINEERING, LTD., a
United Kingdom corporation
By: /s/C. William Lee
------------------
Name: C. William Lee
Title: Secretary
MAYFLOWER VAPOR SEAL CORPORATION,
an Oklahoma corporation
By: /s/C. William Lee
------------------
Name: C. William Lee
Title: Secretary
GENERAL SERVICE CORPORATION,
a Delaware corporation
By: /s/C. William Lee
------------------
Name: C. William Lee
Title: Secretary
MAINSERVE-ALLENTECH, INC.,
a Delaware corporation
By: /s/C. William Lee
------------------
Name: C. William Lee
Title: Secretary
MAINTENANCE SERVICES, INC.,
a Delaware corporation
By: /s/C. William Lee
------------------
Name: C. William Lee
Title: Secretary
PROMISSORY NOTE
(Term Note)
Due: August 31, 1999
$5,000,000.00 Tulsa, Oklahoma June 19, 1997
FOR VALUE RECEIVED, the undersigned ("Makers") jointly and severally
promise to pay to the order of LIBERTY BANK AND TRUST COMPANY OF TULSA,
NATIONAL ASSOCIATION ("Bank"), on or before August 31, 1999, the principal
sum of Five Million and No/100 Dollars ($5,000,000.00), or so much thereof
as shall be advanced and remain outstanding hereunder.
Makers also promise to pay interest on the unpaid principal amount hereof
from time to time outstanding from the date hereof until maturity (whether
at the stated maturity date, by acceleration or otherwise)and after
maturity until paid in full at the rates per annum specified in the Credit
Agreement (as hereinafter defined).
All payments of principal and interest hereunder shall be made on the
dates and in the amounts specified in the Credit Agreement to Bank at its
principal office in Tulsa, Oklahoma, on or before 2:00 p.m. (Tulsa time),
on the date due, in immediately available funds. Whenever a payment is due
on a day other than a Business Day, the due date shall be extended to the
next succeeding Business Day and interest (if any) shall accrue during
such extension.
This Note is executed and delivered by Makers pursuant to, and is entitled
to the benefits of, that certain Credit Agreement dated as of August 30,
1994, as amended by that certain First Amendment to Credit Agreement of
even date herewith (as amended, modified or supplemented from time to time,
the "Credit Agreement"), between Makers and Bank. Reference is hereby made
to the Credit Agreement for a complete statement of the repayment terms of
this Note, including the prepayment rights and obligations of Makers and
the right of the holder of this Note to accelerate the maturity hereof on
the occurrence of certain Events of Default (as defined therein), and for all
other pertinent purposes. This Note is the "Term Note" referred to in the
Credit Agreement.
This Note is made, executed and delivered by Makers and accepted by Bank
in renewal and extension of and substitution for, but not in payment or
satisfaction of (or as a novation of), that certain Promissory Note (Term
Note) of Makers dated as of August 30, 1994, payable to the order of Bank
in the principal amount of $5,000,000.00 (the "Prior Term Note"). All
Security Agreements and other Loan Documents securing payment of the Prior
Term Note shall continue in full force and effect as security for payment
of the indebtedness evidenced hereby.
Upon the occurrence and during the continuation of any Event of Default,
the holder of this Note may apply payments received on any amount due
hereunder or under the terms of any instrument now or hereafter evidencing
or securing any said indebtedness as said holder may determine.
It is the intent of Bank and Makers to conform strictly to all applicable
usury laws, and any interest on the principal balance hereof in excess of
that allowed by said usury laws shall be subject to reduction to the
maximum amount of interest allowed under said laws. If any interest in
excess of the maximum amount of interest allowable by said usury laws is
inadvertently paid to the holder hereof, at any time, any such excess
interest shall be refunded by the holder to the party or parties entitled
to the same after receiving notice of payment of such excess interest.
The records of the holder of this Note shall be prima facie evidence of
the amount owing on this Note.
If, and as often as, this Note is placed in the hands of an attorney for
collection or to defend or enforce any of the holder's rights hereunder,
Makers will pay to the holder hereof its reasonable attorneys' fees,
together with all court costs and other expenses paid by such holder.
Makers, endorsers, sureties, guarantors and all other parties who may
become liable for all or any part of this Note severally waive demand,
presentment, notice of dishonor, protest, notice of protest, and notice
of non-payment, and consent to: (a) any and all extensions of time for any
term or terms regarding any payment due under this Note, including partial
payments or renewals before or after maturity; (b) changes in interest rates;
(c) any substitutions or release of collateral; and (d) the addition,
substitution or release of any party liable for payment of this Note.
No waiver of any payment or other right under this Note or any related
agreement shall operate as a waiver of any other payment or right. All of
the holder's rights hereunder are cumulative and not alternative. This
Note shall inure to the benefit of the successors and assigns of Bank or
other holder and shall be binding upon the successors and assigns of Makers.
This Note has been delivered to and accepted by the Bank in the State of
Oklahoma, is to be performed in the State of Oklahoma, shall be deemed a
contract made under the laws of the State of Oklahoma, and shall be
governed by, and construed and enforced in accordance with, the laws of the
State of Oklahoma. All actions or proceedings with respect to this Note
may be instituted in any state or federal court sitting in Tulsa County,
Oklahoma, as Bank may elect, and by execution and delivery of this Note,
Makers irrevocably and unconditionally (i) submit to the non-exclusive
jurisdiction (both subject matter and person) of each such court, and (ii)
waive (a) any objection that Makers might now or hereafter have to the laying
of venue in any of such courts, and (b) any claim that any action or proceeding
brought in any of such courts has been brought in an inconvenient forum.
IN WITNESS WHEREOF, the undersigned have executed this instrument effective
as of the date first above written.
MATRIX SERVICE COMPANY,
a Delaware corporation
By: /s/C. William Lee
------------------
Name: C. William Lee
Title: Secretary
MATRIX SERVICE, INC.,
an Oklahoma corporation
By: /s/C. William Lee
------------------
Name: C. William Lee
Title: Secretary
MIDWEST INDUSTRIAL CONTRACTORS, INC.,
a Delaware corporation
By: /s/C. William Lee
------------------
Name: C. William Lee
Title: Secretary
MATRIX SERVICE MID-CONTINENT, INC.,
an Oklahoma corporation
By: /s/C. William Lee
------------------
Name: C. William Lee
Title: Secretary
PETROTANK EQUIPMENT, INC.,
an Oklahoma corporation
By: /s/C. William Lee
------------------
Name: C. William Lee
Title: Secretary
_
TANK SUPPLY, INC.,
an Oklahoma corporation
By: /s/C. William Lee
------------------
Name: C. William Lee
Title: Secretary
SAN LUIS TANK PIPING CONSTRUCTION CO., INC.,
a Delaware corporation
By: /s/C. William Lee
------------------
Name: C. William Lee
Title: Secretary
COLT CONSTRUCTION CO., INC.,
a Delaware corporation
By: /s/C. William Lee
------------------
Name: C. William Lee
Title: Secretary
MIDWEST INTERNATIONAL, INC.,
a Delaware corporation
By: /s/C. William Lee
------------------
Name: C. William Lee
Title: Secretary
GEORGIA STEEL ACQUISITION CORPORATION,
an Oklahoma corporation
By: /s/C. William Lee
------------------
Name: C. William Lee
Title: Secretary
GEORGIA STEEL FABRICATORS, INC.,
a Georgia corporation
By: /s/C. William Lee
------------------
Name: C. William Lee
Title: Secretary
BROWN STEEL CONTRACTORS, INC.,
a Georgia corporation
By: /s/C. William Lee
------------------
Name: C. William Lee
Title: Secretary
WEST COAST INDUSTRIAL COATINGS, INC.,
a California corporation
By: /s/C. William Lee
------------------
Name: C. William Lee
Title: Secretary
MIDWEST SERVICE COMPANY,
a Delaware corporation
By: /s/C. William Lee
------------------
Name: C. William Lee
Title: Secretary
HEATH ENGINEERING, LTD.,
an Ontario corporation
By: /s/C. William Lee
------------------
Name: C. William Lee
Title: Secretary
HEATH (TANK MAINTENANCE) ENGINEERING, LTD.,
an United Kingdom corporation
By: /s/C. William Lee
------------------
Name: C. William Lee
Title: Secretary
MAYFLOWER VAPOR SEAL CORPORATION,
an Oklahoma corporation
By: /s/C. William Lee
------------------
Name: C. William Lee
Title: Secretary
GENERAL SERVICE CORPORATION,
a Delaware corporation
By: /s/C. William Lee
------------------
Name: C. William Lee
Title: Secretary
MAINSERVE-ALLENTECH, INC.,
a Delaware corporation
By: /s/C. William Lee
------------------
Name: C. William Lee
Title: Secretary
MAINTENANCE SERVICES, INC.,
a Delaware corporation
By: /s/C. William Lee
------------------
Name: C. William Lee
Title: Secretary
PROMISSORY NOTE
(Term Note)
Due: June 19, 2002
$5,000,000.00 Tulsa, Oklahoma June 19, 1997
FOR VALUE RECEIVED, the undersigned ("Makers") jointly and severally
promise to pay to the order of LIBERTY BANK AND TRUST COMPANY OF TULSA,
NATIONAL ASSOCIATION ("Bank"), on or before June 19, 2002, the principal
sum of Five Million and No/100 Dollars ($5,000,000.00), or so much thereof
as shall be advanced and remain outstanding hereunder.
Makers also promise to pay interest on the unpaid principal amount hereof
from time to time outstanding from the date hereof until maturity (whether
at the stated maturity date, by acceleration or otherwise) and afteR
maturity until paid in full at the rates per annum specified in the Credit
Agreement (as hereinafter defined).
All payments of principal and interest hereunder shall be made on the
dates and in the amounts specified in the Credit Agreement to Bank at its
principal office in Tulsa, Oklahoma, on or before 2:00 p.m. (Tulsa time),
on the date due, in immediately available funds. Whenever a payment is due
on a day other than a Business Day, the due date shall be extended to the
next succeeding Business Day and interest (if any) shall accrue during such
extension.
This Note is executed and delivered by Makers pursuant to, and is entitled
to the benefits of, that certain Credit Agreement dated as of August 30,
1994, as amended by that certain First Amendment to Credit Agreement of
even date herewith (as amended, modified or supplemented from time to
time, the "Credit Agreement"), between Makers and Bank. Reference is
hereby made to the Credit Agreement for a complete statement of the
repayment terms of this Note, including the prepayment rights and
obligations of Makers and the right of the holder of this Note to
accelerate the maturity hereof on the occurrence of certain Events of
Default (as defined therein), and for all other pertinent purposes. This
Note is the "Acquisition Note" referred to in the Credit Agreement.
Upon the occurrence and during the continuation of any Event of Default,
the holder of this Note may apply payments received on any amount due
hereunder or under the terms of any instrument now or hereafter evidencing
or securing any said indebtedness as said holder may determine.
It is the intent of Bank and Makers to conform strictly to all applicable
usury laws, and any interest on the principal balance hereof in excess of
that allowed by said usury laws shall be subject to reduction to the
maximum amount of interest allowed under said laws. If any interest in
excess of the maximum amount of interest allowable by said usury laws is
inadvertently paid to the holder hereof, at any time, any such excess
interest shall be refunded by the holder to the party or parties entitled
to the same after receiving notice of payment of such excess interest.
The records of the holder of this Note shall be prima facie evidence of
the amount owing on this Note.
If, and as often as, this Note is placed in the hands of an attorney for
collection or to defend or enforce any of the holder's rights hereunder,
Makers will pay to the holder hereof its reasonable attorneys' fees,
together with all court costs and other expenses paid by such holder.
Makers, endorsers, sureties, guarantors and all other parties who may
become liable for all or any part of this Note severally waive demand,
presentment, notice of dishonor, protest, notice of protest, and notice of
non-payment, and consent to: (a) any and all extensions of time for any
term or terms regarding any payment due under this Note, including partial
payments or renewals before or after maturity; (b) changes in interest
rates; (c) any substitutions or release of collateral; and (d) the addition,
substitution or release of any party liable for payment of this Note.
No waiver of any payment or other right under this Note or any related
agreement shall operate as a waiver of any other payment or right. All of
the holder's rights hereunder are cumulative and not alternative. This
Note shall inure to the benefit of the successors and assigns of Bank or
other holder and shall be binding upon the successors and assigns of Makers.
This Note has been delivered to and accepted by the Bank in the State of
Oklahoma, is to be performed in the State of Oklahoma, shall be deemed a
contract made under the laws of the State of Oklahoma, and shall be
governed by, and construed and enforced in accordance with, the laws of the
State of Oklahoma. All actions or proceedings with respect to this Note
may be instituted in any state or federal court sitting in Tulsa County,
Oklahoma, as Bank may elect, and by execution and delivery of this Note,
Makers irrevocably and unconditionally (i) submit to the non-exclusive
jurisdiction (both subject matter and person) of each such court, and (ii)
waive (a) any objection that Makers might now or hereafter have to the
laying of venue in any of such courts, and (b) any claim that any action or
proceeding brought in any of such courts has been brought in an
inconvenient forum.
IN WITNESS WHEREOF, the undersigned have executed this instrument effective
as of the date first above written.
MATRIX SERVICE COMPANY,
a Delaware corporation
By: /s/C. William Lee
------------------
Name: C. William Lee
Title: Secretary
MATRIX SERVICE, INC.,
an Oklahoma corporation
By: /s/C. William Lee
------------------
Name: C. William Lee
Title: Secretary
MIDWEST INDUSTRIAL CONTRACTORS, INC.,
a Delaware corporation
By: /s/C. William Lee
------------------
Name: C. William Lee
Title: Secretary
MATRIX SERVICE MID-CONTINENT, INC.,
an Oklahoma corporation
By: /s/C. William Lee
------------------
Name: C. William Lee
Title: Secretary
PETROTANK EQUIPMENT, INC.,
an Oklahoma corporation
By: /s/C. William Lee
------------------
Name: C. William Lee
Title: Secretary
TANK SUPPLY, INC.,
an Oklahoma corporation
By: /s/C. William Lee
------------------
Name: C. William Lee
Title: Secretary
SAN LUIS TANK PIPING CONSTRUCTION CO., INC.,
a Delaware corporation
By: /s/C. William Lee
------------------
Name: C. William Lee
Title: Secretary
COLT CONSTRUCTION CO., INC.,
a Delaware corporation
By: /s/C. William Lee
------------------
Name: C. William Lee
Title: Secretary
MIDWEST INTERNATIONAL, INC.,
a Delaware corporation
By: /s/C. William Lee
------------------
Name: C. William Lee
Title: Secretary
GEORGIA STEEL ACQUISITION CORPORATION,
an Oklahoma corporation
By: /s/C. William Lee
------------------
Name: C. William Lee
Title: Secretary
GEORGIA STEEL FABRICATORS, INC.,
a Georgia corporation
By: /s/C. William Lee
------------------
Name: C. William Lee
Title: Secretary
BROWN STEEL CONTRACTORS, INC.,
a Georgia corporation
By: /s/C. William Lee
------------------
Name: C. William Lee
Title: Secretary
WEST COAST INDUSTRIAL COATINGS, INC.,
a California corporation
By: /s/C. William Lee
------------------
Name: C. William Lee
Title: Secretary
MIDWEST SERVICE COMPANY,
a Delaware corporation
By: /s/C. William Lee
------------------
Name: C. William Lee
Title: Secretary
HEATH ENGINEERING, LTD.,
an Ontario corporation
By: /s/C. William Lee
------------------
Name: C. William Lee
Title: Secretary
HEATH (TANK MAINTENANCE) ENGINEERING, LTD.,
an United Kingdom corporation
By: /s/C. William Lee
------------------
Name: C. William Lee
Title: Secretary
MAYFLOWER VAPOR SEAL CORPORATION,
an Oklahoma corporation
By: /s/C. William Lee
------------------
Name: C. William Lee
Title: Secretary
GENERAL SERVICE CORPORATION,
a Delaware corporation
By: /s/C. William Lee
------------------
Name: C. William Lee
Title: Secretary
MAINSERVE-ALLENTECH, INC.,
a Delaware corporation
By: /s/C. William Lee
------------------
Name: C. William Lee
Title: Secretary
MAINTENANCE SERVICES, INC.,
a Delaware corporation
By: /s/C. William Lee
------------------
Name: C. William Lee
Title: Secretary
[ARTICLE] 5 [MULTIPLIER] 1,000
Matrix Service, Inc., an Oklahoma corporation Matrix Service Mid-Continent, Inc., an Oklahoma corporation Midwest Industrial Contractors, Inc., a Delaware corporation Petrotank Equipment, Inc., an Oklahoma corporation San Luis Tank Piping Construction Co., Inc., a Delaware corporation Tank Supply, Inc., an Oklahoma corporation West Coast Industrial Coatings, Inc., a California corporation Colt Construction Company, a Delaware corporation Heath Engineering, Ltd., an Ontario, Canada corporation Midwest International, Ltd., a Delaware corporation Brown Steel Contractors, Inc., a Georgia corporation Mayflower Vapor Seal Corporation, an Oklahoma corporation General Service Corporation, a Delaware corporation
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 33-38809) pertaining to the Matrix Service Company 1990
Incentive Stock Option Plan and the 1991 Stock Option Plan and to the
incorporation by reference in the Registration Statement (Form S-8
No. 33-32771) pertaining to the Matrix Service Company 1995 Nonemployee
Directors' Stock Option Plan of our report dated August 15,1997, with
respect to the consolidated financial statements of Matrix Service Company
included in this Annual Report (Form 10-K) for the year ended May 31, 1997.
ERNST & YOUNG LLP
Tulsa, Oklahoma
August 28, 1997