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<SEC-DOCUMENT>0000950134-03-005030.txt : 20030331
<SEC-HEADER>0000950134-03-005030.hdr.sgml : 20030331
<ACCEPTANCE-DATETIME>20030331151712
ACCESSION NUMBER: 0000950134-03-005030
CONFORMED SUBMISSION TYPE: 10-K
PUBLIC DOCUMENT COUNT: 12
CONFORMED PERIOD OF REPORT: 20021231
FILED AS OF DATE: 20030331
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: INSITUFORM TECHNOLOGIES INC
CENTRAL INDEX KEY: 0000353020
STANDARD INDUSTRIAL CLASSIFICATION: WATER, SEWER, PIPELINE, COMM AND POWER LINE CONSTRUCTION [1623]
IRS NUMBER: 133032158
STATE OF INCORPORATION: DE
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: 10-K
SEC ACT: 1934 Act
SEC FILE NUMBER: 000-10786
FILM NUMBER: 03630005
BUSINESS ADDRESS:
STREET 1: 702 SPIRIT 40 PARK DRIVE
CITY: CHESTERFIELD
STATE: MO
ZIP: 63005
BUSINESS PHONE: 6365308000
MAIL ADDRESS:
STREET 1: 702 SPIRIT 40 PARK DRIVE
CITY: CHESTERFIELD
STATE: MO
ZIP: 63005
FORMER COMPANY:
FORMER CONFORMED NAME: INSITUFORM OF NORTH AMERICA INC
DATE OF NAME CHANGE: 19921217
FORMER COMPANY:
FORMER CONFORMED NAME: INSITUFORM OF NORTH AMERICA INC/TN/
DATE OF NAME CHANGE: 19930617
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K
<SEQUENCE>1
<FILENAME>c75232e10vk.txt
<DESCRIPTION>FORM 10-K
<TEXT>
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002
Commission file number 0-10786
INSITUFORM TECHNOLOGIES, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 13-3032158
- --------------------------------------- -------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
702 SPIRIT 40 PARK DRIVE
CHESTERFIELD, MISSOURI 63005
- --------------------------------------- -------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 636-530-8000
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
Title of each class Name of each exchange on which reported
- ------------------- ---------------------------------------
Class A Common Shares, $.01 par value The Nasdaq Stock Market
Preferred Stock Purchase Rights The Nasdaq Stock Market
Indicate by a 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 as 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 (Section 229.405 of this chapter) 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. [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act) Yes [ X ] No [ ]
State the aggregate market value of the voting and non-voting stock held by
non-affiliates of the registrant as of June 28, 2002: $452,924,981(1)
Indicate the number of shares outstanding of each of the registrant's classes of
common stock as of the latest practicable date: Class A common shares, $.01 par
value, as of March 17, 2003 . . . . . . . . . 26,459,115 shares
- --------------------------
(1) The aggregate market value as of June 28, 2002 (the last business day
of the registrant's most recently completed second fiscal quarter) was
calculated in accordance with the provisions of Form 10-K, and excludes stock
held by affiliates of the registrant (i.e., executive officers and directors of
the registrant and persons holding 10% or more of the registrant's stock). The
aggregate market value without these exclusions, as reported as of March 17,
2003, was $343,968,495.
DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the documents, all or portions of which are incorporated by
reference herein, and the part of the Form 10-K into which the document is
incorporated: Proxy Statement to be filed with respect to the 2003 Annual
Meeting of Stockholders-Part III.
<PAGE>
PART I
Item 1. Business
GENERAL
Insituform Technologies, Inc. (the "Company" or "Insituform
Technologies") is a worldwide company specializing in the use of trenchless
technologies to rehabilitate, replace, maintain and install underground pipes.
The Company uses a variety of trenchless technologies. The Insituform(R)
cured-in-place pipe process (the "Insituform CIPP Process") contributed
approximately 65.5% of the Company's revenues during the Company's most recent
fiscal year.
The Company was incorporated in Delaware in 1980, under the name
Insituform of North America, Inc. The Company was originally formed to act as
the exclusive licensee of the Insituform CIPP Process in most of the United
States. When the Company acquired its licensor in 1992, the name of the Company
was changed to Insituform Technologies, Inc. As a result of its successive
licensee acquisitions, the Company's business model has evolved from licensing
technology and manufacturing materials to performing the entire Insituform CIPP
Process itself.
In February 2001, the Company acquired Kinsel Industries, Inc.
("Kinsel"), a trans-regional provider of pipebursting and other sewer
rehabilitation services. In 2000, Kinsel had total revenues of approximately
$100 million, which included approximately $18 million from its wastewater
treatment plant operations, approximately $32 million from trenchless pipe
rehabilitation services and some open-cut pipe construction, and approximately
$50 million from highway, bridge, airport and commercial construction. During
2001, the Company determined that, while valuable and profitable, the Kinsel
wastewater treatment plant operations and the Kinsel highway construction and
maintenance operations did not fit the Company's business strategy, and
classified these operations as discontinued. In February 2002 (with a January
2002 effective date), the Company closed the sale of Kinsel's wastewater
treatment plant operations and recorded a slight loss on the sale. The Company
closed the sale of Kinsel's highway construction operations in September 2002
with a pre-tax gain of $1.5 million. In October 2002, the Company closed the
sale of Kinsel's highway maintenance operations with no gain or loss recorded on
the sale.
Effective May 1, 2002, the Company acquired the business and certain
assets and liabilities of Elmore Pipe Jacking, Inc. ("Elmore"), a tunneling and
pipe jacking provider operating primarily in the western United States. The
Elmore division, which is part of the tunneling segment, had approximately $20.7
million of revenues after the acquisition in 2002.
As used in this Annual Report on Form 10-K, the terms "Company" and
"Insituform Technologies" refer to the Company and, unless the context otherwise
requires, its direct and indirect wholly-owned subsidiaries. For certain
information concerning each of the Company's industry segments and each of its
domestic and foreign operations, see Note 15 of the Notes to the Company's
Consolidated Financial Statements included in response to "Item 15. Exhibits,
Financial Statement Schedules, and Reports on Form 8-K," which is incorporated
herein by reference.
The Company's website is www.insituform.com. The Company makes
available on this website under "Investor Relations - SEC," free of charge, its
annual report on Form 10-K, quarterly reports on Form 10-Q and current reports
on Form 8-K (and amendments to those reports) as soon as reasonably practicable
after the Company electronically files such material with, or furnishes it to,
the Securities and Exchange Commission.
1
<PAGE>
TECHNOLOGIES
Pipeline System Rehabilitation
The Insituform CIPP Process for the rehabilitation of sewers,
pipelines and other conduits utilizes a custom-manufactured
tube, or liner, made of a synthetic fiber. After the tube is
saturated (impregnated) with a thermosetting resin mixture, it
is installed in the host pipe by various processes and the
resin is then hardened, usually by heating it by various
means, forming a new rigid pipe within a pipe.
Pipebursting is a trenchless method for replacing deteriorated
or undersized pipelines. A bursting head is propelled through
the existing pipeline, fracturing the host pipe and displacing
the fragments outward, allowing a new pipe to be pulled in to
replace the old line. Pipes can be replaced size-for-size or
upsized.
Microtunneling is a trenchless method of drilling a new tunnel
from surface operated equipment. Microtunneling is typically
used for gravity sewers at depths greater than 15 feet, in
congested areas, where unstable ground conditions exist, where
construction is below the water table, or where contamination
zones are present.
Sliplining is a method used to push or pull a new pipeline
into an old one. With segmented sliplining, short segments of
pipe are joined to form the new pipe. For gravity sewer
rehabilitation, these short segments can often be joined in a
manhole or access structure, eliminating the need for a large
pulling pit.
The Insituform SP(TM) (Structural Panels) Process uses a
proprietary product to rehabilitate large diameter sanitary or
storm sewers. A proprietary process is used to construct
fiberglass reinforced panels to custom size and thickness. The
panels are individually placed in the sewer and the seams are
sealed.
See "Patents and Licenses" below for information concerning
these technologies and the Company's NuPipe(R) process (the
"NuPipe Process") and Thermopipe(R) process (the "Thermopipe
Process"), which were not material to the Company's results of
operations during the year ended December 31, 2002.
Tunneling
Tunneling typically encompasses the construction of man-entry sized
pipelines with access through vertical shafts. From the vertical shaft, a tunnel
is constructed using a steerable, locally-controlled tunnel boring machine. Pipe
is installed after the tunnel is constructed.
TiteLiner(R) Process
The Company's TiteLiner(R) process (the "TiteLiner Process") is a
method of lining new and existing steel pipe with a corrosion and abrasion
resistant polyethylene pipe.
2
<PAGE>
REHABILITATION ACTIVITIES
The Company's rehabilitation activities are conducted principally
through installation and other construction operations performed directly by the
Company or through wholly-owned and, in some cases, majority-owned,
subsidiaries. In those areas of the world in which the Company's management
believes it would not be desirable for the Company to exploit its trenchless
processes directly, and in a portion of the United States, the Company has
granted licenses to unaffiliated companies. As described under "Ownership
Interests in Licensees" below, the Company has also entered into joint ventures
from time to time to exploit its trenchless rehabilitation processes. Under
these contractual joint venture relationships, work is bid by the joint venture
entity and subcontracted to the joint venture partners or to third parties. The
joint venture partners are primarily responsible for their subcontracted work,
but both joint venture partners are liable to the customer for all of the work.
Revenue and associated costs are recorded using percentage of completion
accounting for the Company's subcontracted portion of the total contract.
The Company's principal rehabilitation activities are conducted in
North America directly by the Company or through subsidiaries. The Company holds
the Insituform CIPP Process rights for the United States and Canada. In North
America, the Company practices the Insituform CIPP Process in substantially all
of 44 of the 50 states and in Canada. Significant pipebursting rehabilitation
activities are conducted in the southeastern and western regions of the United
States by the Company and its subsidiary, Kinsel.
North American rehabilitation operations, including research and
development, engineering, training and financial support systems, are
headquartered in Chesterfield, Missouri. Insituform CIPP Process tube
manufacturing and installation facilities are maintained in approximately 13
locations, geographically dispersed throughout the United States and Canada.
Outside of North America, the Company conducts Insituform CIPP Process
rehabilitation operations through subsidiaries in the United Kingdom, France,
Spain, the Netherlands and Belgium. Through its French subsidiary, Video
Injection S.A. ("Video Injection"), acquired in 1998, the Company utilizes
multifunctional robotic devices developed by Video Injection in connection with
the inspection and repair of pipelines.
European operations are headquartered in Rueil Malmaison, France, a
suburb of Paris, with principal regional facilities located in the United
Kingdom, the Netherlands, Spain, Belgium and Mitry Mory, France.
The Company conducts tunneling, microtunneling and a range of pipe
system rehabilitation services throughout the United States through its
wholly-owned subsidiaries, Affholder, Inc. and Kinsel Industries, Inc.
TiteLiner Process operations (which offer corrosion and abrasion
protection work) are conducted in the United States through the Company's United
Pipeline Systems division. Worldwide TiteLiner Process operations are
headquartered in the United States. Outside the United States, TiteLiner Process
installation activities are conducted through various operating subsidiaries.
Most of the Company's installation operations are project-oriented
contracts for governmental entities. The contracts are usually obtained through
competitive bidding or negotiations and require performance at a fixed price.
The profitability of these contracts depends heavily upon the competitive
bidding environment, the Company's ability to estimate costs accurately and the
Company's ability to effectively manage and execute project performance. Project
estimates may prove to be inaccurate due to unforeseen conditions or events. A
substantial portion of the work on any given project may be subcontracted out to
third parties at a significantly lower profitability level to the Company than
work
3
<PAGE>
conducted directly by it. Also, proper trenchless installation requires
expertise that is acquired on the job and through training. The Company,
therefore, provides ongoing training and appropriate equipment to its field
installation crews.
The overall profitability of the Company's installation operations is
influenced not only by the profitability of specific project contracts, but also
by the volume and timing of projects so that the installation operations are
able to operate at, or near, capacity.
The Company is required to carry insurance and provide bonding in
connection with certain installation projects and, therefore, maintains
comprehensive insurance policies, including workers' compensation, general and
automobile liability, and property coverage. The Company believes that it
presently maintains adequate insurance coverage for all installation activities.
The Company has also arranged bonding capacity for bid, performance and payment
bonds. Typically, the cost of a performance bond is less than approximately 1%
of the contract value. The Company is required to indemnify surety companies for
any payments the sureties are required to make under the bonds.
The Company generally invoices its customers as work is completed.
Under ordinary circumstances, collection from governmental agencies in the
United States is made within 60 to 90 days of billing. In most cases, 5% to 15%
of the contract value is withheld by the owner until testing is completed or the
warranty period has expired.
The Company's principal rehabilitation activities are also conducted
through the following majority-owned subsidiaries:
<TABLE>
<CAPTION>
Subsidiary Interest
- ---------------------- ----------------
<S> <C>
Video Injection S.A. 89.6% of stock (1)
Insituform Linings Plc 75% of stock (2)
</TABLE>
- -----------------------
(1) The remaining interest is held by certain of the subsidiary's principal
employees (or their affiliates) from whom the subsidiary was purchased,
and is subject to purchase by the Company in September 2003 (or earlier
upon specified events), and by certain of the Company's principal
employees to comply with specific legal requirements.
(2) The remaining interest is held by Per Aarsleff A/S.
LICENSEES
The Company has granted licenses for the Insituform CIPP Process and
the NuPipe Process, covering exclusive and non-exclusive territories, to
licensees who provide pipeline repair and rehabilitation services throughout
their respective licensed territories. At present, the Insituform CIPP Process
is licensed to 11 unaffiliated licensees and sublicensees, and the NuPipe
Process is licensed to three unaffiliated licensees. The licenses generally
grant to the licensee the right to utilize the know-how and the patent rights
(where they exist) relating to the subject process, and to use the Company's
copyrights and trademarks.
The Company's licensees generally are obligated to pay a royalty at a
specified rate, which in many cases is subject to a minimum royalty payment. An
unaffiliated domestic licensee is obligated to pay specified royalty surcharges
on its sales and contracts outside of its licensed territories. Any improvements
or modifications a licensee may make in the subject process during the term of
the license agreement becomes the property of the Company or are licensed to the
Company. Should a licensee fail to meet its
4
<PAGE>
royalty obligations or other material obligations, the Company may terminate the
license. Many licensees (including the domestic licensees), upon prior notice to
the Company, may also terminate the license for any reason. The Company may vary
the agreement used with new licensees according to prevailing conditions.
The Company acts as licensor under arrangements relating to the use of
the Thermopipe Process in the United Kingdom and elsewhere on a non-exclusive
basis.
Insituform East, Incorporated ("East") holds six sub-licenses to the
Insituform CIPP Process to operate in the states of Virginia, Delaware,
Maryland, Pennsylvania, Ohio, a portion of Kentucky, West Virginia and the
District of Columbia under the Company's exclusive license to the Insituform
CIPP Process for the entire United States. (The United States rights to the
Insituform CIPP Process are owned by the Company's subsidiary, Insituform
(Netherlands) B.V. ("Insituform Netherlands")). Pursuant to a July 1999
settlement agreement with East and several affiliates of East (the "Settlement
Agreement"), Midsouth Partners, an affiliate of East, retains a limited,
non-exclusive right in Midsouth Partners' former territory to utilize the
Insituform CIPP Process and technology in the condition and state as
commercially practiced on the date of settlement.
As previously reported by the Company, the Company and Insituform
Netherlands initiated litigation against East and Midsouth Partners in Federal
District Court for the Middle District of Tennessee (Civil Action No. 3-99-1130)
and filed an Amended Complaint on June 13, 2000, alleging among other matters,
trademark violations and a non-curable breach of the Settlement Agreement; and,
seeking: (i) the right to terminate the grant of the limited license to Midsouth
Partners under the Settlement Agreement; (ii) the affirmation of East's
obligations to make royalty payments and cross-over royalty payments on work
performed by East or any of its affiliates within the scope of the subject
matter of East's sub-licenses outside East's licensed territories under East's
sub-licenses; and (iii) a declaration that the Company is not obligated to
continue payment of certain finder's fees to East. The court issued a
preliminary bench ruling on February 22, 2002 in favor of the Company on point
(ii), except with respect to Midsouth Partners, and in favor of the Company on
point (iii). The court ruled against the Company on point (i), finding that
Midsouth Partners had not committed a material breach of the Settlement
Agreement, nor had Midsouth Partners committed violations permitting
termination. After issuance of a final ruling from the court affirming the
preliminary findings, the parties agreed not to appeal the ruling and to
conclude the litigation.
OWNERSHIP INTERESTS IN OPERATING LICENSEES AND PROJECT JOINT VENTURES
The Company, through its subsidiary, Insituform Holdings (UK) Limited,
holds one-half of the equity interest in Insituform Rohrsanierungstechniken
GmbH, the Company's licensee of the Insituform CIPP Process and the NuPipe
Process in Germany. The remaining interest is held by Per Aarsleff A/S, a Danish
contractor ("Per Aarsleff"). The joint venture partners have
rights-of-first-refusal in the event either party determines to divest its
interest.
The Company, through its subsidiary, INA Acquisition Corp., holds
one-half of the equity interest in Italcontrolli-Insituform S.r.l., the
Company's licensee of the Insituform CIPP Process in Italy. The remaining
interest is held by Per Aarsleff. The joint venture partners have
rights-of-first-refusal in the event either party determines to divest its
interest.
The Company holds a 49% joint venture interest in Ka-Te Insituform
A.G., the Company's licensee of the Insituform CIPP Process in Switzerland,
Liechtenstein and Voralberg, Austria. The remaining interest is held by Ka-Te
Holding A.G., an employee of Ka-Te Holding, and an employee of the joint
venture.
5
<PAGE>
The Company has entered into several contractual joint ventures in
order to develop joint bids on contracts for its pipeline rehabilitation
business, and for tunneling operations. Typically, the joint venture entity
holds the contract with the owner and subcontracts portions of the work to the
joint venture partners. As part of the subcontracts, the partners usually
provide bonds to the joint venture. The Company could be required to complete
its joint venture partner's portion of the contract if the partner is unable to
complete its portion and a bond is not available. The Company continues to
investigate opportunities for expanding its business through such arrangements.
MARKETING
The marketing of the Company's rehabilitation technologies is focused
primarily on the municipal wastewater markets worldwide, which the Company
expects to remain the largest part of its business for the foreseeable future.
To help shape decision-making at every step, the Company uses a multi-level
sales force structured around target markets and key accounts, focusing on
engineers, consultants, administrators, technical staff and elected officials.
The Company also produces sales literature and presentations, participates in
trade shows, conducts national advertising and executes other marketing programs
for the Company's own sales force and those of unaffiliated licensees. The
Company's unaffiliated licensees are responsible for marketing and sales
activities in their respective territories. See "Licensees" above for a
description of the Company's licensing operations and for a description of
investments in licensees.
The Company offers its TiteLiner Process worldwide to line new and
existing steel pipelines.
The Company bids on tunneling projects in selected geographical markets
in the United States.
No customer accounted for more than 10% of the Company's consolidated
revenues during the years ended December 31, 2002, 2001 and 2000, respectively.
BACKLOG
December 31, 2002
<TABLE>
<CAPTION>
Apparent
Low Bid
and
Apparent Unreleased Unreleased
Low Bid Term Term
Expected Expected Available
Contract in Next 12 in Next 12 beyond 12
Backlog Months Months Months
-------- ------------ ----------- -----------
(In millions)
<S> <C> <C> <C> <C>
Rehabilitation* $112.1 $27.2 $34.3 $20.9
Tunneling 110.0 - - -
TiteLiner 5.1 - - -
------ ----- ----- -----
Total $227.2 $27.2 $34.3 $20.9
====== ===== ===== =====
</TABLE>
6
<PAGE>
December 31, 2001
<TABLE>
<CAPTION>
Apparent
Low Bid
and
Apparent Unreleased Unreleased
Low Bid Term Term
Expected Expected Available
Contract in Next 12 in Next 12 Beyond 12
Backlog Months Months Months
-------- ------------ ----------- -----------
(In millions)
<S> <C> <C> <C> <C>
Rehabilitation* $125.8 $ 7.0 $64.0 $131.2
Tunneling 36.4 11.0 - 61.9
TiteLiner 2.1 - - -
------ ----- ----- ------
Total $164.3 $18.0 $64.0 $193.1
====== ===== ===== ======
</TABLE>
* Beginning in 2003, the Company is implementing more strict criteria for the
recording of an order and its inclusion in backlog. To enable future
comparability, backlog results at December 31, 2001 and 2002 have been revised
from results previously communicated. As a result of this change, at December
31, 2001, the combined apparent low bid and unreleased term expected in the
next 12 months was reduced by $16.0 million and apparent low bid and
unreleased term available beyond 12 months was reduced by $17.7 million.
Backlog at December 31, 2002 was reduced by $31.7 million from the amount
previously communicated.
Contract backlog is management's expectation of revenues to be
generated from received, signed, uncompleted contracts whose cancellation is not
anticipated at the time of reporting. Reported contract backlog excludes any
term contract amounts for which there is not specific and determinable work
released. At December 31, 2002, the Company's 2003 contract backlog (excluding
projects where the Company has been advised that it is the low bidder, but not
formally awarded the contract) was approximately $227.2 million, which
represents an increase of $62.9 million from the 2002 contract backlog reported
at December 31, 2001. With the exception of tunneling, the Company anticipates
that substantially all contract backlog recorded at December 31, 2002 and an
additional $61.5 million of unreleased term contracts and jobs on which the
Company is the apparent low bidder will be completed in 2003. Tunneling contract
backlog at December 31, 2002 includes an estimated $30.0 million available
beyond 2003. The Company estimates that a further $20.9 million of unreleased
term contracts and jobs on which the Company is the apparent low bidder will be
available beyond 2003. Backlog estimates beyond one year are inherently subject
to greater uncertainty due to their long-term nature. The Company estimated that
at December 31, 2001, $193.1 million of unreleased term contracts and jobs on
which the Company was the apparent low bidder would be available in 2003 and
beyond. See the following discussion of backlog adjustments occurring during
2002. All backlog values are the estimate of management based on contracts
outstanding December 31, 2002 and are subject to change due to factors beyond
the control of the Company, such as modification or cancellation of the contract
award. See "Forward-Looking Information" discussion in Item 7.
The Company previously announced that up to $98.6 million of total
recorded backlog associated with the Jacksonville Electric Authority ("JEA")
term contract was potentially at risk. The five-year JEA term contract was
awarded to PM Construction & Rehabilitation, L.P. and Kinsel Industries, Inc., a
Joint Venture (the "Joint Venture") in November 2000, for a not to exceed amount
of $380 million. In the third quarter of 2002, JEA informed the Company that
while they do not plan to cancel the contract, they intended to release $20
million to the Joint Venture in 2002 with the remainder of the work being sent
to bid. The impact was a reduction in unreleased backlog of $98.2 million during
the third quarter of 2002. The contract calls for a minimum of 150,000 feet
installed per year or the Company will receive pay for downtime. The Company
estimates this to be the equivalent of approximately $20 million per year, of
which the Company's interest is approximately $10 million. JEA has not changed
the "not to exceed amount" under the contract. As a result, the Company adjusted
reported backlog as of December 31, 2002 to reflect only the contract minimums
of $25.6 million for the Company's portion of work expected during the remaining
contract term. The Company has included $10 million of the expected remaining
work in
7
<PAGE>
apparent low bid and unreleased term expected in the next 12 months; the
remaining $15.6 million is expected beyond 2003.
PRODUCT DEVELOPMENT
The Company, by utilizing its own laboratories and test facilities as
well as outside consulting organizations and academic institutions, continues to
develop improvements to its proprietary processes, including the materials used
and the methods of manufacturing and installing pipe. During the years ended
December 31, 2002, 2001 and 2000, the Company spent approximately $2.0 million,
$2.3 million and $2.4 million, respectively, on research and development
activities.
MANUFACTURING AND SUPPLIERS
The Company maintains its principal North American Insituform CIPP
Process liner manufacturing facility in Batesville, Mississippi, with an
additional facility located in Memphis, Tennessee. The Company is in the process
of evaluating various alternatives regarding modifications, upgrades and
revisions to its manufacturing facilities and will likely incur costs of up to
$5.6 million for these matters as part of its 2003 planned capital expenditures.
In Europe, Insituform Linings Plc ("Linings"), a majority-owned subsidiary,
manufactures and sells Insituform CIPP Process liners from its plant located in
Wellingborough, United Kingdom. The Company holds a 75% interest in Linings and
Per Aarsleff the remainder, which interests are subject to rights of first
refusal held by the Company and Per Aarsleff in the event of any proposed
disposition.
Although raw materials used in the Company's Insituform CIPP Process
products are typically available from multiple sources, the Company's historical
practice has been to purchase materials from a limited number of suppliers. The
Company maintains its own felt manufacturing facility at its Insitutube(R)
manufacturing facility in Batesville, and purchases substantially all of its
fiber requirements from one source, alternate vendors of which the Company
believes are readily available. Although the Company has worked with one vendor
to develop a uniform and standard resin to source substantially all of its resin
requirements in North America, the Company believes that resins are also readily
available from a number of major companies should there be a need for
alternative resin sourcing. The Company believes that the sources of supply in
connection with its Insituform CIPP Process operations are adequate for its
needs.
The Company has investigated various alternatives, but does not
currently have, a manufacturing source for its NuPipe Process thermoplastic
pipe. Because of its inventory level of NuPipe Process thermoplastic pipe and
because the Company has not recently entered into NuPipe Process installation
contracts and it is not required to supply thermoplastic pipe to its NuPipe
licensees, the Company has not been materially adversely affected by not having
a manufacturing source for thermoplastic pipe. If the demand for NuPipe Process
products increases, the Company will qualify a new manufacturing source or
manufacture NuPipe Process thermoplastic pipe itself. See further discussion
under "Patents and Licenses" below.
The Company has received a contractual commitment from the provider for
the manufacture and supply of Thermopipe Process products to the Company through
2004.
The Company sells Insituform CIPP Process liners and related products
to certain licensees pursuant to fixed-term supply contracts. Under the
arrangements assumed in connection with the acquisition of the Thermopipe
Process, the Company also furnishes Thermopipe Process products to its approved
contractors and licensees.
8
<PAGE>
The Company manufactures certain equipment used in its corrosion and
abrasion protection operations.
PATENTS AND LICENSES
As of December 31, 2002, the Company held 65 patents in the United
States relating to the Insituform CIPP Process, the last of which to expire will
remain in effect until 2017. As of December 31, 2002, the Company had 10 patents
pending in the United States that relate to the Insituform CIPP Process.
The Company has obtained patent protection in its principal overseas
markets covering various aspects of the Insituform CIPP Process. The
specifications and/or rights granted in relation to each patent will vary from
jurisdiction to jurisdiction. In addition, as a result of differences in the
nature of the work performed and in the climate of the countries in which the
work is carried out, not every licensee uses each patent, and the Company does
not necessarily seek patent protection for all of its inventions in every
jurisdiction in which it does business.
There can be no assurance that the validity of the Company's patents
will not be successfully challenged. The Company's business could be adversely
affected by increased competition upon expiration of the patents or if one or
more of its Insituform CIPP Process patents were adjudicated to be invalid or
inadequate in scope to protect the Company's operations. The Company believes,
however, that, in either case, its long experience with the Insituform CIPP
Process, its continued commitment to support and develop the Insituform CIPP
Process, the strength of its trademarks, and its degree of market penetration,
should enable the Company to continue to compete effectively in the pipeline
rehabilitation market.
The Company holds 12 patents issued in the United States covering
either the NuPipe Process or materials used in connection with the NuPipe
Process. The Company also holds similar NuPipe Process (or related material)
patents in 14 other countries. Due to reduced installation volumes and current
lack of a supplier for NuPipe during 2002, the Company reduced the carrying
value of its NuPipe patents and licenses in accordance with SFAS 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets," which the
Company early adopted in 2001. The NuPipe Process entails the manufacture of a
folded thermoplastic replacement pipe that is stored on a reel in a reduced
shape. The pipe is heated at the installation site to make it flexible enough to
be inserted into an existing conduit. It is then pulled into place and
sequentially expanded to match the existing conduit by internal heat and
pressure and by progressive rounding, creating a tight fit against the conduit
being repaired.
The Company holds two patents issued in the United States and 10
patents outside of the United States relating to the Thermopipe Process for
rehabilitating potable water and other aqueous fluid pipes.
Even though the Company holds a few patents relating to its corrosion
and abrasion protection business, the Company believes that the success of its
TiteLiner Process business, operated through its United Pipeline Systems
division, depends primarily upon its proprietary know-how and its marketing and
sales skills.
The Company holds the exclusive rights to use the patents, trademarks
and know-how related to the Paltem-HL system, a process for rehabilitating
pressure pipes, which includes the Paltem-Frepp system, for substantially all of
North America and, on a non-exclusive basis, additional territories in the
eastern hemisphere and Latin America. Under the license, the Company is required
to pay royalties at specified rates on installations and sales of liners. During
the year ended December 31, 2002, the Company did not have any operations under
this license.
9
<PAGE>
The Company's pipebursting operations are performed under
royalty-bearing, non-exclusive licenses from BG Plc. The licenses terminate upon
expiration of the underlying patent, which expires on April 19, 2005. In
addition, either party may terminate the license upon six months' notice and
under certain other circumstances. In 2002, the Company paid $1.1 million to BG
Plc. under the license.
COMPETITION
The markets in which the Company operates are highly competitive. Most
of the Company's products, including the Insituform CIPP Process, face direct
competition from competitors offering similar or equivalent products or
services. In addition, clients can select a variety of methods to meet their
pipe installation and rehabilitation needs, including a number of methods the
Company does not offer.
Most of the Company's installation operations are either
project-oriented or term contracts for governmental entities that are obtained
through competitive bidding or negotiations. Most competitors are local or
regional companies, and may be either specialty trenchless contractors or
general contractors. A few competitors have far greater financial resources than
the Company and, with regard to products other than the cured-in-place process,
may have greater experience than the Company. Therefore, there can be no
assurance as to the success of the Company's trenchless processes in competition
with these companies and alternative technologies for pipeline rehabilitation.
SEASONALITY
The Company's operations can be affected by severe weather. The effects
of weather are most notable between quarters of any given year. Typically, the
summer months yield the strongest operational results, while the first quarter
is normally more weak due to weather. Unusually severe weather in any area with
a large project, or a significant number of smaller jobs, can cause short-term
anomalies in operational performance. Only the tunneling segment is relatively
immune to weather induced variability in operating results. For the past five
years seasonal variation in work performed has not had a material effect on the
Company's consolidated results of operations.
EMPLOYEES
As of December 31, 2002, the Company employed 1,938 individuals.
Certain of the Company's contracting operations are parties to collective
bargaining agreements covering an aggregate of 391 employees. The Company
generally considers its relations with its employees to be good.
GOVERNMENT REGULATION
The Company is required to comply with all applicable United States
federal, state and local, and all foreign, statutes, regulations and ordinances.
In addition, the Company's installation and other operations have to comply with
various relevant occupational safety and health regulations, transportation
regulations, code specifications, permit requirements, and bonding and insurance
requirements, as well as with fire regulations relating to the storage, handling
and transporting of flammable materials. The Company's manufacturing facilities,
as well as its installation operations, are subject to state and national
environmental protection regulations, none of which presently have any material
effect on the Company's capital expenditures, earnings or competitive position
in connection with the Company's present business. However, although the
Company's installation operations have established monitoring programs and
safety procedures relating to its installation activities and to the use of
solvents, further restrictions could be imposed on the manner in which
installation activities are conducted, on equipment used in installation
activities and on the use of solvents or the thermosetting resins used in the
Insituform CIPP Process.
10
<PAGE>
The Company believes that it is in material compliance with environmental and
safety laws and regulations applicable to it.
The use of both thermoplastics and thermosetting resin materials in
contact with drinking water is strictly regulated in most countries. In the
United States, a consortium led by NSF International ("NSF"), under arrangements
with the United States Environmental Protection Agency (the "EPA"), establishes
minimum requirements for the control of potential human health effects from
substances added indirectly to water via contact with treatment, storage,
transmission and distribution system components, by defining the maximum
permissible concentration of materials which may be leached from such components
into drinking water, and methods for testing them. In February 1996, the
Paltem-HL and Frepp processes under license from Ashimori were certified by the
NSF for use in drinking water systems. In April 1997, the Insituform PPL(R)
liner was certified by the NSF for use in drinking water systems, followed in
April 1999 by NSF certification of the Insituform RPP(R) liner for such use. The
Thermopipe product also has NSF approval. The NSF assumes no liability for use
of any products, and the NSF's arrangements with the EPA do not constitute the
EPA's endorsement of the NSF, the NSF's policies or its standards. Dedicated
equipment is needed in connection with use of these products in drinking water
applications. The Company does not expect material revenues from drinking water
rehabilitation at least through 2003.
EXECUTIVE OFFICERS
The executive officers of the Company, and their respective ages and
positions with the Company, are as follows:
<TABLE>
<CAPTION>
Age at
March 15,
Name 2003 Position with the Company
- ------------------- -------------- ------------------------------------------------------------
<S> <C> <C>
Anthony W. Hooper 55 Chairman of the Board, President and Chief Executive Officer
Robert W. Affholder 67 Senior Executive Vice President
Joseph A. White 49 Vice President - Chief Financial Officer
Carroll W. Slusher 54 Vice President - North America
Thomas A. A. Cook 38 Vice President - General Counsel
</TABLE>
Anthony W. Hooper has been Chairman of the Board of the Company since
1997, and has been President of the Company since 1996. Prior to 1996, Mr.
Hooper was Senior Vice President-Marketing and Technology of the Company.
Robert W. Affholder has been Senior Executive Vice President of the
Company since 1996. From 1995 to 1996, Mr. Affholder was Senior Vice
President-Chief Operating Officer of North American Contracting Operations of
the Company. Until its acquisition by the Company in 1995, Mr. Affholder was
Vice Chairman and President of Insituform Mid-America, Inc.
Joseph A. White has been Vice President and Chief Financial Officer of
the Company since 1999. From 1998 until joining the Company, Mr. White was Vice
President and Chief Financial Officer of Key Plastics, an automotive parts
manufacturer that filed for bankruptcy reorganization in 2000. From 1997 until
1998, Mr. White was Vice President-Finance for the Becker Group, a manufacturer
of automotive interiors.
Carroll W. Slusher has been Vice President-North America of the Company
since 1999, having served as the Company's Divisional Vice President-North
American Operations from 1998 until 1999 and Director of North American Pipe
Rehabilitation from 1997 to 1998.
11
<PAGE>
Thomas A. A. Cook has been Vice President-General Counsel of the
Company since 2000 and Secretary of the Company since 2001. Prior to joining the
Company, Mr. Cook was a partner in the Corporate/Securities Department at the
law firm of Blackwell Sanders Peper Martin LLP, and before June 1998, was with a
predecessor firm (Peper Martin Jensen Maichel and Hetlage) in the
Corporate/Securities Department.
Item 2. Properties
The Company's executive offices are located in Chesterfield, Missouri,
a suburb of St. Louis, at 702 Spirit 40 Park Drive. The executive offices are
leased from an unaffiliated party through May 31, 2003. The Company is
considering the options available to it following expiration of the lease,
including a potential move to other facilities owned by the Company, also
located in Chesterfield. The Company owns its research and development facility
and its training facility in Chesterfield.
The Company owns a liner fabrication facility and a contiguous felt
manufacturing facility in Batesville, Mississippi. The Company's manufacturing
facility in Memphis, Tennessee, is located on land sub-leased from an
unaffiliated entity for an initial term of 40 years expiring on December 31,
2020. Linings (a majority-owned subsidiary) owns certain premises in
Wellingborough, England, where its liner manufacturing facility is located.
The Company owns or leases various operational facilities in the United
States, Canada, Europe and Latin America.
The foregoing facilities are regarded by management as adequate for the
current requirements of the Company's business.
Item 3. Legal Proceedings
In January 2003, the Company received notice of multiple claims,
totaling more than $3.5 million, from the buyer of the former Kinsel wastewater
treatment division. The claims arise out of the February 2002 sale of the Kinsel
wastewater treatment division and allege the valuation of the assets sold was
overstated. No litigation has been commenced. The Company is investigating the
factual basis for these claims.
The Company is involved in certain litigation incidental to the conduct
of its business and affairs. Management does not believe that the outcome of any
such litigation will have a material adverse effect on the financial condition,
results of operations or liquidity of the Company. See "Item 1. Business -
Rehabilitation Activities."
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
(a) The Company's class A common shares, $.01 par value ("Common
Stock"), is traded in the over-the-counter market under the symbol "INSU." The
following table sets forth the range of quarterly high and low sales prices
commencing after December 31, 2000, as reported on The Nasdaq Stock Market.
12
<PAGE>
Quotations represent prices between dealers and do not include retail mark-ups,
mark-downs or commissions.
<TABLE>
<CAPTION>
Period High Low
-------------- ------- -------
<S> <C> <C> <C>
2002
First Quarter $ 26.93 $ 19.60
Second Quarter 28.80 17.75
Third Quarter 21.81 13.28
Fourth Quarter 20.18 12.67
2001
First Quarter $ 41.06 $ 26.88
Second Quarter 37.50 26.48
Third Quarter 43.20 12.60
Fourth Quarter 26.80 16.39
</TABLE>
As of March 15, 2003, the number of record holders of the Company's
Common Stock was 934.
Holders of Common Stock are entitled to receive dividends as and when
they may be declared by the Company's Board of Directors. The Company has never
paid a cash dividend on the Common Stock. The Company's present policy is to
retain earnings to provide for the operation and expansion of its business.
However, the Company's Board of Directors will review the Company's dividend
policy from time to time and will consider the Company's earnings, financial
condition, cash flows, financing agreements and other relevant factors in making
determinations regarding future dividends, if any. Under the terms of certain
debt arrangements to which the Company is a party, the Company is subject to
certain limitations in paying dividends.
(b) Not applicable.
Item 6. Selected Financial Data
The selected financial data set forth below have been derived from the
Company's consolidated financial statements referred to under "Item 15.
Exhibits, Financial Statement Schedules, and Reports on Form 8-K" of this Annual
Report on Form 10-K, and previously published historical financial statements
not included in this Annual Report on Form 10-K. The selected financial data set
forth below should be read in connection with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Company's
consolidated financial statements, including the footnotes.
<TABLE>
<CAPTION>
Unaudited
Year Ended December 31,
----------------------------------------------------------------------
2002(1,2) 2001(1,2) 2000(1) 1999(1) 1998(1)
---- ---- ---- ----- ----
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues $480,358 $445,310 $409,434 $339,883 $300,958
Operating income 50,183 46,765 62,966 50,669 38,688
Income from continuing operations 28,560 24,940 34,906 25,983 17,887
Loss from discontinued operations (5,869) (72) - - -
Net income 22,691 24,868 34,906 25,983 17,887
Basic earnings per share:
Income from continuing operations 1.08 0.94 1.41 1.02 .67
Loss from discontinued operations (0.22) - - - -
Net income 0.86 0.94 1.41 1.02 .67
</TABLE>
13
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Dilutive earnings per share:
Income from continuing operations 1.07 0.93 1.37 1.00 .66
Loss from discontinued operations (0.22) - - - -
Net income 0.85 0.92 1.37 1.00 .66
BALANCE SHEET DATA:
Cash $ 75,386 $ 74,649 $ 64,107 $ 68,183 $ 76,904
Working capital, net of cash 48,844 64,070 50,361 51,997 45,052
Current assets 252,651 259,767 201,008 174,372 170,105
Property, plant and equipment 71,579 68,547 70,226 54,188 56,421
Total assets 473,013 463,622 354,974 311,625 304,608
Current maturities of long-term debt
and line of credit 49,360 35,218 18,023 3,188 2,918
Long-term debt, excluding
current maturities 67,014 88,853 98,217 114,954 112,131
Total liabilities 198,965 211,940 187,327 170,314 161,395
Total common stock and other
stockholders' equity 272,618 250,127 165,290 138,603 139,505
</TABLE>
- --------------------------
(1)The Company has completed various acquisitions that have been accounted for
under the purchase method of accounting, including Video Injection in 1998,
Insituform Rioolrenovatietechnieken in 1999, Insituform Metropolitan, Inc. in
2000, Insituform Belgium N.V. in 2000, Kinsel in 2001, and Elmore Pipe Jacking,
Inc. in 2002.
(2)Results include a pre-tax intangible asset impairment charge of $3.5 million
in 2002 and pre-tax restructuring charges of $2.5 million and $4.1 million in
2002 and 2001, respectively.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
GENERAL
Insituform Technologies' revenues are derived primarily from
installation of pipeline liners, replacement pipes and other contracting
activities. Revenues are generated by the Company and its subsidiaries operating
in the United States, Canada, France, the United Kingdom, the Netherlands,
Belgium, Spain and Chile, and include royalties from unaffiliated licensees and
sub-licensees. During the three years ended December 31, 2002, 2001 and 2000,
approximately 65.5%, 69.8% and 74.0%, respectively, of the Company's
consolidated revenues related to the Insituform CIPP Process.
The Company has three principal operating segments: rehabilitation,
tunneling and TiteLiner. The segments were determined based upon the types of
products sold by each segment and each is regularly reviewed and evaluated
separately. See Note 15 to the Consolidated Financial Statements for additional
segment information and disclosures.
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
($ IN THOUSANDS) 2002 2001 2000
---------- ---------- ----------
<S> <C> <C> <C>
Revenues $480,358 $445,310 $409,434
Gross Profit 125,622 124,848 137,073
Gross Profit Margin 26.2% 28.0% 33.5%
Selling, General and Administrative 68,049 66,955 68,825
Amortization Expense 1,433 7,001 5,282
Operating Income 50,183 46,765 62,966
Operating Income Percentage 10.4% 10.5% 15.4%
</TABLE>
Consolidated revenues from continuing operations were $480.4 million,
increasing 7.9% over 2001 revenues of $445.3 million due primarily to growth in
the tunneling segment with additional contributions
14
<PAGE>
from rehabilitation. Increases in rehabilitation and tunneling revenues were
partially offset by a $10.7 million decline in TiteLiner revenues. Gross profit
increased by 0.6% to $125.6 million, although gross margins decreased from 28.0%
to 26.2% in 2002 versus 2001 due to decreased gross profit margins in the
rehabilitation segment. Selling, general and administrative expenses increased
1.6% to $68.0 million in 2002 due primarily to operating the Kinsel business for
two more months in 2002 than in 2001 and the May 2002 purchase of Elmore Pipe
Jacking, Inc. operations, the combined impact being a $2.7 million increase. The
elimination of amortization expense related to goodwill beginning in 2002
positively impacted operating income. Goodwill amortization pre-tax was $6.2
million in 2001 and $3.8 million in 2000. After restructuring and intangible
asset impairment charges of $2.5 million and $3.5 million in 2002, operating
income was $50.2 million in 2002, representing an increase of 7.3% over 2001
operating income, which included a $4.1 million restructuring charge.
Consolidated revenues of $445.3 million in 2001 represented an 8.8%
increase compared to 2000 revenues of $409.4 million due primarily to the
acquisition of Kinsel in February 2001. Lower gross profit margins at Kinsel and
a smaller gross profit margin in North American rehabilitation contributed to
lower gross profit and gross margin levels in 2001 versus 2000. Selling, general
and administrative expenses were $67.0 million, a decrease of 2.7% compared to
$68.8 million in selling, general and administrative expenses in 2000.
Amortization expense increased $1.7 million in 2001 due primarily to
amortization of goodwill related to the Kinsel acquisition. The resulting
operating income, which includes a $4.1 million restructuring charge, decreased
25.7% to $46.8 million in 2001 compared to $63.0 million in 2000.
In the third quarter of 2002, a Company crew had an accident on a
cured-in-place pipe project in Des Moines, Iowa. Two workers died and five
workers were injured in the accident. The Company fully cooperated with Iowa's
state OSHA in the investigation of the accident as well as reviewed its own
safety procedures. Included in the estimated costs associated with the accident
are the Company's insurance policy deductible, estimated OSHA assessments, lost
productivity from the temporary shutdown of two crews and time spent by all
cured-in-place pipe process field crews in additional training. The total
financial impact of the accident was estimated to be a $0.04 loss per diluted
share in 2002.
Rehabilitation
<TABLE>
<CAPTION>
($ IN THOUSANDS) 2002 2001 2000
---------- ---------- ----------
<S> <C> <C> <C>
Revenues $377,674 $369,219 $325,773
Gross Profit 101,766 107,809 115,500
Gross Profit Margin 26.9% 29.2% 35.5%
Selling, General and Administrative 59,871 60,800 61,530
Amortization Expense 731 6,691 4,972
Operating Income 35,208 36,191 48,997
Operating Income Percentage 9.3% 9.8% 15.0%
</TABLE>
Rehabilitation revenues increased 2.3% to $377.7 million in 2002
compared to 2001 rehabilitation revenues of $369.2 million due to growth in
North American rehabilitation. North American rehabilitation revenues increased
approximately 3.7% over 2001 due primarily to the impact of an additional two
months of revenue from Kinsel in 2002 compared to 2001. European revenues were
relatively flat in 2002 compared to 2001, falling 1.1% to $47.9 million on weak
demand and poor project pricing, primarily in France.
Rehabilitation revenues for 2001 increased 13.3% over 2000 primarily as
a result of incremental revenues of $47.0 million related to the Kinsel
acquisition. Excluding the Kinsel acquisition, revenues in North American
rehabilitation decreased $11.6 million or 4.1% to $269.9 million. The decrease
in North America
15
<PAGE>
was a result of delays in job releases, pricing pressures and increased
competition in several North American markets. Revenues in Europe increased $9.4
million or 24.1% to $48.4 million in 2001 compared to 2000 revenues of $39.0
million primarily as a result of growth and improvement in market conditions in
Europe.
Gross profits for rehabilitation decreased 5.6% to $101.8 million in
2002 from $107.8 million in 2001. Gross profit margins also decreased to 26.9%
from 29.2% over the same time period. Rehabilitation margins in both North
America and Europe drove the decrease, with gross profit dollars eroding 1.6%
and 25.7% in each region, respectively. Aggressive pricing in the northeastern
United States combined with increased use of subcontractors were the primary
causes for the North American decline while pricing pressure and a weak market,
primarily in France, resulted in inefficient crew utilization and tighter
margins in the European operations.
Gross profit margin for rehabilitation was 29.2% in 2001 versus 35.5%
in 2000. The decrease in gross profit margins was primarily a result of lower
utilization rates for work crews in North American operations, combined with
more aggressive pricing as a result of increased competition in the marketplace.
Also, operational capacity had been expanded in anticipation of revenue growth
that did not materialize in 2001. Finally, the operations acquired from Kinsel
contributed 22.1% of gross profit margin, which represents a lower margin base
than typically achieved in the historical rehabilitation segment.
Selling, general and administrative expenses in the rehabilitation
business unit were $59.9 million in 2002, a 1.5% decrease compared to 2001
selling, general and administrative expenses of $60.8 million. Selling, general
and administrative expenses as a percentage of revenues decreased to 15.9% in
2002 from 16.5% in 2001. Although the decrease appears relatively minor,
selling, general and administrative expenses for 2002 are inclusive of incentive
compensation accruals not recognized in 2001 due to performance. Significant
improvements were achieved in Europe in 2002 where initiatives to cut overhead
intensified. Kinsel operations also experienced a decrease in selling, general
and administrative expenses in 2002 in spite of two additional months of expense
as they became more integrated into the overall cost structure of the Company.
Selling, general and administrative expenses for the Company's
rehabilitation operations decreased 1.2% in 2001 from 2000 and to 16.5% of
revenues in 2001 from 18.9% in 2000 primarily due to a significant reduction in
incentive compensation and profit sharing expense, offset by the inclusion of
selling, general and administrative expenses related to the operations acquired
in the Kinsel acquisition. Additionally, at the time of the acquisition, the
Kinsel operations had a lower cost structure than was typical for the
rehabilitation segment.
Amortization expense decreased to $0.7 million in 2002 from $6.7
million in 2001 due to the elimination of goodwill amortization. The increase in
amortization expense from $5.0 million in 2000 to $6.7 million in 2001 was from
increased goodwill amortization resulting from the acquisition of Kinsel.
Rehabilitation operating income was $35.2 million in 2002, a 2.7%
decrease compared to 2001 operating income of $36.2 million. Operating income
includes $3.5 million of asset impairment charges and $2.5 million of
restructuring charges in 2002, and $4.1 million of restructuring charges in
2001. The decrease is due primarily to the 2.3 percentage point decrease in
gross margin percentage that the cessation of goodwill amortization in 2002 and
improvements in administrative overhead costs could not offset.
Rehabilitation operating income for 2001 decreased 26.1% from 2000. The
decrease in operating income was a result of the decrease in gross profit margin
discussed above, increased amortization of goodwill related to the Kinsel
acquisition and the restructuring charge of $4.1 million recorded in 2001.
16
<PAGE>
The Company believes that cost control efforts initiated in 2002 make
it well positioned to optimize benefits from future revenue growth. The Company
plans to reduce operating activity in markets in the northeastern United States
where pricing is unsatisfactory, but will continue its practice of operating in
selected markets in regions where the operating environment is favorable. Plans
for 2003 are to focus on moderate growth and become less dependent on cost
control in order to meet margins. Research and development efforts will be
focused more on improving existing products with regard to performance and cost,
rather than the creation of new products. The Company expects to participate in
bidding for any JEA projects put out for re-bid. See the "Backlog" section for
additional information.
Tunneling
<TABLE>
<CAPTION>
($ IN THOUSANDS) 2002 2001 2000
------- ------- -------
<S> <C> <C> <C>
Revenues $86,297 $49,019 $46,866
Gross Profit 18,260 8,880 9,224
Gross Profit Margin 21.2% 18.1% 19.7%
Selling, General and Administrative 5,703 3,125 3,367
Amortization Expense 392 - -
Operating Income 12,165 5,754 5,858
Operating Income Percentage 14.1% 11.7% 12.5%
</TABLE>
Tunneling revenues increased 76.0% to $86.3 million in 2002 compared to
$49.0 million in 2001. Elmore operations, newly acquired in 2002, contributed
$20.7 million or approximately half of the total increase. The remaining
increase is a result of the Company's strategic focus on further penetrating the
tunneling market based on market opportunities recognized in 2001 and continuing
in 2002.
Tunneling revenues for 2001 increased 4.6% compared to 2000, due
primarily to market growth, which prompted the Company to concentrate on a
growth strategy for the business unit.
Gross profit in 2002 was $18.3 million, a 105.6% increase compared to
2001 gross profit of $8.9 million. Elmore's contribution to gross profit was
less significant than its revenue contributions. Gross profit margin increased
to 21.2% in 2002 compared to 18.1% in 2001. The margin percentage increase is
primarily a result of positive adjustments at the close out of some large jobs.
Gross profit margin for tunneling was 18.1% in 2001 versus 19.7% in
2000 despite slightly stronger revenues. Gross profit margin decreased during
the year due to a change in mix to smaller lower margin projects from larger
higher margin projects.
Selling, general and administrative expenses increased 82.5% to $5.7
million in 2002 compared to $3.1 million in 2001. Most of the increase was due
to the acquisition of Elmore, with the remainder from additional incentive
compensation and support costs for segment growth. Selling, general and
administrative expenses as a percent of revenue increased to 6.6% in 2002
compared to 6.4% in 2001.
Selling, general and administrative expenses for tunneling decreased
7.2% to $3.1 million in 2001 from $3.4 million in 2000. Selling, general and
administrative expenses decreased to 6.4% of revenues from 7.2% in 2000. The
decline in selling, general and administrative expenses in total and as a
percent of revenues was due to a reduction in incentive compensation and profit
sharing expense and targeted cost reduction initiatives in 2001.
The tunneling segment recognized amortization expense for the first
time in 2002 due to covenants not to compete acquired as part of the purchase of
Elmore.
17
<PAGE>
Based on a refinement of certain previous estimates reflected in the
preliminary purchase price allocation for Elmore, goodwill was increased by $5.1
million during the fourth quarter of 2002. In addition to impacting goodwill,
the result of the updated estimates decreased Elmore's beginning costs and
estimated earnings in excess of billings amount by $3.9 million and increased
beginning accrued expenses by $1.3 million. If these entries had not occurred,
tunneling operating income would have been lower by $5.0 million. See Note 3 to
the Consolidated Financial Statements for additional information regarding the
acquisition of Elmore.
Operating income was $12.2 million in 2002, a 111.4% increase over
2001 operating income of $5.7 million, which reflects the factors discussed
above.
Tunneling operating income decreased slightly in 2001 compared to 2000,
primarily as a result of the decrease in gross profit margins discussed above.
The Company expects the tunneling business unit to continue growing in
fiscal 2003, but at a more moderated pace than in 2002. The Affholder operations
exceeded expectation in 2002, especially at the gross profit line where lower
gross margin yields were originally expected. As tunneling operations, and more
specifically, Elmore operations, continue to develop the market and are fully
integrated into the overall consolidated structure, the Company expects
efficiency gains at both the gross margin and operating income levels in the
tunneling business unit and for tunneling to continue to grow in significance to
the Company's consolidated financial results.
TiteLiner
<TABLE>
<CAPTION>
($ IN THOUSANDS) 2002 2001 2000
------- ------- -------
<S> <C> <C> <C>
Revenues $16,387 $27,072 $36,795
Gross Profit 5,596 8,159 12,349
Gross Profit Margin 34.1% 30.1% 33.6%
Selling, General and Administrative 2,475 3,030 3,928
Amortization Expense 310 310 310
Operating Income 2,810 4,820 8,111
Operating Income Percentage 17.1% 17.8% 22.0%
</TABLE>
TiteLiner revenues in 2002 were $16.4 million, a 39.5% decrease from
2001 revenues due primarily to continued decreases in demand from mining
services. The Company expects the increases in oil prices in latter 2002 and
early 2003 to moderately increase the demand in Canadian operations as demand
for this product in North America typically responds to oil price changes.
TiteLiner revenues for 2001 decreased 26.4% from 2000 primarily as a
result of the completion of a large contract in South America in early 2001
which added approximately $13.0 million to revenues in 2000 versus $1.0 million
in 2001. In addition, the United States and South American markets are geared
towards large projects related to mining and thus fluctuate in tandem with
mineral prices, especially copper. The price of copper and palladium were
depressed, which resulted in a substantial decrease in projects relating to
mining.
Gross profit was $5.6 million in 2002, a decrease of 31.4% compared to
$8.2 million in gross profit in 2001. The decrease is almost solely based on the
lower revenues in 2002 versus 2001. Gross profit margin increased, however, in
2002 to 34.1% due primarily to the favorable impact from closing out the large
project in South America.
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Gross profit margin for TiteLiner was 30.1% in 2001 compared to 33.6%
in 2000. Lower mineral prices led to decreased revenues during 2001 placing
pressure on overall unit capacity costs yielding lower gross profit margins.
Selling, general and administrative expenses were $2.5 million for
TiteLiner in 2002, representing an 18.3% reduction compared to 2001 selling,
general and administrative expenses of $3.0 million. Much of this improvement
was the result of the scaling back of TiteLiner operational costs as well as a
smaller allocation of corporate overhead to the business unit given the
reduction in segment revenues. Selling, general and administrative expenses as a
percentage of revenue increased to 15.1% in 2002 from 11.2% in 2001 due to lower
revenues in 2002.
Selling, general and administrative expenses for TiteLiner decreased
22.9% in 2001 from 2000 primarily as a result of a reduction in incentive
compensation and profit sharing expense and targeted cost reduction initiatives.
Selling, general and administrative expenses increased in 2001 to 11.2% of
revenues from 10.7% in 2000 due to decreased leverage of fixed costs over a
lower revenue base.
Operating income for the TiteLiner business unit decreased 41.7% to
$2.8 million in 2002, compared to $4.8 million in 2001 primarily as a function
of the decreased demand experienced in the business unit over the past year.
TiteLiner's operating income for 2001 declined 40.6% compared to 2000,
as a result of the decreases in revenues and gross profit margins previously
discussed.
After experiencing declining demand in the TiteLiner segment in 2002,
the Company achieved its goal of maintaining, or bettering, gross profit margins
and reducing operating costs in the business unit. Thus, the impact at the
operating income line for the segment was minimized. The Company now expects
demand in the TiteLiner business unit to stabilize at or around the current rate
throughout 2003, as there were signs of moderate strength in the final months of
2002 primarily due to increasing oil and petroleum product prices to which the
demand for the TiteLiner product is sensitive.
SPECIAL CHARGES
The Company recorded two special charges in the third quarter of 2002.
The first was a pre-tax charge of $2.5 million related to restructuring efforts.
Of this amount, $1.3 million related to the elimination of 75 positions,
primarily in administrative and overhead functions. An additional $1.2 million
related to the write-down of information technology assets, lease cancellations,
and disposal of certain identifiable fixed assets, primarily at the corporate
level. As of December 31, 2002, the remaining liability related to the
restructuring charge was $1.1 million, $0.8 million of which related to expected
future severance costs. The Company expects the annualized benefit from this
restructuring to be approximately $8.2 million before tax.
In the fourth quarter of 2001, the Company recorded a pre-tax
restructuring charge of $4.1 million, $0.9 million of which related to the
elimination of 112 company-wide positions specifically identified as of December
31, 2001. An additional $3.2 million of the charge related to asset write-downs,
lease cancellations and other costs associated with the closure and
consolidation of eight facilities in the United States and the disposal of the
associated assets. The anticipated annualized pre-tax benefit of this
restructuring effort is $9.0 million. See Note 5 to the Consolidated Financial
Statements regarding restructuring costs.
The Company also took a charge in the third quarter of 2002 related to
a write-down of intangible assets. The pre-tax charge totaled $3.5 million and
related primarily to patents, trademarks, license and
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non-compete intellectual property assets that the Company deemed to be impaired
based on recent business decisions and other circumstances. The asset write-down
is expected to reduce amortization expense by approximately $0.5 million
annually before tax. The impairment analysis was conducted in accordance with
SFAS 144, "Accounting for the Disposal of Long-Lived Assets," which the Company
early adopted in 2001. See Note 6 to the Consolidated Financial Statements
regarding intangible asset impairment.
The Company is performing a strategic analysis on some facilities in the United
States. Depending on the outcome of these evaluations, a further charge could be
taken during 2003.
OTHER INCOME/EXPENSE
Interest expense was $7.9 million in 2002, a 15.3% decrease compared to
2001 interest expense of $9.3 million. The decrease is primarily a result of a
reduction in borrowing levels in 2002 and lower variable interest rates attached
to short-term borrowings.
Interest expense for 2001 compared to 2000 was relatively unchanged at
$9.3 million. Although the Company made a scheduled $15.7 million payment on its
Senior Notes, Series A (the "Senior Notes") in February 2001, the Company
incurred additional debt of $12.2 million in the first quarter of 2001 as part
of its acquisition of Kinsel.
Other income increased 32.3% to $3.1 million in 2002 primarily due to
the $1.2 million gain on the sale of a real estate investment acquired with
Kinsel. This represents a $0.8 million increase over other income of $2.3
million in 2001. Interest income decreased $0.3 million on lower interest rates
on cash during 2002 compared to 2001. In 2001, other income decreased 38.1%, or
$1.4 million, to $2.3 million from $3.7 million in 2000. This was primarily due
to a decline of four percentage points in market rates of return on the
Company's short-term investments.
INCOME TAXES
The Company's effective tax rate for 2002 decreased to 38.5% compared
to 39.4% in 2001. This was primarily due to the Company's adoption of SFAS 142
as detailed in Note 8 to the Consolidated Financial Statements. This statement
provides that goodwill should not be amortized but shall be tested for
impairment annually, or more frequently, if circumstances indicate potential
impairment. Management determined that there was no impairment to goodwill as of
December 31, 2002 and therefore, no expense for goodwill through amortization or
otherwise was recorded in 2002 for financial reporting purposes. The favorable
effect on the rate as a result of the adoption of SFAS 142 was offset to some
extent by a potential non-deductible OSHA penalty in relation to an Iowa job
site accident.
The Company's effective tax rate was 39.4% in 2001 compared to 39.5% in
2000. This minor change was the result of two offsetting components. There was
an increased effect of non-deductible goodwill as a result of the Kinsel
acquisition which was offset by a reduction due to the favorable conclusion of
outstanding tax examinations.
The effective tax rate was calculated consistent with the Company's
belief that deferred tax assets will be fully realized in future periods. See
Note 12 to the Consolidated Financial Statements regarding taxes on income.
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MINORITY INTEREST AND EQUITY IN EARNINGS OF AFFILIATED COMPANIES
Minority interest in net income was $0.2 million in 2002, a 45.1%
decrease from 2001 minority interest in net income of $0.3 million. Equity in
earnings of affiliated companies decreased 26.3% to $0.8 million in 2002
compared to $1.1 million in 2001. The decrease primarily resulted from the
discontinued affiliation with a joint venture partner in the third quarter of
2002.
Minority interest in net income decreased in 2001 to $0.3 million from
$0.6 million in 2000. The decrease was due to the acquisition in 2001 of an
additional 10% interest in Video Injection, and, in late 2000, the purchase of
an additional 35% interest in Insituform France. Equity in earnings of
affiliated companies increased 39.2% to $1.1 million in 2001 compared to $0.8
million in 2000.
DISCONTINUED OPERATIONS
During the fourth quarter of 2001, the Company made the decision to
sell certain operations related to the Kinsel acquisition. At that time, the
Company classified as discontinued the wastewater treatment plant, commercial
construction and highway operations. For the 2002 fiscal year, discontinued
operations generated a $5.9 million net loss. Although all of these operations
were disposed of in 2002, under the terms of sale, the Company is still
responsible for certain identified jobs. The few remaining jobs in process at
December 31, 2002 are expected to be completed in 2003. See Note 16 to the
Consolidated Financial Statements regarding subsequent events.
The Company completed the sale of the wastewater treatment plant
construction operations effective January 1, 2002. The Company received $1.5
million in cash and a $2.0 million note for a total sale price of $3.5 million,
resulting in a slight loss on the sale. In the first quarter of 2003, the
Company received claims by the buyer of the wastewater treatment plant
operations. See Note 16 to the Consolidated Financial Statements regarding
subsequent events.
During the third quarter of 2002, the Company sold the heavy highway
operations for $2.6 million in cash and $1.5 million in notes, resulting in a
pre-tax gain of $1.5 million, or $0.9 million after-tax.
The Company completed the sale of certain contracts and assets of the
highway maintenance operations during the fourth quarter of 2002 for $1.4
million in cash and $1.5 million in subordinated notes. The Company recognized
no gain or loss on this sale.
The Company has assessed the valuation of amounts receivable in
connection with these disposed operations and established appropriate reserves.
Based on the expected reduction in net proceeds reflected by these reserves, the
total after-tax gain on sale from these operations would have been $0.6 million.
These sales comprised the disposition of all operations previously classified as
discontinued. See Note 4 to the Consolidated Financial Statements for additional
disclosure of discontinued operations.
NET INCOME/EARNINGS PER SHARE
Net income declined by 8.8% in 2002 to $22.7 million from $24.9 million
in 2001. Net income in 2001 had decreased 28.8% from 2000 net income of $34.9
million. Return on revenue decreased in each of the last three years from 8.5%
in 2000 to 5.6% in 2001 and 4.7% in 2002. Return on average stockholders' equity
was 8.7%, 12.0%, and 23.0% in 2002, 2001, and 2000, respectively. The results
include $5.9 million and $0.1 million in losses from discontinued operations in
2002 and 2001, respectively. These results also include the impact of a $2.5
million restructuring charge and $3.5 million intangible asset write-down in
2002 and a $4.1 million restructuring charge in 2001, all amounts before tax.
There were no comparable charges in 2000.
21
<PAGE>
Diluted earnings per share were $0.85 for 2002, down 7.6% compared to
2001 diluted earnings per share of $0.92. The restructuring charge and
impairment charge in 2002 impacted diluted earnings per share by $0.06 and $0.08
per share respectively. Discontinued operations adversely impacted diluted
earnings per share in 2002 by $0.22 per share.
Diluted earnings per share decreased 32.8% from $1.37 per share in 2000
to $0.92 per share in 2001. The restructuring charge and the effect of
discontinued operations discussed above impacted diluted earnings per share by
$0.10 per share. Diluted earnings per share were also favorably impacted by the
repurchase of 249,500 shares of common stock in 2002 and 563,109 shares of
common stock in 2001.
OUTLOOK
During 2002, management primarily focused on maintaining revenues with
a more cost efficient infrastructure supporting the Company's operations.
Management believes that the implementation of these cost reduction programs
will better position the Company to take advantage of positive market conditions
when the economy rebounds. Backlog remains strong in most business units and
growth in the tunneling segment is expected to continue fueling overall moderate
growth of the Company. Rehabilitation is expected to continue revenue growth at
a slightly higher rate in 2003 compared to 2002 with the potential for some
erosion of gross margin.
The Company expects the overall sales environment to remain challenging
with regard to bidding and pricing. The impact, if any, of the war with Iraq is
uncertain, although the current political situation could potentially disrupt
and further soften the market for municipal contracts.
CRITICAL ACCOUNTING POLICIES
Discussion and analysis of the Company's financial condition and
results of operations are based upon the Company's consolidated financial
statements, which have been prepared in accordance with accounting principles
generally accepted in the United States. The preparation of these financial
statements requires the Company to make estimates and judgments that affect the
reported amount of assets and liabilities, revenues and expenses, and related
disclosure of contingent assets and liabilities at the financial statements
date. Actual results may differ from these estimates under different assumptions
or conditions.
Some accounting policies require the application of significant
judgment by management in selecting the appropriate assumptions for calculating
financial estimates. By their nature, these judgments are subject to an inherent
degree of uncertainty. The Company believes that its critical accounting
policies are limited to those described below. For a detailed discussion on the
application of these and other accounting policies, see Note 2 to the
Consolidated Financial Statements.
REVENUE RECOGNITION - PERCENTAGE-OF-COMPLETION METHOD
The Company recognizes revenues and profit as construction and
installation contracts progress using the percentage-of-completion method of
accounting, which relies on estimates of total expected contract revenues and
costs. Under this method, estimated contract revenues and resulting gross profit
margin are recognized based on actual costs incurred to date as a percentage of
total estimated costs. The Company follows this method since reasonably
dependable estimates of the revenues and costs applicable to various elements of
a contract can be made. Since the financial reporting of these contracts depends
on estimates, which are assessed continually during the term of these contracts,
recognized revenues and profit are subject to revisions as the contract
progresses to completion. Total estimated costs, and thus contract
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<PAGE>
margin, are impacted by changes in productivity, scheduling, and the unit cost
of labor, subcontracts, materials and equipment. Additionally, external factors
such as weather, customer needs, customer delays in providing approvals, labor
availability, governmental regulation and politics, may also affect the progress
and estimated cost of a project's completion and thus the timing of margin and
revenue recognition. Revisions in profit estimates are reflected in the period
in which the facts that give rise to the revision become known. Accordingly,
favorable changes in estimates result in additional revenues and profit
recognition, and unfavorable changes in estimates result in a reduction of
recognized revenues and profits. When current estimates of total contract costs
indicate that the contract will result in a loss, the projected loss is
recognized in full in the period in which the loss becomes evident. Revenues
from change orders, extra work, variations in the scope of work and claims are
recognized when realization is reasonably assured.
Many of the Company's contracts provide for termination of the contract
at the convenience of the customer. In the event a contract would be terminated
at the convenience of the customer prior to completion, the Company will
typically be compensated for progress up to the time of termination and any
termination costs. In addition, many contracts are subject to certain completion
schedule requirements with liquidated damages in the event schedules are not met
as the result of circumstances that are within the Company's control. Losses on
terminated contracts and liquidated damages have historically not been
significant.
RETAINAGE
Many of the contracts under which the Company performs work contain
retainage provisions. Retainage refers to that portion of revenue earned by the
Company but held for payment by the customer pending satisfactory completion of
the project. Unless reserved, the Company assumes that all amounts retained by
customers under such provisions are fully collectible. Historically, the Company
has not experienced any material write-offs of retainage receivables. Retainage
on active contracts is classified as a current asset regardless of the term of
the contract. See Note 2 to the Consolidated Financial Statements regarding
classification of current assets and current liabilities.
GOODWILL IMPAIRMENT
Under Statement of Financial Accounting Standards No. 142, "Goodwill
and Other Intangible Assets" (SFAS 142), the Company assesses recoverability of
goodwill on an annual basis or when events or changes in circumstances indicate
that the carrying amount of goodwill may not be recoverable. Factors that could
potentially trigger an impairment review include the following:
- significant underperformance of a segment or division relative
to expected historical or projected future operating results;
- significant negative industry or economic trends; and
- significant changes in the strategy for a segment or division.
In accordance with the provisions of SFAS 142, the Company calculates
the fair value of its reporting units and compares such fair value to the
carrying value of the reporting unit to determine if there is any indication of
goodwill impairment. The Company's reporting units consist of North American
rehabilitation, European rehabilitation, tunneling, and TiteLiner. To calculate
reporting unit fair value, the Company utilizes a discounted cash flow analysis
based upon, among other things, certain assumptions about expected future
operating performance. The Company typically engages a third-party valuation
expert to assist in estimating reporting unit fair value. Estimates of
discounted cash flows may differ from actual cash flows due to, among other
things, changes in economic conditions, changes to business models, changes in
the Company's weighted average cost of capital, or changes in operating
performance. An
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impairment charge will be recognized to the extent that the implied fair value
of the goodwill balances for each reporting unit is less than the related
carrying value.
DEFERRED INCOME TAX ASSETS
The Company provides for estimated income taxes payable or refundable
on current year income tax returns as well as the estimated future tax effects
attributable to temporary differences and carryforwards, in accordance with the
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" ("SFAS 109"). SFAS 109 also requires that a valuation allowance be
recorded against any deferred tax assets that are not likely to be realized in
the future. This requires considerable judgment on the part of management to
determine such realizability. The determination is based on the ability of the
Company to generate future taxable income and, at times, is dependent on
management's ability to implement strategic tax initiatives to ensure full
utilization of recorded deferred tax assets. Should management not be able to
implement the necessary tax strategies, the Company may need to record valuation
allowances for certain deferred tax assets, including those related to foreign
income tax benefits.
LONG-LIVED ASSETS
Property, plant and equipment, goodwill and other intangibles
(primarily patents and covenants not to compete) are recorded at cost and,
except for goodwill, are amortized on a straight-line basis over their estimated
useful lives. Changes in circumstances such as technological advances, changes
to the Company's business model or changes in the Company's capital strategy can
result in the actual useful lives differing from the Company's estimates. In
those cases where the Company determines that the useful life of property, plant
and equipment or its intangible assets should be shortened, the Company would
depreciate the net book value in excess of the salvage value over its revised
remaining useful life, thereby increasing depreciation expense.
Long-lived assets, including property, plant and equipment, and other
intangibles, are reviewed by the Company for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Factors the Company considers important which could trigger an
impairment review include the following:
- significant underperformance in a region relative to expected
historical or projected future operating results;
- significant changes in the use of the assets of a region or
the strategy for the region;
- significant negative industry or economic trends;
- significant decline in the Company's stock price for a
sustained period; and
- market capitalization is significantly less than net book
value.
Such impairment tests are based on a comparison of undiscounted cash
flows to the recorded value of the asset. The estimate of cash flow is based
upon, among other things, certain assumptions about expected future operating
performance. The Company's estimates of undiscounted cash flow may differ from
actual cash flow due to, among other things, technological changes, economic
conditions, changes to its business model or changes in its operating
performance. If the sum of the undiscounted cash flows (excluding interest) is
less than the carrying value, the Company recognizes an impairment loss,
measured as the amount by which the carrying value exceeds the fair value of the
asset.
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ALLOWANCE FOR DOUBTFUL ACCOUNTS
Management makes estimates of the uncollectibility of the Company's
accounts receivable. Management evaluates specific accounts where the Company
has information that the customer may be unwilling or unable to pay the
receivable in full. In these cases, the Company uses its judgment, based on the
best available facts and circumstances, and records a specific reserve for that
customer against amounts due in order to reduce the receivable to the amount
that is expected to be collected. The specific reserves are reevaluated and
adjusted as additional information is received that impacts the amount reserved.
After all attempts to collect the receivable have failed, the receivable is
written off against the reserve. Based on the information available, the Company
believes that the allowance for doubtful accounts as of December 31, 2002 is
adequate. However, no assurances can be given that actual write-offs will not
exceed the recorded reserve.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents increased $0.7 million, or 1.0%, to $75.4
million at December 31, 2002 compared to $74.6 million in cash and cash
equivalents at December 31, 2001. The cash balance at the end of 2002 includes
$4.0 million of cash and cash equivalents restricted in various escrow accounts.
Continuing operations contributed $25.3 million in operating cash flow to the
Company, representing a 88.7% ratio versus income from continuing operations.
Operating cash flow comprised the most significant portion of the Company's cash
flow in the year ended December 31, 2002. Discontinued operations generated an
additional $0.9 million in operating cash flow for overall operating cash flow
of $26.2 million, down 24.8% from $34.8 million in operating cash flow for the
year ended December 31, 2001. Working capital was $124.2 million at December 31,
2002, down 10.4% from the $138.7 million in working capital at December 31,
2001. Operating cash flow has historically been the most significant contributor
to net cash flow and the Company expects this trend to continue into the
foreseeable future.
The Company engaged in several acquisition and disposal activities that
had significant effects on cash flow. Proceeds from the sale of fixed assets
relate principally to $9.2 million received from a sale-leaseback arrangement on
a tunnel boring machine. The same amount is reflected in capital expenditures
for construction of the tunnel boring machine. Total capital expenditures used
$21.8 million in cash during 2002, a 30.9% increase when compared to $16.6
million in capital expenditures during 2001. Other than the tunnel boring
machine, capital expenditures were primarily to sustain the amount of equipment
already in place in the rehabilitation segment, and additional expenditures
necessary to fuel the growth experienced in the tunneling segment. The Company
expended $8.5 million, net of cash acquired, for the purchase of Elmore and
received $5.4 million in cash from the sale of discontinued operations.
Additionally, the Company received $1.9 million in cash for the sale of a real
estate investment that it owned.
Financing activities used $13.4 million in cash for the year ended
December 31, 2002, an increase of 13.4% over $11.8 million in cash used for
financing activities for the year ended December 31, 2001. The most significant
use of cash was $20.9 million for the repayment of long-term debt, a majority of
which is the regular annual payment of $15.7 million on the Company's Senior
Notes, as well as the payoff of several capital leases related to operations at
Kinsel. The annual payments on the Senior Notes are scheduled to run through
2007. The Company received $2.5 million in cash for the issuance of 205,280
shares of Company stock related to option exercises. In mid-1998, the Company
authorized the repurchase of up to 2,700,000 shares of the Company's Common
Stock to be made from time to time over five years in open market transactions.
The amount and timing of purchases are dependent upon a number of factors,
including the price and availability of the Company's shares, general market
conditions and competing alternative uses of funds, and may be discontinued at
any time. In October 1999, the Company increased the original authorization by
an additional 2,000,000 shares of Common Stock through the period ending June
2003. In September 2001, the Company further increased the original
authorization by an additional
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1,000,000 shares of Common Stock. The Company expended $5.2 million to purchase
249,500 shares of treasury stock during 2002. As of December 31, 2002, the
Company had purchased 3,809,615 shares of treasury stock for a cumulative
purchase price of $72.6 million under the stock buyback plan. Option exercises
and treasury stock purchases did not have a significant impact on earnings per
share in 2002.
Receivables were $83.0 million at December 31, 2002, down 3.7% compared
to $86.2 million at December 31, 2001. Costs and estimated earnings in excess of
billings increased 54.6% to $36.7 million in 2002 from $23.7 million in 2001
primarily as a result of the rapid growth in the tunneling business unit where
start-up costs at the beginning of large projects frequently cannot be billed
until tunneling begins. The collection of installation receivables involves
contractual provisions for retainage by the project owner, often 5% to 15% of
the contract amount, which extends the collection process. The slow review
processes often employed by the Company's municipal customers also further
prolong collection. Retainage receivables increased from $21.3 million in 2001
to $23.7 million in 2002. In the United States, retainage receivables are
generally received within one year after the completion of a contract. In
Europe, collection of retainage receivables normally extends one to two years.
The increase in net working capital during 2002 compared to 2001 was the primary
reason for the $19.4 million decrease in operating cash flow from continuing
operations in 2002 versus 2001. See Note 13 to the Consolidated Financial
Statements regarding changes in operating assets.
The Company has entered into several contractual joint ventures in
order to develop joint bids on contracts for its installation business, and for
tunneling operations. In these cases, the Company could be required to complete
the partner's portion of the contract if the partner is unable to complete its
portion. The Company is at risk for any amounts for which the Company itself
could not complete the work and for which a third party contractor could not be
located to complete the work for the amount awarded in the contract. The Company
has not experienced material adverse results from such arrangements. The Company
continues to investigate opportunities for expanding its business through such
structures.
At December 31, 2002, the Company had unused committed bank credit
facilities under a credit agreement (the "Credit Agreement") totaling $18.8
million. The commitment fee paid per annum by the Company is 0.2% on the
unborrowed balance. The interest rates under this facility vary and are based on
the prime rate or LIBOR. As of December 31, 2002, the rate was 2.19%.
Effective March 27, 2003, the Company entered into a new three-year
bank revolving credit facility to replace its expiring bank credit facility.
This new facility provides the Company with borrowing capacity of up to $75
million. The quarterly commitment fee ranges from 0.2% to 0.3% per annum on the
unborrowed balance depending on the leverage ratio determined as of the last day
of the Company's preceding fiscal quarter. At the Company's option, the interest
rates will be either (i) the LIBOR plus an additional percentage that varies
from 0.75% to 1.5% depending on the leverage ratio or (ii) the higher of (a) the
prime rate or (b) the federal funds rate plus 0.50%. As of March 27, 2003, the
interest rate on the credit facility was 4.25% and the balance was $40.0
million.
The Company's Senior Notes, due February 14, 2007, bear interest,
payable semi-annually in August and February of each year, at the rate per annum
of 7.88%. Each year, from February 2003 to February 2006, inclusive, the Company
will be required to make principal payments of $15.7 million, together with an
equivalent payment at maturity. On December 31, 2002, the principal amount of
Senior Notes outstanding was $78.6 million. The Senior Notes may be prepaid at
the Company's option, in whole or in part, at any time, together with a
make-whole premium. Upon specified change in control events each holder has the
right to require the Company to purchase its Senior Note without any premium
thereon.
The Senior Notes and the new bank credit facility obligate the Company
to comply with certain financial ratios and restrictive covenants that, among
other things, place limitations on operations and sales
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of assets by the Company or its subsidiaries, limit the ability of the Company
to incur secured indebtedness and liens and limit the ability of subsidiaries to
incur indebtedness, and, in the event of default, limit the ability of the
Company to pay cash dividends or to redeem its capital stock. The Senior Notes
and the bank credit facility also obligate certain of the Company's domestic
subsidiaries to guaranty these obligations. The Company was in compliance with
all debt covenants at December 31, 2002.
The Company's Euro Note, due July 7, 2006, bears interest, payable
quarterly in January, April, July, and October of each year, at the rate per
annum of 5.5%. Each year until maturity, the Company will be required to make
principal payments of $810 thousand for which currency fluctuations will have an
effect on the U.S. dollar payment amount. On December 31, 2002, the principal
amount of the Euro Note outstanding was (euro)3.2 million, or $3.4 million.
The Company expects to place additional unsecured senior notes in the
maximum principal amount of $65 million with certain institutional investors
through a private offering made by the Company during the second quarter of
2003. The Company believes it has adequate resources and liquidity to fund
future cash requirements for working capital, capital expenditures and debt
repayments with cash generated from operations, existing cash balances,
additional short- and long-term borrowing (including the placement of the
additional senior notes) and the sale of assets. The Company anticipates that
operating cash flow will remain a significant portion of operational funding in
the foreseeable future. For additional discussion of assets financed through
operating leases and the capital commitments thereon, see Note 14 in the Notes
to Consolidated Financial Statements.
The balance of cash and cash equivalents increased $10.5 million to
$74.6 million at December 31, 2001 compared to $64.1 million at December 31,
2000. The cash balance at the end of 2001 includes $4.3 million of cash and cash
equivalents restricted in various escrow accounts. Operating cash flow from
continuing operations of $44.7 million was 179.3% of income from continuing
operations and provided a majority of the Company's cash flow in the year ended
December 31, 2001. Net operating cash flow for the year was $34.8 million.
Historically, operating cash flow has been the largest source of available
capital, by comparison providing $42.6 million in the year ended December 31,
2000. Working capital was $138.7 million at December 31, 2001 compared to $114.5
million at December 31, 2000.
Other significant sources of cash during 2001 were proceeds from
short-term borrowings against the line of credit of $15.0 million and proceeds
of $9.0 million from the sale of fixed assets, including a building due to the
closure of an operating site and two tunneling machines. An additional $6.1
million was contributed from the issuance of common stock upon the exercise of
options in 2001.
Cash was used in nearly equal amounts for investing and financing
activities during 2001. Of the $16.6 million expended on capital, $6.6 million
related to two tunneling machines for which the Company initially funded
construction and were later leased back under an operating lease. The Company's
financing activities in 2001 included $20.6 million of repayments on debt
agreements, the largest of which was a $15.7 million scheduled principal payment
on the Company's Senior Notes. These payments are scheduled in equal amounts
through 2007. Repurchases under the Company's previously reported stock
repurchase program were $12.2 million for the year to acquire 563,109 shares.
The net effect of the Company's stock issuance and repurchases during 2001 did
not have a significant impact on earnings per share in 2001.
Trade receivables, together with costs and estimated earnings in excess
of billings and retainage under construction contracts, increased 15.4%, to
$131.2 million, from $113.7 million at the end of 2000, primarily as a result of
the acquisition of Kinsel, which added $13.7 million to receivables at the end
of 2001. The collection of installation receivables involves contractual
provisions for retainage by the project owner, often 5% to 15% of the contract
amount, which extends the collection process. The slow review
27
<PAGE>
processes often employed by the Company's municipal customers also sometimes
further prolong collections. In the United States, retainage receivables are
generally received within one year after the completion of a contract.
At December 31, 2001, the Company had unused committed bank credit
facilities under the Credit Agreement totaling $34.1 million. As of December 31,
2001, the interest rate on the facility was 4.75%. On December 31, 2001, the
principal amount of Senior Notes outstanding was $94.3 million.
Capital expenditures in 2003 are expected to be used primarily to
maintain the current amount of equipment in service for rehabilitation and for
funding of growth needs in tunneling. The Company is in the process of
evaluating various alternatives regarding modifications, upgrades and revisions
to its manufacturing facilities. These changes could cost up to $5.6 million
during 2003. For additional discussion of assets financed through operating
leases and the capital commitments thereon, see Note 14 to the Consolidated
Financial Statements.
In May 2002, the Company acquired Elmore, a regional provider of
trenchless tunneling, microtunneling, segmented lining and pipe jacking services
in the western United States for approximately $12.5 million. The acquisition
was funded primarily through $8.5 million in cash, the settlement of debt owed
by Elmore to the Company, and the assumption of additional liabilities.
In February 2001, the Company acquired Kinsel, a trans-regional
provider of pipebursting and other sewer rehabilitation services, for
approximately $80.0 million. The acquisition was funded primarily through
issuance of 1,847,165 shares of the Company's common stock from treasury, cash
and the issuance of a $5.4 million note to the seller.
In February 2000, the Company acquired the rights to the Insituform
CIPP Process and NuPipe Process for the states of New York and New Jersey,
through the purchase of all of the shares of the capital stock of Insituform
Metropolitan, Inc. and the operating assets of certain of its affiliates. At
closing, the Company paid the sellers an aggregate of $5.0 million in cash, in
addition to assuming operating liabilities of the acquired business. In July
2000, Insituform Italia s.r.l., a newly formed joint venture of the Company and
Per Aarsleff A/S, acquired Italcontrolli Nord s.r.l., the Insituform CIPP
Process licensee in Italy, for $1.2 million. During 2001, the Company acquired
the remaining 50% ownership of K-Insituform, N.V., its joint venture in Belgium,
for approximately $0.3 million, along with the remaining 33% ownership of
Insituform France, S.A., for approximately $0.8 million.
DISCLOSURE OF FINANCIAL OBLIGATIONS AND COMMERCIAL COMMITMENTS
The Company has entered into various financial obligations and
commitments in the course of its ongoing operations and financing strategies.
Financial obligations are considered to represent known future cash payments
that the Company is required to make under existing contractual arrangements,
such as debt and lease agreements. These obligations may result from both
general financing activities as well as from commercial arrangements that are
directly supported by related revenue-producing activities. Commercial
commitments represent contingent obligations of the Company, which become
payable only if certain pre-defined events were to occur, such as funding
financial guarantees. See Note 14 to the Consolidated Financial Statements for
additional disclosure of financial obligations and commercial commitments.
The following table provides a summary of the Company's financial
obligations and commercial commitments as of December 31, 2002 (in thousands).
This table includes cash obligations related to principal outstanding under
existing debt arrangements and operating leases.
28
<PAGE>
Payments Due by Period
----------------------
<TABLE>
<CAPTION>
Cash Obligations* Total 2003 2004 2005 2006 2007 Thereafter
--------- ------- ------- ------- ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Long-term debt** $ 90,374 $23,360 $17,377 $17,007 $16,764 $15,822 $ 44
Line of credit facility 26,000 26,000 - - - - -
Operating leases 44,472 13,531 9,386 6,062 4,470 3,952 7,071
--------- ------- ------- ------- ------- ------- --------
Total contractual cash
obligations $160,846 $62,891 $26,763 $23,069 $21,234 $19,774 $7,115
========= ======= ======= ======= ======= ======= ========
</TABLE>
*Cash obligations herein are not discounted and do not include related interest.
See Notes 9 and 14 to the Consolidated Financial Statements regarding long-term
debt and commitments and contingencies, respectively.
** The Company expects to place additional unsecured senior notes in the maximum
principal amount of $65 million with certain institutional investors through a
private offering made by the Company during the second quarter of 2003.
MARKET RISK
The Company is exposed to the effect of interest rate changes and
foreign currency fluctuations. Due to the immateriality of potential impacts
from changes in these rates, the Company does not use derivative contracts to
manage these risks.
INTEREST RATE RISK
The fair value of the Company's cash and short-term investment
portfolio at December 31, 2002 approximated carrying value. Given the short-term
nature of these instruments, market risk, as measured by the change in fair
value resulting from a hypothetical 10% change in interest rates, is not
material.
The Company's objectives in managing exposure to interest rate changes
are to limit the impact of interest rate changes on earnings and cash flows and
to lower overall borrowing costs. To achieve these objectives, the Company
maintains fixed rate debt as a percentage of its net debt in a percentage range
set by policy. The fair value of the Company's long-term debt, including current
maturities and the amount outstanding on the line of credit facility, was
estimated to be $118.2 million at December 31, 2002, and exceeded carrying value
by $1.8 million. Market risk was estimated as the potential increase in fair
value resulting from a hypothetical 10% decrease in the Company's debt specific
borrowing rates at December 31, 2002, or $3.9 million.
FOREIGN EXCHANGE RISK
The Company operates subsidiaries, and is associated with licensees and
affiliates operating solely in countries outside of the United States, and in
currencies other than the U.S. dollar. Consequently, these operations are
inherently exposed to risks associated with fluctuation in the value of the
local currencies of these countries compared to the U.S. dollar. At December 31,
2002, approximately $3.5 million of financial instruments, primarily long-term
debt, were denominated principally in Euros. The effect of a hypothetical
adverse change of 10% in year-end exchange rates (a strengthening of the U.S.
dollar) is immaterial and would be largely offset by cash activity.
OFF-BALANCE SHEET ARRANGEMENTS
The Company uses various structures for the financing of operating
equipment, including borrowing, operating and capital leases, and sale-leaseback
arrangements. All debt, including the discounted value of future minimum lease
payments under capital lease arrangements, is presented in the balance sheet.
The Company's commitments under operating lease arrangements were $44.5 million
at
29
<PAGE>
December 31, 2002. The Company also has exposure under performance guarantees
by contractual joint ventures and indemnification of its bonding agent and
licensees. However, the Company has never experienced any material adverse
effects to financial position, results of operations or cash flows relative to
these arrangements. The Company has no other off-balance sheet financing
arrangements or commitments. See Note 14 in the Notes to Consolidated Financial
Statements regarding commitments and contingencies.
EFFECTS OF TRANSACTIONS WITH RELATED AND CERTAIN OTHER PARTIES
Affholder, Inc. ("Affholder"), the Company's wholly-owned subsidiary
that comprises a portion of the tunneling segment, leased five cranes from
A-Y-K-E Partnership as of March 15, 2003. A-Y-K-E is a partnership that is
controlled by Robert W. Affholder, the Company's Senior Executive Vice President
and a member of the Company's board of directors. During the year ended December
31, 2002, Affholder paid A-Y-K-E $600,000 pursuant to equipment leases. This
amount represents 10.4% of all lease payments made by Affholder during 2002 and
4.4% of all lease payments made by the Company in 2002. Affholder owns, or
leases under long-term operating leases with third party leasing companies,
several pieces of tunneling equipment, including cranes and tunnel boring
machines. From time to time for specific projects, Affholder will lease
additional equipment from a variety of sources, including A-Y-K-E. A-Y-K-E owns
various pieces of equipment that are used in the tunneling industry, including
cranes and tunnel boring machines. The cranes that are currently under lease are
leased under separate lease agreements on terms that are substantially similar
to, or better than, those otherwise available to Affholder in the market. The
leases are terminable upon 30 days' prior notice by either party. During 2002,
A-Y-K-E leased equipment only to Affholder. At Affholder's discretion, Affholder
may sublease the cranes to third parties and retain any profit generated from
the sublease.
NEW ACCOUNTING PRONOUNCEMENTS
For a discussion of new accounting pronouncements, see Note 2 to the
Consolidated Financial Statements.
FORWARD-LOOKING INFORMATION
This Annual Report contains various forward-looking statements that are
based on information currently available to management and on management's
beliefs and assumptions. When used in this document, the words "anticipate,"
"estimate," "believes," "plans," and similar expressions are intended to
identify forward-looking statements, but are not the exclusive means of
identifying such statements. Such statements are subject to risks and
uncertainties. The Company's actual results may vary materially from those
anticipated, estimated or projected due to a number of factors, such as the
competitive environment for the Company's products and services, the
geographical distribution and mix of the Company's work, the timely award or
cancellation of projects, political circumstances impeding the progress of work
and other factors set forth in reports and other documents filed by the Company
with the Securities and Exchange Commission from time to time. The Company does
not assume a duty to update forward-looking statements. Please use caution and
do not place reliance on forward-looking statements.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
For information concerning this item, see "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations-Market
Risk," which information is incorporated herein by reference.
30
<PAGE>
Item 8. Financial Statements and Supplementary Data
For information concerning this item, see "Item 15. Exhibits, Financial
Statement Schedules, and Reports on Form 8-K," which information is incorporated
herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant
For information concerning this item, see "Item 1. Business-Executive
Officers" and the proxy statement to be filed with respect to the 2003 Annual
Meeting of Stockholders (the "2003 Proxy Statement"), which information is
incorporated herein by reference.
Item 11. Executive Compensation
For information concerning this item, see the 2003 Proxy Statement,
which information is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
For information concerning this item, see the 2003 Proxy Statement,
which information is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
For information concerning this item, see the 2003 Proxy Statement,
which information is incorporated herein by reference.
Item 14. Controls and Procedures
(a) Within the 90 days prior to the date of this report (the
"Evaluation Date"), the Company's Chief Executive Officer and Chief Financial
Officer carried out an evaluation of the effectiveness of the Company's
"disclosure controls and procedures" (as defined in the Securities Exchange Act
of 1934 Rules 13a-14(c) and 15(d)-14(c)). Based on that evaluation, these
officers have concluded that as of the Evaluation Date, the Company's disclosure
controls and procedures were adequate and designed to ensure that material
information relating to the Company and the Company's consolidated subsidiaries
would be made known to them by others within those entities.
(b) There were no significant changes in the Company's internal
controls or in other factors that could significantly affect the Company's
internal controls subsequent to the Evaluation Date.
31
<PAGE>
PART IV
Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) 1. Financial Statements:
The consolidated financial statements filed in this Annual Report on
Form 10-K are listed in the attached Index to Consolidated Financial Statements.
2. Financial Statement Schedules:
No financial statement schedules are included herein because they are
not required or are not applicable or the required information is contained in
the consolidated financial statements or notes thereto.
3. Exhibits:
The exhibits required to be filed as part of this Annual Report on Form
10-K are listed in the attached Index to Exhibits.
(b) Current Reports on Form 8-K: None
32
<PAGE>
POWER OF ATTORNEY
The registrant and each person whose signature appears below hereby
appoint Anthony W. Hooper and Joseph A. White as attorneys-in-fact with full
power of substitution, severally, to execute in the name and on behalf of the
registrant and each such person, individually and in each capacity stated below,
one or more amendments to the annual report which amendments may make such
changes in the report as the attorney-in-fact acting deems appropriate and to
file any such amendment to the report with the Securities and Exchange
Commission.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated: March 31, 2003 INSITUFORM TECHNOLOGIES, INC.
By: /s/ JOSEPH A. WHITE
------------------------------------------
Joseph A. White
Vice President and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ ANTHONY W. HOOPER Principal Executive Officer and March 31, 2003
- --------------------------- Director
Anthony W. Hooper
/s/ JOSEPH A. WHITE Principal Financial and March 31, 2003
- --------------------------- Accounting Officer
Joseph A. White
/s/ ROBERT W. AFFHOLDER Director March 31, 2003
- ---------------------------
Robert W. Affholder
/s/ PAUL A. BIDDELMAN Director March 31, 2003
- ---------------------------
Paul A. Biddelman
/s/ STEPHEN P. CORTINOVIS Director March 31, 2003
- ---------------------------
Stephen P. Cortinovis
/s/ JOHN P. DUBINSKY Director March 31, 2003
- ---------------------------
John P. Dubinsky
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ JUANITA H. HINSHAW Director March 31, 2003
- ---------------------------
Juanita H. Hinshaw
/s/ THOMAS KALISHMAN Director March 31, 2003
- ---------------------------
Thomas Kalishman
/s/ SHELDON WEINIG Director March 31, 2003
- ---------------------------
Sheldon Weinig
/s/ ALFRED L. WOODS Director March 31, 2003
- ---------------------------
Alfred L. Woods
</TABLE>
<PAGE>
CERTIFICATIONS
I, Anthony W. Hooper, certify that:
1. I have reviewed this annual report on Form 10-K of Insituform
Technologies, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: March 31, 2003 /s/ ANTHONY W. HOOPER
_______________________________________________
Anthony W. Hooper
Chairman, President and Chief Executive Officer
<PAGE>
I, Joseph A. White, certify that:
1. I have reviewed this annual report on Form 10-K of Insituform
Technologies, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: March 31, 2003 /s/ JOSEPH A. WHITE
__________________________________________
Joseph A. White
Vice President and Chief Financial Officer
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Management............................................................ F-2
Reports of Independent Public Accountants....................................... F-3
Consolidated Statements of Income for the years
ended December 31, 2002, 2001 and 2000..................................... F-5
Consolidated Balance Sheets, December 31, 2002 and 2001 ........................ F-6
Consolidated Statements of Stockholders' Equity for the years
ended December 31, 2002, 2001 and 2000..................................... F-7
Consolidated Statements of Cash Flows for the years
ended December 31, 2002, 2001 and 2000..................................... F-8
Notes to Consolidated Financial Statements...................................... F-10
</TABLE>
No Financial Statement Schedules are included herein because they are
not required or not applicable or the required information is contained in the
consolidated financial statements or notes thereto.
F-1
<PAGE>
REPORT OF MANAGEMENT
Management is responsible for the preparation, integrity and objectivity of
financial information included in this annual report. The financial statements
have been prepared in conformity with accounting principles generally accepted
in the United States.
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts. Although the financial
statements reflect all available information and management's judgment and
estimates of current conditions and circumstances, and are prepared with the
assistance of specialists within and outside the Company, actual results could
differ from those estimates.
Management has established and maintains an internal control structure to
provide reasonable assurance that assets are safeguarded against loss from
unauthorized use or disposition, that the accounting records provide a reliable
basis for the preparation of financial statements and that such financial
statements are not misstated due to material fraud or error. Internal controls
include the careful selection of associates, the proper segregation of duties
and the communication and application of formal policies and procedures that are
consistent with high standards of accounting and administrative practices. An
important element of this system is an internal audit program.
Management continually reviews, modifies and improves its systems of accounting
and controls in response to changes in business conditions and operations and in
response to recommendations in the reports prepared by the independent public
accountants and internal auditors.
Management believes that it is essential for the Company to conduct its business
affairs in accordance with the highest ethical standards and in conformity with
the law. This standard is described in the Company's policies on business
conduct, which are publicized throughout the Company.
The Board of Directors, through its Audit Committee comprised of independent
directors, is responsible for overseeing that both management and the
independent accountants fulfill their respective responsibilities relative to
the financial statements. Moreover, the independent accountants have full and
free access to meet with the Audit Committee, with or without management
present, to discuss auditing or financial reporting matters.
F-2
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors
and Shareholders of
Insituform Technologies, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income, stockholders' equity and cash flows present
fairly, in all material respects, the financial position of Insituform
Technologies, Inc. and its subsidiaries at December 31, 2002 and the results of
their operations and their cash flows for the year ended December 31, 2002, in
conformity with accounting principles generally accepted in the United States of
America. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audit. We conducted our audit of these statements in
accordance with auditing standards generally accepted in the United States of
America, which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion. The consolidated financial
statements of Insituform Technologies, Inc. as of December 31, 2001, and for
each of the two years in the period ended December 31, 2001, were audited by
other independent accountants who have ceased operations. Those independent
accountants expressed an unqualified opinion on those financial statements dated
February 1, 2002, before the revision described in Note 8.
As discussed above, the consolidated financial statements of Insituform
Technologies, Inc. as of December 31, 2001, and for each of the two years in the
period ended December 31, 2001, were audited by other independent accountants
who have ceased operations. As described in Note 8, these financial statements
have been revised to include the transitional disclosures required by Financial
Accounting Standards No. 142, "Goodwill and Other Intangible Assets", which was
adopted by the Company as of January 1, 2002. We audited the transitional
disclosures described in Note 8. In our opinion, the transitional disclosures
for 2001 and 2000 in Note 8 are appropriate. However, we were not engaged to
audit, review, or apply any procedures to the 2001 or 2000 financial statements
of the Company other than with respect to such disclosures and, accordingly, we
do not express an opinion or any other form of assurance on the 2001 or 2000
consolidated financial statements taken as a whole.
PricewaterhouseCoopers LLP
St. Louis, Missouri
January 28, 2003, except for Note 16
which is as of March 28, 2003
F-3
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
The following report is a copy of a report previously issued by Arthur Andersen
LLP and has not been reissued by Arthur Andersen LLP.
To the Board of Directors and the Shareholders of
Insituform Technologies, Inc.:
We have audited the accompanying consolidated balance sheets of Insituform
Technologies, Inc. and subsidiaries as of December 31, 2001 and 2000, and the
related consolidated statements of income, stockholders' equity and cash flows
for each of the three years in the period ended December 31, 2001. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Insituform Technologies, Inc.
and subsidiaries as of December 31, 2001 and 2000, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2001, in conformity with accounting principles generally accepted
in the United States.
ARTHUR ANDERSEN LLP
St. Louis, Missouri,
February 1, 2002
F-4
<PAGE>
INSITUFORM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
2002 2001 2000
--------- -------- --------
<S> <C> <C> <C>
REVENUES $480,358 $445,310 $409,434
COST OF REVENUES 354,736 320,462 272,361
--------- -------- --------
GROSS PROFIT 125,622 124,848 137,073
SELLING, GENERAL AND ADMINISTRATIVE 68,049 66,955 68,825
AMORTIZATION EXPENSE 1,433 7,001 5,282
RESTRUCTURING CHARGES (Note 5) 2,458 4,127 -
IMPAIRMENT CHARGE (Note 6) 3,499 - -
--------- -------- --------
OPERATING INCOME 50,183 46,765 62,966
--------- -------- --------
OTHER (EXPENSE) INCOME:
Interest expense (7,911) (9,339) (9,347)
Other 3,055 2,309 3,732
--------- -------- --------
TOTAL OTHER EXPENSE (4,856) (7,030) (5,615)
--------- -------- --------
INCOME BEFORE TAXES ON INCOME 45,327 39,735 57,351
TAXES ON INCOME 17,451 15,653 22,647
--------- -------- --------
INCOME BEFORE MINORITY INTERESTS, EQUITY IN EARNINGS
AND DISCONTINUED OPERATIONS 27,876 24,082 34,704
MINORITY INTERESTS (150) (273) (610)
EQUITY IN EARNINGS OF AFFILIATED COMPANIES 834 1,131 812
--------- -------- --------
INCOME FROM CONTINUING OPERATIONS 28,560 24,940 34,906
LOSS FROM DISCONTINUED OPERATIONS, net of tax benefits of
$3,674 and $47, respectively (5,869) (72) -
--------- -------- --------
NET INCOME $22,691 $ 24,868 $ 34,906
========= ======== ========
EARNINGS PER SHARE OF COMMON STOCK AND COMMON STOCK EQUIVALENTS:
Basic:
Income from continuing operations $ 1.08 $ 0.94 $ 1.41
Loss from discontinued operations (0.22) - -
--------- -------- --------
Net Income $ 0.86 $ 0.94 $ 1.41
========= ======== ========
Diluted:
Income from continuing operations $ 1.07 $ 0.93 $ 1.37
Loss from discontinued operations (0.22) - -
--------- -------- --------
Net Income $ 0.85 $ 0.92 $ 1.37
========= ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE>
INSITUFORM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - AS OF DECEMBER 31, 2002 AND 2001
(In thousands, except share information)
ASSETS
<TABLE>
<CAPTION>
2002 2001
--------- ---------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents, including restricted cash of $3,985 and $4,262,
respectively $ 75,386 $ 74,649
Receivables, net 82,962 86,191
Retainage 23,726 21,327
Costs and estimated earnings in excess of billings 36,680 23,719
Inventories 12,402 13,712
Prepaid expenses and other assets 13,586 8,135
Assets held for disposal 7,909 32,034
--------- ---------
Total current assets 252,651 259,767
--------- ---------
PROPERTY, PLANT AND EQUIPMENT, less accumulated depreciation 71,579 68,547
--------- ---------
OTHER ASSETS:
Goodwill 131,032 117,251
Other assets 17,751 18,057
--------- ---------
Total other assets 148,783 135,308
--------- ---------
Total assets $ 473,013 $ 463,622
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt and line of credit $ 49,360 $ 35,218
Accounts payable and accrued expenses 69,776 68,302
Billings in excess of costs and estimated earnings 5,992 8,057
Liabilities related to discontinued operations 3,293 9,471
--------- ---------
Total current liabilities 128,421 121,048
LONG-TERM DEBT, less current maturities 67,014 88,853
OTHER LIABILITIES 3,530 2,039
--------- ---------
Total liabilities 198,965 211,940
--------- ---------
MINORITY INTERESTS 1,430 1,555
--------- ---------
COMMITMENTS AND CONTINGENCIES (Note 14)
STOCKHOLDERS' EQUITY:
Preferred stock, undesignated, $.10 par - shares authorized 2,000,000; none outstanding - -
Common stock, $.01 par - shares authorized 60,000,000; shares issued 28,776,438 and
28,571,158; shares outstanding 26,558,165 and 26,602,385 288 286
Additional paid-in capital 132,820 129,651
Retained earnings 194,803 172,112
Treasury stock - 2,218,273 and 1,968,773 shares (49,745) (44,563)
Accumulated other comprehensive loss (5,548) (7,359)
--------- ---------
Total stockholders' equity 272,618 250,127
--------- ---------
Total liabilities and stockholders' equity $ 473,013 $ 463,622
========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE>
INSITUFORM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
(In thousands, except number of shares)
<TABLE>
<CAPTION>
Accumulated
Common Stock Additional Other Total
------------------- Paid-In Retained Treasury Comprehensive Stockholders' Comprehensive
Shares Amount Capital Earnings Stock Loss Equity Income
----------- ------ ---------- -------- --------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1999 27,787,862 $278 $ 74,809 $112,338 $(45,118) $(3,704) $138,603
Net income - - - 34,906 - - 34,906 $34,906
Issuance of common stock
upon exercise of options,
including income tax
benefit of $2,295 364,708 4 7,125 - - - 7,129 -
Common stock repurchased - - - - (13,360) - (13,360) -
Foreign currency
translation adjustment - - - - - (1,988) (1,988) (1,988)
-------
Total comprehensive income - - - - - - - $32,918
=======
---------- ---- -------- -------- -------- ------- --------
BALANCE, December 31, 2000 28,152,570 $282 $ 81,934 $147,244 $(58,478) $(5,692) $165,290
Net income - - - 24,868 - - 24,868 $24,868
Issuance of common stock
upon exercise of options,
including income tax
benefit of $2,209 418,588 4 8,257 - - - 8,261 -
Issuance of common stock
pursuant to acquisition - - 39,460 - 26,133 - 65,593 -
Common stock repurchased - - - - (12,218) - (12,218) -
Foreign currency
translation adjustment - - - - - (1,667) (1,667) (1,667)
-------
Total comprehensive income - - - - - - - $23,201
=======
---------- ---- -------- -------- -------- ------- --------
BALANCE, December 31, 2001 28,571,158 $286 $129,651 $172,112 $(44,563) $(7,359) $250,127
Net income - - - 22,691 - - 22,691 $22,691
Issuance of common stock
upon exercise of options,
including income tax
benefit of $654 205,280 2 3,169 - - - 3,171 -
Common stock repurchased - - - - (5,182) - (5,182) -
Foreign currency
translation adjustment - - - - - 1,811 1,811 1,811
------
Total comprehensive income - - - - - - - $24,502
---------- ---- -------- -------- -------- ------- -------- ======
BALANCE, December 31, 2002 28,776,438 $288 $132,820 $194,803 $(49,745) $(5,548) $272,618
========== ==== ======== ======== ======== ======= ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-7
<PAGE>
INSITUFORM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
(In thousands)
<TABLE>
<CAPTION>
2002 2001 2000
------- ------- -------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $22,691 $24,868 $34,906
Loss from discontinued operations 5,869 72 -
------- ------- -------
Income from continuing operations 28,560 24,940 34,906
Adjustments to reconcile net income to net cash provided by operating
activities, excluding the effects of acquisitions -
Depreciation 14,397 14,382 13,398
Amortization 1,433 7,001 5,282
Gain on sale of investment (1,225) - -
Other 227 1,425 (2,417)
Asset impairment charge 3,499 - -
Restructuring charges 2,458 4,127 -
Deferred income taxes (4,364) 891 1,057
Changes in operating assets and liabilities, net of purchased businesses
(Note 13) (19,657) (8,051) (9,603)
------- ------- -------
Net cash provided by operating activities of continuing operations 25,328 44,715 42,623
------- ------- -------
Net cash provided (used) by operating activities of discontinued
operations 853 (9,879) -
------- ------- -------
Net cash provided by operating activities 26,181 34,836 42,623
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (21,782) (16,638) (30,208)
Proceeds from sale of fixed assets 10,503 9,048 -
Proceeds from sale of investment 1,920 - -
Net proceeds from sale of businesses (discontinued operations) 5,430 - -
Purchases of businesses, net of cash acquired (8,459) (1,878) (7,032)
Other investing activities (960) (2,147) 1,476
------- ------- -------
Net cash used in investing activities (13,348) (11,615) (35,764)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 2,517 6,052 4,834
Purchases of treasury stock (5,182) (12,218) (13,360)
Proceeds from long-term debt - - 660
Principal payments on long-term debt (20,938) (20,611) (2,765)
Increase in notes payable 10,246 14,995 542
------- ------- -------
Net cash used in financing activities (13,357) (11,782) (10,089)
------- ------- -------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 1,261 (897) (846)
------- ------- -------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 737 10,542 (4,076)
CASH AND CASH EQUIVALENTS, beginning of year 74,649 64,107 68,183
------- ------- -------
CASH AND CASH EQUIVALENTS, end of year $75,386 $74,649 $64,107
======= ======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for-
Interest $ 7,828 $ 9,652 $ 9,217
Income taxes 17,591 15,121 18,512
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-8
<PAGE>
<TABLE>
<S> <C> <C> <C>
NONCASH INVESTING AND FINANCING ACTIVITIES:
Issuance of common stock pursuant to acquisition $ - $ 65,593 $ -
Issuance of note payable pursuant to acquisition $ - $ 5,350 $ -
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-9
<PAGE>
INSITUFORM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS:
Insituform Technologies, Inc. (a Delaware corporation) and subsidiaries
(collectively, the "Company") is a worldwide provider of proprietary trenchless
technologies for the rehabilitation and improvement of sewer, water, gas and
industrial pipes. The Company's primary technology is the Insituform(R) process,
a proprietary "cured-in-place" pipeline rehabilitation process (the "Insituform
CIPP Process"). Pipebursting is a non-proprietary trenchless method of dilating
and replacing an old pipeline with a new plastic pipe. The microtunneling
process is a non-proprietary method of drilling a new tunnel from surface
operated equipment. Sliplining is a non-proprietary method used to push or pull
a new pipeline into an old one. The Company's TiteLiner ("TiteLiner") process is
a proprietary method of lining steel lines with a corrosion and abrasion
resistant pipe. The Company also engages in tunneling used in the installation
of new underground services.
2. SUMMARY OF ACCOUNTING POLICIES:
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its majority-owned subsidiaries, the most significant of which includes a
75%-owned United Kingdom subsidiary, Insituform Linings Plc. and an 89.6%-owned
French subsidiary, Video Injection, S.A. For contractual joint ventures, the
Company recognizes revenue and profits on its portion of the contract. All
intercompany transactions and balances have been eliminated.
Accounting Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Stock-Based Compensation
At December 31, 2002, the Company has two active stock-based compensation plans,
which are described in Note 10. The Company applies the recognition and
measurement principles of Accounting Principles Board (APB) Opinion No. 25,
"Accounting for Stock Issued to Employees," and related Interpretations in
accounting for those plans. No stock-based compensation expense was reflected in
the 2002, 2001, or 2000 net income as all options granted during those years had
an exercise price equal to the market value of the underlying common stock on
the date of the grant. The following table illustrates the effect on net income
and earnings per share if the Company had applied the fair value recognition
provisions of SFAS No. 123, "Accounting for Stock-Based Compensation," to
stock-based compensation (in thousands, except share data):
<TABLE>
<CAPTION>
2002 2001 2000
-------- -------- --------
<S> <C> <C> <C>
Net income - as reported $ 22,691 $ 24,868 $ 34,906
Deduct: Total stock-based compensation expense
determined under fair value method for all awards,
net of related tax effects (6,080) (5,710) (3,576)
-------- -------- --------
Pro forma net income $ 16,611 $ 19,158 $ 31,330
======== ======== ========
</TABLE>
F-10
<PAGE>
<TABLE>
<CAPTION>
2002 2001 2000
-------- -------- --------
<S> <C> <C> <C>
Basic earnings per share:
As reported $ 0.86 $ 0.94 $ 1.41
Pro forma 0.63 0.72 1.26
Diluted earnings per share:
As reported 0.85 0.92 1.37
Pro forma 0.62 0.71 1.23
</TABLE>
For SFAS 123 disclosure purposes, the weighted average fair value of stock
options is required to be based on a theoretical option-pricing model such as
the Black-Scholes method. In actuality, because the Company's employee stock
options are not traded on an exchange and are subject to vesting periods, the
disclosed fair value represents only an approximation of option value based
solely on historical performance. Beginning in 2000, the Company decided to
increase the alignment of key employee goals and shareholder objectives by
increasing the relative value of variable compensation. Recent stock market
volatility has increased the fair value of options granted. The above factors,
coupled with the Company's three-year vesting period on options, has caused an
increase in the theoretical value of stock option compensation in each of the
years presented.
Revenues
Revenues include construction and installation revenues that are recognized
using the percentage-of-completion method of accounting in the ratio of costs
incurred to estimated final costs. Contract costs include all direct material
and labor costs and those indirect costs related to contract performance, such
as indirect labor, supplies, tools and equipment costs. Since the financial
reporting of these contracts depends on estimates, which are assessed
continually during the term of these contracts, recognized revenues and profit
are subject to revisions as the contract progresses to completion. Revisions in
profit estimates are reflected in the period in which the facts that give rise
to the revision become known. When estimates indicate that a loss will be
incurred on a contract on completion, a provision for the expected loss is
recorded in the period in which the loss becomes evident. At December 31, 2002,
there are no significant provisions for expected losses on contracts. Revenue
from change orders, extra work, variations in the scope of work and claims is
recognized when realization is reasonably assured.
Research and Development
The Company expenses research and development costs as incurred. Research and
development costs of $2.0 million, $2.3 million and $2.4 million for the years
ended December 31, 2002, 2001 and 2000, respectively, are included in selling,
general and administrative expenses in the accompanying consolidated statements
of income.
Taxes on Income
The Company provides for estimated income taxes payable or refundable on current
year income tax returns as well as the estimated future tax effects attributable
to temporary differences and carryforwards, based upon enacted tax laws and tax
rates, and in accordance with Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes" (SFAS 109). SFAS 109 also requires that a
valuation allowance be recorded against any deferred tax assets that are not
likely to be realized in the future.
Earnings Per Share
Earnings per share have been calculated using the following share information:
<TABLE>
<CAPTION>
2002 2001 2000
---------- ---------- ----------
<S> <C> <C> <C>
Weighted average number of common shares used for basic EPS 26,533,541 26,427,276 24,834,413
</Table>
F-11
<PAGE>
<TABLE>
<CAPTION>
2002 2001 2000
---------- ---------- ----------
<S> <C> <C> <C>
Effect of dilutive stock options and warrants 198,221 495,996 705,751
---------- ---------- ----------
Weighted average number of common shares and dilutive
potential common stock used in diluted EPS 26,731,762 26,923,272 25,540,164
========== ========== ==========
</TABLE>
Classification of Current Assets and Current Liabilities
The Company includes in current assets and current liabilities certain amounts
realizable and payable under construction contracts which may extend beyond one
year. The construction periods on projects undertaken by the Company generally
range from 1 to 24 months.
Cash and Cash Equivalents
The Company classifies highly liquid investments with original maturities of 90
days or less as cash equivalents. Recorded book values are reasonable estimates
of fair value for cash and cash equivalents. Restricted cash consists of
payments from certain identifiable customers placed in escrow in lieu of
retention in case of potential issues regarding future job performance by the
Company. Restricted cash is similar to retainage and is therefore classified as
a current asset, consistent with the Company's policy on retainage below. At
December 31, 2002 and 2001, restricted cash totaled $4.0 million and $4.3
million, respectively.
Retainage
Many of the contracts under which the Company performs work contain retainage
provisions. Retainage refers to that portion of revenue earned by the Company
but held for payment by the customer pending satisfactory completion of the
project. Unless reserved, the Company assumes that all amounts retained by
customers under such provisions are fully collectible. Retainage on active
contracts is classified as a current asset regardless of the term of the
contract. Retainage is normally collected within one year of the completion of a
contract, although collection can take up to two years in Europe. See Note 7
regarding costs and estimated earnings on uncompleted contracts.
Allowance for Doubtful Accounts
Management makes estimates of the uncollectibility of accounts receivable. The
Company records a reserve for specific accounts to reduce receivables, including
retainage, to the amount that is expected to be collected. The specific reserves
are reevaluated and adjusted as additional information is received. After all
attempts to collect the receivable have failed, the receivable is written off
against the reserve.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market.
Actual cost is used to value raw materials and supplies. Standard cost, which
approximates actual cost, is used to value work-in-process, finished goods and
construction materials. Standard cost includes direct labor, raw materials, and
manufacturing overhead based on practical capacity.
Long-Lived Assets
Property, plant and equipment, and other intangibles are recorded at cost and
are amortized on a straight-line basis over their estimated useful lives.
Intangible assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Such impairment tests are based on a comparison of undiscounted
cash flows to the recorded value of the asset. If impairment is indicated, the
asset value is written down to its fair value. See Notes 4 and 6 regarding
discontinued operations and intangible asset impairment.
F-12
<PAGE>
Goodwill
Prior to 2002, the Company amortized goodwill over periods of 15 to 25 years on
the straight-line basis. SFAS 142, which was adopted by the Company on January
1, 2002, provides that goodwill should not be amortized, but shall be tested for
impairment annually, or more frequently if circumstances indicate potential
impairment. The Company recognized no amortization expense in 2002, nor was any
goodwill identified as being impaired based on management's transitional and
annual impairment analyses performed during 2002. Amortization expense related
to goodwill for the years ended December 31, 2001 and 2000 was $6.2 million and
$3.8 million pre-tax, respectively. See Note 8 regarding acquired intangible
assets and goodwill.
Treasury Stock
Treasury stock is accounted for at acquisition cost.
Foreign Currency Translation
Results of operations for foreign entities are translated using the average
exchange rates during the period. Current assets and liabilities are translated
to U.S. dollars using the exchange rates in effect at the balance sheet date,
and the related translation adjustments are reported as a separate component of
stockholders' equity.
New Accounting Pronouncements
In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations," which was adopted by the Company as of January 1, 2003. SFAS No.
143 did not have a material impact on the consolidated financial statements upon
adoption.
In June 2002, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 146 ("SFAS 146"), "Accounting for Costs
Associated with Exit or Disposal Activities." SFAS 146 requires an entity to
recognize, and measure at fair value, a liability for costs associated with an
exit or disposal activity in the period in which the liability is incurred. SFAS
146 supercedes Emerging Issues Task Force Issue ("EITF") No. 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (Including Certain Costs Incurred in a Restructuring)." SFAS 146 is
effective for exit or disposal activities that are initiated after December 31,
2002. The Company has adopted the provisions of SFAS 146 effective January 1,
2003. There was no material impact upon adoption.
In November 2002, FASB issued FASB Interpretation No. 45 ("FIN 45"),
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others," which elaborates on the
disclosures to be made by a guarantor in its interim and annual financial
statements about its obligations under certain guarantees that it has issued
along with expanded disclosures of warranty reserves. It also requires that a
guarantor recognize a liability for the fair value of the obligation undertaken
in issuing the guarantee at the inception of the guarantee. This interpretation
incorporates the guidance in FIN 34, "Disclosure of Indirect Guarantees of
Indebtedness of Others," which is being superseded. The initial recognition and
initial measurement provisions of FIN 45 are applicable on a prospective basis
to guarantees issued or modified after December 31, 2002, irrespective of the
guarantor's fiscal year-end and the disclosure requirements are effective for
financial statements of interim or annual periods ending after December 15,
2002. Adoption of FIN 45 did not have a material impact on the consolidated
financial statements. See Note 14 regarding commitments and contingencies.
F-13
<PAGE>
In December 2002, FASB issued Statement of Financial Accounting Standards No.
148 ("SFAS 148"), "Accounting for Stock-Based Compensation - Transition and
Disclosure." SFAS 148 amends SFAS 123, "Accounting for Stock-Based Compensation"
and allows two alternative methods of transition for a voluntary change to the
more preferable fair value based method of accounting for stock-based employee
compensation. These methods avoid the ramp-up effect arising from prospective
application of the fair value based method. The Statement also amends APB
Opinion No. 28, "Interim Financial Reporting," and requires disclosure of
comparable information for all companies regardless of whether, when, or how an
entity adopts the fair value based method of accounting and requires the
inclusion of the disclosure in financial reports for interim periods. SFAS 148
is effective for interim and year-end financial statements for fiscal years
ending after December 15, 2002. As previously disclosed, the Company will
continue to account for stock compensation pursuant to APB 25. However, it has
adopted the disclosure provisions of FAS 148.
In January 2003, FASB issued FASB Interpretation No. 46 ("FIN 46"),
"Consolidation of Variable Interest Entities," which addresses the reporting and
consolidation of variable interest entities as they relate to a business
enterprise. This interpretation incorporates and supercedes the guidance set
forth in ARB No. 51, "Consolidated Financial Statements." It requires the
consolidation of variable interests into the financial statements of a business
enterprise if that enterprise holds a controlling financial interest via other
means than the traditional voting majority. The disclosure requirements of FIN
46 are effective immediately for variable interest entities created after
January 31, 2003 and thereafter, or the first reporting period after June 15,
2003 for variable interest entities for which an enterprise holds a variable
interest that it acquired prior to February 1, 2003. The Company does not expect
that the adoption of FIN46 will have a material impact on its future
consolidated financial statements.
3. BUSINESS ACQUISITIONS:
Effective May 1, 2002, the Company acquired the business and certain assets and
liabilities of Elmore Pipe Jacking, Inc. ("Elmore") for approximately $12.5
million. Elmore was a regional provider of trenchless tunneling, microtunneling,
segmented lining and pipe jacking services in the western U.S. The purchase
price included $8.5 million in cash, settlement of $2.3 million of debt owed by
Elmore to the Company, and the assumption of an additional $1.7 million of
liabilities, of which $0.2 million was interest-bearing and the remainder,
including covenants not to compete, owed to the former owners of the Elmore
assets. The purchase price was allocated to assets acquired and liabilities
assumed based on their respective fair values at the date of acquisition and
resulted in goodwill of $8.9 million. The Company's results reflect the
operating of Elmore's former assets from the date of acquisition. The Elmore
acquisition added $20.7 million of revenues, $1.0 million of operating income,
and $0.6 million of net income in the tunneling segment for the period from May
1, 2002 through December 31, 2002. Pro forma information is immaterial and has
not been presented relative to the Elmore acquisition.
On February 28, 2001, the Company acquired 100% of the stock of Kinsel
Industries, Inc. ("Kinsel") and an affiliated company, Tracks of Texas, Inc.
("Tracks"). Kinsel had operations in pipebursting, microtunneling, wastewater
treatment plant construction, commercial construction and highway construction
and maintenance. Tracks was a real estate and construction equipment leasing
company that primarily leased equipment to Kinsel. The purchase price was
approximately $80 million, paid in a combination of cash, a $5.4 million note to
the seller and 1,847,165 shares of the Company's common stock valued at $35.51
per share. The transaction was accounted for by the purchase method of
accounting, and accordingly, their results are included in the Company's
consolidated income statement from the date of acquisition. The purchase price
was allocated to assets acquired and liabilities assumed based on their
respective fair value at the date of acquisition and resulted in goodwill of
$61.2 million. There are no contingent payments, options, or commitments in
connection with the acquisition. The Company subsequently decided to sell off
portions of Kinsel that did not fit the Company's overall business strategy. In
March 2003, the Company settled various claims against the former shareholders
of Kinsel. See Note 16 for further discussion on the settlement. See Note 4
regarding discontinued operations.
F-14
<PAGE>
The following unaudited pro forma summary presents information as if Kinsel and
Tracks had been acquired as of January 1, 2000. The pro forma amounts include
certain adjustments, primarily to recognize depreciation and amortization,
including amortization of goodwill, based on the allocated purchase price of
Kinsel and Tracks assets, and do not reflect any benefits from economies which
might be achieved from combining operations. The unaudited pro forma information
has been presented for comparative purposes and does not necessarily reflect the
actual results that would have occurred nor is it necessarily indicative of
future results of operations of the combined companies (in thousands, except per
share amounts).
<TABLE>
<CAPTION>
For the Year Ended December 31,
(unaudited)
2001 2000
-------- --------
<S> <C> <C>
Revenues $454,923 $441,756
Income from continuing operations 25,398 35,338
Loss from discontinued operations (843) (550)
Net income 24,555 34,788
Earnings (loss) per share:
Basic
Income from continuing operations 0.96 1.32
Loss from discontinued operations (0.03) (0.02)
Net income 0.93 1.30
Diluted
Income from continuing operations 0.94 1.29
Loss from discontinued operations (0.03) (0.02)
Net income 0.91 1.27
</TABLE>
During the third quarter of 2000, the Company acquired the remaining 50%
ownership of Insituform Belgium N.V. (formerly known as K-Insituform N.V.), its
joint venture in Belgium, for approximately $0.3 million, along with the
remaining 33% ownership in Insituform France, S.A., for approximately $0.8
million. In addition, in July 2000, the Company completed its acquisition of 50%
of Italcontrolli-Insituform S.r.l. (formerly known as Italcontrolli Nord
S.r.l.), its licensee in Italy, for approximately $1.2 million. There was no
material goodwill resulting from these acquisitions.
In February 2000, the Company acquired the rights to the Insituform CIPP Process
and NuPipe(R) process for the states of New York and New Jersey, through the
purchase of all of the shares of the capital stock in Insituform Metropolitan,
Inc. and the operating assets of certain of its affiliates. The Company paid the
sellers an aggregate of $5.0 million in cash, in addition to assuming operating
liabilities of the acquired business. The acquisition was accounted for by the
purchase method and resulted in goodwill of $4.8 million.
4. DISCONTINUED OPERATIONS:
In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets." The Company elected to early adopt the
provisions of SFAS No. 144 for the year ended December 31, 2001. SFAS No. 144
supersedes SFAS No. 121 "Accounting for the Impairment of Long-Lived Assets to
be disposed of" and provides a single accounting model for long-lived assets to
be disposed of by sale. SFAS No. 144 clarifies certain provisions related to
SFAS No. 121 and expands the use of discontinued operations to all components of
a business for which separate results of operations can be identified.
In 2001, the Company made the decision to sell certain operations acquired in
the Kinsel transaction. Accordingly, the Company classified as discontinued the
wastewater treatment plant, commercial
F-15
<PAGE>
construction and highway operations acquired as part of the Kinsel acquisition.
These operations are not consistent with the Company's operating strategy of
providing differentiated trenchless rehabilitation and tunneling services. The
Company completed the sale of the wastewater treatment plant effective January
1, 2002. The Company received $1.5 million in cash and a $2.0 million note for a
total sale price of $3.5 million, resulting in a slight loss on the sale. See
Note 16 for a related subsequent event. During the third quarter of 2002, the
Company sold the heavy highway construction business for $2.6 million in cash
and $1.5 million in notes, resulting in a pre-tax gain of $1.5 million, or $0.9
million after-tax, which is reflected in income (loss) from discontinued
operations in the table below. The Company completed the sale of certain assets
and contracts of the Kinsel highway maintenance business during the fourth
quarter of 2002 for certain assumed liabilities, $1.4 million in cash and a $1.5
million subordinated note, with no material gain or loss for the sale. Pursuant
to the terms of the sale agreements described above, the Company retained
responsibility for some uncompleted jobs, which has resulted in the absorption
of additional trailing costs. The Company expects to substantially complete
these jobs in the second quarter of 2003. This completes the disposition of all
material assets classified as discontinued pursuant to the acquisition of
Kinsel. See Note 16 for discussion of the Kinsel escrow settlement subsequent to
December 31, 2002.
For the twelve months ended December 31, 2002, including an after-tax gain of
$0.9 million on the sale of the heavy highway business, discontinued operations
lost $5.9 million on $22.6 million in revenues. As of December 31, 2002 and
December 31, 2001, assets held for disposal totaled $7.9 million and $32.0
million, respectively, and included $0.7 million and $7.6 million of unbilled
receivables, respectively. Assets held for disposal also included $2.0 million
in retainage receivables, $0.5 million of trade accounts receivable, $4.2
million of prepaid assets and notes receivable, and $0.5 million of fixed assets
at December 31, 2002. Liabilities related to discontinued operations totaled
$3.3 million and $9.5 million at December 31, 2002 and 2001, respectively. The
results of discontinued operations are as follows (in thousands):
<TABLE>
<CAPTION>
2002 2001
------- --------
<S> <C> <C>
REVENUES:
Wastewater Treatment Plant $ 37 $26,336
Commercial Construction and Highway Operations 22,524 30,576
------- -------
$22,561 $56,912
======= =======
INCOME (LOSS) FROM DISCONTINUED OPERATIONS:
Wastewater Treatment Plant, net of tax benefit of $1,153 and
tax of $230, respectively $(1,842) $ 354
</TABLE>
<TABLE>
<S> <C> <C>
Commercial Construction and Highway Operations, net of tax
benefit of $2,521 and $277, respectively (4,027) (426)
------- --------
$(5,869) $ (72)
======= ========
</TABLE>
5. RESTRUCTURING:
In the third quarter of 2002, the Company recorded a pre-tax restructuring
charge of $2.5 million ($1.5 million after-tax), $1.3 million of which was
severance costs associated with the elimination of 75 salaried positions,
primarily related to administrative and other overhead functions. An additional
$1.2 million involved related decisions for information technology asset
write-downs, lease cancellations, and disposal of certain identifiable fixed
assets primarily at the corporate level. As of December 31, 2002, the remaining
liability on this restructuring was $1.1 million, of which $0.8 million relates
to future severance costs and $0.4 million relates to retirement of equipment,
both of which are expected to be substantially settled in 2003.
In the fourth quarter of 2001, the Company recorded a pre-tax restructuring
charge of $4.1 million ($2.5 million after tax), $0.9 million of which is
severance costs associated with the elimination of 112 company-wide positions
specifically identified as of December 31, 2001. An additional $3.2 million of
the charge
F-16
<PAGE>
relates to asset write-downs, lease cancellations and other costs
associated with the closure of eight facilities in the United States and the
disposal of the associated assets. As of December 31, 2002, the remaining
liability was $0.5 million, $0.3 million of which is for retirement of
equipment, and $0.2 million relates to facilities closure costs, both of which
are expected to be substantially settled in 2003.
The following table illustrates each of the restructuring reserve components and
the related balances at December 31, 2002 (in thousands):
<TABLE>
<CAPTION>
Balance at 2002 Charged during Balance at
December 31, 2001 Reserve 2002 December 31, 2002
----------------- ------- --------------------- -----------------
2001 Reserve Cash Non-Cash
------- --------
<S> <C> <C> <C> <C>
Severance $ 844 $ (844) $ - $ -
Equipment 616 (122) (237) 257
Facility 1,702 (1,171) (302) 229
------ ------- ------- ------
Total $3,162 $(2,137) $ (539) 486
====== ======= ======= ======
2002 Reserve
Severance $ - $1,258 $ (465) $ - $ 793
Equipment - 1,200 (852) - 348
------ ------ ------- ------- ------
Total $ - $2,458 $(1,317) $ - $1,141
====== ====== ======= ======= ======
</TABLE>
6. INTANGIBLE ASSET IMPAIRMENT:
During the third quarter of 2002, the Company determined that certain patent,
trademark, license and non-compete intellectual property assets had become
impaired due to recent business decisions and other circumstances. No further
bidding or work was performed during 2002 that related to any of the intangible
assets determined to be impaired. The impairment analysis was conducted in
accordance with SFAS 144, which the Company early adopted in 2001, and included
an assessment of future undiscounted cash flows expected to be generated from
the intangible assets. The impact of the impairment charge was $3.5 million
($2.2 million after tax).
7. SUPPLEMENTAL BALANCE SHEET INFORMATION:
Allowance for Doubtful Accounts
Activity in the allowance for doubtful accounts is summarized as follows for the
years ended December 31 (in thousands):
<TABLE>
<CAPTION>
2002 2001 2000
------ ------ ------
<S> <C> <C> <C>
Balance, at beginning of year $2,208 $2,067 $3,096
Charged to expense 503 537 442
Write-offs and adjustments (536) (396) (1,471)
------ ------ ------
Balance, at end of year $2,175 $2,208 $2,067
====== ====== ======
</TABLE>
Costs and Estimated Earnings on Uncompleted Contracts
Costs and estimated earnings on uncompleted contracts consist of the following
at December 31 (in thousands):
F-17
<PAGE>
<TABLE>
<CAPTION>
2002 2001
-------- ---------
<S> <C> <C>
Costs incurred on uncompleted contracts $269,968 $230,004
Estimated earnings 73,351 61,859
-------- --------
343,319 291,863
Less- Billings to date (312,631) (276,201)
-------- --------
$ 30,688 $ 15,662
======== ========
Included in the accompanying balance sheets:
Costs and estimated earnings in excess of billings $ 36,680 $ 23,719
Billings in excess of costs and estimated earnings (5,992) (8,057)
-------- --------
$ 30,688 $ 15,662
======== ========
</TABLE>
Costs and estimated earnings in excess of billings represent work performed
which either due to contract stipulations or lacking contractual documentation
needed, could not be billed. Substantially all unbilled amounts are expected to
be billed and collected within one year. Retainage due after one year is
approximately $6.8 million at December 31, 2002.
Inventories
Inventories are summarized as follows at December 31 (in thousands):
<TABLE>
<CAPTION>
2002 2001
-------- --------
<S> <C> <C>
Raw materials and supplies $ 908 $ 710
Work-in-process 3,665 4,958
Finished products 1,449 1,750
Construction materials 6,780 6,653
Allowance for excess and obsolescence (400) (359)
------- -------
$12,402 $13,712
======= =======
</TABLE>
Property, Plant and Equipment
Property, plant and equipment consists of the following at December 31 (in
thousands):
<TABLE>
<CAPTION>
Estimated Useful
Lives (Years) 2002 2001
---------------- --------- ---------
<S> <C> <C> <C>
Land and land improvements $ 9,681 $ 9,336
Buildings and improvements 5 - 40 25,768 25,342
Machinery and equipment 4 - 10 109,337 94,368
Furniture and fixtures 3 - 10 13,429 11,300
Autos and trucks 3 - 10 5,126 5,208
Construction in progress 2,561 6,839
-------- --------
165,902 152,393
Less- Accumulated depreciation (94,323) (83,846)
-------- --------
$ 71,579 $ 68,547
======== ========
</TABLE>
F-18
<PAGE>
Other Assets
Other assets are summarized as follows at December 31 (in thousands):
<TABLE>
<CAPTION>
2002 2001
--------- ---------
<S> <C> <C>
Licenses $ 1,387 $ 2,154
Patents and trademarks 2,046 5,510
Investment in licensees, affiliates, and subsidiaries 6,412 6,495
Deferred income taxes 1,734 -
Non-compete agreements 2,615 117
Other 3,557 3,781
-------- --------
$ 17,751 $ 18,057
======== ========
</TABLE>
Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consist of the following at December 31
(in thousands):
<TABLE>
<CAPTION>
2002 2001
-------- --------
<S> <C> <C>
Accounts payable - trade $ 46,487 $ 43,905
Compensation and profit sharing 6,431 6,153
Interest 2,777 3,039
Warranty 590 27
Other 13,491 15,178
-------- --------
$ 69,776 $ 68,302
======== ========
</TABLE>
8. ACQUIRED INTANGIBLE ASSETS AND GOODWILL:
In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 142 ("SFAS 142"), "Goodwill and Other
Intangible Assets," which requires that an intangible asset that is acquired
shall be initially recognized and measured based on its fair value. This
statement also provides that certain intangible assets deemed to have an
indefinite useful life, such as goodwill, should not be amortized, but shall be
tested for impairment annually, or more frequently if circumstances indicate
potential impairment, through a comparison of fair value to its carrying amount.
SFAS 142 is effective for fiscal periods beginning after December 15, 2001. The
Company adopted SFAS 142 on January 1, 2002, at which time amortization of
goodwill ceased and a transitional impairment test was performed. The annual
impairment test for goodwill was performed in the fourth quarter of 2002.
Management retained an independent party to perform a valuation of the Company's
reporting units as of these dates and determined that no impairment of goodwill
existed.
Changes in the carrying amount of goodwill for the year ended December 31, 2002
were as follows (in thousands):
<TABLE>
<CAPTION>
Rehabilitation Tunneling Total
-------------- --------- --------
<S> <C> <C> <C>
Balance as of December 31, 2001 $117,251 $ - $117,251
Reassignment of goodwill due to adoption of SFAS 142 4,792 - 4,792
Goodwill acquired as part of Elmore purchase - 8,892 8,892
Impact of foreign exchange rates 97 - 97
-------- -------- --------
Balance as of December 31, 2002 $122,140 $ 8,892 $131,032
======== ======== ========
</TABLE>
F-19
<PAGE>
Intangible assets are as follows (in thousands):
<TABLE>
<CAPTION>
As of December 31, 2002
--------------------------------
Gross Carrying Accumulated
Amount Amortization
-------------- ------------
<S> <C> <C>
Amortized intangible assets:
Patents and trademarks $ 13,943 $ (11,897)
License agreements 3,264 (1,877)
Non-compete agreements 4,628 (2,013)
-------- ---------
Total $ 21,835 $ (15,787)
======== =========
</TABLE>
<TABLE>
<S> <C>
Aggregate amortization expense:
For twelve months ended December 31, 2002 $ 1,433
Estimated amortization expense:
For year ended December 31, 2003 $ 1,166
For year ended December 31, 2004 1,072
For year ended December 31, 2005 730
For year ended December 31, 2006 725
For year ended December 31, 2007 332
</TABLE>
The effect of the adoption of SFAS 142 on reported net income was as follows (in
thousands, except per share information):
<TABLE>
<CAPTION>
Twelve Months
Ended December 31,
2002 2001 2000
-------- -------- -------
<S> <C> <C> <C>
Reported income from continuing operations $28,560 $24,940 $34,906
Add: Goodwill amortization related to continuing operations, net
of tax - 3,794 2,282
------- -------- -------
Adjusted income from continuing operations $28,560 $28,734 $37,188
Reported net loss from discontinued operations (5,869) (72) -
Add: Goodwill amortization related to discontinued operations, net
of tax - 126 -
------- -------- -------
Adjusted net income $22,691 $ 28,788 $37,188
======= ======== =======
Basic earnings per share:
Reported income from continuing operations $ 1.08 $ 0.94 $ 1.41
Add: Goodwill amortization related to continuing operations,
net of tax - 0.14 0.09
Adjusted income from continuing operations $ 1.08 $ 1.09 $ 1.50
Reported net loss from discontinued operations (0.22) - -
Add: Goodwill amortization related to discontinued operations,
net of tax - - -
------- -------- -------
Adjusted net income $ 0.86 $ 1.09 $ 1.50
======= ======== =======
Diluted earnings per share:
Reported income from continuing operations $ 1.07 $ 0.93 $ 1.37
Add: Goodwill amortization related to continuing operations,
net of tax - 0.14 0.09
Adjusted income from continuing operations $ 1.07 $ 1.07 $ 1.46
</TABLE>
F-20
<PAGE>
<TABLE>
<CAPTION>
Twelve Months
Ended December 31,
2002 2001 2000
-------- -------- -------
<S> <C> <C> <C>
Reported net loss from discontinued operations (0.22) - -
Add: Goodwill amortization related to discontinued operations,
net of tax - - -
------- -------- -------
Adjusted net income $ 0.85 $ 1.07 $ 1.46
======= ======== =======
</TABLE>
9. LONG-TERM DEBT AND LINE OF CREDIT:
Long-term debt and line of credit consisted of the following at December 31 (in
thousands):
<TABLE>
<CAPTION>
<S> <C> <C>
2002 2001
7.88% Senior Notes, payable in $15,715 annual installments beginning -------- --------
February 2001 through 2007, with interest payable semiannually $ 78,570 $ 94,285
Line of credit facility 26,000 15,913
5.5% bank term loan, EUR5.7 million, payable in seven equal annual
installments through July 2006, with interest payable quarterly 3,398 3,618
Other notes, including capital leases, interest rates from 5.0% to 10.5% 8,406 10,255
-------- --------
116,374 124,071
Less- Current maturities (49,360) (35,218)
-------- --------
$ 67,014 $ 88,853
======== ========
</TABLE>
The 7.88% Senior Notes may be prepaid at the Company's option, in whole or in
part, at any time, together with a make-whole premium, and upon specified change
in control events each holder has the right to require the Company to purchase
its Senior Notes without any premium thereon. The agreements obligate the
Company to comply with certain financial ratios and restrictive covenants that,
among other things, place limitations on operations and sales of assets by the
Company or its subsidiaries, and limit the ability of the Company to incur
secured indebtedness and liens. Such agreements also obligate the Company's
subsidiaries to provide guarantees to the holders of the Senior Notes if
guarantees are given by them to certain other lenders. The Company was in
compliance with all debt covenants at December 31, 2002.
During 2000, the Company obtained a line of credit facility with the capacity to
borrow up to $50 million. The commitment fee paid per annum by the Company is
0.2% on the unborrowed balance. The Company is obligated to comply with certain
financial ratios, and restrictive covenants, which mirror the Senior Note
agreements. This line of credit facility expires March 31, 2003. The interest
rates under this facility vary and are based on the prime rate. As of December
31, 2002, the rate was 2.19%. The unused availability on the line of credit
facility as of December 31, 2002 was $18.8 million. See Note 16 regarding
subsequent event for refinancing of the credit facility.
At December 31, 2002 and 2001, the estimated fair value of the Company's
long-term debt was approximately $118.2 million and $124.4 million,
respectively. Fair value was estimated using discounted market rates for debt of
similar risk and maturity.
Principal payments required to be made for each of the next five years and
thereafter are summarized as follows (in thousands):
<TABLE>
<CAPTION>
Year Amount
- ------ ---------
<S> <C>
2003 $ 49,360*
2004 17,377
2005 17,007
</TABLE>
F-21
<PAGE>
<TABLE>
<CAPTION>
Year Amount
- ------ ---------
<S> <C>
2006 16,764
2007 15,822
After 2007 44
--------
Total $116,374
========
</TABLE>
* Includes refinancing of prior credit facility.
10. STOCKHOLDERS' EQUITY:
Stock Option Plans
The 2001 Employee Equity Incentive Plan (the "Employee Incentive Plan") provides
for the granting to employees of stock-based awards, including (a) stock
appreciation rights, (b) restricted shares of common stock, (c) performance
awards, (d) stock options and (e) stock units. The maximum number of shares of
common stock which currently may be issued under the Employee Incentive Plan is
1,000,000. The Employee Incentive Plan is administered by the Compensation
Committee of the Board of Directors, which determines the eligibility, timing,
pricing, amount, vesting and other terms and conditions of awards, including
stock option awards. The Company accounts for options granted under this plan in
accordance with APB 25. The exercise price of each option issued under the 2001
Employee Incentive Plan equals the closing market price of the Company's stock
on the date of grant and, therefore, the Company makes no charge to earnings
with respect to these options. Stock options, issued under the 2001 Employee
Incentive Plan, generally vest over three years (with 25% vesting upon grant)
and have an expiration date of up to five to ten years after the date of grant.
The 2001 Non-Employee Director Equity Incentive Plan (the "Non-Employee Director
Incentive Plan") provides for the granting of stock options to non-employee
directors. The total number of shares of common stock available for issuance
under the Non-Employee Director Incentive Plan is 200,000. The Non-Employee
Director Incentive Plan is administered by the Board of Directors. Under the
terms of the Non-Employee Director Incentive Plan, each non-employee director
receives a stock option to purchase shares of common stock each year on the date
of the Annual Meeting of Stockholders (or promptly thereafter, as determined by
the Board), provided that such director continues to be a non-employee director
following such Annual Meeting. The purchase price per share of common stock for
which each option is exercisable is the fair market value per share of common
stock on the date the option is granted.
Each option granted under the Non-Employee Director Incentive Plan is fully
vested and exercisable immediately, and expires not later than ten years from
the date of the grant.
Under the 1992 Employee Stock Option Plan (the "Employee Plan") and Director
Stock Option Plan (the "Director Plan"), the Company was authorized to grant
options to its employees and directors not to exceed 2,850,000 and 1,500,000
shares of common stock, respectively. No options are to be granted under the
Employee Plan or the Director Plan since the adoption of the Employee Incentive
Plan and the Non-Employee Director Incentive Plan. The plans were administered
by the Board of Directors, which determined the timing of awards, individuals
granted awards, the number of options awarded and the price, vesting schedule
and other conditions of the options. The exercise price of each option equaled
the closing market price of the Company's stock on the date of grant and,
therefore, the Company made no charge to earnings with respect to these options.
Options generally vest over three years (with 25% vesting upon grant) and have
an expiration date of up to five to ten years after the date of grant.
In accordance with SFAS No. 123, the Company has estimated the fair value of
each option grant using the Black-Scholes option-pricing model and has included
in Note 2 a table illustrating the effect on net income and earnings per share
had the Company applied the fair value recognition provisions. The following
weighted average assumptions were used for the grants in 2002, 2001, and 2000,
respectively: expected
F-22
<PAGE>
volatility of 64%, 75%, and 62%; risk-free interest rates of 3.8%, 4.8%, and
5.1%; expected lives of six, seven and five years and no dividends.
The following tables summarize information about options outstanding at December
31, 2002:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------------------- ------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Number Contractual Exercise Number Exercise
Exercise Price Outstanding Life Price Exercisable Price
-------------- ----------- ----------- --------- ----------- --------
<S> <C> <C> <C> <C> <C>
$4.00 to $10.00 139,895 4.6 years $ 8.76 139,895 $ 8.76
$10.00 to $20.00 393,171 3.9 years $ 14.39 387,421 $14.36
$20.00 and above 1,617,903 6.3 years $ 27.11 915,097 $27.69
--------- ---------
2,150,969 5.8 years $ 23.59 1,442,413 $22.28
========= =========
</TABLE>
<TABLE>
<CAPTION>
2002 2001 2000
------------------------ --------------------- ----------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
----------- --------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding, beginning of
year 1,857,302 $22.50 1,743,002 $18.10 1,478,829 $12.14
Granted 676,471 23.88 656,463 29.02 630,100 28.99
Exercised (205,280) 12.26 (418,588) 14.46 (364,708) 12.83
Forfeited (177,524) 25.99 (123,575) 22.20 (1,219) 10.84
--------- --------- ---------
Options outstanding, end
of year 2,150,969 $23.59 1,857,302 $22.50 1,743,002 $18.09
========= ========= =========
Options exercisable, end of year 1,442,413 $22.28 1,052,779 $19.36 913,824 $15.10
========= ========= =========
Weighted average fair value of
options granted $ 14.26 $ 21.26 $ 16.58
</TABLE>
At December 31, 2002, 2,667,994 shares of common stock were reserved pursuant to
stock option plans.
For SFAS 123 disclosure purposes (as presented in Note 2), the weighted average
fair value of stock options is required to be based on a theoretical
option-pricing model such as the Black-Scholes method. In actuality, because the
Company's employee stock options are not traded on an exchange and are subject
to vesting periods, the disclosed fair value represents only an approximation of
option value based solely on historical performance. Employees can receive no
value nor derive any benefit from holding stock options under these plans
without an increase in the market price of the Company's stock over time. Such
an increase in stock price benefits all stockholders commensurately.
Shareholders' Rights Plan
In February 2002, the Company's Board of Directors adopted a Shareholder Rights
Plan. Pursuant to the Shareholder Rights Plan, the Board of Directors declared a
dividend distribution of one preferred stock purchase right ("Right") for each
outstanding share of the Company's common stock, $.01 par value ("Common
Stock"), payable to the Company's stockholders of record as of March 13, 2002.
Each Right, when exercisable, entitles the holder to purchase from the Company
one one-hundredth of a share of a new series of voting preferred stock,
designated as Series A Junior Participating Preferred Stock, $0.10 par value, at
an exercise price of $116.00 per one one-hundredth of a share.
F-23
<PAGE>
The Rights will trade in tandem with the Common Stock until ten days after a
"distribution event" (i.e., the announcement of an intention to acquire or the
actual acquisition of 20% or more of the outstanding shares of Common Stock), at
which time the Rights would become exercisable. Upon exercise, the holders of
the Rights (other than the person who triggered the distribution event) will be
able to purchase for the exercise price shares of Common Stock having the then
market value of two times the aggregate exercise price of the rights. The rights
expire on March 12, 2012, unless redeemed, exchanged or otherwise terminated at
an earlier date.
11. OTHER INCOME (EXPENSE):
Other income (expense) was comprised of the following for the year ended
December 31 (in thousands):
<TABLE>
<CAPTION>
2002 2001 2000
------- ------- -------
<S> <C> <C> <C>
Interest income $ 1,898 $ 2,226 $ 3,493
Gain on sale of real estate 1,225 - -
Other (68) 83 239
------- ------- -------
$ 3,055 $ 2,309 $ 3,732
======= ======= =======
</TABLE>
During 2002, the Company disposed of a real estate investment acquired with
Kinsel for proceeds of $1.9 million and a gain of $1.2 million, included in the
table above.
12. TAXES ON INCOME:
Income from continuing operations before taxes on income is as follows for the
years ended December 31 (in thousands):
<TABLE>
<CAPTION>
2002 2001 2000
------- ------- -------
<S> <C> <C> <C>
Domestic $38,464 $28,871 $46,801
Foreign 6,863 10,864 10,550
------- ------- -------
Total $45,327 $39,735 $57,351
======= ======= =======
</TABLE>
Provisions for taxes on income from continuing operations consist of the
following components for the years ended December 31 (in thousands):
<TABLE>
<CAPTION>
2002 2001 2000
-------- -------- -------
<S> <C> <C> <C>
Current:
Federal $ 15,578 $ 8,320 $14,844
Foreign 3,935 4,822 4,454
State 2,302 1,620 2,292
-------- -------- -------
$ 21,815 $ 14,762 $21,590
-------- -------- -------
Deferred:
Federal (3,705) 580 727
Foreign (247) 247 249
State (412) 64 81
-------- -------- -------
$ (4,364) $ 891 $ 1,057
-------- -------- -------
</TABLE>
F-24
<PAGE>
<TABLE>
<CAPTION>
2002 2001 2000
-------- -------- -------
<S> <C> <C> <C>
Total Tax Provision $ 17,451 $ 15,653 $22,647
======== ======== =======
</TABLE>
A reconciliation between the U.S. federal statutory tax rate and the effective
tax rate follows:
<TABLE>
<CAPTION>
2002 2001 2000
------- ------ ------
<S> <C> <C> <C>
Income taxes at U.S. federal statutory tax rate 35.0% 35.0% 35.0%
Increase in taxes resulting from:
State income taxes, net of federal income tax benefit 3.5 3.2 3.6
Amortization of intangibles (1.5) 2.4 1.3
Effect of foreign income taxed at foreign rates 0.5 (0.1) .3
Other 1.0 (1.1) (0.7)
----- ----- -----
Total taxes on income 38.5% 39.4% 39.5%
===== ===== =====
</TABLE>
Net deferred taxes consist of the following at December 31 (in thousands):
<TABLE>
<CAPTION>
2002 2001
------- -------
<S> <C> <C>
Deferred income tax assets:
Foreign tax credits and net operating loss carryforwards $ 1,527 $ 1,183
Accrued expenses 4,918 2,597
Other 1,679 1,143
------- -------
Total deferred income tax assets 8,124 4,923
------- -------
Deferred income tax liabilities:
Property, plant and equipment (4,855) (4,114)
Other (1,535) (3,438)
------- -------
Total deferred income tax liabilities (6,390) (7,552)
------- -------
Net deferred income tax assets (liabilities) $ 1,734 $(2,629)
======= =======
</TABLE>
Subject to the future taxable income on certain of the Company's subsidiaries,
the Company's various foreign tax credits and net operating loss carryforwards
have varying expiration dates. Management believes that these deferred tax
assets will be realized in future periods and no valuation allowance or
additional tax reserves are required at December 31, 2002.
13. CHANGES IN OPERATING ASSETS:
The following are changes in operating assets, excluding the effect of
acquisitions and divestitures:
<TABLE>
<CAPTION>
2002 2001 2000
-------- -------- --------
<S> <C> <C> <C>
Receivables $ (9,921) $ (6,054) $(27,439)
Inventories 1,313 4,761 (5,727)
Prepaid expenses and other assets (2,414) (1,530) 5,383
Accounts payable and accrued expenses (8,635) (5,228) 18,180
-------- -------- --------
$(19,657) $ (8,051) $ (9,603)
======== ======== ========
</TABLE>
14. COMMITMENTS AND CONTINGENCIES:
Leases
F-25
<PAGE>
The Company leases a number of its administrative operations facilities under
noncancellable operating leases expiring at various dates through 2020. In
addition, the Company leases certain construction, automotive and computer
equipment on a multiyear, monthly or daily basis. During the fourth quarter of
2002, the Company entered into an arrangement for the sale-leaseback of a tunnel
boring machine ("TBM"). Future rent expense on the TBM operating lease will be
$1.7 million annually, extending for 7 years and is included in the minimum
lease payments presented below. No material gain or loss resulted from the
sale-leaseback transaction in 2002. Rent expense under all operating leases for
2002, 2001 and 2000 was $18.6 million, $22.3 million and $17.7 million,
respectively. Rental expense paid to related parties was $600,000, $453,500 and
$392,750 for the years ended December 31, 2002, 2001 and 2000, respectively. At
December 31, 2002, the Company had under lease equipment with an original market
value of approximately $53.0 million.
At December 31, 2002, the future minimum lease payments required under the
noncancellable operating leases were as follows (in thousands):
<TABLE>
<CAPTION>
Year Minimum Lease Payments
- ---------- ------------------------
<S> <C>
2003 $13,531
2004 9,386
2005 6,062
2006 4,470
2007 3,952
After 2007 7,071
-------
Total $44,472
=======
</TABLE>
Litigation
The Company is involved in certain litigation incidental to the conduct of its
business. In the Company's opinion, none of these proceedings will have a
material adverse effect on the Company's financial position, results of
operations and liquidity. During the third quarter of 2002, a Company crew had
an accident on a cured-in-place pipe project in Des Moines, Iowa. Two workers
died and five workers were injured in the accident. In January 2003, the Company
received notice of multiple claims, totaling more than $3.5 million, from the
buyer of the former Kinsel wastewater treatment division. The claims arise out
of the February 2002 sale of the Kinsel wastewater treatment division and allege
the valuation of the assets sold was overstated. No litigation has been
commenced. The financial statements include the estimated amounts of liabilities
that are likely to be incurred from these and various other pending litigation
and claims.
Retirement Plans
Substantially all of the Company's employees are eligible to participate in the
Company sponsored defined contribution savings plan, which is a qualified plan
under the requirements of Section 401(k) of the Internal Revenue Code. Total
contributions to the domestic plan were $1.7 million, $1.5 million and $4.4
million for the years ended December 31, 2002, 2001 and 2000, respectively.
In addition, certain foreign subsidiaries maintain various other defined
contribution retirement plans. Company contributions to such plans for the years
ended December 31, 2002, 2001 and 2000 were $224,718, $214,552 and $352,000,
respectively.
F-26
<PAGE>
Guarantees
The Company has entered into several contractual joint ventures to develop joint
bids on contracts for its installation businesses, and for tunneling operations.
In these cases, the Company could be required to complete the partner's portion
of the contract if the partner is unable to complete its portion. The Company is
at risk for any amounts for which the Company itself could not complete the work
and for which a third party contractor could not be located to complete the work
for the amount awarded in the contract. The Company has not experienced material
adverse results from such arrangements and foresees no future material adverse
impact on financial position, results of operations or cash flows. As a result,
the Company has not recorded a liability on the balance sheet associated with
this risk.
The Company has many contracts that require the Company to indemnify the other
party against loss from claims of patent or trademark infringement. The Company
also indemnifies its bonding agents against losses from third party claims of
subcontractors. The Company has not experienced material losses under these
provisions and foresees no future material adverse impact on financial position,
results of operations or cash flows.
15. SEGMENT AND GEOGRAPHIC INFORMATION:
The Company has principally three operating segments: rehabilitation, tunneling
and TiteLiner. The segments were determined based upon the types of products
sold by each segment and each is regularly reviewed and evaluated separately.
The rehabilitation segment provides trenchless methods of rehabilitating sewers,
pipelines and other conduits using a variety of technologies including the
Insituform CIPP Process, pipebursting, microtunneling, and sliplining. The
tunneling segment engages in tunneling used in the installation of new
underground services, large diameter microtunneling and sliplining, and the
TiteLiner segment provides a method of lining steel lines with a corrosion and
abrasion resistant pipe. These operating segments represent strategic business
units that offer distinct products and services and serve different markets.
The following disaggregated financial results have been prepared using a
management approach, which is consistent with the basis and manner with which
management internally disaggregates financial information for the purpose of
assisting in making internal operating decisions. The Company evaluates
performance based on standalone operating income.
There were no customers which accounted for more than 10% of the Company's
revenues during each of the three years ended December 31, 2002.
Financial information by segment was as follows at December 31 (in thousands):
<TABLE>
<CAPTION>
2002 2001 2000
-------- -------- --------
<S> <C> <C> <C>
Revenues:
Rehabilitation $377,674 $369,219 $325,773
Tunneling 86,297 49,019 46,866
TiteLiner 16,387 27,072 36,795
-------- -------- --------
Total revenues $480,358 $445,310 $409,434
======== ======== ========
Operating income:
Rehabilitation $ 35,208 $ 36,191 $ 48,997
Tunneling 12,165 5,754 5,858
TiteLiner 2,810 4,820 8,111
-------- -------- --------
Total operating income $ 50,183 $ 46,765 $ 62,966
======== ======== ========
</TABLE>
F-27
<PAGE>
<TABLE>
<CAPTION>
2002 2001 2000
-------- -------- --------
<S> <C> <C> <C>
Total assets:
Rehabilitation $315,377 $311,949 $244,383
Tunneling 63,218 30,346 18,422
TiteLiner 6,204 12,523 16,531
Corporate 80,305 76,770 75,638
Discontinued 7,909 32,034 0
-------- -------- --------
Total assets $473,013 $463,622 $354,974
======== ======== ========
Capital expenditures:
Rehabilitation $ 6,093 $ 8,474 $ 17,053
Tunneling 12,941 6,045 2,564
TiteLiner 353 61 1,381
Corporate 2,395 2,058 9,210
-------- -------- --------
Total capital expenditures $ 21,782 $ 16,638 $ 30,208
======== ======== ========
Depreciation and amortization:
Rehabilitation $ 10,035 $ 16,893 $ 12,482
Tunneling 2,570 1,292 1,498
TiteLiner 880 1,136 2,034
Corporate 2,345 2,062 2,666
-------- -------- --------
Total depreciation and amortization $ 15,830 $ 21,383 $ 18,680
======== ======== ========
</TABLE>
Financial information by geographic area was as follows at December 31 (in
thousands):
<TABLE>
<CAPTION>
2002 2001 2000
-------- -------- --------
<S> <C> <C> <C>
Revenues:
United States $408,218 $361,194 $333,246
Canada 19,339 23,482 22,199
Other Foreign 52,801 60,634 53,989
-------- -------- --------
Total revenues $480,358 $445,310 $409,434
======== ======== ========
Operating income:
United States $ 43,502 $ 39,003 $ 55,326
Canada 2,616 3,714 3,674
Other Foreign 4,065 4,048 3,966
-------- -------- --------
Total operating income $ 50,183 $ 46,765 $ 62,966
======== ======== ========
Long-lived assets:
United States $ 70,924 $ 63,467 $ 67,224
Canada 2,772 2,969 4,942
Other Foreign 15,634 20,168 15,692
-------- -------- --------
Total long-lived assets $ 89,330 $ 86,604 $ 87,858
======== ======== ========
</TABLE>
F-28
<PAGE>
16. SUBSEQUENT EVENTS:
Kinsel Settlement
The Company made various claims against the former shareholders of Kinsel,
arising out of the February 2001 acquisition of Kinsel and Tracks. Those claims
were settled in March 2003 without litigation. Under the terms of the
settlement, 18,891 shares of Company common stock and all of the promissory
notes, totaling $5,350,000 in principal (together with all accrued and unpaid
interest), issued to former Kinsel shareholders in connection with the
acquisition, are to be returned to the Company from the claim collateral escrow
account established at the time of the acquisition. The remaining 56,672 shares
of Company common stock held in the escrow account are to be distributed to the
former Kinsel shareholders. The settlement of the escrow account primarily
relates to matters associated with Kinsel operations which have been sold and
are presented as discontinued operations.
As a result of this settlement, the Company expects to record income, net of
taxes, of approximately $1.9 million in the first quarter of 2003, the
substantial portion of which will be reflected in discontinued operations.
EIG Claim
In January 2003, the Company received notice of multiple claims, totaling more
than $3.5 million, from the buyer of the former Kinsel wastewater treatment
division. The claims arise out of the February 2002 sale of the Kinsel
wastewater treatment division and allege the valuation of the assets sold was
overstated. No litigation has been commenced.
Credit Facility
Effective March 27, 2003, the Company entered into a new three-year bank
revolving credit facility to replace its expiring bank credit facility. This new
facility provides the Company with borrowing capacity of up to $75 million. The
quarterly commitment fee ranges from 0.2% to 0.3% per annum on the unborrowed
balance depending on the leverage ratio determined as of the last day of the
Company's preceding fiscal quarter. At the Company's option, the interest rates
will be either (i) the LIBOR plus an additional percentage that varies from
0.75% to 1.5% depending on the leverage ratio or (ii) the higher of (a) the
prime rate or (b) the federal funds rate plus 0.50%. As of March 27, 2003, the
interest rate on the credit facility was 4.25% and the balance was $40.0
million.
Senior Notes
The Company expects to place additional unsecured senior notes in the maximum
principal amount of $65 million with certain institutional investors through a
private offering made by the Company during the second quarter of 2003.
17. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED):
(In thousands, except per share data)
<TABLE>
<CAPTION>
1st 2nd 3rd 4th
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Year ended December 31, 2002:
Revenues $111,176 $118,488 $125,523 $125,171
Operating income 11,216 14,256 9,081 15,630
Income from continuing operations 5,905 8,238 5,665 8,752
Loss from discontinued operations (1,602) (927) (788) (2,552)
</TABLE>
F-29
<PAGE>
<TABLE>
<CAPTION>
1st 2nd 3rd 4th
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net income 4,303 7,311 4,877 6,200
Basic earnings per share:
Income from continuing operations $ 0.22 $ 0.31 $ 0.21 $ 0.33
Loss from discontinued operations (0.06) (0.03) (0.03) (0.10)
-------- -------- -------- --------
Net income $ 0.16 $ 0.28 $ 0.18 $ 0.23
Diluted earnings per share:
Income from continuing operations $ 0.22 $ 0.31 $ 0.21 $ 0.33
Loss from discontinued operations (0.06) (0.03) (0.03) (0.10)
-------- -------- -------- --------
Net income $ 0.16 $ 0.27 $ 0.18 $ 0.23
Year ended December 31, 2001:
Revenues $ 98,850 $118,071 $112,310 $116,079
Operating income 9,359 19,779 7,804 9,823
Income from continuing operations 4,542 11,081 3,895 5,422
Income (loss) from discontinued operations 84 356 106 (618)
Net income 4,626 11,437 4,001 4,804
Basic earnings per share:
Income from continuing operations $ 0.18 $ 0.41 $ 0.15 $ 0.20
Income (loss) from discontinued operations - 0.01 - (0.02)
-------- -------- -------- --------
Net income $ 0.18 $ 0.43 $ 0.15 $ 0.18
Diluted earnings per share:
Income from continuing operations $ 0.17 $ 0.40 $ 0.14 $ 0.20
Income (loss) from discontinued operations - 0.01 - (0.02)
-------- -------- -------- --------
Net income $ 0.18 $ 0.42 $ 0.15 $ 0.18
</TABLE>
F-30
<PAGE>
INDEX TO EXHIBITS (1,2)
2 Agreement and Plan of Merger dated January 13, 2001 by and among the
Company, K Acquisition Corp. and TRX Acquisition Corp., Kinsel
Industries, Inc. and Tracks of Texas, Inc. and the Kinsel/Tracks
Shareholders (incorporated by reference to Exhibit 2 to the Current
Report on Form 8-K dated February 28, 2001 and filed March 14, 2001).
3.1 Restated Certificate of Incorporation, as amended, of the Company
(incorporated by reference to Exhibit 3.1 to the quarterly report on
Form 10-Q for the quarter ended June 30, 2000), and Certificate of
Designation, Preferences and Rights of Series A Junior Participating
Preferred Stock (incorporated by reference to Exhibit 3.1 to the annual
report on Form 10-K for the year ended December 31, 2001).
3.2 By-Laws of the Company, as amended through October 25, 2000
(incorporated by reference to Exhibit 3.2 to the annual report on Form
10-K for the year ended December 31, 2000), as further amended as of
March 14, 2003.
4 Rights Agreement dated as of February 26, 2002 between Insituform
Technologies, Inc. and American Stock Transfer & Trust Company
(incorporated by reference to Exhibit 1 to the Registration Statement
on Form 8-A dated March 8, 2002).
10.1 Credit Agreement dated as of March 27, 2003 among the Company, Bank of
America, N.A. as Administrative Agent, and Letter of Credit Issuing
Lender and the other Financial Institutions party thereto.
10.2 Note Purchase Agreements (the "Note Purchase Agreements") dated as of
February 14, 1997 among the Company and, respectively, each of the
lenders (the "Noteholders") listed therein (incorporated by reference
to Exhibit 10.6 to the annual report on Form 10-K for the year ended
December 31, 1996), as amended by First Amendment to the Note Purchase
Agreements dated as of August 20, 1997 (incorporated by reference to
Exhibit 10(a) to the quarterly report on Form 10-Q for the quarter
ended September 30, 1997), as further amended by Second Amendment dated
as of March 30, 2000 to Note Purchase Agreements (incorporated by
reference to Exhibit 10.3 to the quarterly report on Form 10-Q for the
quarter ended March 31, 2000), as further amended by Third Amendment
dated as of February 28, 2003 to Note Purchase Agreements.
10.3 Master Guaranty dated as of March 27, 2003 by the Company and those
subsidiaries of the Company named therein.
10.4 Amended and Restated Intercreditor Agreement dated as of March 30, 2000
among Bank of America, N.A. and the Noteholders (incorporated by
reference to Exhibit 10.4 to the quarterly report on Form 10-Q for the
quarter ended March 31, 2000).
10.5 Employment Letter dated July 15, 1998 between the Company and Anthony
W. Hooper (incorporated by reference to Exhibit 10.1 to the quarterly
report on Form 10-Q for the quarter ended September 30, 1998), as
amended by Amendment dated March 14, 2003. (1)
10.6 Note Modification Allonge executed on July 17, 2002 relating to
Promissory Note (incorporated by reference to Exhibit 10.1 to the
quarterly report on Form 10-Q for the quarter ended June 30, 2002). (1)
<PAGE>
10.7 Promissory Note dated September 24, 1997 made by Anthony W. Hooper in
favor of the Company (incorporated by reference to Exhibit 10.2 to the
quarterly report on Form 10-Q for the quarter ended June 30, 2002). (1)
10.8 Employment Agreement dated October 25, 1995 between the Company and
Robert W. Affholder (incorporated by reference to Exhibit 2(d) to the
Current Report on Form 8-K dated October 25, 1995), as amended by
Amendment No. 1 dated as of October 25, 1998 to Employment Agreement
(incorporated by reference to Exhibit 10.9 to the annual report on Form
10-K for the year ended December 31, 1998), and as amended by Amendment
No. 2 dated as of December 31, 1999 to Employment Agreement, and as
amended by Amendment No. 3 dated as of December 31, 2000 to Employment
Agreement (incorporated by reference to Exhibit 10.1 to the quarterly
report on Form 10-Q for the quarter ended March 31, 2001), and as
amended by Amendment No. 4 dated as of December 31, 2001 to Employment
Agreement (incorporated by reference to Exhibit 10.6 to the annual
report on Form 10-K for the year ended December 31, 2001), and as
amended by Amendment No. 5 dated as of December 31, 2002 to Employment
Agreement. (3)
10.9 Letter agreement dated as of February 9, 1999 between the Company and
Thomas N. Kalishman (incorporated by reference to Exhibit 10.10 to the
annual report on Form 10-K for the year ended December 31, 1998). (3)
10.10 Employment Agreement dated February 1, 2001 between Insituform Europe
and Antoine Menard. (incorporated by reference to Exhibit 10.10 to the
annual report on Form 10-K for the year ended December 31, 2000). (3)
10.11 Equipment Lease for 125 Ton American Crane [1] dated as of July 1, 2001
between A-Y-K-E Partnership and Affholder, Inc. (incorporated by
reference to Exhibit 10.9 to the annual report on Form 10-K for the
year ended December 31, 2001).
10.12 Equipment Lease for 90 Ton Link Belt Crane dated as of January 1, 2002
between A-Y-K-E Partnership and Affholder, Inc. (incorporated by
reference to Exhibit 10.10 to the annual report on Form 10-K for the
year ended December 31, 2001).
10.13 Equipment Lease for 125 Ton American Crane [2] dated as of January 1,
2002 between A-Y-K-E Partnership and Affholder, Inc. (incorporated by
reference to Exhibit 10.11 to the annual report on Form 10-K for the
year ended December 31, 2001).
10.14 Equipment Lease for 110 Ton American Crane dated as of January 1, 2002
between A-Y-K-E Partnership and Affholder, Inc. (incorporated by
reference to Exhibit 10.12 to the annual report on Form 10-K for the
year ended December 31, 2001).
10.15 Equipment Lease for Lovat M-142 Tunnel Boring Machine, Series No. 6100
dated as of July 1, 2002 between A-Y-K-E Partnership and Affholder,
Inc.
10.16 1992 Employee Stock Option Plan of the Company (incorporated by
reference to Exhibit 10.11 to the annual report on Form 10-K for the
year ended December 31, 1999). (3)
10.17 1992 Director Stock Option Plan of the Company (incorporated by
reference to Exhibit 10.12 to the annual report on Form 10-K for the
year ended December 31, 1999). (3)
10.18 2001 Employee Equity Incentive Plan (incorporated by reference to
Exhibit 99.1 to the Registration Statement on Form S-8 No. 33-66714).
(3)
<PAGE>
10.19 2001 Non-Employee Director Equity Incentive Plan (incorporated by
reference to Exhibit 99.1 to the Registration Statement on Form S-8 No.
33-66712). (3)
10.20 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.3 to
the quarterly report on Form 10-Q for the quarter ended June 30, 2001).
(3)
10.21 Insituform Mid-America, Inc. Stock Option Plan, as amended
(incorporated by reference to Exhibit 4(i) to the Registration
Statement on Form S-8 No. 33-63953). (3)
10.22 Senior Management Voluntary Deferred Compensation Plan of the Company
(incorporated by reference to Exhibit 10.19 to the annual report on
Form 10-K for the year ended December 31, 1998), as amended by First
Amendment thereto dated as of October 25, 2000. (3)
10.23 Form of Directors' Indemnification Agreement (incorporated by reference
to Exhibit 10.3 to the quarterly report on Form 10-Q for the quarter
ended June 30, 2002). (3)
21 Subsidiaries of the Company.
23 Consent of PricewaterhouseCoopers LLP.
24 Power of Attorney (See "Power of Attorney" in the annual report on Form
10-K).
99.1 Certification of Anthony W. Hooper pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99.2 Certification of Joseph A. White pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
- --------------------------
(1) The Company's current, quarterly and annual reports are filed with the
Securities and Exchange Commission under file no. 0-10786.
(2) Pursuant to Reg. Section 229.601, does not include certain instruments
with respect to long-term debt of the Company and its consolidated
subsidiaries not exceeding 10% of the total assets of the Company and
its subsidiaries on a consolidated basis. The Company undertakes to
furnish to the Securities and Exchange Commission, upon request, a copy
of all long-term debt instruments not filed herewith.
(3) Management contract or compensatory plan or arrangement.
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-3.2
<SEQUENCE>3
<FILENAME>c75232exv3w2.txt
<DESCRIPTION>BY-LAWS OF THE COMPANY
<TEXT>
<PAGE>
EXHIBIT 3.2
BY-LAWS
OF
INSITUFORM TECHNOLOGIES, INC.
(as amended through March 14, 2003)
ARTICLE I - OFFICES
The principal offices of the Corporation in the State of Delaware shall
be located in the City of Dover, County of Kent. The Corporation may have such
other offices, either within or without the State of incorporation as the Board
of Directors may designate or as the business of the Corporation may from time
to time require.
ARTICLE II - STOCKHOLDERS
1. ANNUAL MEETING.
The annual meeting of the stockholders shall be held at such time and
upon such date in each year as the Board of Directors may determine, for the
purpose of electing directors and for the transaction of such other business as
may come before the meeting. If the day fixed for the annual meeting shall be a
legal holiday such meeting shall be held on the next succeeding business day.
2. SPECIAL MEETINGS.
Special meetings of the stockholders, for any purpose or purposes,
unless otherwise prescribed by statute, may be called by either the Chairman of
the Board, the Chief Executive Officer or by the Board, and shall be called by
the Chief Executive Officer at the request of the holders of not less than fifty
percent of all the outstanding shares of the Corporation entitled to vote at the
meeting.
3. PLACE OF MEETING.
The Board may designate any place, either within or outside the State
unless otherwise prescribed by statute, as the place of meeting for any annual
meeting or for any special meeting called by the Board. A waiver of notice
signed by all stockholders entitled to vote at a meeting may designate any
place, either within or outside the state unless otherwise prescribed by
statute, as the place for holding such meeting. If no designation is made, or if
a special meeting be otherwise called, the place of meeting shall be the
principal office of the Corporation.
4. NOTICE OF MEETING.
Written or printed notice stating the place, day and hour of the meeting and, in
the case of a special meeting, the purpose or purposes for which the meeting is
called, shall be delivered not less than ten nor more than fifty days before the
date of the meeting, either personally or by mail, by or at the direction of
either the Chairman of the Board, the Chief Executive Officer, the
<PAGE>
Secretary, or the officer or persons calling the meeting, to each stockholder of
record entitled to vote at such meeting. If mailed, such notice shall be deemed
to be delivered when deposited in the United States mail, addressed to the
stockholder at his address as it appears on the stock transfer books of the
Corporation, with postage thereon pre-paid.
5. CLOSING OF TRANSFER BOOKS OR FIXING OF RECORD DATE.
For the purpose of determining stockholders entitled to notice of or to
vote at any meeting of stockholders or any adjournment thereof, or stockholders
entitled to receive payment of any dividend, or in order to make a determination
of stockholders for any other proper purpose, the Board may fix in advance a
date as the record date for any such determination of stockholders, such date in
any case to be not more than sixty days and, in case of a meeting of
stockholders, not less than ten days prior to the date on which the particular
action requiring such determination of stockholders is to be taken. If the stock
transfer books are not closed and no record date is fixed for the determination
of stockholders entitled to notice of or to vote at a meeting of stockholders,
or stockholders entitled to receive payment of a dividend, the date on which
notice of the meeting is mailed or the date on which the resolution of the Board
declaring such dividend is adopted, as the case may be, shall be the record date
for such determination of stockholders. When a determination of stockholders
entitled to vote at any meeting of stockholders has been made as provided in
this section, such determination shall apply to any adjournment thereof.
6. VOTING LISTS.
The officer or agent having charge of the stock transfer books for
shares of the Corporation shall make, at least ten days before each meeting of
stockholders, a complete list of the stockholders entitled to vote at such
meeting, or any adjournment thereof, arranged in alphabetical order, with the
address of and the number of shares held by each, which list, for a period of
ten days prior to such meeting, shall be kept on file at the principal office of
the Corporation and shall be subject to inspection by any stockholder at any
time during usual business hours. Such list shall also be produced and kept open
at the time and place of the meeting and shall be subject to the inspection of
any stockholder during the whole time of the meeting. The original stock
transfer book shall be prima facie evidence as to who are the stockholders
entitled to examine such list or transfer books or to vote at the meeting of
stockholders.
7. QUORUM.
At any meeting of stockholders a majority of the outstanding shares of
the Corporation entitled to vote, represented in person or by proxy, shall
constitute a quorum at a meeting of stockholders. If less than said number of
the outstanding shares are represented at a meeting, a majority of the shares so
represented may adjourn the meeting from time to time without further notice. At
such adjourned meeting at which a quorum shall be present or represented, any
business may be transacted which might have been transacted at the meeting as
originally notified. The stockholders present at a duly organized meeting may
continue to transact business until adjournment, notwithstanding the withdrawal
of enough stockholders to leave less than a quorum.
2
<PAGE>
8. PROXIES.
At all meetings of stockholders, a stockholder may vote by proxy
executed in writing by the stockholder or by his duly authorized
attorney-in-fact. Such proxy shall be filed with the Secretary of the
Corporation before or at the time of the meeting.
9. VOTING.
Each stockholder entitled to vote in accordance with the terms and
provisions of the Certificate of Incorporation and these By-laws shall be
entitled to one vote, in person or by proxy, for each share of stock entitled to
vote held by such stockholders. Upon the demand of any stockholder, the vote for
directors and upon any question before the meeting shall be by ballot. All
elections for directors shall be decided by plurality vote; all other questions
shall be decided by majority vote except as otherwise provided by the
Certificate of Incorporation or the laws of this State.
10. ORDER OF BUSINESS.
The order of business at all meetings of the stockholders, shall be as
follows:
1. Roll call.
2. Proof of notice of meeting or waiver of notice.
3. Reading of minutes of preceding meeting.
4. Reports of Officer.
5. Reports of Committees.
6. Election of Directors.
7. Unfinished Business.
8. New Business.
11. BUSINESS AT MEETINGS.
No business shall be transacted at an annual meeting of stockholders other than
business that is (i) specified in the notice of meeting (or any supplement
thereto) given by or at the direction of the Board of Directors (or any duly
authorized committee thereof), (ii) otherwise properly brought before the annual
meeting by or at the direction of the Board of Directors (or any duly authorized
committee thereof), or (iii) otherwise properly brought before the annual
meeting by a stockholder who (x) is a stockholder of record on the record date
for the determination of stockholders entitled to vote at such annual meeting
and on the date of the giving of the notice provided for in this Section 11 and
(y) complies with the procedures set forth in this Section 11 and any other
applicable requirements. No business shall be conducted at a special meeting of
stockholders other than business that is specified in the Corporation's notice
3
<PAGE>
of meeting (or any supplement thereto). In addition, only persons who are
nominated in accordance with the procedures set forth in this Section 11 (and
any other applicable requirements) shall be eligible for election as directors
of the Corporation. If business is not properly brought before any meeting of
stockholders in accordance with the procedures set forth in this Section 11, or
if a nomination at any meeting was not made in accordance with the requirements
of this Section 11, the Chairman of the Board shall declare to the meeting that
the business was not properly brought before the meeting, and such business
shall not be transacted, or the nomination was defective, and such defective
nomination shall be disregarded.
Nominations of persons for election to the Board of Directors may be
made at any annual meeting of stockholders, or at any special meeting of
stockholders at which directors are to be elected pursuant to the Corporation's
notice of meeting: (i) by or at the direction of the Board of Directors (or any
duly authorized committee thereof), subject to the requirements of these
By-laws, or (ii) by any stockholder who (x) is a stockholder of record on the
record date for the determination of stockholders entitled to vote at such
annual meeting and on the date of the giving of the notice provided for in this
Section 11 and (y) has complied with the procedures set forth in this Section
11.
For a stockholder to be entitled to properly bring business before an
annual meeting of stockholders, a proper Stockholder's Notice (as defined below)
must have been received by the Secretary of the Corporation at the principal
executive offices of the Corporation, and for any nomination of a person or
persons for election to the Board of Directors by a stockholder (a "Stockholder
Nomination") to be made at any annual meeting of stockholders, written notice
thereof meeting the requirements set forth below must have been received by the
Secretary of the Corporation at the principal executive offices of the
Corporation, in each case not less than 90 days nor more than 120 days prior to
the first anniversary of the date of the preceding year's annual meeting of
stockholders; provided, however, that in the event that the date of the annual
meeting is advanced or delayed by more than 30 days compared to the preceding
year's annual meeting, notice by the stockholder to be timely must be so
received not later than the close of business on the later of (i) the ninetieth
(90th) day prior to such annual meeting or (ii) the tenth (10th) day following
the day on which public disclosure (as defined below) of the date of the annual
meeting is first made.
For a Stockholder Nomination to be made at any special meeting of
stockholders as aforesaid, written notice thereof meeting the requirements set
forth below must have been received by the Secretary of the Corporation at the
principal executive offices of the Corporation, in each case not later than the
close of business on the later of (i) the ninetieth (90th) day prior to such
special meeting or (ii) the tenth (10th) day following the day on which public
disclosure of the date of the special meeting is made.
A Stockholder's Notice shall mean a written notice to the Secretary of
the Corporation which sets forth as to each matter such stockholder proposes to
bring before the annual meeting (i) a brief description of the business desired
to be brought before the annual meeting (including the form of the proposal) and
the reasons for conducting such business at the annual meeting, (ii) the name
and record address of such stockholder, (iii) the class or series and number of
shares of capital stock of the Corporation that are owned beneficially or of
record by such stockholder, indicating the name and address of any beneficial
owner of such shares, (iv) a description of all arrangements or understandings
between such stockholder (and any person acting on behalf of
4
<PAGE>
the stockholder) and any other person or persons (including their names) in
connection with the proposal of such business by such stockholder and any
material interest of such stockholder in such business, and (v) a representation
that such stockholder intends to appear in person or by proxy at the annual
meeting to bring such business before the meeting.
Any notice of a Stockholder Nomination must set forth (a) as to each
person whom the stockholder proposes to nominate for election as a director (i)
the name, age, business address and residence address of the person, (ii) the
principal occupation or employment of the person, (iii) the class or series and
number of shares of capital stock of the Corporation that are owned beneficially
or of record by the person and (iv) any other information relating to the person
that would be required to be disclosed in a proxy statement or other filings
required to be made in connection with solicitations of proxies for election of
directors pursuant to Section 14 of the Securities Exchange Act of 1934, as then
in effect (the "Exchange Act"), and the rules and regulations promulgated
thereunder; and (b) as to the stockholder giving the notice (i) the name and
record address of such stockholder, (ii) the class or series and number of
shares of capital stock of the Corporation that are owned beneficially or of
record by such stockholder, (iii) a description of all arrangements or
understandings between such stockholder and each proposed nominee and any other
person or persons (including their names) pursuant to which the nomination(s)
are to be made by such stockholder, (iv) a representation that such stockholder
intends to appear in person or by proxy at the meeting to nominate the persons
named in its notice and (v) any other information relating to such stockholder
that would be required to be disclosed in a proxy statement or other filings
required to be made in connection with solicitations of proxies for election of
directors pursuant to Section 14 of the Exchange Act and the rules and
regulations promulgated thereunder. Such notice must be accompanied by a written
consent of each proposed nominee to being named as a nominee and to serve as a
director if elected.
For purposes of this Section 11, "public disclosure" shall mean
disclosure in a press release reported by the Dow Jones News Service, Associated
Press or comparable national news service or in a document publicly filed by the
Corporation with the Securities and Exchange Commission pursuant to Section 13,
14 or 15(d) of the Exchange Act.
ARTICLE III - BOARD OF DIRECTORS
1. GENERAL POWERS.
The business and affairs of the Corporation shall be managed by its
Board of Directors. The directors shall in all cases act as a board, and they
may adopt such rules and regulations for the conduct of their meetings and the
management of the Corporation, as they may deem proper, not inconsistent with
these By-laws and the laws of this State.
2. NUMBER OF DIRECTORS, TENURE AND QUALIFICATIONS.
The Board of Directors at the date of these By-laws shall consist of
nine (9) directors; provided, such number of directors may be increased or
decreased from time to time exclusively pursuant to a resolution adopted by a
majority of all directors then serving.
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3. REGULAR MEETINGS.
The Board may provide, by resolution, the time and place for the
holding of regular meetings without other notice than such resolution.
4. SPECIAL MEETINGS.
Special meetings of the Board may be called by or at the request of the
Chairman of the Board, the Chief Executive Officer, the President or any two
directors. The person or persons authorized to call special meetings of the
Board may fix the place either within or outside the State, for holding any
special meeting of the Board called by such person or persons.
5. NOTICE.
Notice of any special meeting shall be given at least 24 hours
previously thereto by written notice delivered personally, or by telegram or
telecopy or mailed to each director at such director's residence or business
address (or as otherwise requested by a director). If mailed, such notice shall
be deemed to be delivered when deposited in the United States mail so addressed,
with postage thereon prepaid. If notice be given by telegram, such notice shall
be deemed to be delivered when the telegram is delivered to the telegraph
company. The attendance of a director at a meeting shall constitute a waiver of
notice of such meeting, except where a director attends a meeting for the
express purpose of objecting to the transaction of any business because the
meeting is not lawfully called or convened.
6. QUORUM.
At any meeting of the Board a majority shall constitute a quorum for
the transaction of business, but if less than said number is present at a
meeting, a majority of the directors present may adjourn the meeting from time
to time without further notice.
7. MANNER OF ACTING.
The act of the majority of the directors present at a meeting at which
a quorum is present shall be the act of the Board.
8. NEWLY-CREATED DIRECTORSHIPS AND VACANCIES.
Any vacancy on the Board of Directors and any newly-created
directorship resulting from an increase in the number of directors may be filled
by the Board in accordance with the Corporation's Certificate of Incorporation.
9. REMOVAL OF DIRECTORS.
Any or all of the directors may be removed only for cause by vote of
the stockholders.
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10. RESIGNATION.
A director may resign at any time by giving written notice to the
Board, the Chairman of the Board, the Chief Executive Officer or the Secretary
of the Corporation. Unless otherwise specified in the notice, the resignation
shall take effect upon receipt thereof by the Board or such officer, and the
acceptance of the resignation shall not be necessary to make it effective.
11. COMPENSATION.
The Board of Directors shall have the authority to fix the compensation
of directors. Nothing herein shall preclude any director from serving the
Corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees may be allowed compensation for attending
committee meetings.
12. PRESUMPTION OF ASSENT.
A director of the Corporation who is present at a meeting of the Board
at which action on any corporate matter is taken shall be presumed to have
assented to the action taken unless such director's dissent shall be entered in
the minutes of the meeting or unless such director shall file such director's
written dissent to such action with the person acting as the Secretary of the
meeting before the adjournment thereof or shall forward such dissent by
registered mail to the Secretary of the Corporation immediately after the
adjournment of the meeting. Such right to dissent shall not apply to a director
who voted in favor of such action.
13. EXECUTIVE AND OTHER COMMITTEES.
The Board, by resolution, may designate from among its members an
executive committee and other committees, each consisting of one or more
directors. Each such committee shall serve at the pleasure of the Board.
14. NOTICE AND APPROVAL OF CERTAIN ACTIONS
Notwithstanding any other provision of these By-laws: (a) in the event
that any director proposes to bring before any regular or special meeting of the
Board of Directors any proposal relating to any amendment of the Corporation's
Certificate of Incorporation or these By-laws, or any change in the structure,
composition (other than such director's resignation) or governance of the Board
of Directors (any such action being referred to herein as a "Special Action"),
such director must provide written notice thereof (including a reasonably
detailed description of such proposal) to each member of the Board of Directors
at least seven days prior to the date of the Board meeting at which the Special
Action is to be proposed; and (b) the taking of any Special Action by the Board
of Directors must be approved by a majority of all directors then serving.
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ARTICLE IV - OFFICERS
1. NUMBER.
The officers of the Corporation shall be a Chairman of the Board, a
Chief Executive Officer, a President, one or more Vice Presidents and a
Secretary, each of whom shall be elected by the Board. The Board may also elect
a Vice Chairman of the Board. The Chief Executive Officer may also hold the
position of Chairman of the Board and/or President. Vice Presidents may be given
distinctive designations such as Executive Vice President, Group Vice President,
Senior Vice President or any similar designation. The Board may elect or appoint
such other officers (including a Treasurer), assistant officers and agents as it
may deem necessary who shall hold their offices for such terms and shall
exercise such powers and perform such duties as may be determined from time to
time by the Board. In connection with the election of any officer of the
Corporation, the Board may determine that such officer, in addition to the title
of the office to which such officer is elected, shall have a further title as
the Board may designate, such as Chief Operating Officer, Chief Financial
Officer or General Counsel, and the Board may prescribe powers to be exercised
and duties to be performed by any such officer to whom any such additional title
of office is given in addition to those powers and duties provided for by these
By-laws for such office. In addition, the Chief Executive Officer and/or the
President may from time to time appoint such officers of operating divisions,
and such contracting and attesting officers, of the Corporation as the Chief
Executive Officer and/or President may deem proper, who shall have such
authority, subject to the control of the Board, as the Chief Executive Officer
and/or President may from time to time prescribe.
2. ELECTION AND TERM OF OFFICE.
The officers of the Corporation to be elected by the Board shall be
elected annually at the first meeting of the Board held after each annual
meeting of the stockholders. Each officer elected by the Board shall hold office
until such officer's successor shall have been duly elected and shall have
qualified or, if earlier, until such officer's death or until such officer shall
resign or shall have been removed in the manner hereinafter provided. Each
officer of the Corporation appointed by the President shall hold office for such
period as the President may from time to time prescribe or, if earlier, until
such officer's death or until such officer shall resign or shall have been
removed in the manner hereinafter provided.
3. REMOVAL.
Any officer elected or appointed by the Board, or any officer appointed
by the President, may be removed by the Board whenever in its judgment the best
interests of the Corporation would be served thereby, but such removal shall be
without prejudice to the contract, if any, of the person so removed. Any officer
appointed by the President may be removed by the President whenever in the
President's judgment the best interests of the Corporation would be served
thereby, but such removal shall be without prejudice to the contract, if any, of
the person so removed.
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4. VACANCIES.
A vacancy in any office because of death, resignation, removal,
disqualification or otherwise of an officer elected or appointed by the Board
may be filled by the Board for the unexpired portion of the term. A vacancy in
any office because of death, resignation, removal, disqualification or otherwise
of any officer appointed by the President may be filled by the President for the
unexpired portion of the term.
4A. CHAIRMAN OF THE BOARD.
The Chairman of the Board shall preside, when present, at all meetings
of the Board of Directors and at all meetings of the stockholders and will
perform such other duties as may be prescribed from time to time by the Board or
these By-laws. In the absence, death or inability or refusal to act of the Chief
Executive Officer, the Chairman shall exercise all of the powers and discharge
all of the duties of the Chief Executive Officer.
4B. VICE CHAIRMAN OF THE BOARD.
In the absence, death or inability or refusal to act of the Chairman of
the Board, the Vice Chairman of the Board shall perform the duties of the
Chairman of the Board and, when so acting, shall have all the powers of and be
subject to all the restrictions on the Chairman of the Board. The Vice Chairman
of the Board shall perform such other duties as may be prescribed from time to
time by the Board or these By-laws. Notwithstanding any other provisions of
these By-laws, the Vice Chairman of the Board, acting in any capacity, shall not
have the power to call any special meeting of the Stockholders.
4C. CHIEF EXECUTIVE OFFICER.
The Chief Executive Officer shall be responsible for the general and
active management of the business and affairs of the Corporation, subject only
to the control of the Board. The Chief Executive Officer shall see that all
orders and resolutions of the Board of Directors are carried into effect and
shall be responsible to the Board of Directors for the Corporation's strategic
development and operational results and for the conduct of the Corporation's
business and affairs in accordance with policies approved by the Board of
Directors. The Chief Executive Officer shall have full authority in respect to
the signing and execution of deeds, bonds, mortgages, contracts and other
instruments of the Corporation; and, in general, to exercise all the powers and
authority usually appertaining to the chief executive officer of a Corporation.
In the absence, death or inability or refusal to act of the Chairman of the
Board and the Vice Chairman of the Board, the Chief Executive Officer (i) shall
preside at all meetings of stockholders, (ii) if a member of the Board, shall
preside at all meetings of the Board and (iii) shall otherwise exercise all of
the powers and discharge all of the duties of the Chairman of the Board. The
Chief Executive Officer shall perform such other duties as the Board may
prescribe.
5. PRESIDENT.
The President shall be an executive officer of the Corporation. The
President shall have equal authority with the Chief Executive Officer to sign
and execute deeds, bonds, mortgages,
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contracts and other instruments of the Corporation. The President shall have all
powers and shall perform all duties incident to the office of President, and
shall have the general authority to cause the employment or appointment of such
employees and agents of the Corporation as the proper conduct of operations may
require, and to fix their compensation, subject to the provisions of these
By-laws; to remove or suspend any employee or agent who shall have been employed
or appointed under the President's authority or under authority of an officer
subordinate to the President. The President shall perform such other duties as
from time to time may be assigned to him by the Chief Executive Officer. In the
absence, death or inability or refusal to act of the Chairman of the Board, the
Vice Chairman and the Chief Executive Officer, the President (i) shall preside
at meetings of stockholders, (ii) if a member of the Board, shall preside at
meetings of the Board, (iii) shall otherwise exercise all the powers and
discharge all of the duties of the Chairman of the Board (if a member of the
Board) and of the Chief Executive Officer; and (iv) shall perform such other
duties as the Board or the Chief Executive Officer shall prescribe.
6. VICE PRESIDENT.
In the absence, death or inability or refusal to act of the President,
one of the Vice Presidents designated by the Board or the Chief Executive
Officer shall perform the duties of the President, and when so acting, shall
have all the powers of and be subject to all the restrictions upon the
President. The Vice Presidents shall perform such other duties as from time to
time may be assigned to them by the Board, the Chief Executive Officer or the
President. If the Board gives any Vice President a distinctive designation, such
as Executive Vice President, or an additional titled, the Board may also
establish the reporting responsibility of such Vice President directly to the
Chief Executive Officer.
7. SECRETARY.
The Secretary shall keep the minutes of the stockholders' and of the
Board's meetings in one or more books provided for that purpose, see that all
notices are duly given in accordance with the provisions of these By-laws or, as
required, be custodian of the corporate records and of the seal of the
Corporation and keep a register of the post office address of each stockholder
which shall be furnished to the Secretary by such stockholder, have general
charge of the stock transfer books of the Corporation and in general perform all
duties incident to the office of Secretary and such other duties as from time to
time may be assigned to the Secretary by the Board or the Chief Executive
Officer.
8. TREASURER.
If elected by the Board, the Treasurer shall have charge and custody of
and be responsible for all funds and securities of the Corporation; receive and
give receipts for monies due and payable to the Corporation from any source,
whatsoever, and deposit all such monies in the name of Corporation in such
banks, trust companies or other depositories as shall be selected in accordance
with these By-laws and in general perform all of the duties incident to the
office of Treasurer and such other duties as from time to time may be assigned
to the Treasurer by the Board or the Chief Executive Officer. If required by
the Board, the Treasurer shall give a bond for the faithful discharge of the
Treasurer's duties in such sum and with such surety or sureties as the Board
shall determine.
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9. SALARIES.
The salaries of those officers elected or appointed by the Board shall
be fixed from time to time by the Board, and no officer shall be prevented from
receiving such salary by reason of the fact that such officer is also a director
of the Corporation.
ARTICLE V - CONTRACTS, LOANS, CHECKS AND DEPOSITS
1. CONTRACTS.
The Board may authorize any officer or officers, agent or agents, to
enter into any contract or execute and deliver any instrument in the name of and
on behalf of the Corporation, and such authority may be general or confined to
specific instances. The Chief Executive Officer and/or the President may
authorize any contracting officer appointed by the Chief Executive Officer
and/or the President pursuant to Section 1 of Article IV to enter into any
contract in the ordinary course of business of the Corporation, or execute and
deliver any instrument in connection therewith, in the name and on behalf of the
Corporation.
2. LOANS.
No loans shall be contracted on behalf of the Corporation and no
evidences of indebtedness shall be issued in its name unless authorized by a
resolution of the Board. Such authority may be general or confined to specific
instances.
3. CHECKS, DRAFTS, ETC.
All checks, drafts or other orders for the payment of money, notes or
other evidences of indebtedness issued in the name of the Corporation, shall be
signed by such officer or officers, agent or agents of the Corporation and in
such manner as shall from time to time be determined by resolution of the Board.
4. DEPOSITS.
All funds of the Corporation not otherwise employed shall be deposited
from time to time to the credit of the Corporation in such banks, trust
companies or other depositaries as the Board may select.
ARTICLE VI - CERTIFICATES FOR SHARES AND THEIR TRANSFER
1. CERTIFICATES FOR SHARES.
Certificates representing shares of the Corporation shall be in such form as
shall be determined by the Board. Such certificates shall be signed by any of
the Chairman of the Board, Chief Executive Officer or the President, as
authorized by the Board and the Secretary, or such other officers authorized by
law and by the Board. All certificates for shares shall be consecutively
numbered or otherwise identified. The name and address of the stockholders, the
number of shares and date of issue, shall be entered on the stock transfer books
of the
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Corporation. All certificates surrendered to the Corporation for transfer shall
be cancelled and no new certificate shall be issued until the former certificate
for a like number of shares shall have been surrendered and cancelled, except
that in case of a lost, destroyed or mutilated certificate a new one may be
issued therefor upon such terms and indemnity to the Corporation as the Board
may prescribe.
2. TRANSFERS OF SHARES.
(a) Upon surrender to the Corporation or the transfer agent of the
Corporation of a certificate for shares duly endorsed or accompanied by proper
evidence of succession, assignment or authority to transfer, it shall be the
duty of the Corporation to issue a new certificate to the person entitled
thereto, and cancel the old certificate; every such transfer shall be entered on
the transfer book of the Corporation which shall be kept at its principal
office.
(b) The Corporation shall be entitled to treat the holder of record of
any share as the holder in fact thereof, and, accordingly, shall not be bound to
recognized any equitable or other claim to or interest in such share on the part
of any other person whether or not it shall have express or other notice
thereof, except as expressly provided by the laws of this State.
ARTICLE VII - FISCAL YEAR
The fiscal year of the Corporation shall begin on the first day of
January in each year.
ARTICLE VIII - DIVIDENDS
The Board may from time to time declare, and the Corporation may pay,
dividends on its outstanding shares in the manner and upon the terms and
conditions provided by law.
ARTICLE IX - SEAL
The Board shall provide a corporate seal which shall be circular in
form and shall have inscribed thereon the name of the Corporation, the state of
incorporation, year of incorporation and the words, "Corporate Seal".
ARTICLE X - WAIVER OF NOTICE
Unless otherwise provided by law, whenever any notice is required to be
given to any stockholder or director of the Corporation under the provisions of
these By-laws or under the provisions of the Certificate of Incorporation, a
waiver thereof in writing, signed by the person or persons entitled to such
notice, whether before or after the time stated therein, shall be deemed
equivalent to the giving of such notice.
ARTICLE XI - AMENDMENTS
Except as otherwise provided by law, the Board of Directors may adopt,
alter, amend or repeal the By-laws of the Corporation, provided, however, that
the stockholders, representing a majority of all the shares issued and
outstanding at any annual stockholders' meeting or at any special stockholders'
meeting, may repeal, alter or amend By-laws adopted by the Board of
12
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Directors and may adopt new By-laws; provided, further, however, that the size
of the Board of Directors, as set forth in Section 2 of Article III, may only be
amended by a vote of at least 80% of the members of the Board of Directors or by
a vote of the stockholders, representing a majority of all of the shares issued
and outstanding, at any annual stockholders' meeting or at any special
stockholders' meeting.
13
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.1
<SEQUENCE>4
<FILENAME>c75232exv10w1.txt
<DESCRIPTION>MULTICURRENCY CREDIT AGREEMENT
<TEXT>
<PAGE>
EXHIBIT 10.1
================================================================================
Credit Agreement
Dated as of March 27, 2003
among
Insituform Technologies, Inc.,
Bank of America, N.A.
as Administrative Agent,
and
Letter of Credit Issuing Lender
and
The Other Financial
Institutions Party Hereto
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
SECTION 1. DEFINITIONS AND ACCOUNTING TERMS......................................................... 1
1.01 Defined Terms............................................................................. 1
1.02 Use of Certain Terms...................................................................... 23
1.03 Accounting Terms.......................................................................... 24
1.04 Rounding.................................................................................. 24
1.05 Exhibits and Schedules.................................................................... 24
1.06 References to Agreements and Laws......................................................... 24
1.07 Currency Equivalents Generally............................................................ 24
SECTION 2. THE COMMITMENTS AND EXTENSIONS OF CREDIT................................................. 24
2.01 Amount and Terms of Commitments........................................................... 24
2.02 Borrowings, Conversions and Continuations of Loans........................................ 25
2.03 Letters of Credit......................................................................... 27
2.04 Prepayments............................................................................... 31
2.05 Not used.................................................................................. 31
2.06 Reduction or Termination of Commitments................................................... 31
2.07 Principal and Interest.................................................................... 31
2.08 Fees...................................................................................... 32
2.09 Computation of Interest and Fees.......................................................... 33
2.10 Making Payments........................................................................... 33
2.11 Funding Sources........................................................................... 34
2.12 Swing Line Loan Settlement After Default.................................................. 34
SECTION 3. TAXES, YIELD PROTECTION AND ILLEGALITY................................................... 35
3.01 Taxes..................................................................................... 35
3.02 Illegality................................................................................ 36
3.03 Inability to Determine Offshore Rates..................................................... 36
3.04 Increased Cost and Reduced Return; Capital Adequacy....................................... 36
3.05 Breakfunding Costs........................................................................ 37
3.06 Matters Applicable to all Requests for Compensation....................................... 37
3.07 Survival.................................................................................. 38
SECTION 4. CONDITIONS PRECEDENT TO EXTENSIONS OF CREDIT............................................. 38
4.01 Conditions of Initial Extension of Credit................................................. 38
4.02 Conditions to all Extensions of Credit.................................................... 39
4.03 Conditions for a Domestic Subsidiary Becoming a Guarantor................................. 40
SECTION 5. REPRESENTATIONS AND WARRANTIES........................................................... 40
5.01 Organization and Existence................................................................ 41
5.02 Authorization............................................................................. 41
5.03 Due Execution............................................................................. 41
5.04 Enforceability of Obligations............................................................. 41
5.05 Burdensome Obligations.................................................................... 41
5.06 Legal Restraints.......................................................................... 41
5.07 Labor Disputes............................................................................ 41
</TABLE>
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<TABLE>
<S> <C>
5.08 No Material Proceedings................................................................... 42
5.09 Material Licenses......................................................................... 42
5.10 Compliance with Material Laws............................................................. 42
5.11 Initial Financial Statements.............................................................. 42
5.12 No Change in Condition.................................................................... 43
5.13 No Defaults............................................................................... 43
5.14. Tax Liabilities; Governmental Charges..................................................... 43
5.15 Pension Benefit Plans..................................................................... 43
5.16 Employee Benefit Plans.................................................................... 44
5.17 State of Property......................................................................... 44
5.18 Subsidiaries.............................................................................. 44
5.19 Margin Stock.............................................................................. 44
5.20 Hostile Securities Transactions........................................................... 44
5.21 Investment Company Act, Etc............................................................... 44
5.22 Filings................................................................................... 44
5.23 Broker's Fees............................................................................. 45
5.24 Indebtedness Outstanding on Closing Date.................................................. 45
5.25 Projections............................................................................... 45
5.26 Full Disclosure........................................................................... 45
5.27 Use of Proceeds........................................................................... 45
5.28 Bonding Capacity.......................................................................... 45
SECTION 6. AFFIRMATIVE COVENANTS.................................................................... 45
6.01 Financial Statements...................................................................... 45
6.02 Certificates, Notices and Other Information............................................... 46
6.03 Use of Proceeds........................................................................... 49
6.04 Corporate Existence....................................................................... 49
6.05 Maintenance of Property and Leases........................................................ 49
6.06 Insurance................................................................................. 49
6.07 Payment of Taxes and Other Obligations.................................................... 49
6.08 Compliance With Laws...................................................................... 49
6.09 Accounting System......................................................................... 50
6.10 Additional Guarantors..................................................................... 50
6.11 Audits by Administrative Agent and Lenders................................................ 50
6.12 Access to Officers and Auditors........................................................... 51
6.13 Further Assurances........................................................................ 51
SECTION 7. NEGATIVE COVENANTS....................................................................... 51
7.01 Indebtedness.............................................................................. 51
7.02 Prepayments............................................................................... 51
7.03 Security Interests........................................................................ 52
7.04 Acquisitions.............................................................................. 52
7.05 Sale of Property.......................................................................... 52
7.06 Restricted Payments....................................................................... 52
7.07 Mergers and Consolidations................................................................ 53
7.08 Change of Business........................................................................ 53
7.09 Transactions With Affiliates.............................................................. 53
</TABLE>
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<TABLE>
<S> <C>
7.10 Conflicting Agreements, Etc............................................................... 53
7.11 Sale and Leaseback Transactions; Operating Leases......................................... 53
7.12 Fiscal Year............................................................................... 53
7.13 Transactions.............................................................................. 54
7.14 Termination of Pension Benefit Plan....................................................... 54
7.15 Financial Covenants....................................................................... 54
7.16 Limitation on Operations of Non-Borrower Parties.......................................... 54
SECTION 8. EVENTS OF DEFAULT AND REMEDIES........................................................... 54
8.01 Events of Default......................................................................... 54
8.02 Remedies Upon Event of Default............................................................ 57
SECTION 9. ADMINISTRATIVE AGENT..................................................................... 58
9.01 Appointment and Authorization of Administrative Agent..................................... 58
9.02 Delegation of Duties...................................................................... 59
9.03 Liability of Administrative Agent......................................................... 59
9.04 Reliance by Administrative Agent.......................................................... 59
9.05 Notice of Default......................................................................... 60
9.06 Credit Decision; Disclosure of Information by Administrative Agent........................ 60
9.07 Indemnification of Administrative Agent................................................... 61
9.08 Administrative Agent in Individual Capacity............................................... 61
9.09 Successor Administrative Agent............................................................ 61
SECTION 10. MISCELLANEOUS........................................................................... 62
10.01 Amendments; Consents...................................................................... 62
10.02 Transmission and Effectiveness of Communications and Signatures........................... 63
10.03 Attorney Costs, Expenses and Taxes........................................................ 64
10.04 Binding Effect; Assignment................................................................ 65
10.05 Set off................................................................................... 66
10.06 Sharing of Payments....................................................................... 66
10.07 No Waiver; Cumulative Remedies............................................................ 67
10.08 Usury..................................................................................... 67
10.09 Counterparts.............................................................................. 68
10.10 Integration............................................................................... 68
10.11 Nature of Lenders' Obligations............................................................ 68
10.12 Survival of Representations and Warranties................................................ 68
10.13 Indemnity by Borrowers.................................................................... 68
10.14 Nonliability of Lenders................................................................... 69
10.15 No Third Parties Benefited................................................................ 70
10.16 Severability.............................................................................. 70
10.17 Confidentiality........................................................................... 70
10.18 Further Assurances........................................................................ 71
10.19 Headings.................................................................................. 71
10.20 Time of the Essence....................................................................... 71
10.21 Foreign Lenders........................................................................... 71
10.22 Compelled Return of Payments or Proceeds.................................................. 72
10.23 Governing Law............................................................................. 72
10.24 Waiver of Right to Trial by Jury.......................................................... 73
</TABLE>
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<TABLE>
<S> <C>
10.25 Oral Agreements........................................................................... 73
10.26 Credit Agreement.......................................................................... 73
</TABLE>
<TABLE>
<CAPTION>
EXHIBITS
FORM OF:
<S> <C>
A Request for Extension of Credit
B Compliance Certificate
C Promissory Note
D Master Guaranty
E Instrument of Joinder
F Assignment and Acceptance
G Swing Line Note
</TABLE>
<TABLE>
<CAPTION>
SCHEDULES
<S> <C>
1.01 List of Outstanding Letters of Credit
2.01 Commitments and Pro Rata Shares
4.01(b) Guarantors as of Closing Date
5.08 Certain Proceedings
5.18 Subsidiaries as of Closing Date
5.24 Existing Indebtedness, Liens and Negative Pledges and Note
Purchase Agreement-2003
7.02(e) Indebtedness that may be Prepaid
10.02 Notice Addresses and Lending office
</TABLE>
iv
<PAGE>
CREDIT AGREEMENT
This CREDIT AGREEMENT ("Agreement") is entered into as of March 27,
2003 by and among INSITUFORM TECHNOLOGIES, INC., a Delaware corporation
("Company" or "Borrower"), each lender from time to time party hereto
(collectively, "Lenders" and individually, a "Lender"), and BANK OF AMERICA,
N.A., as Administrative Agent and Issuing Lender.
RECITAL
Lenders and Issuing Lender have agreed to make available a revolving
multicurrency credit facility to Company which Company may from time to time
designate, upon the terms and conditions set forth in this Agreement.
In consideration of the mutual covenants and agreements hereto
contained, the parties hereto covenant and agree as follows:
SECTION 1.
DEFINITIONS AND ACCOUNTING TERMS
1.01 Defined Terms. As used in this Agreement, the following terms
shall have the meanings set forth below:
"Acquiring Person" means a "person" or "group of persons" within the
meaning of Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as
amended.
"Administrative Agent" means Bank of America, N.A., in its capacity as
administrative agent under any of the Loan Documents, or any successor
administrative agent.
"Administrative Agent's Office" means Administrative Agent's address
and, as appropriate, account as set forth on Schedule 10.02, or such other
address or account as Administrative Agent hereafter may designate by written
notice to Company and Lenders.
"Administrative Agent-Related Persons" means Administrative Agent
(including any successor agent), together with its Affiliates (including, in the
case of Bank of America in its capacity as Administrative Agent), and the
officers, directors, employees, agents and attorneys-in-fact of such Persons and
Affiliates.
"Affiliate" means, with respect to any Person (a) any other Person who
is a partner, director or executive officer of such Person; and (b) any other
Person which, directly or indirectly, is in control of, is controlled by or is
under common control with such Person, and any partner, director or executive
officer of such other Person. For purposes of this Agreement, control of a
Person by another Person shall be deemed to exist if such other Person has the
power, directly or indirectly, either to (i) vote twenty percent (20%) or more
of the securities having the power to vote in an election of directors of such
Person, or (ii) direct the management of such Person, whether by contract or
otherwise and whether alone or in combination with others.
"Agreement" means this Credit Agreement, as amended, restated,
extended, supplemented or otherwise modified in writing from time to time.
<PAGE>
"Applicable Amount" means the following amounts per annum, based upon
the Leverage Ratio calculated in accordance with Section 7.15(c) and as set
forth in the most recent Compliance Certificate received by Administrative Agent
pursuant to Section 6.02(c); provided, however, that, until Administrative Agent
receives the Compliance Certificate for the fiscal quarter ending March 31,
2003, such amounts shall be those indicated on the Compliance Certificate for
the fiscal year ending December 31, 2002 (but such pricing level on the basis of
such Certificate shall in no event be lower than 3):
<TABLE>
<CAPTION>
APPLICABLE AMOUNT (IN BASIS POINTS PER ANNUM)
- --------------------------------------------------------------------------------------------------------------------
OFFSHORE
PRICING LEVERAGE COMMITMENT RATE STANDBY LETTERS OF BASE RATE
LEVEL RATIO FEE LOANS CREDIT LOANS
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 <1.00:1 20.00 75.00 75.00 00
- --------------------------------------------------------------------------------------------------------------------
2 <1.50:1 but
> than = to 1.00:1 20.00 100.00 100.00 00
- --------------------------------------------------------------------------------------------------------------------
3 <2.00:1 but
> than = to 1.50:1 25.00 125.00 125.00 00
- --------------------------------------------------------------------------------------------------------------------
4 > than = to 2.00:1 30.00 150.00 150.00 00
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
Offshore Rate Loans and Base Rate Loans shall bear interest at a per
annum rate equal to (a) the Offshore Rate and Base Rate determined in accordance
with Section 2.02 plus (b) the Applicable Amount set forth above opposite the
Leverage Ratio then applicable in accordance with the next sentence (subject to
the provisions of the first sentence of this definition). The Applicable Amount
shall be in effect from the date the most recent Compliance Certificate is
received by Administrative Agent to but excluding the date the next Compliance
Certificate is received; provided, however, that if Company fails to timely
deliver the Compliance Certificate next due, the Applicable Amount from the date
such Compliance Certificate was due to but excluding the date such Compliance
Certificate is received by Administrative Agent shall be that indicated for the
highest pricing level set forth above (i.e., Level 4), and, thereafter, the
pricing level indicated by such Compliance Certificate when received.
"Applicable Payment Date" means, (a) as to any Offshore Rate Loan, the
last day of the relevant Interest Period, any date that such Loan is prepaid or
converted in whole or in part and the Maturity Date; provided, however, that if
any Interest Period for an Offshore Rate Loan exceeds three months, interest
shall also be paid on the date which falls every three months after the
beginning of such Interest Period; and (b) as to any Base Rate Loan and any
other Obligations, the last Business Day of each calendar quarter and the
Maturity Date; provided, further, that interest accruing at the Default Rate
shall be payable from time to time upon demand of Administrative Agent.
"Applicable Time" means St. Louis, Missouri time.
"Assignment and Acceptance" means an Assignment and Acceptance
substantially in the form of Exhibit F.
<PAGE>
"Attorney Costs" means and includes all reasonable fees and
disbursements of any law firm or other external counsel and the reasonable
allocated cost of internal legal services and all disbursements of internal
counsel.
"Bank of America" means Bank of America, N.A.
"Base Rate" means a fluctuating rate per annum equal to the higher of
(a) the Federal Funds Rate plus 1/2 of 1% and (b) the rate of interest in effect
for such day as publicly announced from time to time by Bank of America as its
"prime rate." Such rate is a rate set by Bank of America based upon various
factors including Bank of America's costs and desired return, general economic
conditions and other factors, and is used as a reference point for pricing some
loans, which may be priced at, above, or below such announced rate. Any change
in such rate announced by Bank of America shall take effect at the opening of
business on the day specified in the public announcement of such change.
"Base Rate Loan" means a Loan which bears interest based on the Base
Rate.
"Borrower" means the Company.
"Borrower Party" means Company and each Guarantor.
"Borrowing" and "Borrow" each mean a borrowing of Loans hereunder.
"Borrowing Date" means the date that a Loan is made, which shall be a
Business Day.
"Borrowing" and "Borrow" each mean a borrowing of Loans hereunder.
"Business Day" means any day other than a Saturday, Sunday or other day
on which commercial banks in New York City or the local lending office of
Administrative Agent set forth in Schedule 10.02 are authorized or required by
law to close, and, if the applicable Business Day relates to:
(a) An Obligation denominated in Dollars, any such day on
which dealings are carried on in the applicable offshore Dollar market;
(b) An Obligation denominated in the euro, any such day
which is:
(i) For payments or purchases of the euro, a
TARGET Business Day; and
(ii) For all other purposes, including without
limitation the giving and receiving of notices hereunder, a
TARGET Business Day on which banks are generally open for
business in London and in any other principal financial center
as Administrative Agent may from time to time determine for
this purpose; and
(c) an Obligation denominated in any other Offshore
Currency, a day on which commercial banks are open for foreign exchange
business in London, England, and on which dealings in the relevant
Offshore Currency are carried on in the applicable offshore
<PAGE>
foreign exchange interbank market in which disbursement of or payment
in such Offshore Currency will be made or received hereunder.
A "TARGET Business Day" is a day when TARGET (Trans-European Automated
Real-time Gross settlement Express Transfer system), or any successor thereto,
is scheduled to be open for business.
"Capital Expenditure" means an expenditure for an asset that must be
depreciated or amortized under GAAP, for goodwill, or for any asset that under
GAAP must be treated as a capital asset, including payments under Capital
Leases. An expenditure for purposes of this definition includes any deferred or
seller financed portion of the purchase price of an asset and the original
capitalized amount of a Capital Lease. Capital Expenditure shall exclude
expenditures up to the amount of $10,000,000 made during any consecutive four
(4)-fiscal quarter period by Company or a Domestic Subsidiary for the purchase
of tunneling equipment (including expenditures in the way of progress payments
made to the manufacturer of the item to the extent such payments are
capitalized), provided such item or items of equipment are the subject of a sale
and leaseback transaction which removes the item or items of equipment as an
asset on the consolidated balance sheet of the Company and its Subsidiaries
within twelve (12) months from the later to occur of (a) the date of the
acquisition of such item of equipment and (b) the last expenditure made as a
progress payment to the manufacturer and before the Company or Subsidiary takes
possession of such item.
"Capital Lease" means any lease that has been or should be capitalized
under GAAP.
"Change of Control" means the earliest to occur of: (a) the date a
tender offer or exchange offer results in an Acquiring Person, directly or
indirectly, beneficially owning 50% or more of the Voting Stock of Company then
outstanding, or (b) the date an Acquiring Person becomes, directly or
indirectly, the beneficial owner of 50% or more of the Voting Stock of Company
then outstanding, or (c) the date of a merger or statutory share exchange
between Company and any other Person, a consolidation of Company with any other
Person or an acquisition of any other Person by Company, if immediately after
such event, the Acquiring Person shall hold 50% or more of the Voting Stock of
Company outstanding immediately after giving effect to such merger, statutory
share exchange, consolidation or acquisition, or (d) the replacement (other than
solely by reason of retirement, death or disability) of 50% or more of the
members of the Board of Directors of Company over a one year period from the
directors who constituted such Board of Directors at the beginning of such
period and such replacement shall not have been approved by a vote of at least a
majority of the Board of Directors of Company then still in office who either
were members of such Board of Directors at the beginning of such one year period
or whose election as members of the Board of Directors was previously so
approved.
"Charter Documents" means the articles or certificates of incorporation
and bylaws of a corporation; the certificate of limited partnership and
partnership agreement of a limited partnership; the partnership agreement of a
general partnership; the articles of organization and operating agreement of a
limited liability company; or the indenture of a trust, or comparable documents
for other entities.
"Closing Date" means the date all the conditions precedent in Section
4.01 are satisfied or waived in accordance with Section 4.01.
<PAGE>
"Cobra" means the Consolidated Omnibus Budget Reconciliation Act of
1986, as amended from time to time.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time.
"Commitment" means, for each Lender, the amount set forth opposite such
Lender's name on Schedule 2.01, as such amount may be reduced or adjusted from
time to time in accordance with the terms of this Agreement (collectively, the
"combined Commitments").
"Commonly Controlled Entity" means a Person which is under common
control with another Person within the meaning of Section 414(b) or (c) of the
Code.
"Company" has the meaning set forth in the introductory paragraph
hereto.
"Compliance Certificate" means a certificate in the form of Exhibit B,
properly completed and signed by a Responsible Officer of Company.
"Consolidated EBITDA" means, for the period of four fiscal quarters
ending on any date of determination for Company and its Subsidiaries on a
consolidated basis, an amount equal to the sum of (a) Consolidated Net Income
From Continuing Operations, (b) Consolidated Interest Expenses, (c) the amount
of taxes, based on or measured by income, used or included in the determination
of such Consolidated Net Income From Continuing Operations, (d) the amount of
depreciation and amortization expense deducted in determining such Consolidated
Net Income From Continuing Operations, (e) losses on the sale or other
disposition of assets other than in the ordinary course of business if included
in the calculation of Consolidated Net Income From Continuing Operations, (f)
non-recurring expenses if included in the calculation of Consolidated Net Income
From Continuing Operations, minus (g) gains on the sale or other disposition of
assets other than in the ordinary course of business if included in the
calculation of Consolidated Net Income From Continuing Operations, (h) gains on
the sale or other disposition of assets in the ordinary course of business if
included in the calculation of Consolidated Net Income from Continuing
Operations to the extent such gains exceed $2,000,000 in any consecutive four
(4)-fiscal quarter period, and (i) non-recurring income if included in the
calculation of Consolidated Net Income From Continuing Operations, all as
accrued in such period. Administrative Agent reserves the right from time to
time to disallow the inclusion of specific items of non-recurring expenses and
non-recurring income in (f) and (i) above.
"Consolidated Fixed Charges" for any period means on a consolidated
basis (in each case, eliminating all offsetting debits and credits between
Company and its Subsidiaries and all other items to be eliminated in the course
of the preparation of consolidated financial statements of Company and its
Subsidiaries in accordance with GAAP), without duplication, the sum of (a) all
Rentals (other than Rentals on Capital Leases) payable during such period by
Company and its Subsidiaries, (b) all Consolidated Interest Expenses, (c) all
scheduled payments of principal of Consolidated Funded Indebtedness (excluding
the payment on the Closing Date of (i) the principal outstanding under the
Multicurrency Credit Agreement referenced in Section 10.26 hereof, and (ii) of
the Loans at the Maturity Date and including the principal component due on
Capital Leases), it being understood that scheduled payments of principal of
Consolidated Funded Indebtedness shall not include voluntary prepayments or
mandatory prepayments required pursuant to Section 2.04, and (d) any cash
dividends paid.
<PAGE>
"Consolidated Funded Indebtedness" means, as of any date of
determination, without duplication, for Company and its Subsidiaries on a
consolidated basis, the sum of (a) the outstanding principal amount of all
obligations and liabilities, whether current or long-term, for borrowed money
(including the principal amount of Indebtedness hereunder), (b) liabilities in
respect of standby letters of credit and letters of credit or instruments
serving a similar function issued or accepted for its account by banks,
insurance companies and financial institutions supporting obligations owing to
unrelated third parties (valued (i) in the case of letters of credit supporting
financial obligations, at the face amount of such letters of credit and (ii) in
the case of other letters of credit, at the amount drawn on such letters of
credit at such time and not reimbursed), (c) that unamortized portion of
obligations with respect to Capital Leases that are capitalized in the
consolidated balance sheet of Company and its Subsidiaries, and (d) all
Restricted Guaranty Obligations with respect to Indebtedness of the type
specified in subsections (a) and (c) above of Persons other than Company or any
Subsidiary.
"Consolidated Interest Expenses" means, for any period, without
duplication, for Company and its Subsidiaries on a consolidated basis, the sum
of all (a) interest (including capitalized interest and the interest component
on Rentals on Capital Leases) and all amortization of debt discount and expense
on any particular Indebtedness (including payment-in-kind, zero coupon and other
like securities) for which such calculations are being made, (b) expenses, fees
and commissions for letters of credit and bankers' acceptances and (c) the net
interest cost of Swaps.
"Consolidated Net Income" means, for any period, for Company and its
Subsidiaries on a consolidated basis, the net income of Company and its
Subsidiaries.
"Consolidated Net Income From Continuing Operations" means, for any
period, for Company and its Subsidiaries on a consolidated basis, the net income
of Company and its Subsidiaries from their respective continuing operations.
"Consolidated Tangible Net Worth" means, as of any date of
determination, without duplication, and on a consolidated basis for the Company
and its Subsidiaries, the value of total assets (including leaseholds and
leasehold improvements and reserves against assets but excluding goodwill,
patents, trademarks, trade names, unamortized debt discount and expense,
capitalized or deferred research and development costs, deferred marketing
expenses, and other like intangibles), less total liabilities, including but not
limited to accrued and deferred income taxes, all determined in accordance with
GAAP.
"Consolidated Total Assets" means, as of any date of determination,
without duplication, total assets of the Company and its Subsidiaries determined
on a consolidated basis.
"Consolidated Total Indebtedness" means, as of any date of
determination, without duplication, all Indebtedness of Company and its
Subsidiaries after eliminating all offsetting debits and credits between Company
and its Subsidiaries and all other items to be eliminated in the course of the
preparation of consolidated financial statements of Company and its Subsidiaries
in accordance with GAAP.
"Continuation" and "Continue" mean, with respect to any Offshore Rate
Loan, the continuation of such Offshore Rate Loan as an Offshore Rate Loan on
the last day of the Interest Period for such Loan.
<PAGE>
"Contract" means any contract, note, bond, indenture, deed, mortgage,
deed of trust, security agreement, pledge, hypothecation agreement, assignment,
or other agreements or undertaking, or any security.
"Conversion" and "Convert" means, with respect to any Loan, the
conversion of such Loan from or into another type of Loan.
"Covered Person" means Company and each of its presently existing or
future acquired, organized or created Subsidiaries separately. The words
"Covered Persons" refer to the Company and its presently existing or future
acquired, organized or created Subsidiaries collectively.
"Currency Calculation Date" means, with respect to any (a) Borrowing,
Conversion, Continuation or payment of Offshore Currency Loans, the date of such
Borrowing, Conversion, Continuation, or payment, as applicable, and (b)
outstanding Offshore Currency Loans, any Applicable Payment Date relevant
thereto, the last Business Day of each month or any additional and more frequent
dates as Administrative Agent may, in its sole discretion or at the direction of
the Requisite Lenders, select from time to time.
"Debtor Relief Laws" means the Bankruptcy Code of the United States of
America, and all other liquidation, conservatorship, bankruptcy, assignment for
the benefit of creditors, moratorium, rearrangement, receivership, insolvency,
reorganization, or similar debtor relief Laws of the United States of America or
other applicable jurisdictions from time to time in effect affecting the rights
of creditors generally.
"Default" means any of the events listed in Section 8.01, without
giving effect to any requirement for the giving of notice, for the lapse of
time, or both, or for the happening of any other condition, event or act.
"Default Rate" means an interest rate equal to the Base Rate plus 2%
per annum; provided, however, that with respect to Offshore Rate Loans, the
Default Rate shall be an interest rate equal to the interest rate (including any
Applicable Amount) otherwise applicable to such Offshore Rate Loans plus 2% per
annum, in each case to the fullest extent permitted by applicable Laws.
"Designated Deposit Account" means a deposit account maintained by
Company with Bank of America, as from time to time designated by Company to
Administrative Agent by Requisite Notice.
"DOL" means the United States Department of Labor.
"Dollar" and $ means lawful money of the United States of America.
"Domestic Subsidiary" means any Subsidiary of Company organized under
the laws of the United States or a state of the United States existing on the
Closing Date or created or acquired after the Closing Date.
"Eligible Assignee" means (a) a financial institution organized under
the laws of the United States, or any state thereof, and having a combined
capital and surplus of at least $100,000,000; (b) a commercial bank organized
under the laws of any other country which is a member of the Organization for
Economic Cooperation and Development, or a political subdivision of any such
<PAGE>
country, and having a combined capital and surplus of at least $100,000,000,
provided that such bank is acting through a branch or agency located in the
United States; (c) a Person that is primarily engaged in the business of
commercial banking and that is (i) a Subsidiary of a Lender; (ii) a Subsidiary
of a Person of which a Lender is a Subsidiary, or (iii) a Person of which a
Lender is a Subsidiary; (d) another Lender; (e) any other entity which is an
"accredited investor" (as defined in Regulation D under the Securities Act of
1933, as amended) which extends credit or buys loans as one of its businesses,
including but not limited to, insurance companies, mutual funds and lease
financing companies; or (f) other lenders or institutional investors consented
to in writing in advance by Administrative Agent and Company. No Borrower Party
or any Affiliate of a Borrower Party shall be an Eligible Assignee.
"EMU Legislation" means (a) the Treaty on European Union (the Treaty of
Rome of March 25, 1957, as amended by the Single European Act of 1986 and the
Maastricht Treaty (which was signed at Maastricht on February 1, 1992 and came
into force on November 1, 1993)), and (b) legislative measures of the European
Council (including without limitation European Council regulations) for the
introduction of, changeover to or operation of the euro, in each case as amended
or supplemented from time to time.
"Environmental Law" means the Resource Conservation and Recovery Act,
the Comprehensive Environmental Response, Compensation and Liability Act, the
Clean Water Act, the Clear Air Act, or any other Law pertaining to environmental
quality or remediation of Hazardous Material.
"Equivalent Amount" means, as of any Currency Calculation Date, the
amount determined by reference to the following table:
<TABLE>
<CAPTION>
IF THE NOTIONAL
AMOUNT IS THE EQUIVALENT AMOUNT IN DOLLARS THE EQUIVALENT AMOUNT IN
DENOMINATED IN: IS: ANOTHER OFFSHORE CURRENCY IS:
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
Dollars Such amount The amount of such Offshore
Currency that can be purchased with
Dollars at the Spot Rate for delivery
on Currency Calculation Date
- --------------------------------------------------------------------------------------------------------
An Offshore The amount of Dollars that can be Such amount
Currency purchased with such Offshore
Currency at the Spot Rate for delivery
on Currency Calculation Date
</TABLE>
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time.
"ERISA Affiliate" means as to any Person, any trade or business
(irrespective of whether incorporated) which is a member of a group of which
such Person is a member and thereafter treated as a single employer under
Section 414(b), (c), (m) or (o) of the Code or applicable Treasury Regulations.
<PAGE>
"euro" means the single currency of Participating Member States.
"Eurodollar Reserve Percentage" means, for any day during any Interest
Period, the reserve percentage (expressed as a decimal, rounded upward to the
next 1/100th of 1%) in effect on such day, whether or not applicable to any
Lender, under regulations issued from time to time by the Board of Governors of
the Federal Reserve System for determining the maximum reserve requirement
(including any emergency, supplemental or other marginal reserve requirement)
with respect to Eurocurrency funding (currently referred to as "Eurocurrency
liabilities"). The Offshore Rate for each outstanding Offshore Rate Loan shall
be adjusted automatically as of the effective date of any change in the
Eurodollar Reserve Percentage.
The determination of the Eurodollar Reserve Percentage and the Offshore
Base Rate by Administrative Agent in good faith shall be conclusive in the
absence of manifest error.
"Event of Default" means any of the events listed in Section 8.01 as to
which any requirement for the giving of notice, for the lapse of time, or both,
or for the happening of any further condition, event or act has been satisfied.
"Existing Credit Facility" means that certain Loan Agreement dated as
of March 30, 2000, as amended, between Company and Bank of America.
"Extension of Credit" means (a) the Borrowing, Conversion or
Continuation of any Loans, or (b) a Letter of Credit Action wherein a new Letter
of Credit is issued or which has the effect of increasing the amount of,
extending the maturity of, or making a material modification to an outstanding
Letter of Credit or the reimbursement of drawings thereunder (collectively the
"Extension of Credit").
"Federal Funds Rate" means, for any day, the rate per annum (rounded
upwards to the nearest 1/100 of 1%) equal to the weighted average of the rates
on overnight Federal funds transactions with members of the Federal Reserve
System arranged by Federal funds brokers on such day, as published by the
Federal Reserve Bank on the Business Day next succeeding such day; provided that
(a) if such day is not a Business Day, the Federal Funds Rate for such day shall
be such rate on such transactions on the next preceding Business Day as so
published on the next succeeding Business Day, and (b) if no such rate is so
published on such next succeeding Business Day, the Federal Funds Rate for such
day shall be the average rate charged to Bank of America on such day on such
transactions as determined by Administrative Agent.
"Fee Letter" means the letter agreement of even date with this
Agreement between Company and Administrative Agent.
"Final Payment" means payment in full of the Loans, all unpaid interest
accrued thereon and all commitments fees, accompanied by the cancellation or
termination of all Commitments and expiration of all undrawn outstanding Letters
of Credit for which Company has not provided a back-to-back letter of credit in
favor of Issuing Lender in form and substance reasonably satisfactory to Issuing
Lender covering all Letter of Credit Usage with respect thereto issued by a
financial institution (a) whose long-term senior unsecured indebtedness is rated
at least A by Standard & Poor's Rating Services, a division of the The
McGraw-Hill Companies, Inc., at least A2 by Moody's
<PAGE>
Investors Service, Inc., or an equivalent rating by any other credit rating
agency of recognized national standing, and (b) which would qualify as an
Eligible Assignee.
"Financial Statements" means the most recent of the Initial Financial
Statements and the financial statements of the Company that are furnished to
Administrative Agent as required in Section 6.01; provided, however, that for
purposes of calculating any amount or financial ratio hereunder as of a date or
for a period not entirely covered by the most recent and prior such financial
statements furnished to Administrative Agent, the term "Financial Statements"
shall be deemed to include the financial statements of the Company that cover
such periods as have been filed by the Company with the Securities and Exchange
Commission.
"FRB" means the Board of Governors of the Federal Reserve System and
any successor thereto or to the functions thereof.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board and the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or such other principles as may be
approved by a significant segment of the accounting profession, that are
applicable to the circumstances as of the date of determination, consistently
applied. If at any time any change in GAAP would affect the computation of any
financial ratio or requirement set forth in any Loan Document, and either
Company or Requisite Lenders shall so request, Administrative Agent, Lenders and
Company shall negotiate in good faith to amend such ratio or requirement to
preserve the original intent thereof in light of such change in GAAP (subject to
the approval of Requisite Lenders), provided that, until so amended, (a) such
ratio or requirement shall continue to be computed in accordance with GAAP prior
to such change therein and (b) Company shall provide to Administrative Agent and
Lenders financial statements and other documents required under this Agreement
or as reasonably requested hereunder setting forth a reconciliation between
calculations of such ratio or requirement made before and after giving effect to
such change in GAAP.
"Governmental Authority" means the federal government of the United
States; the government of any foreign country that is recognized by the United
States or is a member of the United Nations; any state of the United States; any
local government or municipality within the territory or under the jurisdiction
of any of the foregoing; any department, agency, division, or instrumentality of
any of the foregoing; and any court, arbitrator, or board of arbitrators whose
orders or judgments are enforceable by or within the territory of any of the
foregoing.
"Guarantor" means each Domestic Subsidiary of Company, except
Mississippi Textiles Corporation and Insituform (Netherlands) B.V., Inc., and
any other Person executing a Guaranty of the Obligations (collectively, the
"Guarantors").
"Guaranty" means, with respect to any Person, without duplication, any
obligation (except the endorsement in the ordinary course of business of
negotiable instruments for deposit or collection) of such Person guaranteeing or
in effect guaranteeing (including, without limitation, having recourse
obligations for the Guaranties of another Person) any indebtedness, dividend or
other obligation of any other Person in any manner, whether directly or
indirectly, including (without limitation) obligations incurred through an
agreement, contingent or otherwise, by such Person:
<PAGE>
(a) to purchase such Indebtedness or obligation or any
property constituting security therefor;
(b) to advance or supply funds (i) for the purchase or
payment of such indebtedness or obligation, or (ii) to maintain any
working capital or other balance sheet condition or any income
statement condition of any other Person or otherwise to advance or make
available funds for the purchase or payment of such Indebtedness or
obligation;
(c) to lease properties or to purchase properties or
services primarily for the purpose of assuring the owner of such
Indebtedness or obligation of the ability of any other Person to make
payment of the Indebtedness or obligation; or
(d) otherwise to assure the owner of such Indebtedness or
obligation against loss in respect thereof.
In any computation of the Indebtedness or other liabilities of the obligor under
any Guaranty, the Indebtedness or other obligations that are the subject of such
Guaranty shall be assumed to be direct obligations of such obligor.
"Guaranty Obligation" means as to any Person, (a) any guaranty by such
Person of any obligation of another Person; (b) any Security Interest in any
property of such Person that secures any obligation of another Person; (c) any
enforceable contractual requirement that such Person (i) purchase an obligation
of another Person or any property that is security for such obligation, (ii)
advance or contribute funds to another Person for the payment of an obligation
of such other Person or to maintain the working capital, net worth or solvency
of such other Person as required in any documents evidencing an obligation of
such other Person, (iii) purchase property, securities or services from another
Person for the purpose of assuring the beneficiary of any obligation of such
other Person that such other Person has the ability to timely pay or discharge
such obligation, (iv) grant a Security Interest in any property of such Person
to secure any obligation of another person, or (v) otherwise assure or hold
harmless the beneficiary of any obligation of another Person against loss in
respect thereof; and (d) any other contractual requirement enforceable against
such Person that has the same substantive effect as any of the foregoing. The
term "Guaranty Obligation" does not, however, include the endorsement by a
Person of instruments for deposit or collection in the ordinary course of
business or the liability of a general partner or a partnership for obligations
of such partnership. The amount of any Guaranty Obligation of a Person shall be
deemed to be the stated or determinable amount of the obligation in respect of
which such Guaranty Obligation is made or, if not stated or determinable, the
maximum reasonably anticipated liability in respect thereof as determined by
such Person in good faith.
"Hazardous Material" means any hazardous, radioactive, toxic, solid or
special waste, material substance or constituent thereof, or any other such
substance (as defined under any applicable law or regulation), including
Asbestos or asbestos containing hazardous constituents which are not considered
to be waste under the applicable Environmental Law or which are considered to be
waste but are transported, handled or disposed of in accordance with the
applicable Environmental Law or which are considered to be waste but are
transported, handled or disposed or in accordance with the applicable
Environmental Law, or asbestos or asbestos containing material which is not
friable.
<PAGE>
"Indebtedness" means, with respect to any Person, at any time, without
duplication;
(a) its liabilities for borrowed money and its redemption
obligations in respect of mandatorily redeemable Preferred Stock;
(b) its liabilities for the deferred purchase price of
property acquired by such Person (excluding accounts payable arising in
the ordinary course of business but including all liabilities created
or arising under any conditional sale or other title retention
agreement with respect to any such property);
(c) all liabilities appearing on its balance sheet in
accordance with GAAP in respect of all Capital Leases;
(d) all liabilities for borrowed money secured by any
other Lien with respect to any property owned by such Person (whether
or not it has assumed or otherwise become liable for such liabilities);
(e) all its liabilities in respect of letter of credit or
instruments serving a similar function issued or accepted for its
account by banks and other financial institutions valued (i) in the
case of letters of credit supporting obligations for borrowed money, at
the face amount of such letters of credit and (ii) in the case of other
letters of credit, at the amount drawn on such letters of credit at
such time and not reimbursed;
(f) obligations of such Person under Swaps; and
(g) any Guaranty of such Person with respect to
liabilities of a type described in any clauses (a) through (f) hereof.
Indebtedness of any Person shall include all obligations of such Person
of the character described in clauses (a) through (g) to the extent such Person
remains legally liable in respect thereof notwithstanding that any such
obligation is deemed to be extinguished under GAAP, but shall not include
Unfunded Pension Liabilities of any Plan of Company and its Subsidiaries.
"Indemnified Liabilities" has the meaning set forth in Section 9.12.
"Indemnitees" has the meaning set forth in Section 9.12.
"Initial Financial Statements" means the financial statements of
Company referred to in Section 5.11.
"Instrument of Joinder" means the Instrument of Joinder substantially
in the form of Exhibit E executed and delivered by any Subsidiary of Borrower,
as contemplated by Section 4.03 and any amendments or supplements thereto.
"Intercreditor Agreement" means that certain Amended and Restated
Intercreditor Agreement dated as of March 30, 2000, by and among Bank of America
and the other lenders party thereto, as further amended, supplemented or
otherwise modified from time to time.
<PAGE>
"Interest Period" means for each Offshore Rate Loan, (a) initially, the
period commencing on the date such Offshore Rate Loan is disbursed or Continued
or Converted into such Offshore Rate Loan and (b) thereafter, the period
commencing on the last day of the preceding Interest Period, and ending, in each
case, on the earlier of (i) the scheduled Maturity Date, (ii) one, two, three or
six months as requested by a Borrower; provided that:
(x) any Interest Period that would otherwise end on a day
that is not a Business Day shall be extended to the next succeeding
Business Day unless such Business Day falls in another calendar month,
in which case such Interest Period shall end on the next preceding
Business Day;
(y) any Interest Period which begins on the last Business
Day of a calendar month (or on a day for which there is no numerically
corresponding day in the calendar month at the end of such Interest
Period) shall end on the last Business Day of the calendar month at the
end of such Interest Period; and
(z) unless Administrative Agent otherwise consents, there
may not be more than four (4) Interest Periods for Offshore Rate Loans
in effect at any time.
"Investments" means, without duplication, all investments, in cash or
by delivery of property, made directly or indirectly in any property or assets
or in any Person, whether by acquisition of shares of capital stock,
Indebtedness or other obligations or securities or by loan, advance, capital
contribution or otherwise.
"IRS" means the United States Internal Revenue Service.
"Issuing Lender" means Bank of America, or any successor issuing lender
hereunder.
"Laws" or "Law" means all international, foreign, federal, state and
local statutes, treaties, rules, guidelines, regulations, ordinances, codes and
administrative or judicial precedents or authorities, including the
interpretation or administration thereof by any Governmental Authority charged
with the enforcement, interpretation or administration thereof, and all
applicable administrative orders, directed duties, requests, licenses,
authorization and permits of, and agreements with, any Governmental Authority,
in each case whether or not having the force of law.
"Lender" means each lender from time to time party hereto and, as the
context requires, Issuing Lender.
"Lending Office" means, as to any Lender, the office or offices of such
Lender described as such on Schedule 10.02, or such other office or offices as a
Lender may from time to time notify Administrative Agent.
"Letter of Credit" means any letter of credit issued or outstanding
hereunder, including, without limitation, the Letters of Credit outstanding on
the Closing Date and listed on Schedule 1.01 hereto. A Letter of Credit may be a
commercial letter of credit or a standby letter of credit.
<PAGE>
"Letter of Credit Action" means the issuance, supplement, amendment,
renewal, extension modification or other action relating to a Letter of Credit
hereunder.
"Letter of Credit Application" means an application for a Letter of
Credit Action from time to time in general use by Issuing Lender.
"Letter of Credit Cash Collateral Account" means a blocked deposit
account at Bank of America in which Borrower shall grant a security interest to
Issuing Lender as security for Letter of Credit Usage by Borrower and with
respect to which Borrower agrees to execute and deliver from time to time, on
the date hereafter required, such documentation as Administrative Agent or
Issuing Lender may reasonably request to further assure and confirm such
security interest.
"Letter of Credit Sublimit" means an amount equal to the lesser of the
Commitment and $30,000,000. The Letter of Credit Sublimit is part of, and not in
addition to, the Commitment.
"Letter of Credit Usage" means, as at any date of determination, the
aggregate undrawn face amount of outstanding Letters of Credit plus the
aggregate amount of all drawings under the Letters of Credit not reimbursed by
Borrower or converted into Loans.
"Leverage Ratio" means, as of the end of any fiscal quarter, for
Company and its Subsidiaries on a consolidated basis, the ratio of (a)
Consolidated Funded Indebtedness as of such date to (b) Consolidated EBITDA for
the period of the four fiscal quarters ending on such date.
"Lien" means any mortgage, pledge, hypothecation, assignment, deposit
arrangement (in the nature of compensating balances, cash collateral accounts or
security interests), encumbrance, lien (statutory or other), charge, or
preference, priority or other security interests or preferential arrangement of
any kind or nature whatsoever (including any conditional sale or other title
retention agreement, any financing lease having substantially the same economic
effect as any of the foregoing, and the filing of any financing statement under
the Uniform Commercial Code or comparable Laws of any jurisdiction), including
the interest of a purchaser of accounts receivable.
"Loan" means any advance made as provided in Section 2.01
(collectively, the Loans").
"Loan Documents" means this Agreement, any Compliance Certificate, the
Master Guaranty, the Intercreditor Agreement, any Letter of Credit Application,
any Request for Extension of Credit and any Note, certificate, any fee letter,
and other instrument, document or agreement from time to time delivered in
connection with this Agreement.
"Master Guaranty" means the continuing guaranty of the Obligations to
be executed and delivered by the Guarantors, substantially in the form of
Exhibit D, and any amendments or supplements thereto.
"Material Adverse Effect" means with respect to any event or occurrence
of whatever nature (including any adverse determination in any litigation,
arbitration, investigation or proceeding), a material adverse effect on the
business, operations, revenues, financial condition or property of Company and
its Subsidiaries taken as a whole, without reference to the ability of Company
to timely pay or perform Company's obligations generally, or the ability of
Company to pay or perform any of the Obligations.
<PAGE>
"Material Agreement" means as to any Person, any Contract to which such
Person is a part or by which such Person is bound which, if violated or
breached, would have a Material Adverse Effect.
"Material Law" means any Law whose violation by a Person would have a
Material Adverse Effect.
"Material License" means (a) as to any Person, any license, permit or
consent from a Governmental Authority or other Person and any registration and
filing with a Governmental Authority or other Person which if not obtained, held
or made would have a Material Adverse effect, and (b) as to any Person who is a
party to this Agreement or any of the other Loan Documents, any license, permit
or consent from a Governmental Authority or other Person and any registration or
filing with a Governmental Authority or other Person that is necessary for the
execution or performance by such party, or the validity or enforceability
against such party, of this Agreement or such other Loan Document.
"Material Obligation" means as to any Person, an obligation of such
Person which if not fully and timely paid or performed would have a Material
Adverse Effect.
"Material Proceeding" means any litigation, investigation or other
proceeding by or before any Governmental Authority (a) which involves any of the
Loan Documents or any of the transactions contemplated thereby, or involves a
Covered Person as a party or any property of Covered Person, and its reasonably
likely to have a Material Adverse Effect, or (b) in which there has been issued
an injunction, writ, temporary restraining order or any other order of any
nature which purports to restrain or enjoin the making of any Loan, the
consummation of any other transaction contemplated by the Loan Documents, or the
enforceability of any provision of any of the Loan Documents.
"Maturity Date" means (a) March 31, 2006 or (b) such earlier date upon
which the Commitment may be terminated in accordance with the terms of this
Agreement.
"Minimum Amount" means, with respect to each of the following actions,
the minimum amount and any multiples in excess thereof set forth opposite such
action:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
MULTIPLES IN EXCESS
TYPE OF ACTION MINIMUM AMOUNT THEREOF
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Borrowing or prepayment of,
or Conversion into, Base Rate
Loans $ 500,000 $ 50,000
- -------------------------------------------------------------------------------------------
Borrowing, prepayment or
Continuation of, or Conversion
into, Dollar-denominated
Offshore Rate Loans $ 1,000,000 $ 100,000
- -------------------------------------------------------------------------------------------
Borrowing, prepayment or
Continuation of, or Conversion Equivalent Amount Equivalent Amount
into, Offshore Currency Loans of $1,000,000 of $100,000
</TABLE>
<PAGE>
<TABLE>
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Letter of Credit Action None None
- -------------------------------------------------------------------------------------------
Reduction in Commitment $ 1,000,000 $ 500,000
</TABLE>
"Minority Interests" means, without duplication, any shares of stock of
any class of a Subsidiary (other than directors' qualifying shares as required
by law) that are not owned by Company and/or one or more of its Subsidiaries.
Minority Interests shall be valued by valuing Minority Interests constituting
preferred stock at the voluntary or involuntary liquidating value of such
preferred stock, whichever is greater, and by valuing Minority Interests
constituting common stock at the book value of common stock, additional paid-in
capital and retained earnings applicable thereto adjusted, if necessary, to
reflect any changes from the book value of such common stock required by the
foregoing method of valuing Minority Interests in preferred stock.
"Multi-Employer Plan" means a Pension Benefit Plan which is a
multi-employer plan as defined in Section 4001(a)(3) of ERISA.
"Note" means a promissory note made by Borrower in favor of a Lender
evidencing Loans made by such Lender, substantially in the form of Exhibit C,
and a Swing Line Note.
"Note Purchase Agreement-1997" means the Note Purchase Agreement dated
as of February 14, 1997, as amended to and including the Closing Date, among
Company and other parties signatory thereto under which Company issued certain
7.88% Senior Notes, Series A, due February 14, 2007, of $110,000,000 aggregate
principal amount; provided, however, that, except with respect to Section
8.01(f) of this Agreement ( which is a cross default to other Indebtedness,
including the Note Purchase Agreement-1997 as in effect from time to time),
after the Closing Date no amendments to, or waivers of, the terms, conditions
and definitions of the Note Purchase Agreement-1997 referred to or incorporated
by reference herein shall be deemed to amend or waive such terms, conditions and
definitions for purposes of this Agreement unless Requisite Lenders separately
agree or consent thereto hereunder. The terms, conditions and definitions
referred to or incorporated by reference herein will survive termination,
restatement or cancellation of the Note Purchase Agreement-1997 for purposes of
this Agreement (other than Section 8.01(f)).
"Note Purchase Agreement-2003" means the Note Purchase Agreement to be
entered into among Company and other parties signatory thereto under which
Company will issue notes conforming to the parameters described in Section
10.01(b) and consistent with the description set forth on Schedule 5.24;
provided, however, that, except with respect to Section 8.01(f) of this
Agreement (which is a cross default to other Indebtedness, including the Note
Purchase Agreement-2003 as in effect from time to time), after the Closing Date
no amendments to, or waivers of, the terms, conditions and definitions of the
Note Purchase Agreement-2003 referred to or incorporated by reference herein
shall deemed to amend or waive such terms, conditions and definitions for
purposes of this Agreement unless Requisite Lenders separately agree or consent
thereto hereunder. The terms, conditions and definitions referred to or
incorporated by reference herein will survive termination, restatement or
cancellation of the Note Purchase Agreement for purposes of this Agreement
(other than Section 8.01(f)).
"Obligations" means all advances to, and debts, liabilities
(contractual or tortious), obligations, covenants and duties of, any Borrower
Party arising under any Loan Document and Swaps entered into with a Lender,
whether direct or indirect (including those acquired by
<PAGE>
assumption), absolute or contingent, due or to become due, now existing or
hereafter arising and including interest that accrues after the commencement of
any proceeding under any Debtor Relief Laws by or against any Borrower Party or
any Subsidiary or Affiliate of any Borrower Party.
"Offshore Currency" means British Pounds Sterling, the euro, and any
additional currency permitted in accordance with Section 2.02(f).
"Offshore Currency Loan" means any Offshore Rate Loan denominated in an
Offshore Currency.
"Offshore Base Rate" has the meaning set forth in the definition of
Offshore Rate.
"Offshore Rate" means, for any Interest Period, with respect to
Offshore Rate Loans comprising part of the same Borrowing, the per annum rate of
interest (rounded upward to the next 1/100th of 1%) determined in good faith by
Administrative Agent as follows:
Offshore Base Rate
Offshore Rate = ------------------------------------------- } as defined below.
1.00 - Eurodollar Reserve Percentage
Where,
"Offshore Base Rate" means, for such Interest Period:
(a) the rate per annum equal to the rate determined by
Administrative Agent to be the offered rate that appears on the page of
the Telerate Screen that displays an average British Bankers
Association Interest Settlement Rate for deposits in the applicable
currency (for delivery on the first day of such Interest Period) with a
term equivalent to such Interest Period, determined as of approximately
11:00 a.m. (London time) two Business Days prior to the first day of
such Interest Period, or
(b) in the event the rate referenced in the preceding
subsection (a) does not appear on such page or service or such page or
service shall cease to be available, the rate per annum equal to the
rate determined in good faith by Administrative Agent to be the offered
rate on such other page or other service that displays an average
British Bankers Association Interest Settlement Rate for deposits in
the applicable currency (for delivery on the first day of such Interest
Period) with a term equivalent to such Interest Period, determined as
of approximately 11:00 a.m. (London time) two Business Days prior to
the first day of such Interest Period, or
(c) in the event the rates referenced in the preceding
subsections (a) and (b) are not available, the rate per annum
determined in good faith by Administrative Agent as the rate of
interest at which deposits in the applicable currency (for delivery on
the first day of such Interest Period) in same day funds in the
approximate amount of the applicable Offshore Rate Loans and with a
term equivalent to such Interest Period would be offered by Bank of
America's London Branch to major banks in the offshore Dollar market at
their request at approximately 11:00 a.m. (London time) two Business
Days prior to the first day of such Interest Period.
<PAGE>
"Offshore Rate Loan" means a Loan bearing interest based on the
Offshore Rate, which may be denominated in U.S. Dollars or an Offshore Currency.
Offshore Rate Loans include Offshore Currency Loans.
"Operating Lease" means, as applied to any Person, any lease
(including, without limitation, leases which may be terminated by the lessee at
any time) of any property (whether real, personal or mixed) which is not a
Capital Lease other than any such lease in which that Person is the lessor.
"Outstanding Obligations" means, as of any date, and giving effect to
making any Extensions of Credit requested on such date and all payments,
repayments and prepayments made on such date, the sum of (a) the aggregate
outstanding principal amount of all Loans (including Swing Line Loans), and (b)
all Letter of Credit Usage.
"Overnight Rate" means, for any day, (a) with respect to payments in
Dollars, the Federal Funds Rate and (b) with respect to payments in Offshore
Currencies, the rate of interest per annum at which overnight deposits in the
applicable Offshore Currency, in an amount approximately equal to the amount
with respect to which such rate is being determined, would be offered for such
day by Bank of America's principal office in London to major banks in the London
or other applicable offshore interbank market.
"Participating Member State" means each country which from time to time
becomes a Participating Member State as described in EMU Legislation.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Pension Benefit Plan" means any pension or profit-sharing plan which
is covered by Title I of ERISA and in respect of which a Person or a Commonly
Controlled Entity of such Person is an "employer" as defined in Section 3(5) of
ERISA.
"Permitted Acquisition" means any acquisition of stock or other equity
interest in a Person, or of all or a material part of the assets of a Person,
with respect to which all of the following requirements have been satisfied:
(a) the Person is engaged in a line of business
substantially the same as any line of business conducted by Company or
any of its Subsidiaries on the Closing Date or reasonably related, or
ancillary or complementary, thereto or in furtherance thereof
(including, without limitation, any business providing materials or
services to Company or any of its Subsidiaries or any business to which
Company or any of its Subsidiaries furnishes materials or services);
(b) the acquisition is not hostile from the point of view
of such Person;
(c) no Default or Event of Default is (unless waived)
continuing;
(d) no Default or Event of Default will occur or is
reasonably likely to occur as a consequence of the acquisition;
(e) the acquisition will not involve cash consideration
in excess of $50,000,000;
<PAGE>
(f) upon giving effect to the acquisition, (i) the pro
forma Leverage Ratio is less than 2:1, and (ii) the pro forma sum of
(A) cash and cash equivalents, plus (B) the amount of availability to
Borrower for advances of Loans, is not less than $15,000,000;
(g) the total aggregate consideration (including cash,
stock and other non-cash considerations, and assumption of
Indebtedness) paid by Company and its Subsidiaries for all acquisitions
during any consecutive four (4)-fiscal quarter period does not exceed
$50,000,000; and
(h) the total aggregate consideration (including cash,
stock and other non-cash considerations, and assumption of
Indebtedness) paid by Company and its Subsidiaries for all acquisitions
from the Closing Date to the date of determination does not exceed
$150,000,000.
"Permitted Indebtedness" means:
(a) Obligations;
(b) Indebtedness existing as of the date of the Agreement
(but not renewals or extensions thereof) all as listed on Schedule
5.24, and the Note Purchase Agreement-2003;
(c) unsecured trade accounts payable and other normal
accruals incurred in the ordinary course of business and which are not
more than 120 days past due;
(d) Rentals under Capital Leases to the extent such
Rentals in the aggregate are less than $1,000,000 in any consecutive
four (4)-fiscal quarter period;
(e) other Indebtedness not otherwise permitted herein in
an amount not to exceed $8,000,000 in the aggregate at any one time
outstanding; and
(f) advances between Subsidiaries and Company and between
and among Subsidiaries to the extent not prohibited by Section 7.16.
"Person" means any individual, trustee, corporation, general
partnership, limited partnership, limited liability company, joint stock
company, trust, unincorporated organization, bank, business association, firm,
joint venture, Governmental Authority, or otherwise.
"Plan" means any employee benefit plan maintained or contributed to by
a Borrower Party or by any trade or business (whether or not incorporated) under
common control with a Borrower Party as defined in Section 4001(b) of ERISA and
insured by the Pension Benefit Guaranty Corporation under Title IV of ERISA.
"Preferred Stock" means any class of capital stock of a corporation
that is preferred over any other class of capital stock of such corporation as
to the payment of dividends or the payment of any amount upon liquidation or
dissolution of such corporation.
"Regulation D," "Regulation U" and "Regulation X" means, respectively,
Regulation D, Regulation U and Regulation X issued by the FRB.
<PAGE>
"Rentals" means and includes, as of any date of determination, without
duplication, all fixed payments (including as such all payments which the lessee
is obligated to make to the lessor on termination of the lease or surrender of
the property) payable by Company or a Subsidiary, as lessee or sublessee under a
lease of real or personal property, all in accordance with GAAP, having an
original term of one year or more, but shall be exclusive of any amounts
required to be paid by Company or a Subsidiary (whether or not designated as
rents or additional rents) on account of maintenance, repairs, insurance, taxes
and similar charges. Fixed rents under any so-called "percentage leases" shall
be computed solely on the basis of the minimum rents, if any, required to be
paid by the lessee regardless of sales volume or gross revenues.
"Reportable Event" means a reportable event as defined in Title IV of
ERISA or the regulations thereunder.
"Request for Extension of Credit" means, unless otherwise specified
herein, (a) a written request substantially in the form of Exhibit A, and (b)
with respect to a Letter of Credit Action, a Letter of Credit Application, in
each case duly completed and signed by a Responsible Officer of Company and
delivered by Requisite Notice.
"Requisite Lenders" means, as of any date of determination: (a) if the
Commitments are then in effect, Lenders having in the aggregate two-thirds or
more of the combined Commitments then in effect and (b) if the Commitments have
then been terminated and there are Outstanding Obligations, Lenders holding
Outstanding Obligations aggregating two-thirds or more of such Outstanding
Obligations.
"Requisite Notice" means, unless otherwise provided herein, (a)
irrevocable written notice to the intended recipient or (b) except with respect
to Letter of Credit Action (which must be in writing), irrevocable telephonic
notice to the intended recipient, promptly followed by a written notice to such
recipient. Such notices shall be (i) delivered to such recipient at the address
or telephone number specified on Schedule 10.02 or as otherwise designated by
such recipient by Requisite Notice to Administrative Agent, and (ii) if made by
any Borrower Party, given or made by a Responsible Officer of such Borrower
Party. Any written notice delivered in connection with any Loan Document shall
be in the form, if any, prescribed herein or therein. Any notice sent by other
than hardcopy shall be promptly confirmed by a telephone call to the recipient
and, if requested by Administrative Agent, by a manually signed hardcopy
thereof.
"Requisite Time" means, with respect to any of the actions listed
below, the time and date set forth below opposite such action:
<TABLE>
<CAPTION>
APPLICABLE
TYPE OF ACTION TIME DATE OF ACTION
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Delivery of Request for Extension
of Credit for, or notice for:
- - Borrowing or prepayment of, or 10:00 a.m. Same date as such borrowing,
Conversion into, Base Rate prepayment or Conversion
Loan
- - Borrowing, prepayment or 10:00 a.m. 3 Business Days prior to such
Continuation of, or Conversion borrowing, prepayment
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
into, Dollar-denominated Continuation or Conversion
Offshore Rate Loan
- - Borrowing of, prepayment of, 10:00 a.m. 5 Business Days prior to such
Continuation of, or Conversion borrowing or prepayment
into offshore Currency Loan
- - Requests for new Offshore 10:00 a.m. 10 Business Days prior to
Currencies proposed Extension of Credit (or
such lesser time which is
acceptable to Lenders)
- - Letter of Credit Action 10:00 a.m. 5 Business Days prior to such
action (or such lesser time which is
acceptable to Issuing Lender)
- - Voluntary reduction in or a 10:00 a.m. 2 Business Days prior to such
termination of Commitment reduction or termination
- - Payments by Lenders or a 11:00 a.m. On date payment is due
Borrower to Administrative
Agent
</TABLE>
"Responsible Officer" means, as to any Person that is not an
individual, partnership or trust, the Chairman of the Board of Directors, the
President, the chief executive officer, the chief operating officer, the chief
financial officer, the Treasurer, any Assistant to the Treasurer, or any Vice
President in charge of a principal business unit; as to any partnership, any
individual who is a general partner thereof or any individual who has general
management or administrative authority over all or any principal unit of the
partnership's business; and as to any trust, any individual who is a trustee.
"Restricted Guaranty Obligations" means, as to any Person, all of its
Guaranty Obligations except (a) Guaranty Obligations undertaken in the ordinary
course of business to secure bids or contracts or performance bonds related to
work to be performed by Company or any Subsidiary or any joint venture in which
Company or any Subsidiary participates; (b) all Guaranty Obligations with
respect to trade indebtedness incurred in the ordinary course of business,
whether payable directly or by reimbursement in connection with any letter of
credit facility; and (c) all Guaranty Obligations with respect to Security
Interests permitted under Section 7.03(a) through (e).
"Restricted Payment" means (a) any cash dividend, (b) any acquisition,
redemption or retirement of any outstanding stock, (c) any retirement or
prepayment of debt securities before their regularly scheduled maturity dates,
(d) any loan or advance that is made to a Person in such Person's capacity as a
shareholder, and (e) any "Restricted Payment" as defined in a Note Purchase
Agreement.
"Sarbanes-Oxley Act" means the federal Sarbanes-Oxley Act of 2002.
"Security Interest" means as to any item of tangible or intangible
property, any interest therein or right with respect thereto that secures an
obligation or Guaranty Obligation , whether such interest or right is created
under a Contract, or by operation of law or statute (such as but not
<PAGE>
limited to a statutory lien for work or materials), or as a result of a
judgment, or which arises under any form of preferential or title retention
agreement or arrangement (including a conditional sale agreement or a lease)
that has substantially the same economic effect as any of the foregoing.
"Spot Rate" for a currency means the rate quoted by Bank of America as
the spot rate for the purchase by Bank of America of such currency with another
currency through its FX Trading Office at approximately 10:00 a.m. (St. Louis
time) on the date two Business Days prior to the Currency Calculation Date.
"Subsequent Participant" means each country that adopts the euro as its
lawful currency after January 1, 1999.
"Subsidiary" means, as to any Person, a corporation with respect to
which more than 50% of the outstanding shares of stock of each class having
ordinary voting power (other than stock having such power only by reason of the
happening of a contingency) is at the time owned by such Person or by one or
more Subsidiaries of such Person, other than a corporation which has no
significant assets and is not actively engaged in a trade or business.
"Swaps" means, with respect to any Person, without duplication, payment
obligations with respect to interest rate swaps or options, currency swaps,
credit derivative transactions, forward rate transactions, commodity swaps,
equity or equity index swaps or options, bond or bond price index swaps or
options or forward bond index transactions, or forward foreign exchange
transactions, cap transactions, floor transactions, collar transactions,
currency swap transactions, cross-currency swap transactions, currency options,
spot contracts, any transaction subject to the terms of or governed by any form
of master agreement published by the International Swaps and Derivatives
Association, Inc., any International Foreign Exchange Master Agreement, and
similar obligations obligating such Person to make payments, whether
periodically or upon the happening of a contingency. For the purposes of this
Agreement, the amount of the obligation under any Swap shall, unless otherwise
expressly set forth herein, be the amount determined in respect thereof as of
the end of the then most recently ended fiscal quarter of such Person, based on
the assumption that such Swap had terminated at the end of such fiscal quarter,
and in making such determination, if any agreement relating to such Swap
provides for the netting of amounts payable by and to such Person thereunder or
if any such agreement provides for the simultaneous payment of amounts by and to
such Person, then in each such case, the amount of such obligation shall be the
net amount so determined.
"Swap Termination Value" means, in respect of any one or more Swaps,
after taking into account the effect of any legally enforceable netting
agreement relating to such Swaps, (a) for any date on or after the date such
Swaps have been closed out and termination value(s) determined in accordance
therewith, such termination value(s), and (b) for any date prior to the date
referenced in clause (a) the amount(s) determined as the mark-to-market value(s)
for such Swaps, as determined based upon one or more mid-market or other readily
available quotations provided by any recognized dealer in such Swaps (which may
include any Lender).
"Swing Line Commitment" shall mean $5,000,000.00.
"Swing Line Loan" and "Swing Line Loans" shall have the meanings
ascribed thereto in Section 2.01(d).
<PAGE>
"Swing Line Note" shall have the meaning ascribed thereto in Section
2.01(d).
"Total Assets" means the total assets of Company and its Subsidiaries,
as shown on a consolidated basis on the most recent annual Financial Statements.
"Type" of Loan means the designation of whether such Loan is a Base
Rate Loan or an Offshore Rate Loan.
"Unfunded Pension Liability" means the excess of a Pension Plan's
benefit liabilities under Section 4001(a)(16) of ERISA, over the current value
of that Pension Plan's assets, determined in accordance with the assumptions
used for funding the Pension Plan pursuant to Section 412 of the Code for the
applicable plan year.
"United States" means, when used in a geographical sense, all the
states of the United States of America and the District of Columbia; and when
used in a legal jurisdictional sense, the government of the country that is the
United States of America.
"United States Assets" means the identifiable United States assets of
Company and its Subsidiaries, as shown on the most recent annual Financial
Statements.
"Voting Stock" means capital stock of any class or classes of a
corporation, the holders of which are ordinarily, in the absence of
contingencies, entitled to elect the majority of the corporate directors (or
Persons performing similar functions), irrespective of whether or not at the
time capital stock of any such class or classes shall have or might have special
voting power or rights by reason of the occurrence of any contingency.
"Wholly-Owned Subsidiary" means, at any time, any Subsidiary, 100% of
all the equity shares (except directors' qualifying shares) and voting interests
of which are owned by any one or more of Company and Company's other
Wholly-Owned Subsidiaries at such time.
"2001 Form 10-K" means Company's Annual Report as Form 10-K for the
year ended December 31, 2001, as amended, filed with the Securities and Exchange
Commission.
1.02 USE OF CERTAIN TERMS.
(a) All terms defined in this Agreement shall have the defined
meanings when used in any certificate or other document made or delivered
pursuant hereto or thereto, unless otherwise defined therein.
(b) As used herein, unless the context requires otherwise, the
masculine, feminine and neuter genders and the singular and plural include one
another.
(c) The words "herein" and "hereunder" and words of similar import
when used in any Loan Document shall refer to the Loan Documents as a whole and
not to any particular provision thereof. The term "including" is by way of
example and not limitation. References herein to a Section, subsection or clause
shall, unless the context otherwise requires, refer to the appropriate Section,
subsection or clause in this Agreement.
<PAGE>
(d) The term "or" is disjunctive; the term "and" is conjunctive.
The term "shall" is mandatory; the term "may" is permissive.
1.03 ACCOUNTING TERMS. Subject to the definition of GAAP herein,
all accounting terms not specifically or completely defined in this Agreement
shall be construed in conformity with, and all financial data required to be
submitted by this Agreement shall be prepared in conformity with, GAAP applied
on a consistent basis, as in effect from time to time, applied in a manner
consistent with that used in preparing the financial statements contained in the
2001 Form 10-K, except as otherwise specifically prescribed herein.
1.04 ROUNDING. Any financial ratios required to be maintained by
Company pursuant to this Agreement shall be calculated by dividing the
appropriate component by the other component, carrying the result to one place
more than the number of places by which such ratio is expressed in this
Agreement and rounding the result up or down to the nearest number (with a
round-up if there is no nearest number) to the number of places by which such
ratio is expressed in this Agreement.
1.05 EXHIBITS AND SCHEDULES. All exhibits and schedules to this
Agreement, either as originally existing or as the same may from time to time be
supplemented, modified or amended, are incorporated herein by this reference. A
matter disclosed on any Schedule shall be deemed disclosed on all Schedules.
1.06 REFERENCES TO AGREEMENTS AND LAWS. Unless otherwise expressly
provided herein, (a) references to agreements (including the Loan Documents) and
other contractual instruments shall include all amendments, restatements,
extensions, supplements and other modifications thereto (unless prohibited by
any Loan Document), and (b) references to any Law shall include all statutory
and regulatory provisions consolidating, amending, replacing, supplementing or
interpreting such Law.
1.07 CURRENCY EQUIVALENTS GENERALLY. Except for purposes of
financial statements delivered by Borrower Parties hereunder or calculating
financial covenants hereunder, the applicable amount of any currency for
purposes of the Loan Documents shall be the Equivalent Amount thereof determined
on each Currency Calculation Date from time to time by Administrative Agent.
SECTION 2.
THE COMMITMENTS AND EXTENSIONS OF CREDIT
2.01 AMOUNT AND TERMS OF COMMITMENTS.
(a) Subject to the terms and conditions set forth herein, each
Lender severally agrees to make, Convert and Continue loans (each such loan, a
"Loan") to Borrower in Dollars and Offshore Currencies in such amounts as
Borrower may from time to time request on any Business Day during the period
from the Closing Date to the Maturity Date, in an aggregate amount not to exceed
at any time outstanding the amount set forth on Schedule 2.01 (such amount as
the same may be reduced under Section 2.06 or as a result of one or more
assignments hereunder, such Lender's "Commitment"); provided, however, that,
after giving effect to any Borrowing, all Outstanding Obligations of each Lender
shall not exceed such Lender's Commitment and all Outstanding Obligations of all
Lenders shall not exceed the combined Commitments. This is a revolving credit
<PAGE>
and subject to the foregoing, and the other terms and conditions hereof,
Borrower may borrow, Convert, Continue, prepay and reborrow Loans as set forth
herein without premium or penalty.
(b) Loans made by each Lender shall be evidenced by one or more
Notes. Each such Lender may attach schedules to its Note(s) and endorse thereon
the date, amount, applicable currency and maturity of its Loans and payments
with respect thereto. Such Notes and records shall be conclusive absent manifest
error of the amount of such Loan and payments thereon . Any failure so to record
or any error in doing so shall not, however, limit or otherwise affect the
obligation of Borrower to pay any amount owing with respect to the Loans.
(c) Not used.
(d) Swing Line Commitment. Subject to the terms and conditions set
forth in this Agreement and so long as no Default or Event of Default has
occurred and is continuing (provided, however, that Bank of America, N.A. shall
have no liability to any other Lender for making a Swing Line Loan to Borrower
after the occurrence or during the continuance of any Default or Event of
Default unless Bank of America, N.A. has previously received notice in writing
from Borrower or any other Lender of the occurrence of such Default or Event of
Default), Bank of America, N.A. agrees to make such loans to Borrower
(individually, a "Swing Line Loan" and collectively, the "Swing Line Loans") as
Borrower may from time to time request pursuant to Section 2.02. Each Swing Line
Loan shall be for an aggregate principal amount of at least $100,000 or any
larger multiple of $10,000. The aggregate principal amount of Swing Line Loans
outstanding under this Agreement as of any date shall not exceed the amount of
the Swing Line Commitment; provided, however, that in no event shall all
Outstanding Obligations of all Lenders on any given day exceed the combined
Commitments. All Swing Line Loans shall be Base Rate Loans and all Swing Line
Loans together with all accrued and unpaid interest thereon and all fees and
other amounts owing by Borrowers to Bank of America with respect thereto, shall
be due and payable on the earlier of (i) the demand of Bank of America, N.A. and
(ii) seven (7) days after the date of the extension of the Swing Line Loan. The
Swing Line Loans of Bank of America, N.A. to a Borrower shall be evidenced by a
Swing Line Note of such Borrower payable to the order of Bank of America, N.A.
in a principal amount equal to the amount of the Swing Line Commitment, which
Swing Line Note shall be in substantially the form of Exhibit G attached hereto
and incorporated herein by reference (with appropriate insertions) (as the same
may from time to time be amended, modified extended, renewed or restated, the
"Swing Line Note"). The Swing Line Commitment and the making of Swing Line Loans
is a discretionary, uncommitted facility and Bank of America may terminate or
suspend the Swing Line Commitment at any time in its sole discretion upon notice
to Borrower, which notice may be given before or after Borrower requests a Swing
Line Loan.
2.02 BORROWINGS, CONVERSIONS AND CONTINUATIONS OF LOANS.
(a) Borrower may irrevocably request a Borrowing, Conversion or
Continuation of Loans in a Minimum Amount therefor by delivering a Request for
Extension of Credit therefor by Requisite Notice to Administrative Agent not
later than the Requisite Time therefor. All Borrowings, Conversions and
Continuations shall constitute Base Rate Loans unless properly and timely
otherwise designated as set forth in the prior sentence. Loans may only be
Converted into or Continued as Loans denominated in the same currency as
originally borrowed.
<PAGE>
(b) Following receipt of a Request for Extension of Credit,
Administrative Agent shall promptly notify each Lender of its Pro Rata Share
thereof by Requisite Notice. If any Lender is unable in good faith to fund an
Offshore Currency Loan in a requested Offshore Currency, it shall promptly
notify Administrative Agent (who shall notify Company and the other Lenders),
and such Request for Extension of Credit shall be deemed withdrawn.
Administrative Agent shall promptly upon Borrower's request notify the
applicable Borrower and Lenders of the interest rate applicable to any Loans
proposed by Borrower upon determination of same. In the case of a Borrowing of
Loans, each Lender shall make the funds for its Loan available in the currency
of such Loan to Administrative Agent at Administrative Agent's Office not later
than the Requisite Time therefor on the Business Day specified in such Request
for Extension of Credit. Upon satisfaction of the applicable conditions set
forth in Section 4.02, (and if the initial Extension of Credit hereunder,
Section 4.01), all funds so received shall be made available to the Borrower in
like funds received.
(c) Administrative Agent shall promptly notify Company and Lenders
of the interest rate applicable to any Loan other than a Base Rate Loan upon
determination of same in accordance with this Agreement.
(d) Except as otherwise provided herein, an Offshore Rate Loan may
be Continued or Converted only on the last day of the Interest Period for such
Offshore Rate Loan. During the existence of a Default or Event of Default, no
Loans may be requested as, Converted into or Continued as Offshore Rate Loans
without the consent of Requisite Lenders and Requisite Lenders may demand that
any or all of the then outstanding Offshore Rate Loans be Converted immediately
into Base Rate Loans.
(e) If a Loan is to be made to Borrower on the same date that
another Loan in the same currency is due and payable by Borrower, Borrower or
Lenders, as the case may be, shall, upon the request of Administrative Agent,
make available to Administrative Agent the net amount of funds giving effect to
both such Loans and the effect for purposes of this Agreement shall be the same
as if separate transfers of funds had been made with respect to each such Loan.
In the absence of such a request, separate transfers of funds shall be made with
respect to each such Loan.
(f) Borrower may from time to time request Extensions of Credit
(other than for Swing Line Loans, all of which shall be made in Dollars) in
currencies other than those listed in the definition of Offshore Currency so
long as such currency is freely traded in the offshore interbank foreign
exchange markets and freely transferable and freely convertible into Dollars.
Borrower shall request any such additional currency by Requisite Notice to
Administrative Agent (who shall promptly notify each Lender) not later than the
Requisite Time therefor. Each Lender shall notify Administrative Agent (who
shall promptly notify Company) whether it will, in its sole discretion, make an
Extension of Credit in such requested currency. If all Lenders consent to such
currency, such currency shall thereafter be deemed for all purposes an Offshore
Currency hereunder available for Extensions of Credit.
(g) Without prejudice and in addition to any method of conversion
or rounding prescribed by any EMU Legislation and without prejudice to (i) the
liabilities for indebtedness of each Borrower Party to Lenders under or pursuant
to this Agreement or (ii) Lenders' Commitments, any reference in this Agreement
to a minimum amount (or an integral multiple thereof) in a national currency of
a Subsequent Participant to be paid to or by Administrative Agent shall
immediately, upon it becoming a Subsequent Participant, be replaced by a
reference to such reasonably
<PAGE>
comparable and convenient amount (or an integral multiple thereof) in the euro
unit as Administrative Agent may specify in good faith.
2.03 LETTERS OF CREDIT.
(a) THE LETTER OF CREDIT COMMITMENT. Subject to the terms and
conditions set forth in this Agreement, until the Maturity Date, Issuing Lender
shall take such Letter of Credit Actions denominated in Dollars or Offshore
Currencies as Borrower may from time to time request; provided, however, that
(i) the Equivalent Amount in Dollars of the Outstanding Obligations of each
Lender shall not exceed such Lender's Commitment, (ii) the Equivalent Amount in
Dollars of the Outstanding Obligations of all Lenders shall not exceed the
combined Commitments at any time, and (iii) all Letter of Credit Usage shall not
exceed the Letter of Credit Sublimit at any time. Subject to subsection (f)
below and, unless consented to by Issuing Lender and Requisite Lenders, no
Letter of Credit (other than Letter of Credit #705264 in the face amount of
$25,000 in favor of City of Chicago, Department of Transportation) may expire
more than 12 months after the date of its issuance or last renewal; provided,
however, that no Letter of Credit shall expire more than 12 months after the
Maturity Date. If any Letter of Credit Usage remains outstanding after the
Maturity Date, Borrower shall, not later than such date, deposit cash in an
amount equal to such Letter of Credit Usage in a Letter of Credit Cash
Collateral Account. Letters of Credit issued and outstanding under the Existing
Credit Facility on the Closing Date shall be deemed validly issued and
outstanding Letters of Credit with the same terms and maturity under this
Agreement as under the Existing Credit Facility.
(b) REQUESTING LETTER OF CREDIT ACTIONS. Borrower may irrevocably
request a Letter of Credit Action in a Minimum Amount therefor by delivering a
Letter of Credit Application therefor to Issuing Lender, with a copy to
Administrative Agent (who shall notify Lenders), by Requisite Notice not later
than the Requisite Time therefor. Each Letter of Credit Action shall be in a
form acceptable to Issuing Lender in its reasonable discretion. Unless
Administrative Agent notifies Issuing Lender that such Letter of Credit Action
is not permitted hereunder, or Issuing Lender notifies Administrative Agent that
it has determined in good faith that such Letter of Credit Action is contrary to
any Laws or policies of Issuing Lender, Issuing Lender shall, upon satisfaction
of the applicable conditions set forth in Section 4.02 with respect to any
Letter of Credit Action constituting an Extension of Credit, effect such Letter
of Credit Action. This Agreement shall control in the event of any conflict with
any Letter of Credit Application, including without limitation, any definition
of "Default" or "Event of Default" in any such Letter of Credit Application,
which shall be deemed superseded by the definitions thereof in this Agreement.
Any requirement therein or in any provision of this Agreement to grant a
security interest shall be subject to the prohibitions contained in Section 7.03
hereof and in Section 10.5 of the Note Purchase Agreement-1997 and to any
equivalent provision in the Note Purchase Agreement-2003. Upon the issuance of a
Letter of Credit, each Lender shall be deemed to have purchased from Issuing
Lender a risk participation therein in an amount equal to such Lender's Pro Rata
Share times the amount of such Letter of Credit.
(c) REIMBURSEMENT OF PAYMENTS UNDER LETTERS OF CREDIT. Borrower
shall reimburse Issuing Lender through Administrative Agent for any payment that
Issuing Lender makes under a Letter of Credit on or before the date of such
payment; provided, however, that if the conditions precedent set forth in
Section 4.02 can be satisfied, Borrower may request a Borrowing of Loans to
reimburse Issuing Lender for such payment pursuant to Section 2.02, or, failing
to make such
<PAGE>
request, Borrower shall be deemed to have requested a Borrowing of Base Rate
Loans on such payment date pursuant to subsection (e) below.
(d) FUNDING BY LENDERS WHEN ISSUING LENDER NOT REIMBURSED. Upon
any drawing under a Letter of Credit, Issuing Lender shall notify Administrative
Agent and Company. If Borrower fails to timely make the payment required
pursuant to subsection (c) above, Issuing Lender shall notify Administrative
Agent of such fact and the amount of such unreimbursed payment. Administrative
Agent shall promptly notify each Lender of its Pro Rata Share of such amount by
Requisite Notice. Each Lender shall make funds in an amount equal its Pro Rata
Share of such amount available to Administrative Agent at Administrative Agent's
Office not later than the Requisite Time therefor on the Business Day specified
by Administrative Agent, and Administrative Agent shall remit the funds so
received to Issuing Lender. The obligation of each Lender to so reimburse
Issuing Lender shall be absolute and unconditional and shall not be affected by
the occurrence of a Default or Event of Default or any other occurrence or
event. Any such reimbursement shall not relieve or otherwise impair the
obligation of Borrower to reimburse Issuing Lender for the amount of any payment
not made by Borrower under any Letter of Credit, together with interest as
provided herein.
(e) NATURE OF LENDERS' FUNDING. If the conditions precedent set
forth in Section 4.02 can be satisfied (except for the giving of a Request for
Extension of Credit) on any date Borrower is obligated to, but fails to,
reimburse Issuing Lender for a drawing under a Letter of Credit, the funding by
Lenders pursuant to the previous subsection shall be deemed to be a Borrowing of
Base Rate Loans (without regard to the Minimum Amount therefor) deemed requested
by Borrower. If the conditions precedent set forth in Section 4.02 cannot be
satisfied on the date Borrower is obligated to, but fails to, reimburse Issuing
Lender for a drawing under a Letter of Credit, the funding by Lenders pursuant
to the previous subsection shall be deemed to be a funding by each Lender of its
risk participation in such Letter of Credit, and each Lender making such funding
shall thereupon acquire a pro rata participation, to the extent of its
reimbursement, in the claim of Issuing Lender against Borrower in respect of
such payment and shall share, in accordance with that pro rata participation, in
any payment made by Borrower with respect to such claim. Any amounts made
available by a Lender under its risk participation shall be payable by Borrower
upon demand of Administrative Agent, and shall bear interest at a rate per annum
equal to the Default Rate.
(f) SPECIAL PROVISIONS RELATING TO EVERGREEN LETTERS OF CREDIT.
Borrower may request Letters of Credit that have automatic extension or renewal
provisions ("evergreen" Letters of Credit) so long as Issuing Lender consents in
its sole and absolute discretion thereto and has the right to not permit any
such extension or renewal at least annually within a notice period to be agreed
upon at the time each such Letter of Credit is issued. Once an evergreen Letter
of Credit is issued, unless Administrative Agent has notified Issuing Lender
that Requisite Lenders have elected not to permit such extension or renewal, the
Borrower Parties, Administrative Agent and Lenders shall be deemed to have
authorized (but may not require) Issuing Lender to, in its sole and absolute
discretion, permit the renewal of such evergreen Letter of Credit at any time to
a date not later than the Maturity Date, and, unless directed by Issuing Lender,
Borrower shall not be required to request such extension or renewal. Issuing
Lender may, in its sole and absolute discretion, elect not to permit an
evergreen Letter of Credit to be extended or renewed at any time.
(g) OBLIGATIONS ABSOLUTE. The obligation of Borrower to pay to
Issuing Lender the amount of any payment made by Issuing Lender under any Letter
of Credit issued for its account
<PAGE>
shall be absolute, unconditional, and irrevocable. Without limiting the
foregoing, Borrower's obligation shall not be affected by any of the following
circumstances:
(i) any lack of validity or enforceability of such Letter
of Credit, this Agreement, or any other agreement or instrument
relating thereto;
(ii) any amendment or waiver of or any consent to
departure from such Letter of Credit, this Agreement, or any other
agreement or instrument relating hereto or thereto;
(iii) the existence of any claim, setoff, defense, or other
rights which Borrower may have at any time against Issuing Lender,
Administrative Agent or any Lender, any beneficiary of such Letter of
Credit (or any persons or entities for whom any such beneficiary may be
acting) or any other Person, whether in connection with such Letter of
Credit, this Agreement, or any other agreement or instrument relating
thereto, or any unrelated transactions;
(iv) any demand, statement, or any other document
presented under such Letter of Credit proving to be forged, fraudulent,
invalid, or insufficient in any respect or any statement therein being
untrue or inaccurate in any respect whatsoever so long as any such
document appeared to comply with the terms of the Letter of Credit;
(v) payment by Issuing Lender in good faith under such
Letter of Credit against presentation of a draft or any accompanying
document which does not strictly comply with the terms of such Letter
of Credit; or any payment made by Issuing Lender under such Letter of
Credit to any Person purporting to be a trustee in bankruptcy,
debtor-in-possession, assignee for the benefit of creditors,
liquidator, receiver or other representative of or successor to any
beneficiary or any transferee of such Letter of Credit, including any
arising in connection with any proceeding under any Debtor Relief Laws;
(vi) the existence, character, quality, quantity,
condition, packing, value or delivery of any property purported to be
represented by documents presented in connection with such Letter of
Credit or for any difference between any such property and the
character, quality, quantity, condition, or value of such property as
described in such documents;
(vii) the time, place, manner, order or contents of
shipments or deliveries of property as described in documents presented
in connection with such Letter of Credit or the existence, nature and
extent of any insurance relative thereto;
(viii) the solvency or financial responsibility of any party
issuing any documents in connection with such Letter of Credit;
(ix) any failure or delay in notice of shipments or
arrival of any property;
(x) any error in the transmission of any message relating
to such Letter of Credit not caused by Issuing Lender, or any delay or
interruption in any such message;
(xi) any error, neglect or default of any correspondent of
Issuing Lender in connection with such Letter of Credit;
<PAGE>
(xii) any consequence arising from acts of God, wars,
insurrections, civil unrest, disturbances, labor disputes, emergency
conditions or other causes beyond the control of Issuing Lender;
(xiii) so long as Issuing Lender in good faith determines
that the document appears to comply with the terms of the Letter of
Credit, the form, accuracy, genuineness or legal effect of any contract
or document referred to in any document submitted to Issuing Lender in
connection with such Letter of Credit; and
(xiv) any other circumstances whatsoever where Issuing
Lender has acted in good faith.
In addition, Borrower will promptly examine a copy of each Letter of
Credit and amendments thereto delivered to it and, in the event of any claim of
noncompliance with Borrower's instructions or other irregularity, Borrower will
immediately notify Issuing Lender in writing. Borrower shall be conclusively
deemed to have waived any such claim against Issuing Lender and its
correspondents unless such notice is given as aforesaid.
(h) ROLE OF ISSUING LENDER. Each Lender and Borrower agree that,
in paying any drawing under a Letter of Credit, Issuing Lender shall not have
any responsibility to obtain any document (other than any sight draft,
certificates and documents expressly required by the Letter of Credit) or to
ascertain or inquire as to the validity or accuracy of any such document or the
authority of the Person executing or delivering any such document. No
Administrative Agent-Related Person nor any of the respective correspondents,
participants or assignees of Issuing Lender shall be liable to any Lender for
any action taken or omitted in connection herewith at the request or with the
approval of Lenders or Requisite Lenders, as applicable; any action taken or
omitted in the absence of gross negligence or willful misconduct; or the due
execution, effectiveness, validity or enforceability of any document or
instrument related to any Letter of Credit. Borrower hereby assumes all risks of
the acts or omissions of any beneficiary or transferee with respect to its use
of any Letter of Credit. No Administrative Agent-Related Person, nor any of the
respective correspondents, participants or assignees of Issuing Lender, shall be
liable or responsible for any of the matters described in subsection (g) above.
In furtherance and not in limitation of the foregoing, Issuing Lender may accept
documents that appear on their face to be in order, without responsibility for
further investigation, regardless of any notice or information to the contrary,
and Issuing Lender shall not be responsible for the validity or sufficiency of
any instrument transferring or assigning or purporting to transfer or assign a
Letter of Credit or the rights or benefits thereunder or proceeds thereof, in
whole or in part, which may prove to be invalid or ineffective for any reason.
(i) APPLICABILITY OF ISP98 AND UCP. Unless otherwise expressly
agreed by Issuing Lender and Borrower when a Letter of Credit is issued and
subject to applicable laws, performance under Letters of Credit by Issuing
Lender, its correspondents, and beneficiaries will be governed by (i) with
respect to standby Letters of Credit, the rules of the "International Standby
Practices 1998" ("ISP98") or such later revision as may be published by the
Institute of International Banking Law & Practice, subject to applicable laws,
and (ii) with respect to commercial Letters of Credit, the rules of the Uniform
Customs and Practice for Documentary Credits, as published in its most recent
version by the International Chamber of Commerce (the "ICC") on the date any
commercial Letter of Credit is issued, and including the ICC decision published
by the Commission on Banking Technique and Practice on April 6, 1998 regarding
the European single currency (euro).
<PAGE>
(j) LETTER OF CREDIT FEE. With respect to each Letter of Credit,
Company shall pay to Administrative Agent for the account of Issuing Lender an
upfront fee equal to such amount as is required by Issuing Lender pursuant to
the Fee Letter. With respect to standby Letters of Credit, Company shall pay to
Administrative Agent on each March 31, June 30, September 30 and December 31, in
arrears, for the account of each Lender in accordance with its Pro Rata Share, a
Letter of Credit fee equal to the Applicable Amount for such Letter of Credit
times the actual daily maximum amount available to be drawn under each Letter of
Credit since the later of the Closing Date and the previous Applicable Payment
Date. If there is any change in the Applicable Amount during any quarter, the
actual daily amount shall be computed and multiplied by the Applicable Amount
separately for each period during such quarter that such Applicable Amount was
in effect.
(k) DOCUMENTARY AND PROCESSING CHARGES PAYABLE TO ISSUING LENDER.
Company shall pay directly to Issuing Lender, upon demand, for its sole account
its customary documentary and processing charges in accordance with its standard
schedule, as from time to time in effect, for any Letter of Credit Action or
other occurrence relating to a Letter of Credit for which such charges are
customarily made.
2.04 PREPAYMENTS. Upon Requisite Notice to Administrative Agent not
later than the Requisite Time therefor, Borrower may at any time and from time
to time voluntarily prepay Loans in part in the Minimum Amount therefor or in
full without premium or penalty. Administrative Agent will promptly notify each
Lender thereof and of such Lender's Pro Rata Share of such prepayment. Borrower
may, upon notice to Bank of America, specifying that Borrower is paying the
Swing Line Loans, prepay without penalty or premium the Swing Line Loans in
whole at any time or in part from time to time, by paying the principal amount
and all interest due and payable to be paid. If for any reason the Outstanding
Obligations exceed the combined Commitments as in effect or as reduced or
because of any limitation set forth in this Agreement or otherwise, Borrower
shall immediately prepay its Loans in an amount sufficient to eliminate such
excess. Any prepayment of an Offshore Rate Loan shall be accompanied by all
accrued interest thereon, together with the costs set forth in Section 3.05.
2.05 NOT USED.
2.06 REDUCTION OR TERMINATION OF COMMITMENTS. Upon Requisite Notice
to Administrative Agent not later than the Requisite Time therefor, Company may
at any time and from time to time, without premium or penalty, permanently and
irrevocably reduce the Commitments in a Minimum Amount therefor to an amount not
less than the Outstanding Obligations at such time or terminate the Commitments.
Any such reduction or termination shall be accompanied by payment of all accrued
and unpaid commitment fees with respect to the portion of the Commitments being
reduced or terminated. Administrative Agent shall promptly notify Lenders of any
such request for reduction or termination of the Commitments. Each Lender's
Commitment shall be reduced by an amount equal to such Lender's Pro Rata Share
times the amount of such reduction.
2.07 PRINCIPAL AND INTEREST.
(a) Except as otherwise provided hereunder, if not sooner paid,
Borrower agrees to pay the outstanding principal amount of each Loan on the
Maturity Date.
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(b) Subject to subsection (c) below, and unless otherwise
specified herein, Borrower shall pay interest on the unpaid principal amount of
each Loan (before and after default, before and after maturity, before and after
judgment, and before and after the commencement of any proceeding under any
Debtor Relief Laws) from the date borrowed until paid in full (whether by
acceleration or otherwise) on each Applicable Payment Date at a rate per annum
equal to the interest rate determined in accordance with the definition of such
type of Loan, plus, to the extent applicable in each case, the Applicable Amount
for such type of Loan. Administrative Agent shall invoice Company for the amount
of interest due on any Base Rate Loan on the due date thereof.
(c) If any amount payable by any Borrower Party under any Loan
Document is not paid when due (without regard to any applicable grace periods),
it shall thereafter bear interest (after as well as before entry of judgment
thereon to the extent permitted by law) at a fluctuating interest rate per annum
at all times equal to the Default Rate to the fullest extent permitted by
applicable Law. Accrued and unpaid interest on past due amounts (including
interest on past due interest) shall be payable upon demand.
(d) So long as no Event of Default has occurred and is continuing,
each Swing Line Loan shall bear interest on the outstanding principal amount
thereof, for each day from the date such Swing Line Loan is made until it
becomes due, at a rate per annum equal to the Base Rate. So long as any Event of
Default has occurred and is continuing, each Swing Line Loan shall bear interest
on the outstanding principal amount thereof, for each day from the date such
Swing Line Loan is made until it becomes due, at a rate per annum equal to Two
Percent (2%) over and above the Base Rate. Such interest shall be payable when
the Swing Loan Note is paid or matures. From and after its due date, whether by
reason of acceleration upon demand or otherwise, each Swing Line Loan shall bear
interest, payable on demand, for each day until paid at a rate per annum equal
to Two Percent (2%) over and above the Base Rate.
2.08 FEES.
(a) COMMITMENT FEE. Company shall pay to Administrative Agent for
the account of each Lender pro rata according to its Pro Rata Share, a
Commitment fee equal to the Applicable Amount times the actual daily amount by
which the combined Commitments exceed the Outstanding Obligations (excluding the
outstanding balances of Swing Line Loans). The commitment fee shall accrue at
all times from the Closing Date until the Maturity Date and shall be payable
quarterly in arrears on each March 31, June 30, September 30 and December 31.
The commitment fee shall be calculated quarterly in arrears, and if there is any
change in the Applicable Amount during any quarter, the actual daily amount
shall be computed and multiplied by the Applicable Amount separately for each
period during such quarter that such Applicable Amount was in effect. The
commitment fee shall accrue at all times, including at any time during which one
or more conditions in Section 4 are not met.
(b) AGENCY FEES. An agency fee for the services to be performed by
Administrative Agent hereunder shall be payable to Administrative Agent in the
amount and at such times as are specified in the Fee Letter.
(c) OTHER FEES. Company shall pay any additional fees from time to
time agreed upon by each Lender and Company which are set forth in the Fee
Letter.
<PAGE>
2.09 COMPUTATION OF INTEREST AND FEES. Computation of interest on
Base Rate Loans when the Base Rate is determined by Bank of America's "prime
rate" shall be calculated on the basis of a year of 365 or 366 days, as the case
may be, and the actual number of days elapsed. Computation of all other types of
interest and all fees shall be calculated on the basis of a year of 360 days and
the actual number of days elapsed, which results in a higher yield to Lenders
than a method based on a year of 365 or 366 days. Interest shall accrue on each
Loan for the day on which the Loan is made, and shall not accrue on a Loan, or
any portion thereof, for the day on which the Loan or such portion is paid,
provided that any Loan that is repaid on the same day on which it is made shall
bear interest for one day.
2.10 MAKING PAYMENTS.
(a) Except as otherwise provided herein, all payments by Borrower
or any Lender hereunder shall be made to Administrative Agent at Administrative
Agent's Office not later than the Requisite Time for such type of payment. All
payments received after such Requisite Time shall be deemed received on the next
succeeding Business Day. All payments shall be made in immediately available
funds in the currency of such extension of credit (or, with the consent of
Administrative Agent in each instance, the Equivalent Amount in Dollars of the
Applicable Offshore Currency). All payments by Borrower shall be made without
condition or deduction for any counterclaim, defense, recoupment or setoff.
(b) Upon satisfaction of any applicable terms and conditions set
forth herein, Administrative Agent shall promptly make any amounts received in
accordance with the prior subsection available in like funds received as
follows: (i) if payable to Borrower, by crediting the Designated Deposit
Account, and (ii) if payable to any Lender, by wire transfer to such Lender at
its Lending Office. If such conditions are not so satisfied, Administrative
Agent shall return any funds it is holding to the Lenders making such funds
available, without interest.
(c) Subject to the definition of "Interest Period," if any payment
to be made by any Borrower Party shall come due on a day other than a Business
Day, payment shall instead be considered due on the next succeeding Business
Day, and such extension of time shall be reflected in computing interest and
fees.
(d) Unless Company or any Lender has notified Administrative Agent
prior to the date any payment to be made by it is due, that it does not intend
to remit such payment, Administrative Agent may, in its sole and absolute
discretion, assume that Borrower or such Lender, as the case may be, has timely
remitted such payment and may, in its sole and absolute discretion and in
reliance thereon, make available such payment to the Person entitled thereto. If
such payment was not in fact remitted to Administrative Agent in immediately
available funds, then:
(i) if Borrower failed to make such payment, each Lender
shall forthwith on demand repay to Administrative Agent the amount of
such assumed payment made available to such Lender, together with
interest thereon in respect of each day from and including the date
such amount was made available by Administrative Agent to such Lender
to the date such amount is repaid to Administrative Agent at the
Overnight Rate; and
(ii) if any Lender failed to make such payment,
Administrative Agent shall be entitled to recover such corresponding
amount on demand from such Lender . If such
<PAGE>
Lender does not pay such corresponding amount forthwith upon
Administrative Agent's demand therefor, Administrative Agent promptly
shall notify Borrower, and Borrower shall pay such corresponding amount
to Administrative Agent. Administrative Agent also shall be entitled to
recover from such Lender interest on such corresponding amount in
respect of each day from the date such corresponding amount was made
available by Administrative Agent to Borrower to the date such
corresponding amount is recovered by Administrative Agent, (A) from
such Lender at a rate per annum equal to the daily Overnight Rate, and
(B) from Borrower, at a rate per annum equal to the interest rate
applicable to such Borrowing. Nothing herein shall be deemed to relieve
any Lender from its obligation to fulfill its Commitment or to
prejudice any rights which Administrative Agent or Borrower may have
against any Lender as a result of any default by such Lender hereunder.
(e) If Administrative Agent or any Lender is required at any time
to return to Borrower, or to a trustee, receiver, liquidator, custodian, or any
official under any proceeding under Debtor Relief Laws, any portion of a payment
made by Borrower, each Lender shall, on demand of Administrative Agent, return
its share of the amount to be returned, plus interest thereon from the date of
such demand to the date such payment is made at a rate per annum equal to the
daily Federal Funds Rate.
2.11 FUNDING SOURCES. Nothing in this Agreement shall be deemed to
obligate any Lender to obtain the funds for any Loan in any particular place or
manner or to constitute a representation by any Lender that it has obtained or
will obtain the funds for any Loan in any particular place or manner.
2.12 SWING LINE LOAN SETTLEMENT AFTER DEFAULT. Upon the occurrence
of any Event of Default or the demand for payment under the Swing Line Loans by
Bank of America, N.A., unless otherwise requested by Bank of America, N.A., the
Administrative Agent shall promptly notify the other Lenders in writing of the
aggregate principal amount of all Swing Line Loans from Bank of America, N.A.
then outstanding, and each of the other Lenders hereby irrevocably agrees to
immediately purchase from Bank of America, N.A. with immediately available funds
its ratable share of the amount of all such Swing Line Loans (based on such
Lender's pro rata share of the combined Commitments), plus accrued and unpaid
interest calculated on such pro rata share of such principal amount at a rate
per annum equal to the Base Rate. Following such advance by each Lender to Bank
of America, N.A. of its pro rata share of any such Swing Line Loans pursuant to
the preceding sentence, each such Lender shall thereafter receive its pro rata
share of all principal payments, interest payments, fees and other amounts due
with respect to such Swing Line Loans as and when paid by Borrower to Bank of
America, N.A. hereunder. Bank of America, N.A. agrees that it will not make any
Swing Line Loan to Borrower after Bank of America, N.A. has received notice in
writing from Borrower or any other Lender that a Default or Event of Default has
occurred and is continuing, without the prior written consent of the Requisite
Banks.
<PAGE>
SECTION 3.
TAXES, YIELD PROTECTION AND ILLEGALITY
3.01 TAXES.
(a) Any and all payments by Borrower to or for the account of
Administrative Agent or any Lender under any Loan Document shall be made free
and clear of and without deduction for any and all present or future taxes,
duties, levies, imposts, deductions, assessments, fees, withholdings or similar
charges, and all liabilities with respect thereto, excluding, in the case of
Administrative Agent and each Lender, taxes imposed on or measured by its net
income or branch profits or franchise taxes imposed on it (in lieu of net income
or branch profits taxes), by the United States of America or by the jurisdiction
(or any political subdivision thereof) under the Laws of which Administrative
Agent or such Lender, as the case may be, is organized, in which its principal
office is located or in which it maintains a lending office, and any other taxes
withheld because such Lender failed to timely deliver the forms required
pursuant to Section 10.21 (all such non-excluded taxes, duties, levies, imposts,
deductions, assessments, fees, withholdings or similar charges, and liabilities
being hereinafter referred to as "Taxes"). If Borrower shall be required by any
Laws to deduct any Taxes from or in respect of any sum payable under any Loan
Document to Administrative Agent or any Lender, (i) the sum payable shall be
increased as necessary so that after making all required deductions (including
deductions applicable to additional sums payable under this Section),
Administrative Agent and such Lender receives an amount equal to the sum it
would have received had no such deductions been made, (ii) Borrower shall make
such deductions, (iii) Borrower shall pay the full amount deducted to the
relevant taxation authority or other authority in accordance with applicable
Laws, and (iv) within 30 days after the date of such payment, Borrower shall
furnish Administrative Agent (who shall forward the same to such Lender) the
original or a certified copy of a receipt evidencing payment thereof.
(b) In addition, Borrower agrees to pay any and all present or
future stamp, court or documentary taxes and any other excise or property taxes
or charges or similar levies which arise from any payment made under any Loan
Document or from the execution, delivery, performance, enforcement or
registration of, or otherwise with respect to, any Loan Document (hereinafter
referred to as "Other Taxes").
(c) If Borrower shall be required by the Laws of any jurisdiction
outside the United States to deduct any Taxes from or in respect of any sum
payable under any Loan Document to Administrative Agent or any Lender, Borrower
shall also pay to such Lender or Administrative Agent (for the account of such
Lender), at the time interest is paid, such additional amount that the
respective Lender specifies as necessary to preserve the after-tax yield (after
factoring in United States (federal and state) taxes imposed on or measured by
net income) such Lender would have received if such deductions (including
deductions applicable to additional sums payable under this Section) had not
been made.
(d) Borrower agrees to indemnify Administrative Agent and each
Lender for the full amount of Taxes and Other Taxes (including any Taxes or
Other Taxes imposed or asserted by any jurisdiction on amounts payable under
this Section) paid by Administrative Agent and such Lender and any liability
(including penalties, interest and expenses) arising therefrom or with respect
thereto.
<PAGE>
3.02 ILLEGALITY. If the introduction of any Laws or any change in
any Laws or in the interpretation or administration thereof has made it
unlawful, or any central bank or other Governmental Authority has asserted that
it is unlawful, for any Lender or its applicable Lending Office to make,
maintain or fund Offshore Rate Loans, or materially restricts the authority of
such Lender to purchase or sell, or to take deposits of, Dollars or the
applicable Offshore Currency in the applicable offshore interbank market, or to
determine or charge interest rates based upon the Offshore Rate, then, on notice
thereof by such Lender to Company through Administrative Agent, any obligation
of such Lender to make Offshore Rate Loans shall be suspended until the
circumstances giving rise to such determination no longer exist. Upon receipt of
such notice, Borrower shall, upon demand from such Lender (with a copy to
Administrative Agent), prepay or Convert all Offshore Rate Loans of such Lender,
either on the last day of the Interest Period thereof, if such Lender may
lawfully continue to maintain such Offshore Rate Loans to such day, or
immediately, if such Lender may not lawfully continue to maintain such Offshore
Rate Loans. Each Lender agrees to designate a different Lending Office if such
designation will avoid the need for such notice and will not, in the good faith
judgment of such Lender, otherwise be materially disadvantageous to such Lender.
3.03 INABILITY TO DETERMINE OFFSHORE RATES. If, in connection with
any Request for Extension of Credit involving any Offshore Rate Loan, (a)
deposits in Dollars or the applicable Offshore Currency are not being offered to
banks in the applicable offshore market in the amount and for the Interest
Period of the requested Offshore Rate Loan, (b) adequate and reasonable means do
not exist for determining the underlying interest rate for such Offshore Rate
Loan, or (c) such underlying interest rate does not adequately and fairly
reflect the cost to Lenders of funding such Offshore Rate Loan, Administrative
Agent will promptly notify Company and all Lenders. Thereafter, the obligation
of Lenders to make or maintain such Offshore Rate Loan shall be suspended until
such circumstances have ceased to exist, whereupon Administrative Agent shall
revoke such notice. Upon receipt of such notice, Borrower may revoke any pending
request for a Borrowing of Offshore Rate Loans or, failing that, be deemed to
have converted such request into a request for a Borrowing of Base Rate Loans in
the amount specified therein.
3.04 INCREASED COST AND REDUCED RETURN; CAPITAL ADEQUACY.
(a) If, due to either the introduction of or any change in or in
the interpretation of any Law or the compliance with any guideline or request of
general applicability from any central bank or other Governmental Authority
(whether or not having the force of law):
(i) subjects any Lender to any Tax, duty, or other charge
with respect to any Offshore Rate Loans or its obligation to make
Offshore Rate Loans, or change the basis on which taxes are imposed on
any amounts payable to such Lender under this Agreement in respect of
any Offshore Rate Loans;
(ii) shall impose or modify any reserve, special deposit,
or similar requirement (other than the reserve requirement utilized in
the determination of the Offshore Rate) relating to Offshore Rate Loans
or other assets of, or any deposits with or other liabilities or
commitments of, any Lender (including its Commitment) with respect
thereto; or
<PAGE>
(iii) shall impose on any Lender or on the offshore Dollar
interbank market any other condition affecting Offshore Rate Loans
under this Agreement or any of such extensions of credit or liabilities
or commitments;
and the result of any of the foregoing is to increase the cost to such Lender of
making, Converting into, Continuing, or maintaining any Offshore Rate Loans or
to reduce any sum received or receivable by such Lender under this Agreement
with respect to any Offshore Rate Loans, then from time to time upon demand of
Lender (with a copy of such demand to Administrative Agent), Borrower shall pay
to such Lender such additional amounts as will compensate such Lender for such
increased cost or reduction.
(b) If any change in or the interpretation of any Laws have the
effect of reducing the rate of return on the capital of any Lender or compliance
by any Lender (or its Lending Office) or any corporation controlling any Lender
as a consequence of any Lender's obligation hereunder (taking into consideration
its policies with respect to capital adequacy and such Lender's desired return
on capital), then from time to time upon demand of such Lender (with a copy to
Administrative Agent), Borrower shall pay to such Lender such additional amounts
as will compensate such Lender for such reduction.
3.05 BREAKFUNDING COSTS. Upon demand of any Lender (with a copy to
Administrative Agent) from time to time, Borrower shall promptly compensate such
Lender for and hold such Lender harmless from any loss, cost or expense incurred
by it as a result of:
(a) any Continuation, Conversion, payment or prepayment of any
Loan other than a Base Rate Loan on a day other than the last day of the
Interest Period for such Loan (whether voluntary, mandatory, automatic, by
reason of acceleration, or otherwise); or
(b) any failure by Borrower (for a reason other than the failure
of such Lender to make a Loan) to prepay, borrow, Continue or Convert any Loan
other than a Base Rate Loan on the date or in the amount notified by Borrower;
including any loss of anticipated profits and any loss or expense arising from
the liquidation or reemployment of funds obtained by it to maintain such Loan or
from fees payable to terminate the deposits from which such funds were obtained.
Borrower shall also pay any customary administrative fees charged by such Lender
in connection with the foregoing.
3.06 MATTERS APPLICABLE TO ALL REQUESTS FOR COMPENSATION.
(a) Each Lender or Administrative Agent claiming compensation
under this Section 3 shall in each case furnish a certificate to Company that
states in reasonable detail in good faith the additional amount or amounts to be
paid to it hereunder and the basis therefor. Any such certificate shall be
conclusive in the absence of clearly demonstrable error. In determining such
amount, Administrative Agent or any Lender may use any reasonable averaging and
attribution methods. For purposes of this Section 3, a Lender shall be deemed to
have funded each Offshore Rate Loan at the Offshore Base Rate used in
determining the Offshore Rate for such Loan by a matching deposit or other
borrowing in the offshore Dollar interbank market, whether or not such Offshore
Rate Loan was in fact so funded.
<PAGE>
3.07 SURVIVAL. All of Borrower's obligations under this Section 3
shall survive termination of the Commitments and payment in full of all
Obligations.
SECTION 4.
CONDITIONS PRECEDENT TO EXTENSIONS OF CREDIT
4.01 CONDITIONS OF INITIAL EXTENSION OF CREDIT. The obligation of
each Lender to make its initial Extension of Credit hereunder is subject to
satisfaction of the following conditions precedent:
(a) Unless waived by all Lenders (or by Administrative Agent with
respect to immaterial matters, Administrative Agent's receipt of the following,
each of which shall be originals or facsimiles (followed promptly by originals)
unless otherwise specified, each properly executed by a Responsible Officer of
the signing Borrower Party, each dated on, or in the case of third-party
certificates, recently before the Closing Date and each in form and substance
reasonably satisfactory to Administrative Agent and its legal counsel:
(i) AGREEMENT. Executed counterparts of this Agreement,
sufficient in number for distribution to Administrative Agent, Lenders
and Borrower;
(ii) NOTES. Notes duly executed and delivered by Borrower
in favor of each Lender, each in a principal amount equal to such
Lender's Commitment;
(iii) MASTER GUARANTY. The Master Guaranty duly executed
and delivered by each Guarantor.
(iv) RESOLUTIONS; INCUMBENCY.
(A) Copies of the resolutions of the board of
directors or the executive committee of the board of directors
of each Borrower Party approving and authorizing the
execution, delivery and performance by such Borrower Party of
the Loan Documents to which it is a party, certified as of the
Closing Date by the Secretary or an Assistant Secretary of
such Borrower Party; and
(B) A certificate of the Secretary or Assistant
Secretary of each Borrower Party, certifying the names and
true signatures of the officers of each Borrower Party
authorized to execute and deliver the Loan Documents to which
it is a party.
(v) ARTICLES OF INCORPORATION; BY-LAWS AND GOOD STANDING.
Each of the following documents:
(A) the articles or certificate of incorporation
of each Borrower Party as in effect on the Closing Date,
certified by the Secretary of State of the State of
incorporation of each Borrower Party as of a recent date and
by the Secretary or Assistant Secretary of each Borrower Party
as of the Closing Date and the bylaws of each Borrower Party
as in effect on the Closing Date, certified by the Secretary
or Assistant Secretary of each Borrower Party as of the
Closing Date and
<PAGE>
(B) a good standing certificate for Company from
the Secretary of State of Delaware and the State of Missouri
as of a recent date.
(vi) AMENDMENT TO NOTE PURCHASE AGREEMENT-1997. Evidence
that Company has amended the Note Purchase Agreement-1997 (or other
evidence satisfactory to Administrative Agent) to provide that the
Obligations of the Guarantors under the Master Guaranty do not create a
default under that Agreement.
(vii) NOT USED.
(viii) LEGAL OPINION. An opinion of Thompson & Coburn,
counsel to the Borrower Parties, and addressed to each Lender and
Issuing Lender in form and substance heretofore approved by
Administrative Agent.
(ix) PAYMENT OF FEES. Company shall have paid all accrued
and unpaid fees, costs and expenses to the extent then due and payable
on the Closing Date, together with reasonable attorney fees, costs and
expenses to the extent invoiced prior to or on the Closing Date.
(x) CERTIFICATE. A certificate signed by a Responsible
Officer, dated as of the Closing Date, stating that: (i) the
representations and warranties contained in Section 5 are true and
correct in all material respects on and as of such date, as though made
on and as of such date; (ii) no Default or Event of Default exists on
the Closing Date and (iii) since December 31, 2001, there has been no
change that has caused or evidences, either in any case or in the
aggregate, a Material Adverse Effect.
(xi) OTHER DOCUMENTS. Such other assurances, certificates,
documents, consents or opinions as Administrative Agent, Issuing Lender
or Requisite Lenders reasonably may require.
(b) The representations and warranties of any Borrower Party
contained in Section 5, or which are contained in the Master Guaranty, any
Compliance Certificates or any other material certificate furnished at any time
under or in connection with any Loan Document shall be correct in all material
respects on and as of the Closing Date except to the extent such representations
and warranties specifically refer to an earlier date.
(c) No Default or Event of Default shall have occurred and be
continuing.
(d) Administrative Agent shall have received and reviewed, with
results reasonably satisfactory to it, information confirming that Company and
its Subsidiaries are taking all reasonably necessary and appropriate steps to
comply with the Sarbanes-Oxley Act and the implementing regulations thereunder.
4.02 CONDITIONS TO ALL EXTENSIONS OF CREDIT. In addition to any
applicable conditions precedent set forth elsewhere in this Section 4 or in
Section 2, the obligation of each Lender to honor any Request for Extension of
Credit is subject to the following conditions precedent:
<PAGE>
(a) the representations and warranties of any Borrower Party
contained in Section 5, or which are contained in the Master Guaranty, any
Compliance Certificates or any other material certificate furnished at any time
under or in connection with any Loan Document shall be correct in all material
respects on and as of the date of such Extension of Credit, except to the extent
that such representations and warranties specifically refer to an earlier date.
(b) no Default or Event of Default exists, or would result from
such proposed Extension of Credit.
(c) Administrative Agent shall have timely received a Request for
Extension of Credit by Requisite Notice by the Requisite Time therefor.
(d) Administrative Agent shall have received, in form and
substance satisfactory to it, such other assurances, certificates, documents or
consents related to the foregoing as Administrative Agent or Requisite Lenders
reasonably may require.
Each Request for Extension of Credit by Borrower shall be deemed to be
a representation and warranty that the conditions specified in Sections 4.02(a)
and (b) have been satisfied on and as of the date of such Extension of Credit.
4.03 CONDITIONS FOR A DOMESTIC SUBSIDIARY BECOMING A GUARANTOR. As
a condition precedent to a Domestic Subsidiary becoming a Guarantor under the
Master Guaranty, Administrative Agent shall have received the following with
respect to such Subsidiary, in form and substance satisfactory to Administrative
Agent:
(a) With respect to all such Subsidiaries, the items referred to
in Section 4.01(a)(iv) and, to the extent not previously delivered, the items
referred in Section 4.01(a)(v).
(b) With respect to all Subsidiaries, the opinion of the general
counsel or assistant general counsel of Company (or such other counsel
designated by Company and reasonably acceptable to Administrative Agent), in
form reasonably acceptable to Administrative Agent, as to (i) such Subsidiary's
obligations under the Loan Documents to which it will be a party being the
legal, valid, binding and enforceable obligation of such Subsidiary and (ii) the
execution, delivery and performance of such Loan Documents by such Subsidiary
(A) being authorized by all necessary corporate, company or partnership action,
as applicable, (B) not violating any law, decree, judgment or, to the knowledge
of such counsel, contractual obligation to which such Subsidiary is a party or
by which it or its assets are bound, and (C) not requiring any government
approvals, consents, registrations or filings.
(c) Exhibit A to the Master Guaranty duly executed by such
Domestic Subsidiary, whereby such Domestic Subsidiary agrees to be bound by the
terms and conditions of the Master Guaranty and, if the Intercreditor Agreement
remains in effect, an acknowledgement to be bound by the Intercreditor Agreement
in accordance with the terms thereof and each Note Purchase Agreement.
(d) Such other opinions or documents as Administrative Agent or
any Lender may reasonably request.
<PAGE>
SECTION 5.
REPRESENTATIONS AND WARRANTIES
Each Borrower severally represents and warrants to Administrative Agent
and Lenders that:
5.01 ORGANIZATION AND EXISTENCE. Each Covered Person is duly
organized and existing in good standing under the laws of the jurisdiction of
its organization, is duly qualified to do business and is in good standing in
every jurisdiction where the nature or extent of its business or properties
require it to be qualified to do business, except where the failure to so
qualify will not have a Material Adverse Effect. Each Covered Person has the
power and authority to own its properties and carry on its business as now being
conducted.
5.02 AUTHORIZATION. Each Borrower Party is duly authorized to
execute and perform every Loan Document to which such Borrower Party is a party,
and each Borrower is duly authorized to borrow hereunder, and the Loan Documents
to which it is a party have been duly authorized by all requisite corporate (or,
if not a corporation, comparable) action of Borrower Party. No consent, approval
or authorization of, or declaration or filing with, any Governmental Authority,
and no consent of any other Person, is required in connection with any Borrower
Party's execution, delivery or performance of this Agreement and the other Loan
Documents, except for those already duly obtained or explicitly contemplated
hereunder.
5.03 DUE EXECUTION. Every Loan Document to which a Borrower Party
is a party has been executed on behalf of such Borrower Party by a legally
competent Person duly authorized to do so.
5.04 ENFORCEABILITY OF OBLIGATIONS. Each of the Loan Documents to
which a Borrower Party is a party constitutes the legal, valid and binding
obligation of such Borrower Party, enforceable against such Borrower Party in
accordance with its terms, except to the extent that the enforceability thereof
against such Borrower Party may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors' rights generally
or by equitable principles of general application.
5.05 BURDENSOME OBLIGATIONS. No Covered Person is a party to or
bound by any Contract or is subject to any provision in the Charter Documents of
such Covered Person which would, if performed by such Covered Person, result in
a Default or Event of Default either immediately or upon the elapsing of time.
5.06 LEGAL RESTRAINTS. The execution of any Loan Document by a
Borrower Party will not violate or constitute a default under the Charter
Documents of such Borrower Party, any Material Agreement of such Borrower Party,
or any Material Law, and will not, except as expressly contemplated or permitted
in this Agreement, result in any Security Interest being imposed on any of such
Borrower Party's property. The performance by any Borrower Party of its
obligations under any Loan Document to which it is a party will not violate or
constitute a default under the Charter Documents of such Borrower Party, any
Material Agreement of such Borrower Party, or any Material Law, and will not,
except as expressly contemplated or permitted in this Agreement, result in any
Security Interest being imposed on any of such Borrower Party's property.
<PAGE>
5.07 LABOR DISPUTES. There is no pending or, to Company's
knowledge, threatened, strike, work stoppage, material unfair labor practice
claim or other material labor dispute against or affecting any Covered Person or
its employees, which is reasonably likely to have a Material Adverse Effect.
5.08 NO MATERIAL PROCEEDINGS. There are no Material Proceedings
pending or, to the best knowledge of Company, threatened, other than as
described in item Schedule 5.08, copies of which have been furnished to
Administrative Agent.
5.09 MATERIAL LICENSES. All Material Licenses have been obtained or
exist for each Covered Person.
5.10 COMPLIANCE WITH MATERIAL LAWS. Each Covered Person is in
compliance with all Material Laws. Without limiting the generality of the
foregoing:
(a) GENERAL COMPLIANCE WITH ENVIRONMENTAL LAWS. The operations and
employee compensation practices of every Covered Person comply in all material
respects with all applicable Environmental Laws, the failure to comply with
which is reasonably likely to have a Material Adverse Effect.
(b) PROCEEDINGS. None of the operations of any Covered Person are
the subject of any judicial or administrative complaint, order or proceeding
alleging the violation of any applicable Environmental Laws.
(c) INVESTIGATIONS REGARDING HAZARDOUS MATERIALS. None of the
operations of any Covered Person are the subject of investigation by any
Governmental Authority regarding the improper transportation, storage, disposal,
generation or release into the environment of any Hazardous Material.
(d) NOTICES AND REPORTS REGARDING HAZARDOUS MATERIALS. No notice
or report under any Environmental Law indicating a past or present spill or
release into the environment of any Hazardous Material from any property owned
or operated by a Covered Person has been filed within the immediately preceding
four fiscal years of such Covered Person, or is required to be filed by any
Covered Person, to the extent such spill or release had or will have a Material
Adverse Effect.
(e) HAZARDOUS MATERIALS ON REAL PROPERTY. No Covered Person, nor
to Company's knowledge, any other Person, has at any time transported, stored,
disposed of, generated or released any Hazardous Material on the surface, below
the surface, or within the boundaries of any real property owned or operated by
such Covered Person, which event is reasonably likely to have a Material Adverse
Effect. Company has no knowledge of any Hazardous Material on the surface, below
the surface, or within the boundaries of any real property owned or operated by
such Covered Person, which is reasonably likely to have a Material Adverse
Effect. No property of such Covered Person is subject to a Security Interest in
favor of any Governmental Authority for any liability under any Environmental
Law or damages arising from or costs included by such Governmental Authority in
response to a spill or release of Hazardous Material into the environment.
5.11 INITIAL FINANCIAL STATEMENTS. The Financial Statements of
Company as of December 31, 2001 and as of September 30, 2002, as delivered to
Administrative Agent by Company, are complete and correct in all material
respects, have been prepared in accordance with
<PAGE>
GAAP, and fairly reflect the financial condition, results of operations and cash
flows of Company as of the date and for the periods stated therein.
5.12 NO CHANGE IN CONDITION. Since September 30, 2002, there has
been no change which is reasonably likely to have a Material Adverse Effect.
5.13 NO DEFAULTS. No Covered Person has breached or violated or has
defaulted under any Material Agreement, or has defaulted with respect to any
Material Obligation of such Covered Person. No Default or Event of Default
exists.
5.14. TAX LIABILITIES; GOVERNMENTAL CHARGES. Each Covered Person has
filed or caused to be filed all tax reports and returns required to be filed by
it with any Governmental Authority, except where extensions have been properly
obtained or where failure to file is not reasonably likely to have a Material
Adverse Effect. Each Covered Person has paid or made adequate provision for
payment of all Taxes of such Covered Person, except (a) Taxes which are being
diligently contested in good faith by appropriate proceedings and as to which
such Covered Person has established adequate reserves in conformity with GAAP or
(b) where failure to pay is not reasonably likely to have a Material Adverse
Effect. No Security Interests for any such Taxes has been filed and no claims
are being asserted with respect to any such Taxes which, if adversely
determined, are reasonably likely to have a Material Adverse Effect. There are
no material unresolved issues concerning any liability of a Covered Person for
any Taxes which, if adversely determined, are reasonably like to have a Material
Adverse Effect.
5.15 PENSION BENEFIT PLANS. All Pension Benefit Plans maintained by
each Covered Person or an ERISA Affiliate of such Covered Person qualify under
Section 401 of the Code and are in compliance in all material respects with the
provisions of ERISA. Except with respect to events or occurrences which do not
have and are not reasonably likely to have a Material Adverse Effect:
(a) PROHIBITED TRANSACTIONS. None of such Pension Benefit Plans
has participated in, engaged in or been a party to any non exempt prohibited
transaction as defined in ERISA or the Code, and no officer, director or
employee of a Covered Person or of an ERISA Affiliate of such Covered Person has
committed a breach of any of the responsibilities or obligations imposed upon
fiduciaries by Title I of ERISA.
(b) CLAIMS. Other than normal claims for benefits, there are no
claims, pending or threatened, involving any such Pension Benefit Plan by a
current or former employee (or beneficiary thereof) of such Covered Person or
ERISA Affiliate of such Covered Person, nor is there any reasonable basis to
anticipate any claims involving any such Pension Benefit Plan which would likely
be successfully maintained against such Covered Person or ERISA Affiliate of
such Covered Person.
(c) REPORTING AND DISCLOSURE REQUIREMENTS. There are no violations
of any reporting or disclosure requirements with respect to any such Pension
Benefit Plan and none of such Pension Benefit Plans has violated any applicable
Law, including ERISA and the Code.
(d) ACCUMULATED FUNDING DEFICIENCY. No such Pension Benefit Plan
has (i) incurred an accumulated funding deficiency (within the meaning of
Section 412(a) of the Code), whether or not waived; (ii) been a Pension Benefit
Plan with respect to which a Reportable Event (to the extent that the reporting
of such events to the PBGC within thirty days of the occurrence has not been
<PAGE>
waived) has occurred and is continuing; or (iii) been a Pension Benefit Plan
with respect to which there exist conditions or events which have occurred that
present a significant risk of termination of such Pension Benefit Plan by the
PBGC.
(e) MULTI EMPLOYER PLAN. No Covered Person or ERISA Affiliate of
such Covered Person has received notice that any Multi Employer Plan to which
any Covered Person contributes or is obligated to contribute is in
reorganization or has been terminated within the meaning of Title IV of ERISA,
and no such Multi Employer Plan is reasonably expected to be in reorganization
or to be terminated within the meaning of Title IV of ERISA.
5.16 EMPLOYEE BENEFIT PLANS. N Covered Person or ERISA Affiliate of
such Covered Person maintains an employee benefit plan that has a liability
which, if enforced or collected, would have a Material Adverse Effect. Each
Covered Person and ERISA Affiliate of such Covered Person has complied in all
material respects with the applicable requirements of Section 4980B of the Code
pertaining to continuation coverage as mandated by COBRA.
5.17 STATE OF PROPERTY. Each Covered Person has good and marketable
or merchantable title to all real and personal property purported to be owned by
it or reflected in the Initial Financial Statements, except for property sold in
the ordinary course of business after the date of the Initial Financial
Statements and except for any defects in title which are not reasonably likely
to have a Material Adverse Effect. There are no Security Interests on any of the
property purported to be owned by any Covered Person except Security Interests
permitted under this Agreement.
5.18 SUBSIDIARIES. As of the Closing Date, Company has no
Subsidiaries other than the Subsidiaries listed in Schedule 5.18, and all
Domestic Subsidiaries other than Mississippi Textiles Corporation and Insituform
(Netherlands) B.V., Inc. are Guarantors. After the Closing Date, all Domestic
Subsidiaries other than Mississippi Textiles Corporation and Insituform
(Netherlands) B.V., Inc. are Guarantors within the time period set forth in
Section 6.10.
5.19 MARGIN STOCK. Company is not engaged and will not engage,
principally or as one of its important activities, in the business of extending
credit for the purpose of purchasing or carrying margin stock (within the
meaning of Regulation U), and none of the proceeds of any Loan will be used to
purchase or carry any such margin stock or to extend credit to others for the
purpose of purchasing or carrying any such margin stock or for any purpose which
violates, or which would be inconsistent with, the provisions of Regulation U.
None of the transactions contemplated by any Permitted Acquisition will violate
Regulation U of the FRB.
5.20 HOSTILE SECURITIES TRANSACTIONS. No proceeds of any Loan will
be used to acquire from any Person any security in a transaction that is hostile
from the point of view of such Person.
5.21 INVESTMENT COMPANY ACT, ETC. No Borrower Party is an
investment company registered or required to be registered under the Investment
Company Act of 1940, as amended, or a company controlled (within the meaning of
such Investment Company Act) by such an investment company or an affiliated
person of, or promoter or principal underwriter for, an investment company, as
such terms are defined in the Investment Company Act of 1940, as amended. No
Borrower Party is subject to regulation under the Public Utility Holding Company
Act of 1935, the Federal Power Act or the Interstate Commerce Act.
<PAGE>
5.22 FILINGS. All registration statements, reports, proxy
statements and other documents, if any, required to be filed by Company with the
Securities and Exchange Commission pursuant to the Securities Act of 1933, as
amended, and the Securities Exchange Act of 1934, as amended, have been filed,
and such filings are complete and accurate in all material respects and contain
no untrue statements of material fact or omit to state any material facts
required to be stated therein or necessary in order to make the statements there
in not misleading in light of the circumstances in which made.
5.23 BROKER'S FEES. No broker or finder is entitled to compensation
for services rendered with respect to the loan transactions contemplated by this
Agreement and the other Loan Documents.
5.24 INDEBTEDNESS OUTSTANDING ON CLOSING DATE. Schedule 5.24 lists,
as of the Closing Date, all outstanding Indebtedness of Company and its
Subsidiaries in excess of $1,000,000, all Liens on property of Company and its
Subsidiaries securing Indebtedness in excess of $1,000,000 and all contractual
obligations undertaken by the Company and its Subsidiaries in connection with
Indebtedness in excess of $1,000,000 restricting Liens on property of Company
and its Subsidiaries.
5.25 PROJECTIONS. Notwithstanding anything in the Loan Documents to
the contrary, no Borrower Party shall be construed as having made any
representation, warranty or covenant with respect to any projection or forecast,
or the achievement thereof, except that whenever Company or its Subsidiaries
shall from time to time deliver projections in connection with any Loan
Document, to the best knowledge of Company when delivered, the assumptions set
forth in such projections are reasonable and consistent with each other and with
all facts known to Company at such time, and such projections are reasonably
based on such assumptions.
5.26 FULL DISCLOSURE. Company has disclosed to Administrative Agent
and each Lender all information regarding the business, operations, property,
financial condition, or business prospects of itself and every Covered Person
which is reasonably likely to have a Material Adverse Effect.
5.27 USE OF PROCEEDS. None of the proceeds of the Loans will be
used directly or indirectly to fund a personal loan to or for the benefit of a
director or executive officer of Borrower or a Guarantor.
5.28 BONDING CAPACITY. Company and its Subsidiaries have in place
and available to it and them surety and performance bonds adequate in amount and
credit quality to continue in the ordinary course of their business as presently
projected over the course of the next eighteen (18) months.
SECTION 6.
AFFIRMATIVE COVENANTS
Until Final Payment, Company shall, and shall (except in the case of
Company's reporting covenants under Sections 6.01 and 6.02), cause each
Subsidiary to:
6.01 FINANCIAL STATEMENTS. Deliver to Administrative Agent and to
each Lender:
<PAGE>
(a) ANNUAL FINANCIAL STATEMENTS. Within 90 days after the close of
each fiscal year of Company (unless Company has timely filed a Form 12b-25 with
the Securities and Exchange Commission with respect to such fiscal year, in
which case such period shall be 105 days after the close of such fiscal year),
year-end consolidated and consolidating Financial Statements of Company and its
Subsidiaries (to include balance sheet, income statement and statement of cash
flows), setting forth in each case in comparable form the figures for the
previous year, all in reasonable detail and containing an audit report without
qualification (except the qualification Pricewaterhouse Coopers LLP does not
express any opinion with respect to the financial statements of the Company and
its Subsidiaries for fiscal years 2000 and 2001) with respect to such
consolidated statements by Pricewaterhouse Coopers, LLP or such other
independent certified public accounting firm selected by Company and
satisfactory to Requisite Lenders, and certified by the officers of the Company
as required by the Sarbanes-Oxley Act.
(b) QUARTERLY FINANCIAL STATEMENTS. Within 45 days after the end
of each fiscal quarter of Company (unless Company has timely filed a Form 12b-25
with the Securities and Exchange Commission with respect to such fiscal quarter,
in which case such period shall be 50 days after the close of such fiscal
quarter), unaudited consolidated and consolidating Financial Statements of
Company and its Subsidiaries (to include balance sheet, income statement and
statement of cash flows) for the most recent quarter not covered by the latest
year-end Financial Statements required hereunder to be delivered to
Administrative Agent.
6.02 CERTIFICATES, NOTICES AND OTHER INFORMATION. Deliver to
Administrative Agent with a copy to each Lender in form and detail reasonably
satisfactory to Administrative Agent:
(a) concurrently with the delivery of the financial statements
referred to in Section 6.01(a), a certificate of the independent certified
public accounting firm that examined such consolidated Financial Statements to
the effect that they have reviewed and are familiar with this Agreement and
that, in examining such consolidated Financial Statements, nothing came to their
attention that caused them to believe that an event or condition that
constitutes a Default or Event of Default has occurred or existed insofar as
such conditions or events relate to accounting matters, except for those, if
any, described in reasonable detail in such certificate;
(b) concurrently with the delivery of the financial statements
referred to in Section 6.01(a), or as promptly as available thereafter, the
management letter and report on internal controls delivered by such independent
certified public accounting firm in connection with their audit of such
financials;
(c) concurrently with the delivery of the financial statements
referred to in Sections 6.01(a) and (b), a duly completed Compliance Certificate
signed by a Responsible Officer of Company;
(d) promptly after their preparation, copies of any and all (i)
proxy statement, financial statements and reports which Company makes available
to its stockholders generally, and (ii) reports, registration statements and
prospectuses, if any, filed by Company with any securities exchange or the
Securities and Exchange Commission or any Governmental Authority succeeding to
any of its functions;
<PAGE>
(e) within the 60 days following the first day of each fiscal year
of Company, projected or forecasted consolidated balance sheets, statements of
income and expense, and statements of cash flows for Company and its
Subsidiaries (including any Subsidiary then proposed to be acquired, organized
or created in connection with a Permitted Acquisition and to continue in
existence after consummation thereof) as of the end of and for each fiscal
quarter in such fiscal year in such reasonable detail as Administrative Agent or
any Lender may require;
(f) within forty-five (45) days after the end of each fiscal
quarter, a job status report for each project of Company and its Subsidiaries
containing such detail and information as are satisfactory to Administrative
Agent;
(g) promptly upon any Responsible Officer of Company becoming
aware of the occurrence thereof, notice of any Default or Event of Default;
(h) promptly after the receipt thereof, a copy of, any (i) notice
that any violation of any Environmental Law may have been committed or is about
to be committed by any Covered Person, which violation is reasonably likely to
have a Material Adverse Effect, (ii) notice that any administrative or judicial
complaint or order has been filed or is about to be filed against any Covered
Person alleging violations of any Environmental Law or requiring such Covered
Person to take any action in connection with the release of any Hazardous
Material into the Environment, (iii) notice from a Governmental Authority or
private Person alleging that a Covered Person may be liable or responsible for
costs associated with a response to or cleanup of a release of Hazardous
Material into the environment or any damages caused thereby, which costs or
damages are reasonably likely to be in excess of $500,000, (iv) notice that a
Covered Person is subject to federal, state or local investigation regarding the
improper transportation, storage, disposal, generation or release into the
environment of any Hazardous Material, which event is reasonably likely to have
a Material Adverse Effect, or (v) notice that any properties or assets of a
Covered Person are subject to a Security Interest in favor of any Governmental
Authority for any liability under any Environmental Law or damages arising from
or costs incurred by such Governmental Authority in response to a release of
Hazardous Material into the environment;
(i) promptly after the occurrence thereof, notice of (i) the
failure of any Covered Person or ERISA Affiliate of such Covered Person to make
any required installment or any other required payment to any Pension Benefit
Plan in sufficient amount to comply with ERISA and the Code on or before the due
date for such installment or payment, which event is reasonably likely to have a
Material Adverse Effect; (ii) the occurrence of any Reportable Event, or a
Prohibited Transaction or Accumulated Funding Deficiency (as those terms are
defined in ERISA), with respect to any Pension Benefit Plan maintained or
contributed to by a Covered Person or ERISA Affiliate of such Covered Person,
(iii) receipt by a Covered Person or ERISA Affiliate of such Covered Person of
any notice from a Multiemployer Plan regarding the imposition of withdrawal
liability, which event is reasonably likely to have a Material Adverse Effect;
and (iv) receipt by a Covered Person or ERISA Affiliate of such Covered Person
of any notice of the institution, or a Covered Person's expectancy of the
institution, of any proceeding or receipt by such Covered Person or ERISA
Affiliate of such Covered Person of any notice of the taking, or such Covered
Person's expectancy of the taking, of any other action which may result in the
termination of any Pension Benefit Plan maintained or contributed to by such
Covered Person or ERISA Affiliate of such Covered Person, or the withdrawal or
partial withdrawal by a Covered Person or ERISA Affiliate of such Covered Person
from any Pension Benefit Plan, and the filing or receipt by Covered Person or
ERISA Affiliate of
<PAGE>
such Covered Person of any such notice and filing or receipt of all subsequent
reports or notices under ERISA with or from the IRS, the PBGC, or the DOL
relating to the same, which event is reasonably likely to have a Material
Adverse Effect; and, in addition to such notice, deliver to Administrative Agent
a certificate of a Responsible Officer of Company, setting forth details as to
such events and the action that the affected Covered Person or ERISA Affiliate
of such Covered Person proposes to take with respect thereto. For purposes of
this Section, a Covered Person and any ERISA Affiliate of such Covered Person
hall be deemed to know all facts known by the administrator of any Plan of which
such Covered Person or any ERISA Affiliate of such Covered Person is the plan
sponsor;
(j) promptly after the occurrence thereof, notice of any default
or event of default, or the occurrence of any event which would with the passage
of time, giving of notice or otherwise, constitute a default or event of default
with respect to any Indebtedness in excess of $5,000,000;
(k) promptly after becoming aware thereof, notice of any pending
or threatened strike, work stoppage, material unfair labor practice claim or
other material labor dispute affecting a Covered Person which is reasonably
likely to have a Material Adverse Effect;
(l) notice of any change in the name, state of incorporation, or
form of organization of any Borrower Party at least 15 days prior to such
change;
(m) promptly after any Responsible Officer becomes aware thereof,
notice of the cancellation of or refusal to extend a performance or payment bond
or surety contract to Company or a Subsidiary in connection with work to be
performed by Company or any Subsidiary or any joint venture in which Company or
any Subsidiary participates, and notice of the face amount of claims against
such performance or payment bonds or surety contracts to the extent such claims
in the aggregate exceed $500,000 at any one time;
(n) promptly after any Responsible Officer becomes aware thereof,
notice of any event that has or is reasonably likely to have a Material Adverse
Effect;
(o) promptly after any Responsible Officer becomes aware thereof,
commencement of any Material Proceeding;
(p) promptly after any Responsible Officer becomes aware thereof,
notice of an actual, alleged, or potential violation of any Material Law
applicable to a Covered Person.
(q) promptly after the occurrence thereof, notice of any loss,
including loss as a consequence of condemnation proceedings, or damage to any
part of the assets of a Covered Person, if the uninsured portions of such loss,
damage or proceeding is reasonably likely to be in excess of $1,000,000;
(r) promptly after the request of Administrative Agent or any
Lender, a copy of each annual report or other filing or notice filed with
respect to each Pension Benefit Plan of any Covered Person or any ERISA
Affiliate;
(s) promptly after the request of Administrative Agent or any
Lender, a copy of each federal, state, or local tax return or report filed by
Company; and
<PAGE>
(t) promptly after the request of Administrative Agent or any
Lender, such additional information about the business, operations, revenues,
financial condition, property, or business prospects of any Borrower Party as
Administrative Agent or any Lender may, from time to time, reasonably request.
6.03 USE OF PROCEEDS. Use all proceeds of the Loans solely for
working capital, general corporate purposes and to fund payment of amounts due
from Company or any Subsidiary in connection with Permitted Acquisitions.
6.04 CORPORATE EXISTENCE. Except as a result of a transaction
permitted by Section 7.07, maintain its existence in good standing and shall
maintain in good standing its right to transact business in those states in
which it is now or hereafter doing business, except where the failure to so
qualify is not reasonably likely to have a Material Adverse Effect, and obtain
and maintain all Material Licenses for such Covered Person.
6.05 MAINTENANCE OF PROPERTY AND LEASES. Maintain in good condition
and working order, and repair and replace as required, all buildings, equipment,
machinery, fixtures and other real and personal property whose useful economic
life has not elapsed and which is necessary for the ordinary conduct of the
business of such Covered Person, and maintain in good standing and free of
defaults all of its leases of buildings, equipment, machinery, fixtures and
other real and personal property whose useful economic life has not elapsed and
which is necessary for the ordinary conduct of the business of such Covered
Person.
6.06 INSURANCE. At all times keep insured or cause to be kept
insured, with financially sound and reputable insurers, all property owned by it
of a character usually insured by others carrying on businesses similar to that
of such Covered Person in such manner and to such extent and covering such risks
as such properties are usually insured, and at all times carry insurance, with
financially sound and reputable insurers, against liability on account of damage
to persons or property (including product liability insurance and insurance
required under all applicable workers' compensation laws) and covering all other
liabilities common to such Covered Person's business, in such manner and to such
extent as such coverage is usually carried by others conducting businesses
similar to that of such Covered Person.
6.07 PAYMENT OF TAXES AND OTHER OBLIGATIONS. Promptly pay and
discharge or cause to be paid and discharged, as and when due, all taxes
lawfully assessed or imposed on it, and all taxes lawfully assessed upon any of
its property, or upon the income or profits therefrom, and all claims of
materialmen, mechanics, carriers, warehousemen, landlords and other like Persons
for labor, materials, supplies, storage or other items or services which if
unpaid might be or become a Security Interest or charge upon any of its
property; provided, however, that a Covered Person may diligently contest in
good faith by appropriate proceedings the validity of any such taxes or claims
if Company has established adequate reserves therefor in conformity with GAAP on
the books of such Covered Person, and no Security Interest, other than a
Permitted Security Interest, results from such non-payment.
6.08 COMPLIANCE WITH LAWS. Comply with all Material Laws. Without
limiting the generality of the foregoing:
<PAGE>
(a) ENVIRONMENTAL LAWS. Comply and shall use commercially
reasonable efforts to ensure compliance by all tenants, subtenants and other
occupants of the property of such Covered Person, if any, with all Environmental
Laws whose violation is reasonably likely to have a Material Adverse Affect.
(b) PENSION BENEFIT PLANS. Shall, and shall cause each ERISA
Affiliate of such Covered Person to, at all times make prompt payments or
contributions to meet the minimum funding standards under ERISA and the Code
with respect to any Pension Benefit Plan maintained by such Covered Person or
ERISA Affiliate of such Covered Person, and shall comply with all reporting and
disclosure requirements and all provisions of the Code and ERISA applicable to
any Pension Benefit Plan maintained by such Covered Person or ERISA Affiliate to
such Covered Person, if non compliance therewith is reasonably likely to have a
Material Adverse Affect.
(c) DISCOVERY AND CLEAN UP OF HAZARDOUS MATERIAL. Upon receiving
notice of any violation of Environmental Laws or any similar notice described in
Section 6.02, or upon otherwise discovering Hazardous Material on any property
owned or operated by such Covered Person which is in violation of, or which is
reasonably likely to result in liability under, any Environmental Law which is
reasonably likely to have a Material Adverse Effect, shall: (i) promptly take
such acts as may be necessary to prevent danger or harm to the affected property
or any person therein as a result of such Hazardous Material, and (ii) take all
necessary steps to initiate and expeditiously complete all removal, remedial,
response, corrective and other action to eliminate any such environmental
problems, and keep Administrative Agent informed of such actions and the results
thereof.
6.09 ACCOUNTING SYSTEM. Maintain a system of accounting
established and administered in accordance with GAAP.
6.10 ADDITIONAL GUARANTORS. Cause each Domestic Subsidiary other
than Mississippi Textiles Corporation and Insituform (Netherlands) B.V., Inc. to
become a Guarantor by complying, within 90 days of becoming a Domestic
Subsidiary, with the applicable provisions of Section 4.03 on its part to be
performed in such cases. Each and every obligation and condition under this
Agreement with respect to the delivery of the Master Guaranty or a Domestic
Subsidiary becoming a Guarantor hereunder shall be subject to the prior or
contemporaneous execution and delivery by Administrative Agent and all Lenders
of such agreements as are contemplated by Section 9.8(e) of the Note Purchase
Agreement-1997 and the equivalent provision, if any, in the Note Purchase
Agreement-2003, on their part to be performed in such cases. Upon Final Payment,
the Master Guaranty shall terminate and be of no further force or effect, except
with respect to provisions thereof which by their terms survive the termination
thereof, subject to reinstatement as contemplated in Section 10.23.
6.11 AUDITS BY ADMINISTRATIVE AGENT AND LENDERS. Permit
Administrative Agent and each Lender or Persons authorized by and acting on
behalf of Administrative Agent and each Lender at any time and from time to time
during normal business hours to audit the books and records, and inspect any of
the property, of each Covered Person from time to time upon reasonable prior
notice to such Covered Person, and in the course thereof permit Administrative
Agent and each Lender or such Persons to make copies or abstracts of such books
and records and discuss the affairs, finances and books and records of such
Covered Person with its accountants, bonding and surety companies, officers and
employees. Company shall cause each Covered Person to cooperate with
Administrative Agent and each Lender and such Persons in the conduct of such
<PAGE>
audits and shall deliver to Administrative Agent and such Lender any instrument
necessary for Administrative Agent and each Lender to obtain records from any
service bureau maintaining records for such Covered Person. The reasonable
expenses of Administrative Agent and each Lender incurred in conducting the
foregoing audits and inspections, after a Default or Event of Default, shall be
reimbursed by Company to Administrative Agent and Lenders.
6.12 ACCESS TO OFFICERS AND AUDITORS. Permit Administrative Agent
and each Lender and Persons authorized by them, upon reasonable prior notice and
during normal business hours, to discuss the affairs, finances and accounts of
such Covered Person with its officers and independent auditors as often as they
may reasonably request, and direct such officers and independent auditors to
cooperate with them and make full disclosure to them of these matters that they
may deem relevant to the continuing ability of Company timely to pay and perform
the Obligations.
6.13 FURTHER ASSURANCES. Execute and deliver to Administrative
Agent or each Lender such documents and agreements, and shall take or cause to
be taken such actions, as Administrative Agent or any Lender may from time to
time reasonably request to carry out the terms and conditions of this Agreement
and the other Loan Documents.
SECTION 7.
NEGATIVE COVENANTS
Until Final Payment, Company shall not, nor shall it permit (except
with respect to Section 7.15) any Covered Person to directly or indirectly:
7.01 INDEBTEDNESS. Create, incur, assume, or allow to exist any
Indebtedness unless and only to the extent that:
(a) no Default or Event of Default is (unless waived) continuing
or will occur or has occurred or is reasonably likely to occur as a consequence
thereof; and
(b) it is Permitted Indebtedness.
7.02 PREPAYMENTS. Voluntarily prepay any Indebtedness other than:
(a) the Obligations in accordance with the terms of the Loan
Documents;
(b) trade payables in the ordinary course of business;
(c) required prepayments of the 7.88% Senior Notes, Series A, Due
February 14, 2007 of $110,000,000 aggregate original principal amount that were
issued by Company under the Note Purchase Agreement-1997;
(d) required prepayments of the senior notes that are issued by
Company pursuant to the Note Purchase Agreement-2003;
(e) the Indebtedness listed on Schedule 7.02(e); and
<PAGE>
(f) any other Indebtedness up to the aggregate amount of
prepayments of $5,000,000 during the term of this Agreement.
7.03 SECURITY INTERESTS. Create, incur, assume or allow to exist
any Security Interest upon all or any part of its property, real or personal,
now owned or hereafter acquired, except Security Interests:
(a) for taxes, assessments or governmental charges not delinquent
or being diligently contested in good faith and by appropriate proceedings and
for which adequate book reserves in accordance with GAAP are maintained;
(b) arising out of pledges and deposits in connection with
workers' compensation insurance, unemployment insurance, old age pensions, or
other social security or retirement benefits legislation;
(c) arising out of deposits or pledges to secure bids, tenders,
contracts (other than contracts for the payment of money), leases, statutory
obligations, surety and appeal bonds, and other obligations of like nature
arising in the ordinary course of business;
(d) imposed by any Law, such as mechanics', workmen's,
materialmen's, landlords', carriers', or other like Security Interests arising
in the ordinary course of business which secure payment of obligations which are
not past due or which are being diligently contested in good faith by
appropriate proceedings and for which adequate book reserves in accordance with
GAAP are maintained;
(e) in favor of Administrative Agent on behalf of Lenders;
(f) that are "Liens" securing Permitted Indebtedness in an amount
of up to $6,000,000.
7.04 ACQUISITIONS. Acquire all or a material part of the assets of
a Person, regardless of the form of the transaction, except in a Permitted
Acquisition.
7.05 SALE OF PROPERTY. Sell, assign, lease, transfer, abandon or
otherwise dispose of any of its property (including without limitation, any
shares of capital stock of a Subsidiary owned by Company or another Subsidiary)
except for (a) sales of fixed assets which are obsolete, worn-out or otherwise
not used or useable in the ordinary course of its business, so long as the net
proceeds thereof are used solely to purchase replacement fixed assets of
comparable quality and function or to pay or prepay any Permitted Lien
encumbering the assets being sold, (b) equipment leased pursuant to a sale and
leaseback transaction provided the transaction does not create a Default or
Event of Default hereunder, (c) sales or transfers generating net proceeds which
in the aggregate during the term of this Agreement do not exceed $25,000,000,
provided however, that to the extent aggregate sales or transfers generate net
proceeds in excess of $5,000,000, such excess must be applied by Company to the
reduction of the outstanding balance of either the Loans or the Note Purchase
Agreement-2003 or the Note Purchase Agreement-1997, (d) sale of inventory in the
ordinary course of business, or (e) sale or transfer of assets between or among
Covered Persons, provided such a sale or transfer does not cause a Default or
Event of Default hereunder.
7.06 RESTRICTED PAYMENTS. (a) Directly or indirectly declare or
make, or incur any liability to make, any Restricted Payment if the same would
result in a Default or Event of Default,
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and (b) directly or indirectly declare or make, or incur any liability to make,
any payment for the acquisition, redemption or retirement of any outstanding
stock of Company if the same would exceed in the aggregate during any
consecutive four (4)-fiscal quarter period an amount of $12,000,000.
7.07 MERGERS AND CONSOLIDATIONS. Merge or consolidate with or be a
party to a merger with any other Person, or sell, lease or otherwise dispose of
all or substantially all of its assets except in a Permitted Acquisition or as
permitted in Section 7.05, provided, however, (i) in any merger or consolidation
involving Company, Company shall be the surviving or continuing corporation,
(ii) in any merger or consolidation involving a Wholly-Owned Subsidiary, the
continuing or surviving corporation shall be a Wholly-Owned Subsidiary, and
(iii) in any merger or consolidation involving a Subsidiary, the continuing or
surviving corporation shall be a Subsidiary.
7.08 CHANGE OF BUSINESS. Engage in any business other than
substantially as conducted on the Closing Date by Company or any of its
Subsidiaries or a business reasonably related thereto or in furtherance thereof.
7.09 TRANSACTIONS WITH AFFILIATES. Enter into or be a party to any
material transaction or arrangement, including the purchase, sale or exchange of
property of any kind or the rendering of any service material to the operations
of Company and the Subsidiaries taken as a whole, with any Affiliate, or make
any loans or advances to any Affiliate except:
(a) transactions with another Covered Person; and
(b) transactions in the ordinary course of business and pursuant
to the reasonable requirements of its business and on fair and reasonable terms
substantially as favorable to it as those which it could obtain in a comparable
arm's length transaction with a non-Affiliate.
7.10 CONFLICTING AGREEMENTS, ETC. Enter into any agreement, engage
in any transaction, acquire or create any Subsidiary, or transfer assets to any
Subsidiary (whether or not it is actively engaged in a trade or business) that
would immediately or in a reasonably foreseeable time result in a Default or
Event of Default; or enter into any agreement that would immediately or in a
reasonably foreseeable time, if fully complied with or performed by it, result
in a Default or Event of Default.
7.11 SALE AND LEASEBACK TRANSACTIONS; OPERATING LEASES.
(a) Enter into any agreement or arrangement with any Person
providing for Company or a Covered Person to lease or rent property that Company
or a Covered Person has or will sell or otherwise transfer to such Person,
except (i) upon terms no less favorable than in an arms-length transaction in
which Company or such Covered Person will receive a cash payment upon such sale
or transfer equal to the fair market value of such property; and (ii) in
compliance with sub-section (b) below.
(b) Enter into Operating Leases which, provide for rental
obligations for the remaining terms of the Operating Leases at any time in the
aggregate in excess of $60,000,000, compliance to be measured as of the Closing
Date and at the end of each fiscal year of Company.
7.12 FISCAL YEAR. Change its fiscal year.
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7.13 TRANSACTIONS HAVING A MATERIAL ADVERSE EFFECT ON A COVERED
PERSON. Enter into any transaction which has or is reasonably likely to have a
Material Adverse Effect.
7.14 TERMINATION OF PENSION BENEFIT PLAN. Terminate or amend, or
permit any ERISA Affiliate of any Covered Person to terminate or amend, any
Pension Benefit Plan maintained by such Covered Person or ERISA Affiliate of
such Covered Person if such termination or amendment would result in any
liability to such Covered Person or ERISA Affiliate of such Covered Person under
ERISA which is reasonably likely to have a Material Adverse Effect or any
increase in current liability for the plan year for which such Covered Person or
ERISA Affiliate of such Covered Person is required to provide security to such
Pension Benefit Plan under the Code which is reasonably likely to have a
Material Adverse Effect.
7.15 FINANCIAL COVENANTS.
(a) MINIMUM FIXED CHARGE COVERAGE RATIO. Until Final Payment
permit, as at the end of each fiscal quarter, the ratio of (A) Consolidated
EBITDA plus Rentals (other than Rentals under Capital Leases) less Capital
Expenditures (plus cash proceeds from the sale of assets that must be treated as
a capital asset under GAAP), less taxes based on or measured by income, used or
included in the determination of Consolidated Net Income from Continui