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<SEC-DOCUMENT>0000950137-04-001860.txt : 20040315
<SEC-HEADER>0000950137-04-001860.hdr.sgml : 20040315
<ACCEPTANCE-DATETIME>20040315144640
ACCESSION NUMBER: 0000950137-04-001860
CONFORMED SUBMISSION TYPE: 10-K
PUBLIC DOCUMENT COUNT: 19
CONFORMED PERIOD OF REPORT: 20031231
FILED AS OF DATE: 20040315
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: 04669068
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/TN/
DATE OF NAME CHANGE: 19930617
FORMER COMPANY:
FORMER CONFORMED NAME: INSITUFORM OF NORTH AMERICA INC
DATE OF NAME CHANGE: 19921217
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K
<SEQUENCE>1
<FILENAME>c83625e10vk.txt
<DESCRIPTION>ANNUAL REPORT
<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, 2003
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:
<TABLE>
<CAPTION>
Title of each class Name of each exchange on which reported
- ------------------- ---------------------------------------
<S> <C>
Class A Common Shares, $.01 par value The Nasdaq Stock Market
Preferred Stock Purchase Rights The Nasdaq Stock Market
</TABLE>
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 that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (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 Act)
Yes [X] No [ ]
State the aggregate market value of the voting and non-voting common equity held
by non-affiliates of the registrant as of June 30, 2003: $374,456,034
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 1, 2004................................... 26,472,317 shares
- --------------------------
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 2004 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 and other trenchless technologies itself.
Effective November 1, 2003, the Company purchased its remaining
interest in Ka-Te Insituform AG ("Ka-Te Insituform") for approximately $2.2
million. Net of related party debt and shared accrued employee liabilities, cash
paid by the Company was $0.8 million. Ka-Te Insituform was the Company's
licensee of the Insituform CIPP Process in Switzerland, Liechtenstein and
Voralberg, Austria. Ka-Te Insituform had approximately $1.8 million of revenues
after the acquisition in 2003.
Effective September 5, 2003, the Company acquired the business and
certain assets of Insituform East, Inc. ("East") for $5.5 million. East was the
final remaining independent licensee of the Insituform CIPP Process and
NuPipe(R) fold and form process (the "NuPipe Process") in North America. Certain
selected assets such as equipment, inventory, backlog, licenses and an option to
purchase certain additional assets were included in the acquisition. The Company
exercised its option to purchase additional assets from East for $0.6 million.
Both the original purchase and the subsequent purchase of assets were paid in
cash. The purchase price has been allocated to assets based on their respective
fair values and resulted in intangible assets of $4.0 million, including
licenses, purchased backlog and customer relationships. The operation of assets
acquired from East generated $2.7 million of revenues after the acquisition in
2003.
In July 2003, the Company purchased the remaining third party minority
interest in Video Injection S.A. ("Video Injection"). The purchase price was
$0.5 million and resulted in $0.3 million of additional goodwill.
In June 2003, the Company completed the acquisition of the business of
Sewer Services, Ltd. ("Sewer Services"). The acquisition, with a price of $0.4
million, resulted in an increase of $0.1 million in goodwill. Sewer Services had
revenues of $2.5 million after the acquisition in 2003.
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, for
approximately $12.5 million. The Elmore division, which is part of the tunneling
segment, had approximately $15.2 million in revenues in 2003 and $20.7 million
in revenues after the acquisition in 2002.
In February 2001, the Company acquired Kinsel Industries, Inc.
("Kinsel"), a trans-regional provider of pipebursting and other sewer
rehabilitation services, for approximately $80.0 million. In 2000,
1
<PAGE>
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
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 an immaterial 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 material gain
or loss recorded on the sale. At December 31, 2003, substantially all
discontinued operations have been completed.
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 the Company by industry segment and by each geographic
area, 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. In addition, the Company's Code of
Ethics for its Chief Executive Officer, Chief Financial Officer and senior
financial employees, its Business Code of Conduct applicable to its officers,
directors and employees, and its Board committee charters are available, free of
charge, on this website. These documents will be made available, free of charge,
to any stockholder requesting them.
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
2
<PAGE>
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 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, 2003.
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 typically installed after the tunnel is constructed.
Tite Liner(R) Process
The Company's Tite Liner(R) process (the "Tite Liner Process") is a
method of lining new and existing pipe with a corrosion and abrasion resistant
polyethylene pipe.
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 capitalize on its
trenchless processes directly, 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 capitalize on
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 only.
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 throughout the United
States and in Canada. Significant pipebursting rehabilitation activities have
been conducted in the southeastern and western regions of the United States by
the Company and its subsidiary, Kinsel. The Kinsel pipebursting operations have
been transferred to the Company.
North American rehabilitation operations, including research and
development, engineering, training and financial support systems, are
headquartered in Chesterfield, Missouri. Tube manufacturing and processing
facilities for North America were maintained in eight locations, geographically
dispersed throughout the United States and Canada during 2003. During the first
quarter of 2004, the Company closed its facility in Memphis, Tennessee, and
transferred its operations to the Company's existing facilities in Batesville,
Mississippi.
3
<PAGE>
Outside of North America, the Company conducts Insituform CIPP Process
rehabilitation operations through subsidiaries in the United Kingdom, France,
Spain, the Netherlands, Switzerland and Belgium. Through one of its French
subsidiaries, 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, Switzerland and Mitry Mory, France.
The Company conducts tunneling, microtunneling and a range of pipe
system rehabilitation services throughout the United States directly and through
its wholly-owned subsidiaries, Affholder, Inc. ("Affholder") and Kinsel.
Tite Liner Process operations (which offer corrosion and abrasion
protection work) are conducted in the United States through the Company's United
Pipeline Systems division. Worldwide Tite Liner Process operations are
headquartered in the United States. Outside the United States, Tite Liner
Process installation activities are conducted through various operating
subsidiaries, including activities in Chile and Alberta, Canada.
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 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 pending satisfactory completion
of the project.
4
<PAGE>
LICENSEES
The Company has granted licenses for the Insituform CIPP Process,
covering exclusive and non-exclusive territories, to licensees who provide
pipeline repair and rehabilitation services throughout their respective licensed
territories. At December 31, 2003, the Insituform CIPP Process was licensed to
11 unaffiliated licensees and 13 unaffiliated sublicensees. 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 was obligated to pay specified royalty surcharges
on its sales and contracts outside of its licensed territories. As of and
subsequent to September 5, 2003, there were no unaffiliated domestic licensees.
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 royalty
obligations or other material obligations, the Company may terminate the
license. Many 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 with approved
installers relating to the use of the Thermopipe Process in the United Kingdom
and elsewhere on a non-exclusive basis.
Prior to September 5, 2003, East held 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.) Effective September 5, 2003, the Company acquired the
business and certain assets, including the licenses, of East. East was the final
remaining independent licensee of the Insituform CIPP Process and the NuPipe
Process in North America.
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/G, 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 and Per Aarsleff are in the process of considering a
reorganization of this joint venture, whereby management and ownership would
potentially transfer to Insituform Rohrsanierungstechniken GmbH.
Prior to November 2003, the Company held a 49% joint venture interest
in Ka-Te Insituform, the Company's licensee of the Insituform CIPP Process in
Switzerland, Liechtenstein and Voralberg, Austria. The remaining interest was
held by Ka-Te Holding, AG, an employee of Ka-Te Holding, and an employee of the
joint venture. In November 2003, the Company acquired the remaining shares of
Ka-Te Insituform.
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 Tite Liner Process worldwide to customers to
line new and existing 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, 2003, 2002 and 2001, respectively.
BACKLOG
<TABLE>
<CAPTION>
Contract Backlog 2003 2002
- --------------------------------------------
(in millions)
<S> <C> <C>
Rehabilitation $ 111.8 $ 112.1
Tunneling 89.3 110.0
Tite Liner 7.0 5.1
-------------------
Total $ 208.1 $ 227.2
===================
</TABLE>
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. Contract backlog excludes any term
contract amounts for which there is not specific and determinable work released
and projects where the Company has been advised that it is the low bidder, but
not formally awarded the contract.
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, 2003, 2002 and 2001, the Company spent approximately $2.0 million,
$2.0 million and $2.3 million, respectively, on research and development related
activities, including engineering.
6
<PAGE>
MANUFACTURING AND SUPPLIERS
The Company maintains its North American Insituform CIPP Process liner
manufacturing facility in Batesville, Mississippi. An additional facility
located in Memphis, Tennessee, was shut down in the first quarter of 2004. In
2003, the Company spent $5.8 million in the process of making additions,
modifications, upgrades and revisions to its manufacturing facility in
Batesville. Approximately $3.7 million is expected to be spent in the first half
of 2004 to complete this project. In Europe, Insituform Linings Plc.
("Insituform 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 Insituform Linings, and Per
Aarsleff holds the remainder. These interests are subject to
rights-of-first-refusal held by the Company and Per Aarsleff in the event of
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. Substantially all of its fiber
requirements are purchased 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 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 experienced a material adverse effect by not
having a manufacturing source for thermoplastic pipe. If the demand for NuPipe
Process products increases, the Company will need to qualify a new manufacturing
source or manufacture NuPipe Process thermoplastic pipe itself. See further
discussion under "Patents and Licenses" below.
The Company has a third party contractual commitment 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 and under subsequent arrangements, the Company also furnishes Thermopipe
Process products to its approved installers.
The Company manufactures certain equipment used in its corrosion and
abrasion protection operations.
PATENTS AND LICENSES
As of December 31, 2003, the Company held 62 patents in the United
States relating to the Insituform CIPP Process, the last of which will expire in
2021. As of December 31, 2003, the Company had five 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
7
<PAGE>
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, the Company reduced the carrying value of its
NuPipe patents and licenses during 2002 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 heated at the installation site to make
it flexible enough to be inserted into an existing conduit.
The Company holds two patents issued in the United States and nine
patents outside of the United States relating to the Thermopipe Process for
rehabilitating pressurized 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
Tite Liner Process business, operated through its United Pipeline Systems
division, depends primarily upon its proprietary know-how and its marketing and
sales skills.
The Company held 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 was
required to pay royalties at specified rates on installations and sales of
liners. During the years ended December 31, 2003 and 2002, the Company did not
have any operations under this license. This license is in the process of being
terminated.
The Company's pipebursting operations are performed under a
royalty-bearing, non-exclusive license from Advantica, Inc. The license
terminates 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 2003, the Company paid $1.0
million to Advantica 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, customers can select a variety of methods to meet their
pipe installation and rehabilitation needs, including a number of methods the
Company does not offer.
8
<PAGE>
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 pipe
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 weaker 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, 2003, the Company had 2,176 employees. Certain of
the Company's contracting operations are parties to collective bargaining
agreements covering an aggregate of 386 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. 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 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
9
<PAGE>
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 its proprietary products for drinking water pipe rehabilitation at
least through 2004.
EXECUTIVE OFFICERS
The executive officers of the Company, and their respective ages and
positions with the Company, are as follows:
<TABLE>
<CAPTION>
Age at
Name March 1, 2004 Position with the Company
- ---- ------------- -------------------------
<S> <C> <C>
Thomas S. Rooney, Jr. 44 President and Chief Executive Officer
Robert W. Affholder 68 Senior Executive Vice President
Christian G. Farman 45 Vice President - Chief Financial Officer
Thomas A. A. Cook 39 Vice President - General Counsel
</TABLE>
Thomas S. Rooney, Jr. has been President of the Company since April
2003, and Chief Executive Officer of the Company since July 2003. From April
2003 to July 2003, Mr. Rooney was the Company's Chief Operating Officer. From
2000 until he joined the Company, Mr. Rooney was Senior Vice President and
Regional Manager for Gilbane Building Company ("Gilbane"). From before 1998
until 2000, Mr. Rooney was Vice President and Regional Manager of Business
Development at Gilbane.
Robert W. Affholder has been Senior Executive Vice President of the
Company since before 1998.
Christian G. Farman has been Vice President and Chief Financial Officer
of the Company since December 2003. From February 2003 to April 2003, Mr. Farman
served as Chief Operating Officer of the National Audubon Society. From prior to
1998 until 1999, Mr. Farman was Vice President and Chief Financial Officer, and
from 1999 to 2001, Executive Vice President and Chief Financial Officer, of
Vivendi North America (previously Anjou International). Mr. Farman joined
Vivendi North America in 1989 as Controller, and was promoted to Vice President
in 1992, Chief Financial Officer in 1995, and Executive Vice President in 1999.
From 1979 to 1989, Mr. Farman was an auditor with Price Waterhouse (now known as
PricewaterhouseCoopers LLP) in New York. Mr. Farman is a certified public
accountant.
Thomas A. A. Cook has been Vice President and 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, 2006. 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 recently closed
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. The Company is evaluating its options with respect to this property.
Insituform Linings (a
10
<PAGE>
majority-owned subsidiary) owns certain premises in Wellingborough, United
Kingdom, 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 the third quarter of 2002, a Company crew had an accident on an
Insituform CIPP Process 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. Iowa OSHA issued a Citation and
Notification of Penalty in connection with the accident, including several
willful citations. Iowa OSHA proposed penalties of $808,250. The Company
challenged Iowa OSHA's findings, and in the fourth quarter of 2003, an
administrative law judge found in favor of Iowa OSHA on some citations, found in
favor of the Company on some citations and combined a number of citations for
purposes of assessing penalties. The administrative law judge reduced the
penalties to $158,000. The Company is vigorously opposing the citations, and
both the Company and Iowa OSHA have appealed the decision to the Iowa Department
of Inspections and Appeals. In 2002, Iowa OSHA referred this matter to the local
county attorney's office for potential criminal investigation. The local county
attorney referred the matter to the State of Iowa Department of Criminal
Investigation.
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.
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, 2001, as reported on The Nasdaq Stock Market.
Quotations represent prices between dealers and do not include retail mark-ups,
mark-downs or commissions.
<TABLE>
<CAPTION>
Period High Low
- -------------------------------------------
<S> <C> <C>
2003
First Quarter $ 17.43 $ 12.11
Second Quarter 18.00 12.73
Third Quarter 19.00 14.76
Fourth Quarter 18.34 13.53
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
Period High Low
- -------------------------------------------
<S> <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
</TABLE>
As of March 1, 2004, the number of record holders of the Company's
Common Stock was 900.
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,
---------------------------------------------------------------------------
2003(1,4) 2002(1,2,3) 2001(1,2) 2000(1) 1999(1)
---------------------------------------------------------------------------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues $ 487,272 $ 480,358 $ 445,310 $ 409,434 $ 339,883
Operating income 21,591 50,183 46,765 62,966 50,669
Income from continuing operations 4,628 28,560 24,940 34,906 25,983
Loss from discontinued operations (1,103) (5,869) (72) - -
Net income 3,525 22,691 24,868 34,906 25,983
Basic earnings per share:
Income from continuing operations 0.17 1.08 0.94 1.41 1.02
Loss from discontinued operations (0.04) (0.22) - - -
Net income 0.13 0.86 0.94 1.41 1.02
Dilutive earnings per share:
Income from continuing operations 0.17 1.07 0.93 1.37 1.00
Loss from discontinued operations (0.04) (0.22) - - -
Net income 0.13 0.85 0.92 1.37 1.00
BALANCE SHEET DATA:
Cash and cash equivalents $ 99,991 $ 75,386 $ 74,649 $ 64,107 $ 68,183
Working capital, net of cash 67,409 48,844 64,070 50,361 51,997
Current assets 277,273 252,651 259,767 201,008 174,372
Property, plant and equipment 75,667 71,579 68,547 70,226 54,188
Total assets 508,360 473,013 463,622 354,974 311,625
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
Unaudited
Year Ended December 31,
---------------------------------------------------------------------------
2003(1,4) 2002(1,2,3) 2001(1,2) 2000(1) 1999(1)
---------------------------------------------------------------------------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Current maturities of long-term debt
and line of credit 16,938 49,360 35,218 18,023 3,188
Long-term debt, less current
maturities 114,323 67,014 88,853 98,217 114,954
Total liabilities 227,726 198,965 211,940 187,327 170,314
Total stockholders' equity 279,169 272,618 250,127 165,290 138,603
</TABLE>
- --------------------------
(1) The Company has completed various acquisitions that have been accounted for
under the purchase method of accounting, including Insituform
Rioolrenovatietechnieken in 1999, Insituform Metropolitan, Inc. in 2000,
Insituform Belgium N.V. in 2000, Kinsel in 2001, Elmore in 2002, Sewer Services,
Ltd. in 2003, Video Injection (remaining third party interest) in 2003, East in
2003, and Ka-Te Insituform (remaining interest) in 2003.
(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.
(3) Effective January 1, 2002, the Company adopted SFAS 142, "Goodwill and Other
Intangible Assets," and ceased amortizing purchased goodwill.
(4) See Management's Discussion and Analysis of Financial Condition and Results
of Operations - Fourth Quarter and Year-End 2003 Issues.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
EXECUTIVE SUMMARY
Insituform Technologies is a worldwide company specializing in
trenchless technologies to rehabilitate, replace, maintain and install
underground pipes. The Company has three principal operating segments:
rehabilitation, tunneling and Tite Liner. These segments have been determined
based on the types of products sold by each segment, and each is regularly
viewed and evaluated separately. While the Company uses a variety of trenchless
technologies, the Insituform(R) cured-in-place-pipe process (the "Insituform
CIPP Process") contributed 65.5% of its revenues in 2003. This percentage has
been trending downward slightly over the last few years as the Company has
pursued diversification from the addition of complementary businesses,
technologies and techniques. The tunneling segment has grown through organic
growth, combined with the acquisition of Elmore in 2002. In 2003, the tunneling
segment's revenue growth was 16%, and it has grown by 104% over the last two
years.
Revenues are generated by the Company and its subsidiaries operating
principally in the United States, Canada, the United Kingdom, the Netherlands,
France, Belgium, Spain, Switzerland, and Chile, and include product sales and
royalties from several joint ventures in Europe, and unaffiliated licensees and
sub-licensees throughout the world. The United States remains the Company's
single largest market, representing 82.3% of total revenue in 2003. See Note 15
to the Consolidated Financial Statements for additional segment information and
disclosures.
The Company believes the broad underground pipe infrastructure market
is growing and poised for even greater growth, after minimal growth over the
last three years. The Company's existing and new trenchless products serve that
market well. The Company's market presence and penetration are unmatched in the
industry and give the Company strong advantages. Nevertheless, the Company
expects the near-term sales environment to remain challenging with regard to
bidding and pricing. World economic conditions could potentially disrupt and
further soften the market for municipal contracts.
The Company's financial strength also has provided a competitive
advantage, and despite the recent financial results, the Company's balance sheet
and cash flow remain strong. Management has and continues to hold cash
generation by the Company's business units as a primary measure of performance
and success. Strong cash flow is of critical importance as the Company rebuilds
and grows, and
13
<PAGE>
management believes that it provides insight for the investors into the
Company's real performance over time.
The Company's financial performance has been challenging for three
years due in part to poor economic conditions and increased competition. There
were also two underperforming acquisitions, Kinsel and Elmore, which impacted
the performance of the Company. In response to all of these factors, the Company
took a series of cost-cutting measures, many of which were necessary and
beneficial, but some of which had unintended adverse consequences, most notably
significant reductions in the sales force and training. In 2003, the retirement
of Anthony W. Hooper as Chief Executive Officer afforded the Board of Directors
an opportunity for a change in the Company's strategic direction, as well as
leadership. In the second quarter of 2003, Thomas S. Rooney, Jr. was appointed
President of the Company to provide a fresh look at how to run the business. In
the third quarter of 2003, Mr. Rooney assumed the role of Chief Executive
Officer as well. In the fourth quarter, Christian G. Farman assumed the role of
Vice President and Chief Financial Officer.
Management has a renewed focus on excellence in all aspects of the
business, and has begun a long-term plan to improve the operations and
profitability of the Company. Management is rebuilding the Company's operations
to develop a strong, reliable platform that increases the predictability of the
Company's business by letting the Company anticipate market trends and avoid
surprises with costs. This platform will improve visibility into the operations
and markets by giving management a better understanding of the various
operational units and cost drivers.
The Company has identified several initiatives that management believes
will reposition the Company to maintain its prominent status in its industry. In
order to accomplish these initiatives, the Company will strategically invest
money over the next two years. These initiatives are designed to accomplish cost
reduction, product innovation, and business growth for the long term.
Specifically, the Company will spend money on enhancing quality control and
safety programs, training, logistics management and sales programs, which will
impact all aspects of the business. In addition, there will be strategic
investments in the areas of product innovation, particularly seeking methods to
drive costs out of the business, to gain competitiveness. Some of the
initiatives are already in the implementation phase, and the Company will
continue to make planned investments to accomplish its goals. All of these
investments will be tempered by the fact that the Company's most recent
financial performance resulted in new debt covenants that place additional
temporary restrictions on the use of cash, which are described more fully later.
The Company expects the implementation of these initiatives to benefit the
financial results in the first quarter of 2005, with the majority of the
benefits becoming apparent later in 2005.
Certain internal control deficiencies and financial statement
adjustments became apparent as the Company closed out 2003. Management extended
its internal reporting timetable in order to address the matters. Management has
also taken the initiative to improve the necessary management and internal
controls to further ensure that timely, quality financial information is
produced. Some of the adjustments recorded at year-end 2003 are one-time items,
and others indicate that there is an increased run rate that the Company needs
to manage, such as periodic insurance costs. These adjustments are described in
further detail below.
The Company's balance sheet is sound and is improving. Debt covenants
have been modified to give some temporary relief for the next five quarters. The
Company's cash generating ability remains strong, and management is confident
that the number of opportunities to improve stockholder value and create a
stronger company are ever increasing.
14
<PAGE>
FOURTH QUARTER AND YEAR-END 2003 ISSUES
Key financial data for the fourth quarter of 2003 is as follows ($ in
thousands):
<TABLE>
<CAPTION>
Gross Operating
Gross Profit Operating Income (Loss)
Segment Revenues Profit Margin Income (Loss) Percentage
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Rehabilitation $ 90,983 $ 13,736 15.1% $ (8,028) -8.8%
Tunneling 25,439 2,221 8.7 (337) -1.3
Tite Liner 5,364 1,746 32.6 714 13.3
- ----------------------------------------------------------------------------------------
Total $ 121,786 $ 17,703 14.5% $ (7,651) -6.3%
</TABLE>
The following items represent significant adjustments that impacted the
results of operations for the fourth quarter and fiscal year ended December 31,
2003 (in thousands):
<TABLE>
<CAPTION>
Description Pre-Tax After Tax
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase in casualty insurance and healthcare reserves $ (3,650) $ (1,591)
Increase in reserve for potentially uncollectible accounts and claims (1,354) (590)
Write-downs and reserves against certain assets and discontinued
operations (2,569) (1,128)
Tax provision and charges (649) (2,279)
Other charges (800) (349)
------------------------
Total $ (9,022) $ (5,937)
========================
</TABLE>
The Company has analyzed the effects of the adjustments detailed above
and determined that the impacts on prior periods were immaterial. While some
adjustments did result from certain conditions evolving over time, they are not
practically attributable to a prior period.
Operational Issues
The fourth quarter of 2003 was a challenging period operationally for
the Company. Coupled with the $5.1 million loss on a single project performed in
Boston, Massachusetts, described below, there were sharp declines in activity
and gross margin in North American rehabilitation from the prior year. Due to
lower market activity with heightening competition, two regions in North
American rehabilitation experienced a gross profit decline of $7.7 million. In
addition, lower activity and depressed margins in the pipebursting and
microtunneling business in the southeast and western United States led to a
decline of $2.8 million in gross profit from fourth quarter 2002. European
rehabilitation improved in terms of gross profit in the fourth quarter of 2003
by over $2.8 million which somewhat offset the other declines in the
rehabilitation segment. The tunneling segment also experienced a decline of
gross profit during the fourth quarter of 2003 of almost $4.0 million. Despite
revenue increasing slightly over fourth quarter 2002, costs were significantly
higher due to lower-margin projects in the current period, along with increases
in insurance costs. In the prior year's fourth quarter, the tunneling segment
benefited by favorable project closeouts. Tite Liner gross profit increased $0.4
million in the fourth quarter of 2003 due primarily to a revenue increase.
Boston Insituform CIPP Process Project
In the fourth quarter of 2003, the Company recorded $5.1 million
(pre-tax) in estimated costs associated with removing and re-installing
approximately 4,500 feet of Insituform CIPP Process liner in Boston,
Massachusetts. The recorded costs are net of $750,000 of insurance recovery
proceeds that are probable of receipt during 2004.
15
<PAGE>
In August 2003, the Company began an Insituform CIPP Process
installation in Boston. The $1 million project required the Company to line
5,400 feet of a 109-year-old 36 to 41-inch diameter unusually-shaped hand-laid
rough brick pipe. Many aspects of this project were atypical of the Company's
normal CIPP Process installations. The owner rejected approximately 4,500 feet
of the liner and all proposed repair methods. All rejected liner has been
removed. Approximately 425 feet of liner has been re-installed and appears
acceptable to the owner. The Company is continuing to re-install the remaining
liner portions, which is expected to be completed in April or May 2004.
The Company has a "Contractor Rework" special endorsement to its
primary comprehensive general liability insurance policy. The Company has filed
a claim with its primary insurance carrier, who has informally advised the
Company that it will indemnify the Company under the special endorsement. The
primary coverage is $1 million, less a $250,000 deductible. Because $750,000 of
insurance recovery proceeds from the primary insurance carrier are expected to
be received promptly, they were offset against the total estimated costs
associated with the liner removal and re-installation.
The Company has excess comprehensive general liability insurance
coverage. The excess insurance coverage is in an amount far greater than the
estimated costs associated with the liner removal and re-installation. The
Company believes the "Contractor Rework" special endorsement applies to the
excess insurance coverage, it has already incurred costs in excess of the
primary coverage and it has put its excess carrier on notice. The excess
insurance carrier denied coverage in writing without referencing the "Contractor
Rework" special endorsement, and subsequently indicated that it does not believe
that the "Contractor Rework" special endorsement applies to the excess insurance
coverage.
On March 10, 2004, the Company filed a lawsuit in Massachusetts against
its excess insurance carrier for its failure to acknowledge coverage and to
indemnify the Company for the entire loss in excess of the primary coverage.
Because of the uncertainties in litigation and although the Company is
vigorously pursuing a full recovery of the loss, the Company does not believe
that it is prudent at December 31, 2003 to offset all or any part of the
potential excess carrier insurance recovery proceeds, if any, against the
estimated costs associated with the liner removal and re-installation.
Casualty Insurance and Healthcare Reserves
The $3.7 million pre-tax adjustment to casualty insurance and
healthcare reserves included an adjustment to the insurance deductible claims
reserve of $3.0 million and a $0.7 million adjustment to the health benefits
accrual. The Company increased its insurance deductible claims reserve after
receiving updated actuarial analyses as of December 31, 2003 from the Company's
insurance consultants. The Company initiated a large-deductible plan on its
liability and casualty insurance policies in 2001 and has continued to adjust
its accruals as longer self-insurance history yields better actuarial estimates
of the total liability. The Company believes it was necessary to reserve an
amount sufficient to cover any unreported casualty losses for which the Company
will be liable for the deductible. The latest actuarial estimates received by
the Company indicated an increase in the Company's loss experience in the second
half of 2003. The Company is also self-insured for health benefits for its
employees and reserves an amount to cover unsubmitted claims. During 2003, the
Company experienced rising healthcare costs. Management determined that a higher
reserve was indicated to sufficiently cover unsubmitted claims based on
actuarial data received from one of the Company's insurance consultants in the
fourth quarter of 2003 and increased its healthcare reserves by $0.7 million.
16
<PAGE>
Reserve for Potentially Uncollectible Accounts and Claims
The Company recorded $1.4 million in bad debt expense during the fourth
quarter of 2003, of which approximately $0.6 million related to the
rehabilitation segment and $0.8 million related to the tunneling segment. The
accounts receivable aging in the rehabilitation segment continued to deteriorate
in the fourth quarter of 2003. The Company performed a rigorous analysis of
specific accounts receivable by region. This analysis involved both corporate
financial and regional rehabilitation management. Specific identified accounts
whose collectibility was deemed doubtful were reserved, although the Company
will continue to actively pursue collection. The tunneling segment's $0.8
million reserve related to several previously recorded customer claims (from
2002 and early 2003) for which collection at originally expected amounts was no
longer considered probable. Write-downs and Reserves Against Certain Assets and
Discontinued Operations
The Company wrote down certain assets by $2.6 million during the fourth
quarter of 2003. The write-down consisted of $0.8 million in fixed assets, $0.3
million in computer software, and $1.5 million in certain assets related to
discontinued operations.
The Company performed a review of its fixed assets and computer
software. The fixed asset review was conducted on all individual pieces of
machinery and equipment over $50,000 in original value, which covered 85% of the
overall net book value of the Company's machinery and equipment. A
reconciliation of these fixed assets recorded on the general ledger to
supporting detail records and fixed assets on hand resulted in a $0.8 million
reduction in the carrying value of such fixed assets. The Company is planning to
take a complete physical inventory of its fixed assets in 2004, which will
include a review of items below $50,000, representing the remaining 15% of net
book value of machinery and equipment as of December 31, 2003. In addition, the
Company concluded that a component of software was rarely used, was impaired and
should be written off in the amount of $0.3 million.
The $1.5 million reserve against certain assets related to discontinued
operations included approximately $1.1 million of notes receivable received in
the prior year as part of the sale of certain of the Company's discontinued
operations. Given the weakening financial position of the issuer of the notes,
collection of the notes is doubtful. The $1.1 million charge has been reflected
in continuing operations. The Company also recorded an additional charge to
discontinued operations of $0.4 million to adjust the carrying values of
remaining discontinued assets.
Tax Provision and Charges
Certain adjustments were recorded to the Company's income and other tax
reserves at December 31, 2003. Due to continuing losses in the Company's
operations in France and Belgium, it was determined that a full valuation
allowance was necessary primarily relative to the realization of net operating
loss carryforwards, thereby increasing income tax expense by $0.8 million.
In analyzing its tax return to tax provision differences, the Company
determined that additional taxes were required to be provided relative to the
Company's meals and entertainment tax deductions, increasing income tax expense
by $1.0 million. In addition, the Company also determined that increased
accruals were necessary for use tax and fuels tax in certain state
jurisdictions, increasing cost of revenues by $0.6 million and tax expense by
$0.2 million, respectively.
17
<PAGE>
Other Charges
Other charges include write-downs of the Company's investment in a
foreign joint venture by $0.8 million due to continuing losses of its
operations and adjustments to the Company's prepaid expense accounts and other
smaller adjustments to reserves and the uninvoiced vouchers accrual which in
the aggregate were offsetting.
Also in the third and fourth quarter of 2003, the Company replaced its
Chief Executive Officer and Chief Financial Officer, respectively. The Vice
President - North America also left the Company during the third quarter of
2003. Severance charges for these positions were $1.6 million, and recruitment
fees for the present Chief Executive Officer and Chief Financial Officer were
$0.3 million. Approximately $0.3 million was incurred in the fourth quarter in
severance and recruiting costs.
Debt Restructuring
The negative results of the fourth quarter of 2003 caused the Company
to be out of compliance with various financial covenants under its debt
agreements which have since been amended so that the Company is in compliance.
See the Liquidity and Capital Resources section for discussion of the amended
debt agreements.
RESULTS OF OPERATIONS
Consolidated
<TABLE>
<CAPTION>
($ IN THOUSANDS) 2003 2002 2001
----------------------------------------------
<S> <C> <C> <C>
Revenues $ 487,272 $ 480,358 $ 445,310
Gross Profit 102,658 125,622 124,848
Gross Profit Margin 21.1% 26.2% 28.0%
Selling, General and Administrative 79,733 68,049 66,955
Amortization Expense 1,595 1,433 7,001
Restructuring Charge (261) 2,458 4,127
Impairment Charge - 3,499 -
Operating Income 21,591 50,183 46,765
Operating Income Percentage 4.4% 10.4% 10.5%
</TABLE>
2003 Compared to 2002
Consolidated revenues from continuing operations increased 1.4% to
$487.3 million for 2003 compared to 2002 revenues of $480.4 million. Tunneling
revenues increased 15.9% or $13.7 million in 2003, and Tite Liner revenues
increased 25.5% or $4.2 million, but 2003 rehabilitation revenues declined 2.9%
or $11.0 million, compared to 2002. The effects of 2003 and 2002 acquisitions
added $22.2 million of revenues in 2003. Gross profit decreased $23.0 million to
$102.7 million. Gross profit margins decreased from 26.2% to 21.1% in 2003
versus 2002. There were two major North American rehabilitation regions which
performed significantly below historical levels due to heightening competition
and lower pricing along with lower market activity. Revenues and gross profit
fell by $18.8 million and $17.4 million, respectively, from 2002 in these
regions. In addition, as stated earlier, the Company recorded $5.1 million
(pre-tax) in estimated costs associated with removing and reinstalling an
Insituform CIPP Process liner in Boston, Massachusetts. The Company's
pipebursting activities in the southeast United States declined in 2003 due
primarily to the loss of unreleased term contract backlog. The gross profit
decline in this activity was $11.4 million. The tunneling segment's gross profit
declined $6.3 million due primarily to performance issues in projects acquired
from Elmore which carried over from 2002.
18
<PAGE>
These projects were completed early in 2003 and did not affect profitability in
the second half of 2003. Growth in the western United States region of $5.4
million contributed positively to gross profit due to improved revenue and
productivity. The European operations also improved in terms of gross profit in
the amount of $4.3 million due to positive contributions from acquisitions in
the United Kingdom and Switzerland, coupled with market improvements and strong
European currency translation effects.
Selling, general and administrative expenses increased 17.2% to $79.7
million in 2003 compared to $68.0 million in 2002. Several factors contributed
to the increase in selling, general and administrative expenses. In the Elmore
division of Affholder, selling, general and administrative expenses increased
$0.9 million primarily due to the reserve of $0.8 million in claims for certain
change orders that were considered uncollectible at the end of 2003. The base
operations of the tunneling business also increased selling, general and
administrative expenses by $0.8 million in 2003 as a result of adding critical
project management personnel to support revenue growth. Corporate expenses in
2003 included $1.6 million in severance recorded for changes in executive
management. Bad debt expense increased by $1.5 million and adjustments to the
Company's insurance reserves based on deteriorating experience and updated
actuarial information added $3.7 million in expense. Various acquisitions during
the year added $1.3 million of expenses, which consisted primarily of
compensation.
2002 Compared to 2001
Consolidated revenues of $480.4 million in 2002 represented a 7.9%
increase compared to 2001 revenues of $445.3 million due primarily to growth in
the tunneling segment with additional contributions from rehabilitation.
Increases in rehabilitation and tunneling revenues were partially offset by a
$10.7 million decline in Tite Liner revenues. The acquisition of Elmore added
$20.7 million to 2002 revenues. Gross profit increased by 0.6% to $125.6
million. Gross profit margin 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 were $68.0 million, an
increase of 1.6% compared to $67.0 million in selling, general and
administrative expenses in 2001. This reflects the operation of the Kinsel
business for two more months in 2002 than in 2001 and the May 2002 purchase of
the Elmore 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. After restructuring and intangible asset impairment charges of
$2.5 million and $3.5 million, respectively, in 2002, operating income was $50.2
million in 2002, representing an increase of 7.3% over 2001 operating income,
which included a $4.1 million restructuring charge.
Rehabilitation Segment
<TABLE>
<CAPTION>
($ IN THOUSANDS) 2003 2002 2001
----------------------------------------------
<S> <C> <C> <C>
Revenues $ 366,690 $ 377,674 $ 369,219
Gross Profit 84,215 101,766 107,809
Gross Profit Margin 23.0% 26.9% 29.2%
Selling, General and Administrative 69,313 59,871 60,800
Amortization Expense 698 731 6,691
Restructuring Charge (261) 2,458 4,127
Impairment Charge - 3,499 -
Operating Income 14,465 35,208 36,191
Operating Income Percentage 3.9% 9.3% 9.8%
</TABLE>
Rehabilitation revenues decreased $11.0 million to $366.7 million in
2003 from $377.7 million in 2002. The decline in revenue is due primarily to
reduced activity of approximately $18.8 million in two
19
<PAGE>
major regions in North American rehabilitation that resulted from lower backlog
due to less market activity, and reduced pricing derived from increased
competition and lower municipal spending. The pipebursting and other
rehabilitation operations of Kinsel suffered a $4.5 million, or 8.3%, decline in
2003 primarily due to the loss of unreleased term contract backlog on a major
contract and lower demand. North American rehabilitation revenues were boosted
by the acquisition of East, which contributed $2.7 million to 2003 revenue. The
decline in North American rehabilitation revenues was partially offset by an
$11.6 million, or 24.3%, increase in rehabilitation revenues in the Company's
European rehabilitation business. The Company's June 2003 acquisition of certain
assets of Sewer Services, Ltd. added $2.5 million to Europe's 2003 revenues. The
November 2003 acquisition of the Company's remaining interest in Ka-Te
Insituform added $1.8 million in revenues. One large job in the Netherlands and
stronger activity in other European regions in the second half of 2003 added
approximately $7.5 million in revenues in 2003.
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 gross profit in 2003 decreased $17.6 million, or 17.2%,
to $84.2 million, from $101.8 million in 2002. Gross profit margins decreased to
23.0% in 2003 from 26.9% in 2002. Gross profit was adversely affected by the
lower activity in two major regions in North American rehabilitation. The total
decline from 2002 of gross profit in these regions exceeded $17.4 million. As
noted earlier, the Company also experienced a loss of $5.1 million related to
the removal and reinstallation of an Insituform CIPP Process liner in Boston,
Massachusetts. The Company's pipebursting and other rehabilitation operations of
Kinsel also suffered gross profit declines in 2003 of $11.4 million related to
lower volume from reduced backlog. These decreases were partially offset by
increases in the western region of the United States which contributed $5.4
million in additional gross profit over 2002. The Company also experienced
higher costs related to casualty, workers compensation and healthcare insurance
caused by increased claims and cost of premiums in 2003 of approximately 25%.
Gross profits in Europe increased 36.8%, or $4.3 million, in 2003 compared to
2002 due to a slight increase in gross profit margin percentage coupled with
volume growth in substantially all operations in the United Kingdom and
Switzerland.
Gross profit 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 was the primary
cause 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.
In 2003, selling, general and administrative expenses in the
rehabilitation segment increased $9.4 million, or 15.8%, to $69.3 million,
compared to $59.9 million in 2002. In 2003, the Company recorded $1.6 million in
severance costs recognized after changes in the Company's senior management. The
Company increased its insurance reserves due to higher premiums and recent
actuarial analyses performed by consultants which indicated increased claims.
The Company recorded an additional $1.5 million in bad debt expense, as
previously noted. Acquisitions during the year added $1.3 million of expenses,
consisting primarily of compensation.
Selling, general and administrative expenses in the rehabilitation
segment were $59.9 million in 2002, a 1.5% decrease compared to 2001 selling,
general and administrative expenses of $60.8 million.
20
<PAGE>
Although the decrease appeared 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
spite of two additional months of expense as they became more integrated into
the overall cost structure of the Company.
Amortization expense remained relatively stable during 2003. Some
intangible assets were written off during 2002, causing lower amortization
during 2003. This was offset by the amortization of intangible assets associated
with the acquisition of the business and certain assets of East in September
2003, which added $0.2 million.
Amortization expense decreased to $0.7 million in 2002 from $6.7
million in 2001 due to the elimination of goodwill amortization.
Rehabilitation operating income decreased 58.9% to $14.5 million in
2003, compared to $35.2 million in 2002 based on the various factors discussed
above.
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 $4.1 million of restructuring charges in
2001. The decrease is due primarily to the 2.3 percentage point drop in gross
margin percentage that the cessation of goodwill amortization in 2002 and
improvements in administrative overhead costs could not fully offset.
Tunneling Segment
<TABLE>
<CAPTION>
($ IN THOUSANDS) 2003 2002 2001
---------------------------------------------
<S> <C> <C> <C>
Revenues $ 100,020 $ 86,297 $ 49,019
Gross Profit 11,946 18,260 8,880
Gross Profit Margin 11.9% 21.2% 18.1%
Selling, General and Administrative 7,402 5,703 3,125
Amortization Expense 588 392 -
Operating Income 3,956 12,165 5,754
Operating Income Percentage 4.0% 14.1% 11.7%
</TABLE>
Tunneling revenues increased 15.9% to $100.0 million compared to $86.3
million in 2002. High productivity on jobs in Dallas, Chicago and St. Louis
contributed significantly to tunneling revenues during 2003. Revenues in the
Elmore division declined $5.6 million due to a focus in the first two quarters
of 2003 on completing the projects acquired with Elmore in 2002. As a result,
the Elmore division experienced low backlog, and therefore lower revenues for
the first two quarters of 2003.
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 was 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.
Gross profit decreased 34.6% to $11.9 million in 2003, compared to
$18.3 million in 2002. Gross profit margins decreased to 11.9% from 21.2% in
2002. The decrease in gross profit and gross profit margin was due primarily to
performance issues in projects acquired with Elmore that carried over from 2002.
Early in the second quarter of 2003, new management was put into place for
Elmore, and the operations became more integrated into Affholder. The focus of
the new management team was to complete the jobs acquired with Elmore in 2002.
These jobs were substantially completed by the end of
21
<PAGE>
the third quarter of 2003. During the third quarter of 2003, management's focus
shifted to building profitable backlog.
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.
Selling, general and administrative expenses increased $1.7 million or
29.8% to $7.4 million in 2003 compared to $5.7 million in 2002. Selling, general
and administrative expenses in the Elmore division of tunneling increased $0.9
million primarily due to the reserve of $0.8 million in claims for certain
change orders that were considered uncollectible at the end of 2003. The base
operations of the tunneling business also increased selling, general and
administrative expenses by $0.8 million as a result of adding critical project
management personnel to support revenue growth.
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 percentage of revenue increased to 6.6% in 2002
compared to 6.4% in 2001.
Amortization expense was $0.6 million in 2003 compared to $0.4 million
in 2002. This reflected a full year of amortization of covenants not to compete
acquired as part of the Elmore acquisition compared to eight months in 2002.
Tunneling had no amortization expense prior to the Elmore purchase.
Operating income decreased $8.2 million to $4.0 million in 2003
compared to $12.2 million in 2002 as a result of the factors discussed above.
Operating income was $12.2 million in 2002, a 111.4% increase over 2001
operating income of $5.8 million as a result of the factors discussed above.
All of the contracts acquired from Elmore were completed during 2003.
The problems experienced by Elmore are not expected to continue into 2004, and
tunneling segment performance is expected to more closely mirror the performance
experienced by Affholder. In the market, there is more work available than the
entire industry's capacity. Therefore, we expect to see continued growth in
backlog. However, due to the time lag between an order and revenue recognition,
growth in revenues, gross profit margin and operating income may not follow
until the fourth quarter of 2004 or later.
Tite Liner Segment
<TABLE>
<CAPTION>
($ IN THOUSANDS) 2003 2002 2001
---------------------------------------------
<S> <C> <C> <C>
Revenues $ 20,562 $ 16,387 $ 27,072
Gross Profit 6,498 5,596 8,159
Gross Profit Margin 31.6% 34.1% 30.1%
Selling, General and Administrative 3,018 2,476 3,030
Amortization Expense 310 310 310
Operating Income 3,170 2,810 4,820
Operating Income Percentage 15.4% 17.1% 17.8%
</TABLE>
Tite Liner revenues increased 25.5%, or $4.2 million, to $20.6 million
in 2003 compared to $16.4 million in 2002. Tite Liner revenues responded to
higher oil prices in 2003, which created greater demand for Tite Liner and
caused the increase in revenues in 2003 compared to 2002.
22
<PAGE>
Tite Liner revenues in 2002 were $16.4 million, a 39.5% decrease from
2001 revenues due primarily to continued decreases in demand from mining
services.
Gross profit increased $0.9 million to $6.5 million in 2003 compared to
$5.6 million in 2002. However, gross profit margin slipped to 31.6% in 2003 from
34.1% in 2002. Gross profit was higher in 2003 due to higher volume. Gross
profit margin was lower due to the completion of a significant project in South
America in 2002, resulting in a higher gross margin in 2002. In addition, a
larger project with a lower margin began in 2003 and contributed to the
segment's lower gross profit margin.
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.
Selling, general and administrative expenses were $3.0 million in 2003
compared to $2.5 million in 2002 due to higher corporate overhead costs
allocated to Tite Liner in 2003. Selling, general and administrative expenses as
a percentage of revenue remained relatively stable at 14.7% in 2003 compared to
15.1% in 2002.
Selling, general and administrative expenses were $2.5 million for Tite
Liner in 2002, representing a 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 Tite Liner 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.
Operating income increased $0.4 million to $3.2 million in 2003,
compared to $2.8 million in 2002 as a result of the factors discussed above.
Operating income for the Tite Liner business unit decreased 41.7% to
$2.8 million in 2002, compared to $4.8 million in 2001 as a result of the
factors discussed above.
RESTRUCTURING AND ASSET IMPAIRMENT CHARGES
During the third quarter of 2003, the Company reversed $0.3 million in
reserves recorded during the third quarter of 2002 and the fourth quarter of
2001. These reserves are described in the following paragraphs. Nearly all of
the reversal came from the reserve recorded in the third quarter of 2002.
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 sales and administrative 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 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 non-compete intellectual
property assets that the Company deemed to be impaired based on recent business
decisions and other circumstances. The asset write-down has reduced amortization
expense by
23
<PAGE>
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.
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. See Note 5 to the Consolidated Financial Statements regarding
restructuring costs.
OTHER INCOME/EXPENSE
Interest expense increased $0.3 million to $8.2 million in 2003
compared to $7.9 million in 2002. This was due primarily to the placement of
$65.0 million of Senior Notes, Series 2003-A, on April 24, 2003 at a rate of
5.29% per annum.
Interest expense was $7.9 million in 2002, a 15.3% decrease compared to
2001 interest expense of $9.3 million. The decrease was primarily a result of a
reduction in borrowing levels in 2002 and lower variable interest rates attached
to short-term borrowings.
Other expense was $1.3 million in 2003 compared to other income of $3.1
million in 2002. Other income in 2002 included a $1.2 million gain on the sale
of a real estate investment, while 2003 included losses of $1.4 million on sales
and disposals of certain assets and the previously noted $1.1 million reserve
for certain notes receivable related to the prior year sale of discontinued
operations and recorded in continuing operations in the fourth quarter of 2003.
Interest income decreased to $1.5 million in 2003 compared to $1.9 million in
2002 due to lower interest rates in 2003.
Other income increased 32.3% to $3.1 million in 2002 versus 2001
primarily due to the $1.2 million gain on the sale of a real estate investment
acquired with Kinsel. This represented a $0.7 million increase over other income
of $2.3 million in 2001. Interest income decreased $0.3 million in 2002 on lower
interest rates on cash. Other income decreased 38.1%, or $1.4 million, to $2.3
million during 2001. 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 (including discontinued operations)
for 2003 was 59.4% compared to 38.5% in 2002. The Company has several permanent
adjustments to book income which require a fixed provision for income taxes
regardless of the level of income for financial reporting purposes. Since the
effective rate is a ratio of income tax to income before taxes, the significant
drop in income before taxes in 2003 compared to 2002 greatly contributed to the
increase in the effective rate.
As previously discussed, there were two permanent items in 2003 that
significantly contributed to the rate increase. In the fourth quarter of 2003,
the Company determined that some net operating losses carried on the books as
deferred tax assets may not be realizable under the guidelines of SFAS 109.
Therefore, the Company incurred additional tax expense in 2003 by recording a
valuation allowance of approximately $0.8 million on these assets. These net
operating losses mainly related to losses incurred in France and Belgium. In
addition, in analyzing provision to return matters, the Company determined in
the fourth quarter of 2003 that additional taxes were required to be provided
for meals and entertainment expense deducted for financial reporting purposes
but which are non-deductible for tax.
24
<PAGE>
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 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 by some
degree by a potential non-deductible OSHA penalty in relation to an Iowa job
site accident.
See Note 12 to the Consolidated Financial Statements regarding taxes on
income.
MINORITY INTEREST AND EQUITY IN EARNINGS OF AFFILIATED COMPANIES
Minority interest in net income was $0.2 million in 2003 and 2002. On
July 31, 2003, the Company purchased the remaining third party minority interest
in Video Injection, a France-based company specializing in robotic pipe
inspection. In 2003, equity in earnings of affiliates was a $0.4 million loss
due principally to increased losses in the Company's joint venture in Italy,
coupled with a reduction as a result of the acquisition of the remaining shares
in the Company's joint venture in Switzerland, Ka-Te Insituform, in November
2003.
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. The decrease
was due to lower profitability in Insituform Linings and Video Injection, both
majority-owned European operations. 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.
DISCONTINUED OPERATIONS
During the fourth quarter of 2001, the Company made the decision to
sell certain operations related to the Kinsel acquisition. Accordingly, the
Company classified as discontinued the wastewater treatment plant, commercial
construction and highway operations acquired as part of the Kinsel acquisition.
These operations were 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 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 an
immaterial loss on the sale. 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. In
addition, the Company completed the sale of certain contracts and assets of the
highway maintenance operations 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 on 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 substantially completed 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.
The Company negotiated settlements, without litigation, during the
first quarter of 2003 between the Company and the former Kinsel owners, and the
Company and the purchasers of the wastewater treatment plant operations acquired
from Kinsel. 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
25
<PAGE>
Company common stock and all of the promissory notes, totaling $5.4 million in
principal (together with all accrued and unpaid interest), issued to former
Kinsel shareholders in connection with the acquisition, were returned to the
Company from the claim collateral escrow account established at the time of
acquisition. The remaining 56,672 shares of Company common stock held in the
escrow account were distributed to the former Kinsel shareholders. The
settlement of the escrow account primarily related to matters associated with
Kinsel operations that have been sold and presented as discontinued operations.
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 arose out of the January 2002 sale of the Kinsel wastewater
treatment division and alleged the valuation of the assets sold was overstated.
These settlements resulted in a $1.0 million pre-tax non-operating gain recorded
in the results of continuing operations and a net pre-tax $1.1 million gain in
discontinued operations for the quarter ended March 31, 2003.
Revenues from discontinued operations were $2.6 million in 2003,
compared to $22.6 million in 2002. Loss from discontinued operations was $1.1
million compared to a loss of $5.9 million in 2002. The lower activity in
discontinued operations in 2003 is due to the winding down of discontinued
operations.
NET INCOME/EARNINGS PER SHARE
Net income decreased by 84.6% in 2003 to $3.5 million compared to $22.7
million in 2002. Return on revenue has declined in each of the last three years
from 0.7% in 2003, 4.7% in 2002, and 5.6% in 2001. Return on average
shareholders equity was 1.3% in 2003, 8.7% in 2002 and 12.0% in 2001. These
results include losses from discontinued operations of $1.1 million, $5.9
million and $0.1 million in 2003, 2002 and 2001, respectively. Also included was
an intangible asset impairment charge of $3.5 million and a restructuring charge
of $2.5 million in 2002, and a restructuring charge of $4.1 million in 2001. In
2003, weaker operating results in the rehabilitation and tunneling segments,
expenses related to the removal and reinstallation of an Insituform CIPP Process
liner in Boston, increases in bad debt expense, other adjustments to insurance
reserves based on recent cost experience and updated actuarial data, tax
reserves and various other smaller asset write-offs affected 2003 results.
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. The results included $5.9 million and $0.1 million in losses from
discontinued operations in 2002 and 2001, respectively. These results also
included 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.
Diluted earnings per share were $0.13 for 2003, down 84.7% from diluted
earnings per share of $0.85 in 2002. Discontinued operations, which had a $0.22
adverse impact on diluted earnings per share in 2002, had an adverse impact of
$0.04 on 2003 diluted earnings per share.
Diluted earnings per share were $0.85 for 2002, down 7.6% compared to
2001 diluted earnings per share of $0.92. Discontinued operations adversely
impacted diluted earnings per share in 2002 by $0.22 per share.
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
26
<PAGE>
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 costs as construction and
installation contracts progress using the percentage-of-completion method of
accounting, which relies on total expected contract revenues and estimated total
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 gross profit are subject to revisions as the contract
progresses to completion. Total estimated costs, and thus contract gross profit,
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 revenue
recognition and gross profit. Revisions in profit estimates are reflected in the
period in which the facts that give rise to the revision become known. 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,
and at estimated recoverable amounts.
Many of the Company's contracts provide for termination of the contract
at the convenience of the customer. If a contract were terminated prior to
completion, the Company would 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 and
billed 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. See Note 2 to the Consolidated Financial Statements regarding
classification of current assets and current liabilities.
GOODWILL IMPAIRMENT
Under Statement of Financial Accounting Standards 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 (but are not limited to):
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<PAGE>
- 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 Tite Liner. 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 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 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. 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.
Significant management judgment is required in determining the provision for
income taxes, deferred tax assets and liabilities and any valuation allowances
recorded against net deferred tax assets.
LONG-LIVED ASSETS
Property, plant and equipment, goodwill and other identified
intangibles (primarily licenses, covenants not to compete and patents) are
recorded at cost and 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. If the
Company determines that the useful life of property, plant and equipment or its
identified intangible assets should be shortened, the Company would depreciate
or amortize the net book value in excess of the salvage value over its revised
remaining useful life, thereby increasing depreciation or amortization expense.
Long-lived assets, including property, plant and equipment, and other
intangibles, are reviewed by the Company for impairment annually or 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:
- 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;
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<PAGE>
- 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, 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.
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 reasonable attempts to collect the receivable have been explored, 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, 2003 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 $24.6 million, or 32.6%, to $100.0
million at December 31, 2003 compared to $75.4 million in cash and cash
equivalents at December 31, 2002. As of December 31, 2003, the Company had $6.1
million in restricted cash balances, $4.6 million of which related to deposits
as collateral for general liability and workers compensation insurance policies.
The remaining $1.5 million related to deposits made as escrow for release of
retention on specific projects being performed for certain municipalities and
state agencies. Continuing operations contributed $29.4 million in operating
cash flow to the Company. Operating cash flow comprised the most significant
portion of the Company's total cash flow in the year ended December 31, 2003.
Discontinued operations generated an additional $5.2 million in operating cash
flow for overall operating cash flow of $34.6 million, up 31.9% from $26.2
million in operating cash flow for the year ended December 31, 2002. Working
capital was $167.4 million at December 31, 2003, up 34.8% from the $124.2
million in working capital at December 31, 2002. This increase came primarily as
a result of an increase in cash and cash equivalents of $24.6 million resulting
from the positive operating cash flow in 2003 and the issuance of additional
notes. 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.
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 included
$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. 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.
Operating cash flow comprised the most significant portion of the Company's cash
flow in the year
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ended December 31, 2002. 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.
The Company used $26.3 million on investing activities in 2003 compared
to $13.3 million in 2002. In 2003, the Company used $5.5 million on the purchase
of the business of East, $0.6 million for the purchase of additional assets from
East, approximately $0.4 million for the purchase of specifically identified
assets of Sewer Services, $0.8 million for the purchase of the remaining
interest in Ka-Te Insituform, and $0.5 million for the remaining interest in
Video Injection. Capital expenditures in 2003 were $19.9 million, the largest of
which was $5.8 million for expansion of its Batesville, Mississippi,
manufacturing facility. The Company received $1.4 million in proceeds from the
sale of assets, but had no sales of investments or businesses during 2003.
The Company used $13.3 million on investing activities in 2002 compared
to $11.6 million in 2001. The Company engaged in several acquisition and
disposal activities that had significant effects on cash flow. 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. Capital
expenditures were primarily to sustain the equipment in the rehabilitation
segment, and additional expenditures necessary to fuel growth 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 provided $12.9 million in cash for the year ended
December 31, 2003, compared to $13.4 million used for financing activities for
the year ended December 31, 2002. The Company received proceeds of $65.0 million
from the placement of Senior Notes, Series 2003-A, in April 2003. The most
significant use of cash during the year ended December 31, 2003 was $50.2
million for the repayment of long-term debt and notes payable. This includes
repayment of $26.0 million on the Company's line of credit and notes payable and
the regular annual payment of $15.7 million on the Company's Senior Notes,
Series A. In addition, the Company repaid approximately $8.5 million related to
other notes and capital lease obligations. The Company received $0.4 million in
cash for the issuance of 39,231 shares of Company stock related to option
exercises. In 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. In April 2003, the Company indefinitely extended its repurchase program,
which was due to expire in June 2003. The Company expended $1.6 million to
purchase 120,300 shares of treasury stock during 2003. As of December 31, 2003,
the Company had purchased 3,948,806 shares of treasury stock for a cumulative
purchase price of $74.5 million under the stock buyback plan. See discussion
below regarding the amended debt agreements and the related restriction on
future stock buybacks.
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 was 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 Company received $2.5 million in cash for the issuance of 205,280
shares of Company stock related to option exercises. 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.
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<PAGE>
Trade receivables and retainage totaled $115.7 million at December 31,
2003, up 8.4% from December 31, 2002 trade receivables and retainage of $106.7
million. The increase was primarily a result of the movement of unbilled
receivables to trade receivables in the tunneling segment based on the
production cycle. Based on the percentage-of-completion method of revenue
recognition, work is typically started on large tunneling jobs and substantial
costs are incurred and revenue recognized before billings can be issued, as was
the case on three large tunneling jobs in Dallas, Chicago and St. Louis in late
2002. As production continues, these revenues are generated and the receivable
is moved into trade receivables when billed. The tunneling segment has also seen
accelerated collection of much of these receivables. This is evident in the fact
that costs and estimated earnings in excess of billings in the tunneling segment
decreased 52.2% from December 31, 2002 to $10.3 million at December 31, 2003. On
a consolidated basis, the Company's costs and estimated earnings in excess of
billings were down 24.1% from $36.7 million at December 31, 2002 to $27.9
million at December 31, 2003.
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
continues to investigate opportunities for expanding its business through such
structures. The Company has not experienced material adverse results from such
arrangements.
Effective March 12, 2004, the Company entered into an amended and
restated bank revolving credit facility (the "Amended Credit Facility") that
replaces its existing $75 million bank credit facility (the "Old Credit
Facility"). The Amended Credit Facility provides a borrowing capacity of $25
million, any portion of which may be used for the issuance of standby letters of
credit. The Company believed that the covenants contained in the Old Credit
Facility unduly limited the Company in the operation of its business. In light
of the Company's being out of compliance with certain debt covenants at December
31, 2003 and based on the determination that it did not anticipate using more
than $25 million of its bank credit in the foreseeable future (primarily for
standby letters of credit), the Company decided to amend the Old Credit Facility
and consummate the Amended Credit Facility which subjects the Company to less
restrictive covenants. The Amended Credit Facility matures on September 12,
2005.
Under the Amended Credit Facility, the Company has paid a $25,000
closing fee and will pay a commitment fee equal to 0.4% per annum on the
unborrowed balance at the end of each fiscal quarter. The Company will also pay
a letter of credit fee of 2.25% per annum on the aggregate stated amount for
each letter of credit that is issued and outstanding at the end of each fiscal
quarter. Any loan under the Amended Credit Facility will bear interest at the
rate equal to the Bank of America prime rate (currently set at 4.0% per annum).
The Amended Credit Facility contains cross-default provisions to the Company's
amended Senior Notes as summarized below.
At December 31, 2003, the Company had an unborrowed balance under the
Old Credit Facility of $69.8 million, and the commitment fee was 0.3%. The
remaining $5.2 million was being utilized at year end for non-interest bearing
letters of credit, the majority of which were collateral for insurance. The
letters of credit under the Old Credit Facility will be transferred to the
Amended Credit Facility and remain outstanding. The Company issued $4.2 million
in additional letters of credit under the Amended Credit Facility relating to
collateral for the benefit of its insurance carrier, bringing the total amount
of letters of credit issued to $9.2 million at March 12, 2004. Since there were
no interest-bearing borrowings under the Old Credit Facility at December 31,
2003, there had been no applicable interest rate determined under the facility.
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<PAGE>
On March 12, 2004, the Company, with the requisite approval of the
holders of the Company's Senior Notes, Series A, due February 14, 2007, and the
Company's Senior Notes, Series 2003-A, due April 24, 2013, amended certain of
the terms and conditions of the Senior Notes. In connection with the amendment,
the Company paid the noteholders an amendment fee of 0.25%, or $0.3 million, of
the outstanding principal balance of each series of Senior Notes. In addition,
the interest rate on each series of Senior Notes increases by 0.75% per annum at
closing, reducing by 0.25% per annum beginning on April 1, 2005 and by an
additional 0.5% per annum beginning on April 1, 2006.
Prior to the amendment, the Senior Notes, Series A, bore interest,
payable semi-annually, at 7.88% per annum. At December 31, 2003, the outstanding
principal amount under the Senior Notes, Series A, was $62.9 million. Each year
through maturity the Company is required to make principal payments under the
Senior Notes, Series A, of $15.7 million. Upon specified change in control
events, each holder of the Senior Notes, Series A, has the right to require the
Company to purchase its notes, without premium.
Prior to the amendment, the Senior Notes, Series 2003-A, bore interest,
payable semi-annually, at a rate of 5.29% per annum. At December 31, 2003, the
outstanding principal amount under the Senior Notes, Series 2003-A, was $65.0
million. The principal amount of the Senior Notes, Series 2003-A, is due in a
single payment on April 24, 2013. Upon specified change in control events, each
holder of the Senior Notes, Series 2003-A, has the right to require the Company
to purchase its notes, without premium. The proceeds of the Senior Notes, Series
2003-A, were used by the Company to pay off balances on the Old Credit Facility
and to provide liquidity to the Company for general corporate purposes.
The amended note purchase agreements of the Senior Notes, Series A, and
the Senior Notes, Series 2003-A, and the Amended Credit Facility obligate the
Company to comply with certain amended financial ratios and restrictive
covenants through the end of the first quarter of 2005. These covenants, among
other things, place limitations on operations, stock repurchases, dividends,
capital expenditures, acquisitions and sales of assets by the Company and/or its
subsidiaries and limit the ability of the Company and its subsidiaries to incur
further indebtedness. On April 1, 2005, the financial covenants will revert to
original covenants prior to the March 12, 2004 amendment.
At December 31, 2003, the Company was out of compliance with certain of
the debt covenants under the note purchase agreements, the Old Credit Facility
and an insurance collateral agreement, but with the recent amendments, are now
in compliance with all newly amended covenants. The Company believes it will be
in compliance with the amended covenants in 2004 and beyond.
As a result of the issuance of the $4.2 million in additional letters
of credit under the Amended Credit Facility referenced above, the insurance
collateral agreement was canceled, as it was no longer necessary and the related
amount of restricted cash posted as insurance collateral will be released.
In connection with the refinancing/amendments of its debt agreements as
described above, the Company expects to record a charge to interest expense in
the quarter ending March 31, 2004 of approximately $0.6 million relative to
costs incurred for the refinancing/amendments, including the write-off of a
portion of deferred financing fees.
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 $1.0 million for which currency fluctuations will have an
effect on the U.S. dollar payment amount. On December 31, 2003, the principal
amount of the Euro Note outstanding was (euro)2.4 million, or $3.1 million.
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The Company believes it has adequate resources and liquidity to fund
future cash requirements and debt repayments with cash generated from
operations, existing cash balances, additional short- and long-term borrowing
and the sale of assets.
In November 2003, the Company acquired the remaining interest of Ka-Te
Insituform for approximately $2.2 million. Net of related party debt and shared
accrued employee liabilities, cash paid by the Company was approximately $0.8
million.
In September 2003, the Company acquired the business and certain assets
of East for $5.5 million. East was the final remaining independent licensee of
the Insituform CIPP Process and the NuPipe Process in North America. Certain
selected assets such as equipment, inventory, backlog, licenses and an option to
purchase certain additional assets were included in the acquisition. The Company
exercised its option to purchase additional assets from East for $0.6 million.
The purchase price for both the original purchase and the subsequent purchase of
additional assets was paid entirely in cash. The purchase price has been
allocated to assets acquired based on their respective fair values at the date
of acquisition and resulted in intangible assets of $4.0 million, including
licenses, purchased backlog and customer relationships.
In July 2003, the Company purchased the remaining third party minority
interest in Video Injection. The purchase price was $0.5 million and resulted in
$0.3 million of additional goodwill.
In June 2003, the Company completed the acquisition of the business of
Sewer Services. The acquisition, with a price of $0.4 million, resulted in an
increase of $0.1 million in goodwill.
In May 2002, the Company acquired the business and certain assets and
liabilities of Elmore 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 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 sellers.
See Note 3 to the Consolidated Financial Statements for further
discussion of business acquisitions.
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.
The following table provides a summary of the Company's financial
obligations and commercial commitments as of December 31, 2003 (in thousands).
This table includes cash obligations related to principal outstanding under
existing debt arrangements and operating leases.
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<TABLE>
<CAPTION>
Payments Due by Period
Cash Obligations(1) Total 2004 2005 2006 2007 2008 Thereafter
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Long-term debt $ 131,261 $ 16,938 $ 16,881 $ 16,732 $ 15,710 $ - $ 65,000
Line of credit - - - - - - -
facility(2)
Operating leases 37,461 11,139 7,455 5,565 4,634 3,675 4,993
------------------------------------------------------------------------------------------------------
Total contractual cash
obligations $ 168,722 $ 28,077 $ 24,336 $ 22,297 $ 20,344 $ 3,675 $ 69,993
======================================================================================================
</TABLE>
(1) 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.
(2) As of December 31, 2003, there was no borrowing balance on the credit
facility and therefore there is no applicable interest rate as the rates are
determined on the borrowing date. The available balance was $69.8 million, and
the commitment fee was 0.30%. The remaining $5.2 million was used for
non-interest bearing letters of credit, the majority of which were collateral
for insurance. The Company generally uses the credit facility for short-term
borrowings and discloses amounts outstanding as a current liability. See Note 16
to the Consolidated Financial Statements regarding refinancing of the line of
credit facility.
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, 2003 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,
approximated its carrying value at December 31, 2003. Market risk was estimated
to be $3.5 million as the potential increase in fair value resulting from a
hypothetical 10% decrease in the Company's debt specific borrowing rates at
December 31, 2003.
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,
2003, approximately $3.2 million of financial instruments, primarily long-term
debt, were denominated principally in Euros. The effect of a hypothetical change
of 10% in year-end exchange rates would be immaterial.
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 $37.4 million
at
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December 31, 2003. 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. All foreign joint ventures are accounted for using the
equity method. 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, the Company's wholly-owned subsidiary that comprises the
tunneling segment, 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. During
2003, Affholder leased four cranes and one tunnel boring machine from A-Y-K-E
Partnership. 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, 2003, Affholder paid
A-Y-K-E $510,000 pursuant to equipment leases. This amount represents 7.5% of
all lease payments made by Affholder during 2003 and 2.9% of all lease payments
made by the Company in 2003. The cranes and tunnel boring machine 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 2003, A-Y-K-E leased equipment only to Affholder. At
Affholder's discretion, Affholder may sublease the equipment 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.
MANAGEMENT CHANGES
Effective April 1, 2003, Thomas S. Rooney, Jr. was named President and
Chief Operating Officer, reporting to Anthony W. Hooper, who remained Chairman
of the Board and Chief Executive Officer. Effective July 22, 2003, Anthony W.
Hooper resigned as Chairman of the Board and Chief Executive Officer. Effective
on that same date, the Company's board of directors named Thomas S. Rooney, Jr.
as Chief Executive Officer. Mr. Rooney retained the responsibilities of his
previous position and was elected as a new member to the board of directors.
Also effective July 22, 2003, Alfred L. Woods, an independent member of
the Company's board of directors since 1997, was elected non-executive Chairman
of the Board. Mr. Woods has served as chair of the Corporate Governance &
Nominating Committee and as a member of the Compensation Committee. He is
president of Woods Group, a management consulting company based in Williamsburg,
Virginia.
Effective July 31, 2003, Carroll W. Slusher resigned his position as
the Company's Vice President-North America.
Effective December 4, 2003, the Company appointed Christian G. Farman
as Vice President and Chief Financial Officer. He replaced Joseph A. White, who
resigned effective on that same date.
35
<PAGE>
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.
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.
Item 9A. Controls and Procedures
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 Securities Exchange Act Rules 13a-15(e)
and 15d-15(e)) as of the end of the period covered by this report.
As part of the evaluation, the Chief Executive Officer and Chief
Financial Officer took into account that the Company's auditors did not identify
any material weaknesses or reportable conditions with respect to internal
controls, but did note that certain deficiencies, including the need for more
detailed account reconciliations and enhanced management review of certain
financial statement balances, may potentially rise to the level of significant
deficiencies as defined by proposed rules of the Public Company Accounting
Oversight Board. As a result of the identified deficiencies, the Chief Executive
Officer and Chief Financial Officer implemented improvements in various areas
since December 31, 2003, including more detailed rigorous account
reconciliations in certain areas, and enhanced management review over certain
financial statement balances. Based on their evaluation, our Chief Executive
Officer and Chief Financial Officer concluded that the Company's disclosure
controls and procedures were generally effective as of December 31, 2003,
despite the deficiencies described above and that, as of the date of filing this
Annual Report on Form 10-K, the Company's disclosure controls and procedures
were effective at the reasonable assurance level.
36
<PAGE>
There were no changes in the Company's internal controls over financial
reporting that occurred during the Company's fiscal year ended December 31, 2003
that have materially affected, or are reasonably likely to materially affect,
the Company's internal control over financial reporting.
The Company has started to take the following steps to enhance its
internal accounting controls over financial reporting:
- appointing a Corporate Controller;
- instituting enhanced detailed senior and regional management
reviews of financial accounts of regional operations;
- enhancing regional management's and controllers' ownership and
accountability over financial accounts and reporting;
- enhancing detailed reviews of collectibility of accounts
receivable;
- enhancing detailed reviews of fixed asset accounts and
reconciliations to the Company's general ledger;
- increasing supervisory and management reviews of procedures,
reconciliation activities and financial reporting; and
- improving information technology system integrity management and
enhancement of systems controls.
The Company is also evaluating and has implemented other improvements
to the system of internal controls, as it prepares for the implementation of new
rules required under Section 404 of the Sarbanes-Oxley Act.
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 2004 Annual
Meeting of Stockholders (the "2004 Proxy Statement"), which information is
incorporated herein by reference.
Item 11. Executive Compensation
For information concerning this item, see the 2004 Proxy Statement,
which information is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
For information concerning this item, see the 2004 Proxy Statement,
which information is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
For information concerning this item, see the 2004 Proxy Statement,
which information is incorporated herein by reference.
37
<PAGE>
Item 14. Principal Accounting Fees and Services
For information concerning this item, see the 2004 Proxy Statement,
which information is incorporated herein by reference.
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:
On November 4, 2003, the Company filed a Current Report on Form 8-K,
under Item 12, to provide the Company's earnings release, dated October 30,
2003, announcing its financial results for the fiscal quarter ended September
30, 2003, and to provide a transcript of the Company's October 31, 2003
conference call held to announce and discuss its financial results for the
fiscal quarter ended September 30, 2003.
On December 1, 2003, the Company filed a Current Report on Form 8-K,
under Item 5 regarding the date of the Company's 2004 annual meeting of
stockholders and stockholder proposal procedures, and under Item 9 to provide
the Company's press release, dated December 1, 2003 announcing the amendment of
its bank credit facility debt covenants.
The Company also filed a Current Report on Form 8-K on December 4,
2003, under Item 9, to provide the Company's press release, dated December 4,
2003, announcing the appointment of Christian G. Farman as its Vice President
and Chief Financial Officer.
On January 22, 2004, following the end of the period covered by this
report, the Company filed a Current Report on Form 8-K, under Item 12, to
provide the Company's press release dated January 22, 2004, announcing that it
will report its 2003 fourth-quarter and full-year results by March 15, with the
filing of its 10-K.
38
<PAGE>
POWER OF ATTORNEY
The registrant and each person whose signature appears below hereby
appoint Thomas S. Rooney, Jr. and Christian G. Farman 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 15, 2004 INSITUFORM TECHNOLOGIES, INC.
By: /s/ Christian G. Farman
------------------------------------------
Christian G. Farman
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/ Thomas S. Rooney, Jr. Principal Executive Officer and March 15, 2004
- ------------------------------------ Director
Thomas S. Rooney, Jr.
/s/ Christian G. Farman Principal Financial and March 15, 2004
- ------------------------------------ Accounting Officer
Christian G. Farman
/s/ Alfred L. Woods Director March 15, 2004
- ------------------------------------
Alfred L. Woods
/s/ Robert W. Affholder Director March 15, 2004
- ------------------------------------
Robert W. Affholder
/s/ Paul A. Biddelman Director March 15, 2004
- ------------------------------------
Paul A. Biddelman
/s/ Stephen P. Cortinovis Director March 15, 2004
- ------------------------------------
Stephen P. Cortinovis
</TABLE>
39
<PAGE>
<TABLE>
<S> <C> <C>
/s/ John P. Dubinsky Director March 15, 2004
- ------------------------------------
John P. Dubinsky
/s/ Juanita H. Hinshaw Director March 15, 2004
- ------------------------------------
Juanita H. Hinshaw
/s/ Thomas Kalishman Director March 15, 2004
- ------------------------------------
Thomas Kalishman
/s/ Sheldon Weinig Director March 15, 2004
- ------------------------------------
Sheldon Weinig
</TABLE>
40
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Reports of Independent Auditors................................................. F-2
Consolidated Statements of Income for the Years
ended December 31, 2003, 2002 and 2001..................................... F-4
Consolidated Balance Sheets, December 31, 2003 and 2002 ........................ F-5
Consolidated Statements of Stockholders' Equity for the Years
ended December 31, 2003, 2002 and 2001..................................... F-6
Consolidated Statements of Cash Flows for the Years
ended December 31, 2003, 2002 and 2001..................................... F-7
Notes to Consolidated Financial Statements...................................... F-8
</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 INDEPENDENT AUDITORS
To the Board of Directors
and Shareholders of
Insituform Technologies, Inc.
In our opinion, the accompanying consolidated balance sheets 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, 2003 and 2002 and the
results of their operations and their cash flows for the years ended December
31, 2003 and 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 audits. We conducted our
audits 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 audits provide a reasonable basis for our opinion. The
consolidated financial statements of Insituform Technologies, Inc. as of and for
the year 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 and for the year 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 in Note 8 are appropriate.
However, we were not engaged to audit, review, or apply any procedures to the
2001 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 consolidated financial statements taken as a whole.
PricewaterhouseCoopers LLP
St. Louis, Missouri
March 12, 2004
F-2
<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-3
<PAGE>
INSITUFORM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
2003 2002 2001
--------------------------------------------
<S> <C> <C> <C>
REVENUES $ 487,272 $ 480,358 $ 445,310
COST OF REVENUES 384,614 354,736 320,462
--------------------------------------------
GROSS PROFIT 102,658 125,622 124,848
SELLING, GENERAL AND ADMINISTRATIVE 79,733 68,049 66,955
AMORTIZATION EXPENSE 1,595 1,433 7,001
RESTRUCTURING CHARGES (Note 5) (261) 2,458 4,127
IMPAIRMENT CHARGE (Note 6) - 3,499 -
--------------------------------------------
OPERATING INCOME 21,591 50,183 46,765
--------------------------------------------
OTHER (EXPENSE) INCOME:
Interest expense (8,235) (7,911) (9,339)
Other (Note 11) (1,274) 3,055 2,309
--------------------------------------------
TOTAL OTHER EXPENSE (9,509) (4,856) (7,030)
--------------------------------------------
INCOME BEFORE TAXES ON INCOME 12,082 45,327 39,735
TAXES ON INCOME (Note 12) 6,809 17,451 15,653
--------------------------------------------
INCOME BEFORE MINORITY INTERESTS, EQUITY IN EARNINGS (LOSSES) AND
DISCONTINUED OPERATIONS 5,273 27,876 24,082
MINORITY INTERESTS (211) (150) (273)
EQUITY IN EARNINGS (LOSSES) OF AFFILIATED COMPANIES (434) 834 1,131
--------------------------------------------
INCOME FROM CONTINUING OPERATIONS 4,628 28,560 24,940
LOSS FROM DISCONTINUED OPERATIONS, net of tax benefits of
$702, $3,674 and $47, respectively (Note 4) (1,103) (5,869) (72)
--------------------------------------------
NET INCOME $ 3,525 $ 22,691 $ 24,868
============================================
EARNINGS PER SHARE:
Basic:
Income from continuing operations $ 0.17 $ 1.08 $ 0.94
Loss from discontinued operations (0.04) (0.22) -
--------------------------------------------
Net income $ 0.13 $ 0.86 $ 0.94
============================================
Diluted:
Income from continuing operations $ 0.17 $ 1.07 $ 0.93
Loss from discontinued operations (0.04) (0.22) -
--------------------------------------------
Net income $ 0.13 $ 0.85 $ 0.92
============================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE>
INSITUFORM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - AS OF DECEMBER 31, 2003 AND 2002
(In thousands, except share information)
<TABLE>
<CAPTION>
2003 2002
----------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents, including restricted cash of $6,126 and $3,985, $ 99,991 $ 75,386
respectively
Receivables, net 90,814 82,962
Retainage 24,902 23,726
Costs and estimated earnings in excess of billings 27,853 36,680
Inventories 12,935 12,402
Prepaid expenses and other assets 19,515 13,586
Assets held related to discontinued operations 1,263 7,909
----------------------------
Total current assets 277,273 252,651
----------------------------
PROPERTY, PLANT AND EQUIPMENT, less accumulated depreciation 75,667 71,579
----------------------------
OTHER ASSETS:
Goodwill 131,613 131,032
Other assets 23,807 17,751
----------------------------
Total other assets 155,420 148,783
----------------------------
Total assets $ 508,360 $ 473,013
============================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt and line of credit $ 16,938 $ 49,360
Accounts payable and accrued expenses 82,670 69,776
Billings in excess of costs and estimated earnings 8,495 5,992
Liabilities related to discontinued operations 1,770 3,293
----------------------------
Total current liabilities 109,873 128,421
LONG-TERM DEBT, less current maturities 114,323 67,014
OTHER LIABILITIES 3,530 3,530
----------------------------
Total liabilities 227,726 198,965
----------------------------
MINORITY INTERESTS 1,465 1,430
----------------------------
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 28,815,669 and
28,776,438; shares outstanding 26,458,205 and 26,558,165 288 288
Unearned restricted stock (412) -
Additional paid-in capital 133,794 132,820
Retained earnings 198,328 194,803
Treasury stock - 2,357,464 and 2,218,273 shares (51,596) (49,745)
Accumulated other comprehensive loss (1,233) (5,548)
----------------------------
Total stockholders' equity 279,169 272,618
----------------------------
Total liabilities and stockholders' equity $ 508,360 $ 473,013
============================
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE>
INSITUFORM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
(In thousands, except number of shares)
<TABLE>
<CAPTION>
Unearned
Common Stock Restricted Additional
--------------------------- Stock Paid-In Retained
Shares Amount Compensation Capital Earnings
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 2000 28,152,570 $ 282 - $ 81,934 $ 147,244
Net income - - - - 24,868
Issuance of common stock
upon exercise of options,
including income tax
benefit of $2,209 418,588 4 - 8,257 -
Issuance of common stock
pursuant to acquisition - - - 39,460 -
Common stock repurchased - - - - -
Foreign currency
translation adjustment - - - - -
Total comprehensive income - - - - -
--------------------------------------------------------------------------
BALANCE, December 31, 2001 28,571,158 $ 286 - $ 129,651 $ 172,112
Net income - - - - 22,691
Issuance of common stock
upon exercise of options,
including income tax
benefit of $654 205,280 2 - 3,169 -
Common stock repurchased - - - - -
Foreign currency translation
adjustment - - - - -
Total comprehensive income - - - - -
--------------------------------------------------------------------------
BALANCE, December 31, 2002 28,776,438 $ 288 - $ 132,820 $ 194,803
Net income - - - - 3,525
Issuance of common stock
upon exercise of options,
including income tax
benefit of $42 39,231 - - 472 -
Restricted stock issued in
connection with LTIP - - $ (993) 993 -
Amortization and forfeitures
of restricted stock - - 581 (491) -
Common stock repurchased - - - - -
Foreign currency translation
adjustment - - - - -
Total comprehensive income - - - - -
--------------------------------------------------------------------------
BALANCE, December 31, 2003 28,815,669 $ 288 $ (412) $ 133,794 $ 198,328
==========================================================================
<CAPTION>
Accumulated
Other Total
Treasury Comprehensive Stockholders' Comprehensive
Stock Loss Equity Income
-------------------------------------------------------------
<S> <C> <C> <C> <C>
BALANCE, December 31, 2000 $ (58,478) $ (5,692) $ 165,290
Net income - - 24,868 $ 24,868
Issuance of common stock
upon exercise of options,
including income tax
benefit of $2,209 - - 8,261 -
Issuance of common stock
pursuant to acquisition 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 $ (44,563) $ (7,359) $ 250,127
Net income - - 22,691 $ 22,691
Issuance of common stock
upon exercise of options,
including income tax
benefit of $654 - - 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 $ (49,745) $ (5,548) $ 272,618
Net income - - 3,525 $ 3,525
Issuance of common stock
upon exercise of options,
including income tax
benefit of $42 - - 472 -
Restricted stock issued in
connection with LTIP - - - -
Amortization and forfeitures
of restricted stock - - 90 -
Common stock repurchased (1,851) - (1,851) -
Foreign currency translation
adjustment - 4,315 4,315 $ 4,315
------------
Total comprehensive income - - - $ 7,840
-------------------------------------------- ============
BALANCE, December 31, 2003 $ (51,596) $ (1,233) $ 279,169
============================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE>
INSITUFORM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
(In thousands)
<TABLE>
<CAPTION>
2003 2002 2001
--------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,525 $ 22,691 $ 24,868
Loss from discontinued operations 1,103 5,869 72
--------------------------------------------
Income from continuing operations 4,628 28,560 24,940
Adjustments to reconcile net income to net cash provided by operating
activities, excluding the effects of acquisitions -
Depreciation 15,521 14,397 14,382
Amortization 1,595 1,433 7,001
(Gain) loss on sale of assets/investment 1,375 (1,225) -
Reserve for notes receivable 1,090 - -
Other 1,912 227 1,425
Asset impairment charge - 3,499 -
Restructuring charges (261) 2,458 4,127
Deferred income taxes (1,624) (4,364) 891
Changes in operating assets and liabilities, net of purchased businesses
(Note 13) 5,157 (19,657) (8,051)
--------------------------------------------
Net cash provided by operating activities of continuing operations 29,393 25,328 44,715
Net cash provided (used) by operating activities of discontinued
operations 5,192 853 (9,879)
--------------------------------------------
Net cash provided by operating activities 34,585 26,181 34,836
--------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (19,929) (21,782) (16,638)
Proceeds from sale of fixed assets 1,365 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 (7,776) (8,459) (1,878)
Other investing activities - (960) (2,147)
--------------------------------------------
Net cash used by investing activities (26,340) (13,348) (11,615)
--------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 430 2,517 6,052
Purchases of treasury stock (1,597) (5,182) (12,218)
Proceeds from long-term debt 65,112 - -
Principal payments on long-term debt (24,224) (20,938) (20,611)
Principal (payments) borrowings on line of credit, net (26,000) 10,246 14,995
Deferred financing charges (867) - -
--------------------------------------------
Net cash provided by/(used in) financing activities 12,854 (13,357) (11,782)
--------------------------------------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 3,506 1,261 (897)
--------------------------------------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 24,605 737 10,542
CASH AND CASH EQUIVALENTS, beginning of year 75,386 74,649 64,107
--------------------------------------------
CASH AND CASH EQUIVALENTS, end of year $ 99,991 $ 75,386 $ 74,649
============================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for-
Interest $ 7,696 $ 7,828 $ 9,652
Income taxes 10,307 17,591 15,121
NONCASH INVESTING AND FINANCING ACTIVITIES:
Issuance of common stock pursuant to acquisition $ - $ - $ 65,593
Issuance of note payable pursuant to acquisition $ - $ - $ 5,350
Notes receivable on sale of discontinued operations $ - $ 5,000 $ -
Note payable recovered in Kinsel settlement $ (5,350) $ - $ -
Accrued interest recovered in Kinsel settlement $ 557 $ - $ -
Treasury stock recovered in Kinsel settlement $ 254 $ - $ -
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-7
<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 high-density polyethylene 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 Tite Liner(R) ("Tite
Liner") process is a proprietary method of lining new and existing pipe with a
corrosion and abrasion resistant polyethylene 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 is a 75%-owned
United Kingdom subsidiary, Insituform Linings Plc. For contractual joint
ventures, the Company recognizes revenue, costs and profits on its portion of
the contract. All significant 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, 2003, the Company had two active stock-based compensation plans,
which are described in Note 10. The Company applies the recognition and
measurement principles of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," and related Interpretations in
accounting for those plans. The Company recorded stock-based compensation
expense of $0.5 million related to restricted stock and deferred stock units
(See Note 10) in 2003. There was no stock-based compensation expense in 2002 or
2001 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
123, "Accounting for Stock-Based Compensation," to stock-based compensation (in
thousands, except share data):
<TABLE>
<CAPTION>
2003 2002 2001
--------------------------------------------
<S> <C> <C> <C>
Net income - as reported $ 3,525 $ 22,691 $ 24,868
Add: Total stock-based compensation expense included
in net income, net of related tax effects 223 - -
--------------------------------------------
Deduct: Total stock-based compensation expense
determined under fair value method for all awards,
net of related tax effects (3,259) (6,080) (5,710)
--------------------------------------------
Pro forma net income $ 489 $ 16,611 $ 19,158
============================================
</TABLE>
F-8
<PAGE>
<TABLE>
<S> <C> <C> <C>
Basic earnings per share:
As reported $ 0.13 $ 0.86 $ 0.94
Pro forma 0.02 0.63 0.72
Diluted earnings per share:
As reported 0.13 0.85 0.92
Pro forma 0.02 0.62 0.71
</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 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.
For SFAS 148 disclosure purposes, the stock-based compensation expense recorded
in the determination of reported net income is disclosed in the above table. The
pro forma stock-based compensation expense includes the recorded expense and
expense related to stock options that was determined using the fair value
method.
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, 2003,
the Company had provided $4.7 million for expected losses on contracts,
including a loss provision of $4.1 million for additional costs related to the
removal and reinstallation of an Insituform CIPP Process liner in Boston,
Massachusetts. There were no significant loss provisions at December 31, 2002.
Revenues from change orders, extra work, variations in the scope of work and
claims are recognized when realization is reasonably assured, and at estimated
recoverable amounts.
Research and Development
The Company expenses research and development costs as incurred. Research and
development costs of $2.0 million, $2.0 million and $2.3 million for the years
ended December 31, 2003, 2002 and 2001, 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 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.
F-9
<PAGE>
Earnings Per Share
Earnings per share have been calculated using the following share information:
<TABLE>
<CAPTION>
2003 2002 2001
------------------------------------------
<S> <C> <C> <C>
Weighted average number of common shares used for basic EPS 26,470,587 26,533,541 26,427,276
Effect of dilutive stock options, warrants, restricted stock
and deferred stock units (Note 10) 150,105 198,221 495,996
------------------------------------------
Weighted average number of common shares and dilutive
potential common stock used in diluted EPS 26,620,692 26,731,762 26,923,272
==========================================
</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 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.
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 generally collected within one year of the completion of
a contract, although collection can take up to two years in Europe. Retainage
due after one year was approximately $1.1 million at December 31, 2003.
Allowance for Doubtful Accounts
Management makes estimates of the uncollectibility of accounts receivable and
retainage. The Company records a reserve for the greater of historical
percentages applied against aged balances, or 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 reasonable attempts to collect the receivable
or retainage have been explored, the account 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 normal capacity.
F-10
<PAGE>
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 based on estimated undiscounted future cash flows. If impairment is
indicated, the asset is written down to its fair value. See Notes 4 and 6
regarding discontinued operations and intangible asset impairment.
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 2003 and 2002, nor
was any goodwill identified as being impaired based on management's impairment
analyses performed during 2003 and 2002. Amortization expense related to
goodwill for the year ended December 31, 2001 was $6.2 million pre-tax. 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 May 2003, the FASB issued SFAS 150, "Accounting for Certain Instruments with
Characteristics of Both Liabilities and Equity," which establishes standards for
how an issuer classifies and measures certain financial instruments with
characteristics of both liabilities and equity. SFAS 150 requires that an issuer
classify a financial instrument that is within its scope, which may have
previously been reported as equity, as a liability (or an asset in some
circumstances). This statement was effective for financial instruments entered
into or modified after May 31, 2003, and otherwise was effective at the
beginning of the first interim period beginning after June 15, 2003. The
adoption of SFAS 150 did not have a material impact on the Company's financial
position or results of operations.
In January 2003 (as revised December 2003), the FASB issued Interpretation No.
46, "Consolidation of Variable Interest Entities" ("FIN 46"). FIN 46 clarifies
the application of Accounting Research Bulletin No. 51, "Consolidated Financial
Statements," for certain entities in which equity investors do not have the
characteristics of a controlling financial interest or do not have sufficient
equity at risk for the entity to finance its activities without additional
subordinated financial support from other parties. FIN 46 requires that variable
interest entities, as defined, should be consolidated by the primary
beneficiary, which is defined as the entity that is expected to absorb the
majority of the expected losses, receive the majority of the gains or both. FIN
46 requires that companies disclose certain information about a variable
interest entity created prior to February 1, 2003. The application of FIN 46,
which was previously required on July 1, 2003 for entities created prior to
February 1, 2003 and immediately for any variable interest entities created
after January 31, 2003, has been deferred until years ending after December 31,
2003. The Company will be required to adopt FIN 46 in the first quarter of 2004.
The Company is evaluating the
F-11
<PAGE>
provision of FIN 46 related to its foreign joint ventures and certain leasing
arrangements, but does not anticipate a 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 contractual guarantees.
In June 2002, FASB issued 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 adopted the provisions of SFAS 146 effective January 1, 2003. There was
no material impact upon adoption.
In April 2002, the FASB issued SFAS 145, "Rescission of FASB Statements No. 4,
44 and 64, Amendment of FASB Statement No. 13 and Technical Corrections." SFAS 4
and 44 relate to the treatment of early debt extinguishments and their
classification on an entity's financial statements. SFAS 145 recognizes that
early debt extinguishments have become more commonplace as a risk management
strategy, and thus fail to meet the "unusual and infrequent" criteria of an
extraordinary item. SFAS 64 was issued to establish accounting requirements for
the effects of transition to the provisions of the Motor Carrier Act of 1980.
Those transitions are completed, and therefore SFAS 64 is no longer necessary.
SFAS 13, "Accounting for Leases," is amended to require sale-leaseback
accounting for certain lease modifications that have economic effects that are
similar to sale-leaseback transactions. This statement was effective for the
Company in fiscal year 2002 and had no material impact on adoption.
In August 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards 143 ("SFAS 143"), "Accounting for
Asset Retirement Obligations," which was adopted by the Company as of January 1,
2003. SFAS 143 did not have a material impact on the consolidated financial
statements upon adoption.
3. BUSINESS ACQUISITIONS:
In November 2003, the Company acquired the remaining interest in Ka-Te
Insituform AG ("Ka-Te Insituform") for approximately $2.2 million. Net of
related party debt and shared accrued employee liabilities, the cash paid by the
Company was approximately $0.8 million. Consolidation of Ka-Te Insituform's
financial information from November 2003 forward did not materially impact the
Company's consolidated financial statements.
Effective September 5, 2003, the Company acquired the business and certain
assets of Insituform East, Inc. ("East") for $5.5 million. East was the final
remaining independent licensee of the Insituform CIPP Process and the NuPipe
Process in North America. Certain selected assets such as equipment, inventory,
backlog, licenses and an option to purchase certain additional assets were
included in the acquisition. The
F-12
<PAGE>
Company exercised its option to purchase additional assets from East for $0.6
million. The purchase price for both the original purchase and the subsequent
purchase of assets was paid entirely in cash. The purchase price has been
allocated to assets acquired based on their respective fair values at the date
of acquisition. The Company's results reflect the operations of East's former
assets from the date of acquisition and included $4.0 million allocated to
intangible assets, recorded as licenses, purchased backlog and customer
relationships. The East acquisition added $2.7 million in revenues and $0.1
million of operating income in the rehabilitation segment from September 5, 2003
through December 31, 2003.
In July 2003, the Company purchased the remaining third party minority interest
in Video Injection S.A. ("Video Injection"). The purchase price was $0.5 million
and resulted in $0.3 million of additional goodwill.
In June 2003, the Company completed the acquisition of the business of Sewer
Services. The acquisition, with a price of $0.4 million, resulted in an increase
of $0.1 million in goodwill. Sewer Services had revenues of $2.5 million after
the acquisition.
The 2003 acquisitions are not considered material in the aggregate, and pro
forma information has not been presented.
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 United States. 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
operation of Elmore's former assets from the date of acquisition. The Elmore
acquisition added $15.2 million of revenues and $6.7 million of operating loss
in the tunneling segment for the year ended December 31, 2003. These operating
losses were primarily due to the completion of acquired projects which incurred
substantial cost overruns. For the period May 1 to December 31, 2002, Elmore
accounted for $20.7 million of revenue and $1.0 million of operating income. 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 were 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 primarily impacting discontinued operations. See Note 4 regarding
discontinued operations.
4. DISCONTINUED OPERATIONS:
In October 2001, the FASB issued SFAS 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets." The Company elected to early adopt the
provisions of SFAS 144 for the year ended December 31,
F-13
<PAGE>
2001. SFAS 144 supersedes SFAS 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 144 clarifies certain provisions related
to SFAS 121 and expands the use of discontinued operations to all components of
a business for which separate results of operations can be identified.
During the fourth quarter of 2001, the Company made the decision to sell certain
operations related to the Kinsel acquisition. Accordingly, the Company
classified as discontinued the wastewater treatment plant, commercial
construction and highway operations acquired as part of the Kinsel acquisition.
These operations were 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 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. 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. In
addition, the Company completed the sale of certain contracts and assets of the
highway maintenance operations 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 on 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 substantially completed 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. At December 31, 2003,
substantially all discontinued operations have been completed, and the Company
expects little or no discontinued operations activity in 2004.
The Company negotiated settlements, without litigation, during the first quarter
of 2003 between the Company and the former Kinsel owners, and the Company and
the purchasers of the wastewater treatment plant operations acquired from
Kinsel. 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 valued at $254,084 based on
the settlement date closing stock price of $13.45 per share, 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, were returned to the Company from the claim collateral escrow
account established at the time of acquisition. The remaining 56,672 shares of
Company common stock held in the escrow account were distributed to the former
Kinsel shareholders. The settlement of the escrow account primarily related to
matters associated with Kinsel operations that have been sold and presented as
discontinued operations. 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 arose out of the January 2002
sale of the Kinsel wastewater treatment division and alleged the valuation of
the assets sold was overstated. These settlements resulted in a $1.0 million
pre-tax non-operating gain in the results of continuing operations and a net
pre-tax $1.1 million gain in discontinued operations.
As of December 31, 2003 and December 31, 2002, assets related to discontinued
operations totaled $1.3 million and $7.9 million, respectively, and included
$0.1 million and $0.7 million of unbilled receivables, respectively. Assets
related to discontinued operations also included $0.6 million in retainage
receivables, $0.2 million of trade receivables, and $0.4 million of fixed assets
at December 31, 2003. Liabilities related to discontinued operations totaled
$1.8 million and $3.3 million at December 31, 2003 and December 31, 2002,
respectively. The results of discontinued operations are as follows (in
thousands):
<TABLE>
<CAPTION>
2003 2002
------------------------
<S> <C> <C>
REVENUES:
Wastewater Treatment Plant $ (7) $ 37
Commercial Construction and Highway Operations 2,619 22,524
------------------------
$ 2,612 $ 22,561
========================
</TABLE>
F-14
<PAGE>
<TABLE>
<CAPTION>
2003 2002
------------------------
<S> <C> <C>
LOSS FROM DISCONTINUED OPERATIONS:
Wastewater Treatment Plant, net of tax benefit of $90
and $1,153, respectively $ (141) $ (1,842)
Commercial Construction and Highway Operations, net of tax
benefit of $612 and $2,521, respectively (962) (4,027)
------------------------
$ (1,103) $ (5,869)
========================
</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. The remaining unused portion of this
reserve, approximating $0.2 million, was reversed to income in the third quarter
of 2003. As of December 31, 2003, there was no remaining liability related to
this restructuring.
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 was
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 related 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. The remaining portion of this reserve,
approximating $27,000, was reversed to income in the third quarter of 2003. As
of December 31, 2003, there was no remaining liability related to this
restructuring.
The following table illustrates each of the restructuring reserve components and
the related balances at December 31, 2003 (in thousands):
<TABLE>
<CAPTION>
Balance at Balance at
December 31, 2002 Charged During Charged During December 31,
2001 Reserve 2002 2003 Reversed 2003
-------------------------------------------------------------------------------------------------
Cash Non-Cash Cash Non-Cash
------------------ ------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
2001 Reserve
Severance $ 844 $ (844) $ - $ - $ - $ - $ -
Equipment 616 (122) (237) (104) (153) - -
Facility 1,702 (1,171) (302) (202) - (27) -
---------------------------------------------------------------------------------------------
Total $ 3,162 $ (2,137) $ (539) $ (306) $ (153) $ (27) $ -
=============================================================================================
2002 Reserve
Severance $ - $ 1,258 $ (465) $ - $ (559) $ - $ (234) $ -
Equipment - 1,200 (852) - - (348) - -
---------------------------------------------------------------------------------------------
Total $ - $ 2,458 $ (1,317) $ - $ (559) $ (348) $ (234) $ -
=============================================================================================
</TABLE>
6. INTANGIBLE ASSET IMPAIRMENT:
During the third quarter of 2002, the Company determined that certain patent,
trademark, license and non-compete assets had become impaired due to business
decisions and other circumstances. No further bidding or work was performed
during 2002 and 2003 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).
F-15
<PAGE>
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>
2003 2002 2001
--------------------------------------------
<S> <C> <C> <C>
Balance, at beginning of year $ 2,175 $ 2,208 $ 2,067
Charged to expense 2,027 503 537
Write-offs and adjustments (1,194) (536) (396)
--------------------------------------------
Balance, at end of year $ 3,008 $ 2,175 $ 2,208
============================================
</TABLE>
In the fourth quarter of 2003, the Company increased its allowance for doubtful
accounts by $0.6 million in accordance with the Company's bad debt policy.
Costs and Estimated Earnings on Uncompleted Contracts
Costs and estimated earnings on uncompleted contracts consist of the following
at December 31 (in thousands):
<TABLE>
<CAPTION>
2003 2002
----------------------------
<S> <C> <C>
Costs incurred on uncompleted contracts $ 360,897 $ 269,968
Estimated earnings 89,078 73,351
----------------------------
449,975 343,319
Less- Billings to date (430,617) (312,631)
----------------------------
$ 19,358 $ 30,688
============================
Included in the accompanying balance sheets:
Costs and estimated earnings in excess of billings $ 27,853 $ 36,680
Billings in excess of costs and estimated earnings (8,495) (5,992)
----------------------------
$ 19,358 $ 30,688
============================
</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.
Inventories
Inventories are summarized as follows at December 31 (in thousands):
<TABLE>
<CAPTION>
2003 2002
---------------------------
<S> <C> <C>
Raw materials and supplies $ 1,392 $ 908
Work-in-process 3,246 3,665
Finished products 1,932 1,049
Construction materials 6,365 6,780
---------------------------
$ 12,935 $ 12,402
===========================
</TABLE>
F-16
<PAGE>
Property, Plant and Equipment
Property, plant and equipment consists of the following at December 31 (in
thousands):
<TABLE>
<CAPTION>
Estimated Useful
Lives (Years) 2003 2002
---------------------------------------------
<S> <C> <C> <C>
Land and land improvements $ 9,822 $ 9,681
Buildings and improvements 5 - 40 24,807 25,768
Machinery and equipment 4 - 10 114,628 109,337
Furniture and fixtures 3 - 10 12,106 13,429
Autos and trucks 3 - 10 5,203 5,126
Construction in progress 7,761 2,561
----------------------------
174,327 165,902
Less- Accumulated depreciation and amortization of
leasehold improvements (98,660) (94,323)
----------------------------
$ 75,667 $ 71,579
============================
</TABLE>
In the fourth quarter of 2003, the Company reduced the carrying value of its
fixed assets by approximately $0.8 million as determined by its impairment
analyses and related assessments.
Other Assets
Other assets are summarized as follows at December 31 (in thousands):
<TABLE>
<CAPTION>
2003 2002
---------------------------
<S> <C> <C>
License agreements $ 2,721 $ 1,387
Patents and trademarks 1,660 2,046
Investment in licensees, affiliates, and subsidiaries 5,498 6,412
Deferred income taxes 5,251 1,734
Non-compete agreements 2,069 2,615
Purchased backlog 388 -
Customer relationships 1,767 -
Other 4,453 3,557
---------------------------
$ 23,807 $ 17,751
===========================
</TABLE>
Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consist of the following at December 31
(in thousands):
<TABLE>
<CAPTION>
2003 2002
---------------------------
<S> <C> <C>
Accounts payable - trade $ 49,047 $ 45,858
Compensation and bonus 6,246 6,431
Interest 2,523 2,777
Warranty 989 590
Job costs 8,592 9,650
Job loss reserves 4,653 499
Estimated casualty and healthcare liabilities 10,620 3,971
---------------------------
$ 82,670 $ 69,776
===========================
</TABLE>
In the fourth quarter of 2003, the Company increased its reserves for
self-insurance and healthcare costs by $3.7 million to reflect recent Company
experience regarding increasing claim costs and updated actuarial information.
F-17
<PAGE>
In the fourth quarter of 2003, the Company recorded a loss job provision of $4.1
million to remove and reinstall an Insituform CIPP Process liner in Boston,
Massachusetts.
8. ACQUIRED INTANGIBLE ASSETS AND GOODWILL:
In June 2001, the FASB issued 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 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 was 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 2003 and 2002, respectively.
Management retained an independent party to perform a valuation of the Company's
reporting units, which consist of North American rehabilitation, European
rehabilitation, tunneling and Tite Liner, and determined that no impairment of
goodwill existed.
Changes in the carrying amount of goodwill for the year ended December 31, 2003
were as follows (in thousands):
<TABLE>
<CAPTION>
Rehabilitation Tunneling Total
---------------------------------------------
<S> <C> <C> <C>
Balance as of December 31, 2002 $ 122,140 $ 8,892 $ 131,032
Addition - Sewer Services, Ltd. 143 - 143
Addition - Video Injection, Inc. 285 - 285
Other 125 28 153
---------------------------------------------
Balance as of December 31, 2003 $ 122,693 $ 8,920 $ 131,613
=============================================
</TABLE>
Intangible assets are as follows (in thousands):
<TABLE>
<CAPTION>
As of December 31, 2003
Gross Carrying Accumulated
Amount Amortization
----------------------------
<S> <C> <C>
Amortized intangible assets:
Patents and trademarks $ 13,943 $ (12,283)
License agreements 4,803 (2,082)
Non-compete agreements 4,730 (2,661)
Purchased backlog 582 (194)
Customer relationships 1,797 (30)
---------------------------
Total $ 25,855 $ (17,250)
---------------------------
Aggregate amortization expense:
For twelve months ended December 31, 2003 $ 1,595
Estimated amortization expense:
For year ending December 31, 2004 $ 1,580
For year ending December 31, 2005 850
For year ending December 31, 2006 845
For year ending December 31, 2007 452
For year ending December 31, 2008 438
</TABLE>
The effect of the adoption of SFAS 142 on reported net income was as follows (in
thousands, except per share information):
F-18
<PAGE>
<TABLE>
<CAPTION>
Twelve Months
Ended December 31,
2003 2002 2001
--------------------------------------------
<S> <C> <C> <C>
Reported income from continuing operations $ 4,628 $ 28,560 $ 24,940
Add: Goodwill amortization related to continuing operations, net
of tax - - 3,794
--------------------------------------------
Adjusted income from continuing operations $ 4,628 $ 28,560 $ 28,734
Reported net loss from discontinued operations (1,103) (5,869) (72)
Add: Goodwill amortization related to discontinued operations, net
of tax - - 126
--------------------------------------------
Adjusted net income $ 3,525 $ 22,691 $ 28,788
============================================
Basic earnings per share:
Reported income from continuing operations $ 0.17 $ 1.08 $ 0.94
Add: Goodwill amortization related to continuing operations,
net of tax - - 0.14
Adjusted income from continuing operations $ 0.17 $ 1.08 $ 1.09
Reported net loss from discontinued operations (0.04) (0.22) -
Add: Goodwill amortization related to discontinued operations,
net of tax - - -
--------------------------------------------
Adjusted net income $ 0.13 $ 0.86 $ 1.09
============================================
Diluted earnings per share:
Reported income from continuing operations $ 0.17 $ 1.07 $ 0.93
Add: Goodwill amortization related to continuing operations,
net of tax - - 0.14
Adjusted income from continuing operations $ 0.17 $ 1.07 $ 1.07
Reported net loss from discontinued operations (0.04) (0.22) -
Add: Goodwill amortization related to discontinued operations,
net of tax - - -
--------------------------------------------
Adjusted net income $ 0.13 $ 0.85 $ 1.07
============================================
</TABLE>
9. LONG-TERM DEBT AND LINE OF CREDIT FACILITY:
Long-term debt and line of credit consisted of the following at December 31 (in
thousands):
<TABLE>
<CAPTION>
2003 2002
----------------------------
<S> <C> <C>
7.88% Senior Notes, Series A, payable in $15,715 annual installments
beginning February 2001 through 2007, with interest payable semiannually $ 62,855 $ 78,570
5.29% Senior Notes, Series 2003-A, due April 24, 2013 65,000 -
Line of credit facility - 26,000
5.5% bank term loan, EUR5.7 million, payable in seven equal annual
installments through July 2006, with interest payable quarterly 3,052 3,398
Other notes, including capital leases, interest rates from 5.0% to 10.5% 354 8,406
----------------------------
131,261 116,374
Less- Current maturities (16,938) (49,360)
----------------------------
$ 114,323 $ 67,014
============================
</TABLE>
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>
2004 $ 16,938
2005 16,881
2006 16,732
</Table>
F-19
<PAGE>
<Table>
<S> <C>
2007 15,710
2008 -
Thereafter 65,000
----------
Total $ 131,261
----------
</TABLE>
At December 31, 2003 and 2002, the estimated fair value of the Company's
long-term debt was approximately $131.3 million and $118.2 million,
respectively. Fair value was estimated using discounted market rates for debt of
similar risk and maturity.
Senior Notes
The 7.88% Senior Notes, Series A, 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. On April 24, 2003, the
Company placed $65.0 million of Senior Notes, Series 2003-A, due April 24, 2013
and bearing interest, payable semi-annually in April and October of each year,
at a rate of 5.29% per annum, with certain institutional investors through a
private offering. The principal amount is due in a single payment on April 24,
2013. The Senior Notes, Series 2003-A, 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 Notes, Series 2003-A, without any premium.
These 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 not in compliance with all debt covenants at December 31, 2003. See
Note 16 for amendments obtained related to covenant violations.
Line of 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. The
facility provided the Company with borrowing capacity of up to $75.0 million.
The quarterly commitment fee ranged 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 were 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 December 31, 2003,
there was no borrowing balance on the credit facility and therefore there is no
applicable interest rate as the rates are determined on the borrowing date. The
available balance was $69.8 million, and the commitment fee was 0.30%. The
remaining $5.2 million was used for non-interest bearing letters of credit, the
majority of which was collateral for insurance. The Company generally uses the
credit facility for short-term borrowings and discloses amounts outstanding as a
current liability. See Note 16 for refinancing of the line of 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
2,000,000. The
F-20
<PAGE>
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 and deferred stock
units 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
and/or deferred stock units 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. Deferred stock units represent the obligation
of the Company to transfer common stock to the non-employee director at a future
date.
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 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 2003, 2002, and 2001,
respectively: expected volatility of 61%, 64% and 75%; risk-free interest rates
of 3.0%, 3.8% and 4.8%; expected lives of six, six and seven years and no
dividends.
The following tables summarize information about options outstanding at December
31, 2003:
<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 $10.00 118,745 4.6 years $ 8.76 119,445 $ 8.76
$10.00 to $20.00 678,395 3.9 years $ 13.75 464,006 $ 14.09
$20.00 and above 1,466,999 6.3 years $ 27.24 1,196,779 $ 27.61
--------- ----------
2,264,139 5.7 years $ 22.23 1,780,230 $ 22.82
========= ==========
</TABLE>
F-21
<PAGE>
<TABLE>
<CAPTION>
2003 2002 2001
---------------------- ---------------------- ----------------------
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 2,150,969 $ 23.59 1,857,302 $ 22.50 1,743,002 $ 18.10
Granted 371,515 12.84 676,471 23.88 656,463 29.02
Exercised (39,231) 11.09 (205,280) 12.26 (418,588) 14.46
Forfeited (219,114) 21.27 (177,524) 25.99 (123,575) 22.20
---------- ---------- ----------
Options outstanding, end
of year 2,264,139 $ 22.23 2,150,969 $ 23.59 1,857,302 $ 22.50
========== ========== ==========
Options exercisable, end of year 1,780,230 $ 22.82 1,442,413 $ 22.28 1,052,779 $ 19.36
========== ========== ==========
Weighted average fair value of
options granted $ 7.53 $ 14.26 $ 21.26
</TABLE>
At December 31, 2003, 2,515,593 shares of common stock were reserved pursuant to
stock option plans.
The Company granted 57,300 restricted shares of common stock to executives and
key employees during 2003. The restrictions on the restricted stock granted to
executive officers of the Company lapse on May 27, 2006, provided that certain
Company performance goals are met as of March 31, 2004, and that employment
continues through May 27, 2006. The Company will not be able to calculate
whether the performance goals have been met until after March 31, 2004. For
non-executive officers, the restrictions on these shares lapse on May 27, 2006,
provided that employment continues through May 27, 2006. All restricted shares
are charged to compensation expense through the performance period based on
changes in the market price of the Company's common stock and ratably over the
vesting period. During the third and fourth quarters of 2003, 28,900 shares were
forfeited due to changes in the Company's senior management. At December 31,
2003, there were 28,400 shares of restricted stock outstanding, and the Company
has recorded $79,000 in compensation expense, net of the effect of forfeitures,
during 2003. There were no restricted stock grants or related compensation
expense in 2002 or 2001.
On December 15, 2003, the Company granted an aggregate of 27,500 deferred stock
units to its Board of Directors, excluding the Company's Chief Executive
Officer. Each deferred stock unit represents the Company's obligation to
transfer one share of common stock to the director in the future, and is fully
vested at grant. Following termination of the director's service on the
Company's board due to death or a change in control, or six months after
termination of the director's service for any other reason, shares of the
Company's common stock equal to the number of deferred stock units reflected on
the director's account, will be distributed. A director may, while serving on
the Company's board, elect to defer the distribution date in annual installments
over a period up to five years, beginning in the year following termination of
service on the board. The Company recorded $0.4 million in compensation expense
in 2003 related to this grant.
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-22
<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>
2003 2002 2001
--------------------------------------------
<S> <C> <C> <C>
Interest income $ 1,507 $ 1,898 $ 2,226
Gain (loss) on sale/disposal of assets (1,375) 1,225 -
Reserve for notes receivable (1,090) - -
Other (316) (68) 83
--------------------------------------------
$ (1,274) $ 3,055 $ 2,309
============================================
</TABLE>
During the fourth quarter of 2003, the Company reserved $1.1 million in notes
receivable from the purchaser of certain discontinued operations.
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>
2003 2002 2001
------------------------------------
<S> <C> <C> <C>
Domestic $ 4,097 $ 38,464 $ 28,871
Foreign 7,985 6,863 10,864
------------------------------------
Total $ 12,082 $ 45,327 $ 39,735
====================================
</TABLE>
Provisions for taxes on income from continuing operations consist of the
following components for the years ended December 31 (in thousands):
<TABLE>
<CAPTION>
2003 2002 2001
--------------------------------------
<S> <C> <C> <C>
Current:
Federal $ 3,342 $ 15,578 $ 8,320
Foreign 4,007 3,935 4,822
State 1,084 2,302 1,620
--------------------------------------
$ 8,433 $ 21,815 $ 14,762
--------------------------------------
Deferred:
Federal $ (1,581) $ (3,705) $ 580
Foreign (56) (247) 247
State 13 (412) 64
--------------------------------------
$ (1,624) $ (4,364) $ 891
--------------------------------------
Total tax provision $ 6,809 $ 17,451 $ 15,653
======================================
</TABLE>
F-23
<PAGE>
A reconciliation between the U.S. federal statutory tax rate and the effective
tax rate follows:
<TABLE>
<CAPTION>
2003 2002 2001
----------------------
<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 2.5 3.5 3.2
Amortization of intangibles (5.8) (1.5) 2.4
Effect of foreign income taxes 5.5 0.5 (0.1)
Valuation allowance on NOLs 6.2 - -
Non-deductible meals and entertainment 13.5 0.4 0.5
Other (0.5) 0.6 (1.6)
----------------------
Total taxes on income 56.4% 38.5% 39.4%
----------------------
</TABLE>
Net deferred taxes consist of the following at December 31 (in thousands):
<TABLE>
<CAPTION>
2003 2002
------------------------
<S> <C> <C>
Deferred income tax assets:
Foreign tax credits and net operating loss carryforwards, net $ 4,418 $ 1,527
Accrued expenses 8,106 4,918
Other 1,514 1,679
------------------------
Total deferred income tax assets 14,038 8,124
------------------------
Deferred income tax liabilities:
Property, plant and equipment $ (6,021) (4,855)
Other (2,766) (1,535)
------------------------
Total deferred income tax liabilities (8,787) (6,390)
------------------------
Net deferred income tax assets $ 5,251 $ 1,734
========================
</TABLE>
The tax credits and net operating losses (NOLs) included here as deferred tax
assets are subject to various expiration dates and are shown net of a valuation
allowance on certain NOLs. The Company has a foreign tax credit of $3.0 million
which begins expiring in 2006. There are U.S. and state NOLs of $3.6 million
expiring in various years through 2016. There are also foreign NOLs of $2.3
million expiring in 2010. Except as noted below, the Company believes it will
have sufficient earnings to realize the benefit of these deferred tax assets.
Certain adjustments were recorded to the Company's income and other tax reserves
at December 31, 2003. Due to substantial continuing losses in the Company's
operations in France and Belgium, it was determined that a full valuation
allowance was necessary primarily relative to net operating loss carryforwards,
thereby increasing income tax expense by $0.8 million. In analyzing its tax
return to tax provision differences, the Company determined that additional
taxes were required to be paid relative to the Company's meals and entertainment
tax deductions, increasing income tax expense by $1.0 million. In addition, the
Company also determined that increased accruals were necessary for use tax and
fuels tax in certain state jurisdictions, increasing cost of revenues by $0.6
million and tax expense by $0.2 million.
13. CHANGES IN OPERATING ASSETS:
The following are changes in operating assets, excluding the effect of
acquisitions and divestitures:
<TABLE>
<CAPTION>
2003 2002 2001
--------------------------------------
<S> <C> <C> <C>
Receivables, net and costs and estimated
earnings in excess of billings $ 1,614 $ (9,921) $ (6,054)
Inventories (200) 1,313 4,761
Prepaid expenses and other assets (4,605) (2,414) (1,530)
Accounts payable and accrued expenses 8,348 (8,635) (5,228)
--------------------------------------
$ 5,157 $ (19,657) $ (8,051)
======================================
</TABLE>
F-24
<PAGE>
14. COMMITMENTS AND CONTINGENCIES:
Leases
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 multi-year, 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
2003, 2002 and 2001 was $17.6 million, $18.6 million and $22.3 million,
respectively. Rental expense paid to a related party was $510,000, $600,000 and
$453,500 for the years ended December 31, 2003, 2002 and 2001, respectively.
At December 31, 2003, the future minimum lease payments required under the
noncancellable operating leases were as follows (in thousands):
<TABLE>
<CAPTION>
Year Minimum Lease Payments
- ----------- ----------------------
<S> <C>
2004 11,139
2005 7,455
2006 5,565
2007 4,634
2008 3,675
After 2008 4,993
------
Total 37,461
======
</TABLE>
Litigation
In the third quarter of 2002, a Company crew had an accident on an Insituform
CIPP Process 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. Iowa OSHA issued a Citation and Notification
of Penalty in connection with the accident, including several willful citations.
Iowa OSHA proposed penalties of $808,250. The Company challenged Iowa OSHA's
findings, and in the fourth quarter of 2003, an administrative law judge found
in favor of Iowa OSHA on some citations, found in favor of the Company on some
citations and combined a number of citations for purposes of assessing
penalties. The administrative law judge reduced the penalties to $158,000. The
Company is vigorously opposing the citations, and both the Company and Iowa OSHA
have appealed the decision to the Iowa Department of Inspections and Appeals. In
2002, Iowa OSHA referred this matter to the local county attorney's office for
potential criminal investigation. The local county attorney referred the matter
to the State of Iowa Department of Criminal Investigation.
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.
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
Company contributions to the domestic plan were $1.6 million, $1.7 million and
$1.5 million for the years ended December 31, 2003, 2002 and 2001, respectively.
F-25
<PAGE>
In addition, certain foreign subsidiaries maintain various other defined
contribution retirement plans. Company contributions to such plans for the years
ended December 31, 2003, 2002 and 2001 were $577,993, $224,718 and $214,552,
respectively.
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 Tite Liner. 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. The Tite
Liner segment provides a method of lining new and existing pipe with a corrosion
and abrasion resistant polyethylene 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, 2003, 2002 and 2001.
Financial information by segment was as follows at December 31 (in thousands):
<TABLE>
<CAPTION>
2003 2002 2001
------------------------------------
<S> <C> <C> <C>
Revenues:
Rehabilitation $ 366,690 $ 377,674 $ 369,219
Tunneling 100,020 86,297 49,019
Tite Liner 20,562 16,387 27,072
------------------------------------
Total revenues $ 487,272 $ 480,358 $ 445,310
====================================
</Table>
F-26
<PAGE>
<Table>
<S> <C> <C> <C>
Operating income:
Rehabilitation $ 14,465 $ 35,208 $ 36,191
Tunneling 3,956 12,165 5,754
Tite Liner 3,170 2,810 4,820
------------------------------------
Total operating income $ 21,591 $ 50,183 $ 46,765
====================================
Total assets:
Rehabilitation $ 300,198 $ 315,377 $ 311,949
Tunneling 68,494 63,218 30,346
Tite Liner 4,906 6,204 12,523
Corporate 133,499 80,305 76,770
Discontinued 1,263 7,909 32,034
------------------------------------
Total assets $ 508,360 $ 473,013 $ 463,622
====================================
Capital expenditures:
Rehabilitation $ 10,482 $ 6,093 $ 8,474
Tunneling 7,005 12,941 6,045
Tite Liner 1,051 353 61
Corporate 1,391 2,395 2,058
------------------------------------
Total capital expenditures $ 19,929 $ 21,782 $ 16,638
====================================
Depreciation and amortization:
Rehabilitation $ 10,146 $ 10,035 $ 16,893
Tunneling 3,811 2,570 1,292
Tite Liner 1,280 880 1,136
Corporate 1,879 2,345 2,062
------------------------------------
Total depreciation and amortization $ 17,116 $ 15,830 $ 21,383
====================================
</TABLE>
Financial information by geographic area was as follows at December 31 (in
thousands):
<TABLE>
<CAPTION>
2003 2002 2001
------------------------------------
<S> <C> <C> <C>
Revenues:
United States $ 401,174 $ 408,218 $ 361,194
Canada 22,767 19,339 23,482
Other Foreign 63,331 52,801 60,634
------------------------------------
Total revenues $ 487,272 $ 480,358 $ 445,310
====================================
Operating income:
United States $ 13,525 $ 43,502 $ 39,003
Canada 3,327 2,616 3,714
Other Foreign 4,739 4,065 4,048
------------------------------------
Total operating income $ 21,591 $ 50,183 $ 46,765
====================================
Long-lived assets:
United States $ 80,641 $ 70,924 $ 63,467
Canada 2,330 2,772 2,969
Other Foreign 16,503 15,634 20,168
------------------------------------
Total long-lived assets $ 99,474 $ 89,330 $ 86,604
====================================
</TABLE>
16. SUBSEQUENT EVENTS:
Effective March 12, 2004, the Company entered into an amended and restated bank
revolving credit facility (the "Amended Credit Facility") that replaces its
existing $75 million bank credit facility (the "Old Credit Facility"). The
Amended Credit Facility provides a borrowing capacity of $25 million, any
portion of which may be used for the issuance of standby letters of credit. The
Company believed that the covenants contained in the Old Credit Facility unduly
limited the Company in the operation of its business. In light of the Company's
being out of compliance with certain debt covenants at December 31, 2003 and
based on the determination that it did not anticipate using more than $25
million of its bank credit in the foreseeable future (primarily for standby
letters of credit), the Company decided to amend the Old Credit Facility and
F-27
<PAGE>
consummate the Amended Credit Facility which subjects the Company to less
restrictive covenants. The Amended Credit Facility matures on September 12,
2005.
Under the Amended Credit Facility, the Company has paid a $25,000 closing fee
and will pay a commitment fee equal to 0.4% per annum on the unborrowed balance
at the end of each fiscal quarter. The Company will also pay a letter of credit
fee of 2.25% per annum on the aggregate stated amount for each letter of credit
that is issued and outstanding at the end of each fiscal quarter. Any loan under
the Amended Credit Facility will bear interest at the rate equal to the Bank of
America prime rate (currently set at 4.0% per annum). The Amended Credit
Facility contains cross-default provisions to the Company's amended Senior Notes
as summarized below.
At December 31, 2003, the Company had an unborrowed balance under the Old Credit
Facility of $69.8 million, and the commitment fee was 0.3%. The remaining $5.2
million was being utilized at year end for non-interest bearing letters of
credit, the majority of which were collateral for insurance. The letters of
credit under the Old Credit Facility will be transferred to the Amended Credit
Facility and remain outstanding. The Company issued $4.2 million in additional
letters of credit under the Amended Credit Facility relating to collateral for
the benefit of its insurance carrier, bringing the total amount of letters of
credit issued to $9.2 million at March 12, 2004. Since there were no
interest-bearing borrowings under the Old Credit Facility at December 31, 2003,
there had been no applicable interest rate determined under the facility.
On March 12, 2004, the Company, with the requisite approval of the holders of
the Company's Senior Notes, Series A, due February 14, 2007, and the Company's
Senior Notes, Series 2003-A, due April 24, 2013, amended certain of the terms
and conditions of the Senior Notes. In connection with the amendment, the
Company paid the noteholders an amendment fee of 0.25%, or $0.3 million, of the
outstanding principal balance of each series of Senior Notes. In addition, the
interest rate on each series of Senior Notes increases by 0.75% per annum at
closing, reducing by 0.25% per annum beginning on April 1, 2005 and by an
additional 0.5% per annum beginning on April 1, 2006.
Prior to the amendment, the Senior Notes, Series A, bore interest, payable
semi-annually, at 7.88% per annum. At December 31, 2003, the outstanding
principal amount under the Senior Notes, Series A, was $62.9 million. Each year
through maturity the Company is required to make principal payments under the
Senior Notes, Series A, of $15.7 million. Upon specified change in control
events, each holder of the Senior Notes, Series A, has the right to require the
Company to purchase its notes, without premium.
Prior to the amendment, the Senior Notes, Series 2003-A, bore interest, payable
semi-annually, at a rate of 5.29% per annum. At December 31, 2003, the
outstanding principal amount under the Senior Notes, Series 2003-A, was $65.0
million. The principal amount of the Senior Notes, Series 2003-A, is due in a
single payment on April 24, 2013. Upon specified change in control events, each
holder of the Senior Notes, Series 2003-A, has the right to require the Company
to purchase its notes, without premium. The proceeds of the Senior Notes, Series
2003-A, were used by the Company to pay off balances on the Old Credit Facility
and to provide liquidity to the Company for general corporate purposes.
The amended note purchase agreements of the Senior Notes, Series A, and the
Senior Notes, Series 2003-A, and the Amended Credit Facility obligate the
Company to comply with certain amended financial ratios and restrictive
covenants through the end of the first quarter of 2005. These covenants, among
other things, place limitations on operations, stock repurchases, dividends,
capital expenditures, acquisitions and sales of assets by the Company and/or its
subsidiaries and limit the ability of the Company and its subsidiaries to incur
further indebtedness. On April 1, 2005, the financial covenants will revert to
original covenants prior to the March 12, 2004 amendment.
At December 31, 2003, the Company was out of compliance with certain of the debt
covenants under the note purchase agreements, Old Credit Facility and an
insurance collateral agreement, but with the recent
F-28
<PAGE>
amendments, are now in compliance with all newly amended covenants. The Company
believes it will be in compliance with the amended covenants in 2004 and beyond.
As a result of the issuance of the $4.2 million in additional letters of credit
under the Amended Credit Facility referenced above, the insurance collateral
agreement was cancelled, as it was no longer necessary and the related amount of
restricted cash posted as insurance collateral will be released.
In connection with the refinancing/amendments of its debt agreements as
described above, the Company expects to record a charge to interest expense in
the quarter ending March 31, 2004 of approximately $0.6 million relative to
costs incurred for the refinancing/amendments, including the write-off of a
portion of deferred financing fees.
17. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED):
(In thousands, except per share data)
<TABLE>
<CAPTION>
1st 2nd 3rd 4th(1)
------------------------------------------------------------
<S> <C> <C> <C> <C>
Year ended December 31, 2003:
Revenues $ 123,348 $ 124,778 $ 117,360 $ 121,786
Gross profit 28,269 29,267 27,419 17,703
Operating income (loss) 11,186 10,285 7,771 (7,651)
Income (loss) from continuing operations 6,351 4,877 3,500 (10,100)
Income (loss) from discontinued operations 276 (292) (215) (872)
Net income (loss) 6,627 4,585 3,285 (10,972)
Basic earnings (loss) per share:
Income (loss) from continuing operations $ 0.24 $ 0.18 $ 0.13 $ (0.38)
Income (loss) from discontinued operations 0.01 (0.01) (0.01) (0.03)
------------------------------------------------------------
Net income (loss) $ 0.25 $ 0.17 $ 0.12 $ (0.41)
Diluted earnings (loss) per share:
Income (loss) from continuing operations $ 0.24 $ 0.18 $ 0.13 $ (0.38)
Income (loss) from discontinued operations 0.01 (0.01) (0.01) (0.03)
------------------------------------------------------------
Net income (loss) $ 0.25 $ 0.17 $ 0.12 $ (0.41)
Year ended December 31, 2002:
Revenues $ 111,176 $ 118,488 $ 125,523 $ 125,171
Gross profit 28,889 30,997 32,758 32,978
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)
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 $ 0.28 $ 0.18 $ 0.23
</TABLE>
(1) See Notes 7, 11 and 12 for discussion of certain fourth quarter 2003 items.
F-29
<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 Amended and Restated By-Laws of the Company, as amended through July
22, 2003 (incorporated by reference to Exhibit 3.1 to the quarterly
report on Form 10-Q for the quarter ended June 30, 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 (the "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 (incorporated by reference to Exhibit 10.1 to the annual
report on Form 10-K for the year ended December 31, 2002), as amended
by First Amendment to Credit Agreement dated as of November 26, 2003
(incorporated by reference to Exhibit 10.1 to the current report on
Form 8-K dated and filed December 1, 2003, as further amended by Second
Amendment to Credit Agreement dated as of March 12, 2004.
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 (incorporated
by reference to Exhibit 10.2 to the annual report on Form 10-K for the
year ended December 31, 2002), as further amended by Fourth Amendment
dated as of March 12, 2004.
10.3 Note Purchase Agreement (the "Note Purchase Agreement") dated as of
April 24, 2003 among the Company and each of the lenders listed therein
(incorporated by reference to Exhibit 10.1 to the quarterly report on
Form 10-Q for the quarter ended March 31, 2003), as further amended by
First Amendment dated as of March 12, 2004.
10.4 Master Guaranty dated as of March 27, 2003 by the Company and those
subsidiaries of the Company named therein (incorporated by reference to
Exhibit 10.3 to the annual report on Form 10-K for the year ended
December 31, 2002).
<PAGE>
10.5 Amended and Restated Intercreditor Agreement dated as of April 24, 2003
among Bank of America, N.A. and the Noteholders (incorporated by
reference to Exhibit 10.2 to the quarterly report on Form 10-Q for the
quarter ended March 31, 2003).
10.6 Employment Letter dated March 7, 2003 between the Company and Thomas S.
Rooney, Jr. (incorporated by reference to Exhibit 10.3 to the quarterly
report on Form 10-Q for the quarter ended March 31, 2003), as amended
by Amendment dated March 1, 2004. (3)
10.7 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 (incorporated by reference to
Exhibit 10.5 to the annual report on Form 10-K for the year ended
December 31, 2002). (3)
10.8 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). (3)
10.9 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). (3)
10.10 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)
10.11 Executive Separation Agreement and Release effective as of July 22,
2003 by and between the registrant and Anthony W. Hooper (incorporated
by reference to Exhibit 10.1 to the quarterly report on Form 10-Q for
the quarter ended June 30, 2003). (3)
10.12 Employment Letter dated December 1, 2003 between the Company and
Christian G. Farman (incorporated by reference to Exhibit 10.1 to the
current report on Form 8-K dated and filed December 4, 2003). (3)
10.13 Employment Separation Agreement and Release effective as of December 4,
2003 by and between the Company and Joseph A. White. (3)
10.14 Employee Separation Agreement and Release effective as of July 1, 2003
by and between the Company and Carroll W. Slusher (incorporated by
reference to Exhibit 10.2 to the quarterly report on Form 10-Q for the
quarter ended June 30, 2003). (3)
10.15 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 (incorporated by
<PAGE>
reference to Exhibit 10.8 to the annual report on Form 10-K for the
year ended December 31, 2002), and as amended by Letter Agreement dated
March 1, 2004. (3)
10.16 Equipment Lease for 125 Ton American Crane [1] dated as of January 1,
2004 between A-Y-K-E Partnership and Affholder, Inc.
10.17 Equipment Lease for 90 Ton Link Belt Crane dated as of January 1, 2004
between A-Y-K-E Partnership and Affholder, Inc.
10.18 Equipment Lease for 125 Ton American Crane [2] dated as of January 1,
2004 between A-Y-K-E Partnership and Affholder, Inc.
10.19 Equipment Lease for 110 Ton American Crane dated as of January 1, 2004
between A-Y-K-E Partnership and Affholder, Inc.
10.20 Equipment Lease for Lovat M-142 Tunnel Boring Machine dated as of
February 1, 2004 between A-Y-K-E Partnership and Affholder, Inc.
10.21 Equipment Lease for Lovat 90" Tunnel Boring Machine dated as of
February 1, 2004 between A-Y-K-E Partnership and Affholder, Inc.
10.22 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)
10.23 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)
10.24 Amended and Restated 2001 Employee Equity Incentive Plan (incorporated
by reference to Appendix C to the definitive proxy statement on
Schedule 14A filed on April 16, 2003 in connection with the 2003 annual
meeting of stockholders. (3)
10.25 Amended and Restated 2001 Non-Employee Director Equity Incentive Plan
(incorporated by reference to Appendix B to the definitive proxy
statement on Schedule 14A filed on April 16, 2003 in connection with
the 2003 annual meeting of stockholders. (3)
10.26 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)
10.27 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)
10.28 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 (incorporated by
reference to Exhibit 10.15 to the annual report on Form 10-K). (3)
10.29 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.
<PAGE>
24 Power of Attorney (See "Power of Attorney" in the annual report on Form
10-K).
31.1 Certification of Thomas S. Rooney, Jr. pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
31.2 Certification of Christian G. Farman pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
32.1 Certification of Thomas S. Rooney, Jr. pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
32.2 Certification of Christian G. Farman 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-10.1
<SEQUENCE>3
<FILENAME>c83625exv10w1.txt
<DESCRIPTION>CREDIT AGREEMENT
<TEXT>
<PAGE>
EXHIBIT 10.1
================================================================================
AMENDED AND RESTATED
CREDIT AGREEMENT
DATED AS OF MARCH 12, 2004
BETWEEN
INSITUFORM TECHNOLOGIES, INC.,
AND
BANK OF AMERICA, N.A.
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SECTION 1. DEFINITIONS AND ACCOUNTING TERMS..................................... 1
1.01 Defined Terms......................................................... 1
1.02 Use of Certain Terms.................................................. 12
1.03 Accounting Terms...................................................... 13
1.04 Rounding.............................................................. 13
1.05 Exhibits and Schedules................................................ 13
1.06 References to Agreements and Laws..................................... 13
SECTION 2. THE COMMITMENTS AND EXTENSIONS OF CREDIT............................. 13
2.01 Amount and Terms of Commitments....................................... 13
2.02 Borrowings of Loans................................................... 13
2.03 Letters of Credit..................................................... 14
2.04 Prepayments........................................................... 17
2.05 Not Used.............................................................. 17
2.06 Reduction or Termination of Commitments............................... 17
2.07 Principal and Interest................................................ 17
2.08 Fees.................................................................. 18
2.09 Computation of Interest and Fees...................................... 18
2.10 Making Payments....................................................... 18
2.11 Funding Sources....................................................... 18
SECTION 3. TAXES, YIELD PROTECTION AND ILLEGALITY............................... 18
3.01 Taxes................................................................. 18
3.02 Not Used.............................................................. 19
3.03 Not Used.............................................................. 19
3.04 Increased Cost and Reduced Return; Capital Adequacy................... 19
3.05 Not Used.............................................................. 19
3.06 Matters Applicable to all Requests for Compensation................... 19
3.07 Survival.............................................................. 20
SECTION 4. CONDITIONS PRECEDENT TO EXTENSIONS OF CREDIT......................... 20
4.01 Conditions of Initial Extension of Credit............................. 20
4.02 Conditions to all Extensions of Credit................................ 22
4.03 Conditions for a Domestic Subsidiary Becoming a Guarantor............. 22
SECTION 5. REPRESENTATIONS AND WARRANTIES....................................... 23
5.01 Organization and Existence............................................ 23
5.02 Authorization......................................................... 23
5.03 Due Execution......................................................... 23
5.04 Enforceability of Obligations......................................... 23
5.05 Burdensome Obligations................................................ 23
5.06 Legal Restraints...................................................... 23
5.07 Labor Disputes........................................................ 24
5.08 No Material Proceedings............................................... 24
5.09 Material Licenses..................................................... 24
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
5.10 Compliance with Material Laws......................................... 24
5.11 Financial Statements.................................................. 24
5.12 No Change in Condition................................................ 25
5.13 No Defaults........................................................... 25
5.14. Tax Liabilities; Governmental Charges................................. 25
5.15 Pension Benefit Plans................................................. 25
5.16 Employee Benefit Plans................................................ 26
5.17 State of Property..................................................... 26
5.18 Subsidiaries.......................................................... 26
5.19 Margin Stock.......................................................... 26
5.20 Hostile Securities Transactions....................................... 26
5.21 Investment Company Act, Etc........................................... 26
5.22 Filings............................................................... 27
5.23 Broker's Fees......................................................... 27
5.24 Indebtedness Outstanding on Closing Date.............................. 27
5.25 Projections........................................................... 27
5.26 Full Disclosure....................................................... 27
5.27 Use of Proceeds....................................................... 27
5.28 Bonding Capacity...................................................... 27
SECTION 6. AFFIRMATIVE COVENANTS................................................ 27
6.01 Financial Statements.................................................. 27
6.02 Certificates, Notices and Other Information........................... 28
6.03 Use of Proceeds....................................................... 29
6.04 Corporate Existence................................................... 29
6.05 Maintenance of Property and Leases.................................... 29
6.06 Insurance............................................................. 29
6.07 Payment of Taxes and Other Obligations................................ 30
6.08 Compliance With Laws.................................................. 30
6.09 Accounting System..................................................... 30
6.10 Additional Guarantors................................................. 30
6.11 Audits by Lender...................................................... 31
6.12 Access to Officers and Auditors....................................... 31
6.13 Further Assurances.................................................... 31
SECTION 7. NEGATIVE COVENANTS................................................... 31
7.01 Note Purchase Agreements.............................................. 31
7.02 Amendments; Prepayments............................................... 31
SECTION 8. EVENTS OF DEFAULT AND REMEDIES....................................... 32
8.01 Events of Default..................................................... 32
8.02 Remedies Upon Event of Default........................................ 33
SECTION 9. NOT USED............................................................. 34
SECTION 10. MISCELLANEOUS....................................................... 34
10.01 Amendments; Consents.................................................. 34
10.02 Transmission and Effectiveness of Communications and Signatures....... 34
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
10.03 Attorney Costs, Expenses and Taxes.................................... 35
10.04 Binding Effect; Assignment............................................ 36
10.05 Set off............................................................... 37
10.06 Not Used.............................................................. 37
10.07 No Waiver; Cumulative Remedies........................................ 37
10.08 Usury................................................................. 37
10.09 Counterparts.......................................................... 38
10.10 Integration........................................................... 38
10.11 Nature of Lenders' Obligations........................................ 38
10.12 Survival of Representations and Warranties............................ 38
10.13 Indemnity by Borrower................................................. 38
10.14 Nonliability of Lenders............................................... 39
10.15 No Third Parties Benefited............................................ 40
10.16 Severability.......................................................... 40
10.17 Confidentiality....................................................... 40
10.18 Further Assurances.................................................... 41
10.19 Headings.............................................................. 41
10.20 Time of the Essence................................................... 41
10.21 Not Used.............................................................. 41
10.22 Compelled Return of Payments or Proceeds.............................. 41
10.23 Governing Law......................................................... 41
10.24 Waiver of Right to Trial by Jury...................................... 42
10.25 Oral Agreements....................................................... 42
10.26 Credit Agreement...................................................... 42
</TABLE>
EXHIBITS
FORM OF:
A Request for Extension of Credit
B Compliance Certificate
C Promissory Note
D Master Guaranty
E Instrument of Joinder
SCHEDULES
1.01 List of Outstanding Letters of Credit
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
10.02 Notice Addresses and Lending office
iii
<PAGE>
AMENDED AND RESTATED CREDIT AGREEMENT
This AMENDED AND RESTATED CREDIT AGREEMENT ("Agreement") is entered
into as of March 12, 2004 by and between INSITUFORM TECHNOLOGIES, INC., a
Delaware corporation ("Company" or "Borrower") and BANK OF AMERICA, N.A.,
("Lender").
RECITAL
Lender, Borrower and certain other institutional lender parties entered
into a Credit Agreement dated as of March 27, 2003, as amended thereafter
("Original Credit Agreement");
All of the parties to the Original Credit Agreement desire to amend and
restate in its entirety the Original Credit Agreement;
Lender and Borrower, as the sole parties to this Agreement, desire to
reflect the terms and conditions of the Amended and Restated Credit 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.
"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 Amended And Restated Credit Agreement, as
amended, restated, extended, supplemented or otherwise modified in writing from
time to time.
"Applicable Payment Date" means 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 Lender.
"Applicable Time" means St. Louis, Missouri time.
-1-
<PAGE>
"Assignment and Acceptance" means an Assignment and Acceptance
substantially in the form of Exhibit F.
"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.
"Base Rate" means a fluctuating rate per annum equal to 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.
"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.
"Business Day" means any day other than a Saturday, Sunday or other day
on which commercial banks in New York City or St. Louis, Missouri are authorized
or required by law to close.
"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.
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<PAGE>
"Closing Date" means the date all the conditions precedent in Section
4.01 are satisfied or waived in accordance with Section 4.01.
"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 the Lender, the amount of $25,000,000.
"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.
"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.
"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.
"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.
"Designated Deposit Account" means a deposit account maintained by
Company with Lender.
"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.
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<PAGE>
"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
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 Lender and Company. No Borrower Party or any
Affiliate of a Borrower Party shall be an Eligible Assignee.
"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.
"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.
"Extension of Credit" means (a) the Borrowing 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").
"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 Commitment 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 Lender in form and substance reasonably satisfactory to 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 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 financial
statements of the Company that are furnished to Lender as required in Section
6.01.
"FRB" means the Board of Governors of the Federal Reserve System and
any successor thereto or to the functions thereof.
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<PAGE>
"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 Lender shall so request, Lender 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, 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 Lender 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:
(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.
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<PAGE>
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.
"Indemnified Liabilities" has the meaning set forth in Section 9.12.
"Indemnitees" has the meaning set forth in Section 9.12.
"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 April 24, 2003, by and among Bank of America
and the other lenders party thereto, as further amended, supplemented or
otherwise modified from time to 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
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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.
"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 Bank of America, N.A.
"Lending Office" means the office or offices of Lender at 800 Market
Street, St. Louis, Missouri 63101, or such other office or offices as a Lender
may from time to time notify Borrower.
"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.
"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 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
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 Lender may reasonably request to
further assure and confirm such security interest.
"Letter of Credit Sublimit" means an amount equal to the Commitment.
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.
"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").
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<PAGE>
"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.
"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) September 12, 2005 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 Request for Extension of
Credit (other than with respect to (i) a Letter of Credit Action and (ii) a
Borrowing to fund a draw under a Letter
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<PAGE>
of Credit not reimbursed by Borrower), a prepayment of a Loan, or reduction or
termination of Commitment, the minimum amount of $500,000 and any multiples in
excess thereof of $50,000.
"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 Lender
evidencing Loans made by Lender, substantially in the form of Exhibit C.
"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 Lender separately agrees or
consents 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 dated
as of April 24, 2003, as amended to and including Closing Date, among Company
and other parties signatory thereto under which Company issued certain 5.29%
Senior Notes, Series 2003-A, due April 24, 2013, of $65,000,000 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-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 be deemed to amend or waive such terms, conditions and
definitions for purposes of this Agreement unless Lender separately agrees or
consents 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 assumption), absolute or
contingent, due or to become due, now existing or hereafter arising and
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<PAGE>
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.
"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, and (b) all Letter of Credit Usage.
"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.
"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.
"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 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 Lender, 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 Lender, 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:
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<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, prepayment
Conversion into, Base Rate Loan or Conversion
- - Letter of Credit Action 10:00 a.m. 5 Business Days prior to such action
(or such lesser time which is
acceptable to Lender)
- - Voluntary reduction in or 10:00 a.m. 2 Business Days prior to such reduction
termination of Commitment or termination
</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.
"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 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.
"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
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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.
"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.
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.
(d) The term "or" is disjunctive; the term "and" is conjunctive.
The term "shall" is mandatory; the term "may" is permissive.
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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
2002 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.
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, Lender
agrees to make loans (each such loan, a "Loan") to Borrower in Dollars 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 Commitment.
(b) Loans made by Lender shall be evidenced by one or more Notes.
Lender may attach schedules to its Note(s) and endorse thereon the date, amount,
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.
2.02 BORROWINGS OF LOANS.
(a) Borrower may irrevocably request a Borrowing of Loans in a
Minimum Amount therefor by delivering a Request for Extension of Credit therefor
by Requisite Notice to Lender not later than the Requisite Time therefor.
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(b) Upon satisfaction of the applicable conditions set forth in
Section 4.02, (and if the initial Extension of Credit hereunder, Section 4.01),
the requested loan shall be made available to the Borrower.
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, Lender shall
take such Letter of Credit Actions denominated in Dollars as Borrower may from
time to time request; provided, however, that (i) the Outstanding Obligations of
Lender shall not exceed the Commitment, and (ii) 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 Lender, 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 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 Original Credit Agreement.
(b) REQUESTING LETTER OF CREDIT ACTIONS. Borrower may irrevocably
request a Letter of Credit Action by delivering a Letter of Credit Application
therefor to Lender by Requisite Notice not later than the Requisite Time
therefor. Each Letter of Credit Action shall be in a form acceptable to Lender
in its reasonable discretion. Unless Lender notifies Borrower that it has
determined in good faith that such Letter of Credit Action is contrary to any
Laws or policies of Lender, 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 10.5 of the Note Purchase
Agreement-1997 and Section 10.4 in the Note Purchase Agreement-2003.
(c) REIMBURSEMENT OF PAYMENTS UNDER LETTERS OF CREDIT. Borrower
shall reimburse Lender for any payment that 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 Lender for such payment pursuant to
Section 2.02, or, failing to make such request, Borrower shall be deemed to have
requested a Borrowing on such payment date pursuant to subsection (e) below.
(d) NOT USED.
(e) NOT USED.
(f) SPECIAL PROVISIONS RELATING TO EVERGREEN LETTERS OF CREDIT.
Borrower may request Letters of Credit that have automatic extension or renewal
provisions ("evergreen" Letters
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of Credit) so long as 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. 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
Lender the amount of any payment made by Lender under any Letter of Credit
issued for its account 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 Lender or 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 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 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;
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(x) any error in the transmission of any message relating
to such Letter of Credit not caused by Lender, or any delay or
interruption in any such message;
(xi) any error, neglect or default of any correspondent of
Lender in connection with such Letter of Credit;
(xii) any consequence arising from acts of God, wars,
insurrections, civil unrest, disturbances, labor disputes, emergency
conditions or other causes beyond the control of Lender;
(xiii) so long as 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 Lender in connection with such
Letter of Credit; and
(xiv) any other circumstances whatsoever where 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 Lender in writing. Borrower shall be conclusively deemed to
have waived any such claim against Lender and its correspondents unless such
notice is given as aforesaid.
(h) ROLE OF LENDER. Lender and Borrower agree that, in paying any
drawing under a Letter of Credit, 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. 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. None of the respective correspondents, participants or
assignees of 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, 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 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 Lender and Borrower when a Letter of Credit is issued and subject to
applicable laws, performance under Letters of Credit by 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).
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(j) LETTER OF CREDIT FEE. With respect to standby Letters of
Credit, Company shall pay to Lender on each March 31, June 30, September 30 and
December 31, in arrears, a Letter of Credit fee equal to an annual rate of two
and one-fourth percent (2.25%) of 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.
(k) DOCUMENTARY AND PROCESSING CHARGES PAYABLE TO LENDER. Company
shall pay directly to 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 Lender 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. If for any reason the Outstanding Obligations exceed
the Commitment 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.
2.05 NOT USED.
2.06 REDUCTION OR TERMINATION OF COMMITMENTS. Upon Requisite Notice
to Lender not later than the Requisite Time therefor, Borrower may at any time
and from time to time, without premium or penalty, permanently and irrevocably
reduce the Commitment in a Minimum Amount therefor to an amount not less than
the Outstanding Obligations at such time, or terminate the Commitment. Any such
reduction or termination shall be accompanied by payment of all accrued and
unpaid commitment fees with respect to the portion of the Commitment being
reduced or terminated.
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.
(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 Base Rate. Lender shall invoice Company for the amount of interest
due 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.
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2.08 FEES.
(a) COMMITMENT FEE. Company shall pay to Lender a Commitment Fee
equal to an annual rate of four-tenths of one percent (.40%) of the actual daily
amount by which the Commitment exceeds the Outstanding Obligations. 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 accrue at all times,
including at any time during which one or more conditions in Section 4 are not
met.
2.09 COMPUTATION OF INTEREST AND FEES. Computation of interest on
the Loans 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
shall be made to Lender at Lender'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 U.S. Dollars. All payments by Borrower shall
be made without condition or deduction for any counterclaim, defense, recoupment
or setoff.
(b) Not used.
(c) 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.
2.11 FUNDING SOURCES. Nothing in this Agreement shall be deemed to
obligate Lender to obtain the funds for any Loan in any particular place or
manner or to constitute a representation by Lender that it has obtained or will
obtain the funds for any Loan in any particular place or manner.SECTION 3.
TAXES, YIELD PROTECTION AND ILLEGALITY
3.01 TAXES.
(a) Any and all payments by Borrower to or for the account of
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 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 Lender is organized, in which its principal office is
located or in which it maintains a lending office, and any other taxes withheld
because Lender failed to timely
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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 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), 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 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 Lender, Borrower shall also pay to Lender at
the time interest is paid, such additional amount that 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) 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 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 Lender and any
liability (including penalties, interest and expenses) arising therefrom or with
respect thereto.
3.02 NOT USED.
3.03 NOT USED.
3.04 INCREASED COST AND REDUCED RETURN; CAPITAL ADEQUACY.(a) If any
change in or the interpretation of any Laws have the effect of reducing the rate
of return on the capital of Lender or compliance by Lender (or its Lending
Office) or any corporation controlling Lender as a consequence of Lender's
obligation hereunder (taking into consideration its policies with respect to
capital adequacy and Lender's desired return on capital), then from time to time
upon demand of Lender, Borrower shall pay to Lender such additional amounts as
will compensate Lender for such reduction.
3.05 NOT USED.
3.06 MATTERS APPLICABLE TO ALL REQUESTS FOR COMPENSATION.
(a) If Lender is claiming compensation under this Section 3,
Lender shall in each case furnish a certificate to Borrower that states in
reasonable detail in good faith the additional amount
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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, Lender may use any reasonable averaging and attribution
methods.
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
Lender to make its initial Extension of Credit hereunder is subject to
satisfaction of the following conditions precedent:
(a) 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 Lender
and its legal counsel:
(i) AGREEMENT. Executed counterparts of this Agreement,
sufficient in number for distribution to, Lender and Borrower;
(ii) NOTE. The Note duly executed and delivered by
Borrower in favor of Lender, in a principal amount equal to the
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
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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
(B) a good standing certificate for Borrower
from the Secretary of State of Delaware and the State of
Missouri as of a recent date.
(vi) AMENDMENT TO NOTE PURCHASE AGREEMENT-1997 AND NOTE
PURCHASE AGREEMENT-2003. Evidence that Company has amended the Note
Purchase Agreement-1997 and the Note Purchase Agreement-2003 with terms
and conditions satisfactory to Lender.
(vii) NOT USED.
(viii) LEGAL OPINION. An opinion of Thompson Coburn, LLP,
counsel to the Borrower Parties, and addressed to Lender.
(ix) PAYMENT OF FEES. Borrower 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, 2003, 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 Lender 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) Lender shall have received and reviewed, with results
reasonably satisfactory to it, information confirming that Borrower and its
Subsidiaries are taking all reasonably necessary and appropriate steps to comply
with the Sarbanes-Oxley Act and the implementing regulations thereunder.
(e) The lenders party to the Existing Credit Agreement shall each
have evidenced to Lender the termination of their commitments and the payment in
full of obligations owing to them under the Existing Credit Agreement.
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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 Lender to honor any Request for Extension of Credit
is subject to the following conditions precedent:
(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) Lender shall have timely received a Request for Extension of
Credit by Requisite Notice by the Requisite Time therefor.
(d) Lender shall have received, in form and substance satisfactory
to it, such other assurances, certificates, documents or consents related to the
foregoing as Lender 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, Lender shall have received the following with respect to such
Subsidiary, in form and substance satisfactory to Lender:
(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 Lender), in form reasonably
acceptable to Lender, 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 Lender may reasonably
request.
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SECTION 5.
REPRESENTATIONS AND WARRANTIES
Each Borrower severally represents and warrants to Lender 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.
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5.07 LABOR DISPUTES. There is no pending or, to Borrower'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 Lender.
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 FINANCIAL STATEMENTS. The Financial Statements of Company as
of December 31, 2003 as delivered to Lender by Company, are complete and correct
in all material respects, have
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been prepared in accordance with 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 December 31, 2003, 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
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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. No 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.
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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 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.
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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 Lender:
(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 Lender, 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 Lender.
6.02 CERTIFICATES, NOTICES AND OTHER INFORMATION. Deliver to Lender
in form and detail reasonably satisfactory to Lender:
(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, along with the current compliance
certificates submitted pursuant to the Note Purchase Agreement-1997 and the Note
Purchase Agreement-2003;
(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;
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(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 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 Lender;
(g) promptly upon any Responsible Officer of Company becoming
aware of the occurrence thereof, notice of any Default or Event of Default;
(h) concurrently with delivery to the noteholders under the Note
Purchase Agreement-1997 and the Note Purchase Agreement-2003, such other
reports, certificates and notices are delivered or given under either or both of
said Note Purchase Agreements; and
(i) 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.
6.03 USE OF PROCEEDS. Use all proceeds of the Loans solely for
working capital and other lawful corporate purposes.
6.04 CORPORATE EXISTENCE. Except as permitted by the Note Purchase
Agreement - 1997 or the Note Purchase Agreement - 2003, 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'
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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:
(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 Lender 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
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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 Lender 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 LENDER. Permit Lender or Persons authorized by and
acting on behalf of 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 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 Lender and such Persons in the conduct of such audits
and shall deliver to Lender any instrument necessary for Lender to obtain
records from any service bureau maintaining records for such Covered Person. The
reasonable expenses of Lender incurred in conducting the foregoing audits and
inspections, after a Default or Event of Default, shall be reimbursed by Company
to Lender.
6.12 ACCESS TO OFFICERS AND AUDITORS. Permit 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 Lender such
documents and agreements, and shall take or cause to be taken such actions, as
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 any Covered
Person to directly or indirectly:
7.01 NOTE PURCHASE AGREEMENTS. Fail to observe or perform any of
the covenants on the part of a Covered Person to be observed or performed under
Section 10 of the Note Purchase Agreement-1997 and the Note Purchase
Agreement-2003.
7.02 AMENDMENTS; PREPAYMENTS. Amend Section 10 or the defined terms
contained therein or Section 11 of the Note Purchase Agreement-2003 or the Note
Purchase Agreement-1997, or voluntarily prepay in whole or in part the notes
issued pursuant to the Note Purchase Agreement-1997 or the Note Purchase
Agreement-2003. Nothing in the preceding sentence shall
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prohibit or restrict the mandatory or required prepayment of said notes in
accordance with the terms of the Note Purchase Agreement - 1997 and the Note
Purchase Agreement - 2003.
7.03 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.
7.04 CONFLICTING AGREEMENTS. 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.
SECTION 8.
EVENTS OF DEFAULT AND REMEDIES
8.01 EVENTS OF DEFAULT. Any one or more of the following events
shall constitute an Event of Default:
(a) PAYMENT OF PRINCIPAL. Borrower fails to pay any principal on
any Outstanding Obligation (other than fees) as and on the date when due; or
(b) PAYMENT OF INTEREST, FEES AND OTHER AMOUNTS. Any Borrower
Party fails to pay (i) any interest on any Outstanding Obligation within five
days after the date when due or (ii) any other fees or amount due under any Loan
Document within five days after notice from Lender that the same is due; or
(c) REPORTING, AUDITS AND ACCESS COVENANTS AND CERTAIN NEGATIVE
COVENANTS. Any default occurs in the observance or performance of any agreement
contained in Section 6.01, 6.02(a), (b), (c), or 6.11, 6.12, 7.01, 7.02; or
(d) OTHER DEFAULTS. Any Borrower Party defaults in the performance
of or compliance with any term contained in any Loan Document (other than those
otherwise referred to in this Section 8) and such default is not remedied within
30 days after the earlier of (i) a Responsible Officer obtaining actual
knowledge of such default and (ii) the Company receiving written notice of such
default from Lender; or
(e) REPRESENTATIONS AND WARRANTIES. Any representation or warranty
contained in Section 5, or which is contained in the Master Guaranty, any
Compliance Certificate or any other material certificate furnished at any time
under or in connection with any Loan Document proves to have been incorrect in
any material respect when made or deemed made; or
(f) CROSS DEFAULT. An "Event of Default" occurs as defined in the
Note Purchase Agreement-2003 or the Note Purchase Agreement-1997 (and
irrespective of whether such an
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Event of Default is declared or waived by the noteholders thereunder or cured by
the issuer thereunder);
(g) BANKRUPTCY; INSOLVENCY; ETC. Any Borrower Party (i) fails to
pay, or admits in writing its inability to pay, its debts generally as they
become due, or otherwise becomes insolvent (however evidenced); (ii) makes a
general assignment for the benefit of creditors; (iii) files a petition in
bankruptcy, is adjudicated insolvent or bankrupt, petitions or applies to any
tribunal for any receiver or any trustee of any Borrower Party or any
substantial part of its property; (iv) commences any proceeding relating to any
Borrower Party under any reorganization, arrangement, readjustment of debt,
dissolution or liquidation law or statute of any jurisdiction, whether now or
hereafter in effect; (v) has commenced against it any such proceeding which
remains undismissed for a period of 60 days, or by any act indicates its consent
to, approval of, or acquiescence in any such proceeding or the appointment of
any receiver of or any trustee for it or any substantial part of its property,
or allows any such receivership or trusteeship to continue undischarged for a
period of 60 days; or (vi) takes any corporate action to authorize any of the
foregoing; or
(h) LIQUIDATION OR DISSOLUTION. Except as permitted by the Note
Purchase Agreement - 1997 or the Note Purchase Agreement - 2003, any Borrower
Party files a certificate of dissolution under applicable state law or is
liquidated or dissolved, or has commenced against it any action or proceeding
for its liquidation or dissolution which is not dismissed within 60 days, or
takes any corporate action in furtherance thereof.
8.02 REMEDIES UPON EVENT OF DEFAULT. Without limiting any other
rights or remedies of Lender provided for elsewhere in this Agreement, or the
other Loan Documents, or by applicable Law, or in equity, or otherwise:
(a) Upon the occurrence, and during the continuance, of any Event
of Default other than an Event of Default described in Section 8.01(g):
(i) Lender may, in its sole discretion, terminate the
Commitment and/or declare all or any part of the unpaid principal of
all Loans, all interest accrued and unpaid thereon and all other
amounts payable under the Loan Documents to be immediately due and
payable, whereupon the same shall become and be immediately due and
payable, without protest, presentment, notice of dishonor, demand or
further notice of any kind, all of which are expressly waived by each
Borrower Party; and
(ii) Lender may, in its sole discretion but subject to
Section 2.03(b), demand immediate payment by Borrower of an amount
equal to the aggregate amount of all outstanding Letter of Credit Usage
to be held in a Letter of Credit Cash Collateral Account.
(b) Upon the occurrence of any Event of Default described in
Section 8.01(g):
(i) the Commitment and all other obligations of Lender
shall automatically terminate without notice to or demand upon any
Borrower Party, which are expressly waived by Borrower;
(ii) the unpaid principal of all Loans, all interest
accrued and unpaid thereon and all other amounts payable under the Loan
Documents shall be immediately due and payable,
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without protest, presentment, notice of dishonor, demand or further
notice of any kind, all of which are expressly waived by each Borrower
Party; and
(iii) subject to Section 2.03(b), an amount equal to the
aggregate amount of all outstanding Letter of Credit Usage shall be
immediately due and payable to Lender without notice to or demand upon
any Borrower Party, which are expressly waived by each Borrower Party,
to be held in a Letter of Credit Cash Collateral Account.
(c) Upon the occurrence of any Event of Default, Lender, without
notice to (except as expressly provided for in any Loan Document) or demand,
which are expressly waived by each Borrower Party (except as to notices
expressly provided for in any Loan Document), may proceed to protect, exercise
and enforce its rights and remedies under the Loan Documents against any
Borrower Party and such other rights and remedies as are provided by Law or
equity.
(d) The order and manner in which Lenders' rights and remedies are
to be exercised shall be as determined by Lender in its sole and absolute
discretion. Regardless of how Lender may treat payments for the purpose of its
own accounting, for the purpose of computing the Obligations hereunder, payments
shall be applied first, to costs and expenses (including Attorney Costs)
incurred by Lender, second, to the payment of accrued and unpaid interest on the
Loans to and including the date of such application, third, to the payment of
the unpaid principal of the Loans, and fourth, to the payment of all other
amounts (including fees) then owing Lender under the Loan Documents. No
application of payments will cure any Event of Default, or prevent acceleration,
or continued acceleration, of amounts payable and the Loan Documents, or prevent
the exercise, or continued exercise, of rights or remedies of Lender hereunder
or thereunder or at Law or in equity.
SECTION 9.
NOT USED
SECTION 10.
MISCELLANEOUS
10.01 AMENDMENTS; CONSENTS. No amendment, modification, supplement ,
extension, termination or waiver of any provision of this Agreement or any other
Loan Document, no approval or consent thereunder, and no consent to any
departure by any Borrower Party therefrom shall be effective unless in writing
signed by Borrower and Lender, and each such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given. Except as otherwise expressly provided herein, without the approval in
writing of Lender, no amendment, modification, supplement, termination, waiver
or consent will be effective.
10.02 TRANSMISSION AND EFFECTIVENESS OF COMMUNICATIONS AND
SIGNATURES.
(a) MODES OF DELIVERY. Except as otherwise provided in any Loan
Document, notices, requests, demands, directions, agreements and documents
delivered in connection with the Loan Documents (collectively, "communications")
shall be transmitted by Requisite Notice to the number and address set forth on
Schedule 10.02, may be delivered by the following modes of delivery, and shall
be effective as follows:
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<TABLE>
<CAPTION>
MODE OF DELIVERY EFFECTIVE ON EARLIER OF ACTUAL RECEIPT AND:
- ---------------- -------------------------------------------
<S> <C>
Courier Scheduled delivery date
Facsimile When transmission in legible form complete
Mail Fourth Business Day after deposit in U.S. mail first
class postage pre-paid
Personal delivery When received
Telephone When conversation completed
Electronic Mail When received
</TABLE>
provided, however, that communications delivered to Lender pursuant to Section 2
shall not be effective until actually received by Lender.
(b) RELIANCE BY LENDER. Lender shall be entitled to rely and act
on any communications purportedly given by or on behalf of any Borrower Party
even if (i) such communications (A) were not made in a manner specified herein,
(B) were incomplete or (C) were not preceded or followed by any other notice
specified herein, or (ii) the terms thereof, as understood by the recipient,
varied from any subsequent related communications provided for herein. Company
shall indemnify Lender from any loss, cost, expense or liability as a result of
relying on any communications permitted herein.
(c) EFFECTIVENESS OF FACSIMILE DOCUMENTS AND SIGNATURES. Loan
Documents may be transmitted and/or signed by facsimile. The effectiveness of
any such document and signatures shall, subject to applicable Law, have the same
force and effect as hard-copies with manual signatures and shall be binding on
all Borrower Parties and Lender. Lender may also require that any such documents
and signatures be confirmed by a manually signed hardcopy thereof; provided,
however, that the failure to request or deliver any such manually signed
hardcopy shall not affect the effectiveness of any facsimile document or
signature.
(d) EFFECTIVENESS OF ELECTRONIC MAIL. Electronic mail may be used
to distribute routine communications, such as financial statements and other
information and to distribute agreements and other documents to be signed by
Lender; provided, however, that no Request for Extension of Credit or executed
or legally-binding notice, agreement, waiver, amendment or other communication
may be sent by electronic mail.
10.03 ATTORNEY COSTS, EXPENSES AND TAXES. Company agrees (a) to pay
or reimburse Lender for all costs and expenses incurred in connection with the
development, preparation, negotiation and execution of any amendment, waiver,
consent, supplement or modification requested by Company to, any Loan Documents,
and any other documents prepared in connection therewith, including all Attorney
Costs, and (b) after the occurrence of a Default or Event of Default (whether or
not waived) or in connection with transactions requested by Company, to pay or
reimburse Lender for all costs and expenses incurred in connection with any
refinancing, restructuring, reorganization (including a bankruptcy
reorganization) and enforcement or attempted enforcement, or preservation of any
rights under any Loan Documents, and any other documents
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prepared in connection herewith or therewith, or in connection with any
refinancing, or restructuring of any such documents in the nature of a "workout"
or of any insolvency or bankruptcy proceeding, including Attorney Costs. The
foregoing costs and expenses shall include all search, filing, recording, title
insurance and appraisal charges and fees and taxes related thereto, and other
out of pocket expenses incurred by Lender and the cost of independent public
accountants and other outside experts retained by Lender. The agreements in this
Section shall survive repayment of all Obligations.
10.04 BINDING EFFECT; ASSIGNMENT.
(a) This Agreement and the other Loan Documents to which a
Borrower Party is a party will be binding upon and inure to the benefit of each
Borrower Party, Lender and their respective successors and assigns, except that,
no Borrower Party may assign its rights hereunder or thereunder or any interest
herein or therein without the prior written consent of Lender and any such
attempted assignment shall be void. Lender may at any time pledge its Note or
any other instrument evidencing its rights as a Lender under this Agreement to a
Federal Reserve Bank, but no such pledge shall release such Lender from its
obligations hereunder or grant to such Federal Reserve Bank the rights of a
Lender hereunder absent foreclosure of such pledge.
(b) From time to time following the Closing Date, Lender may
assign to one or more Eligible Assignees all or any portion of its Commitment
and/or Extensions of Credit; provided that (i) such assignment, if not to an
Affiliate of the Lender, shall be subject to the prior written consent of
Company at all times other than during the existence of a Default or Event of
Default (which approval of Company shall not be unreasonably withheld or
delayed), (ii) a copy of a duly signed and completed endorsement and assignment
shall be executed, (iii) the effective date of any such assignment shall be as
specified in the endorsement and assignment and (iv) such assignee shall become
a "Creditor" under and as defined in the Intercreditor Agreement by executing
and delivering a counterpart thereof and complying with the provisions thereof.
Upon obtaining any consent required as set forth in the prior sentence and
payment of the requisite fee described below, the assignee named therein shall
be Lender for all purposes of this Agreement, and the assigning Lender shall be
released from its further obligations under this Agreement. Borrower agrees that
it shall execute and deliver upon request (against delivery by the assigning
Lender to Borrower of the Note) to such assignee Lender, the Note evidencing
such assignee Lender's Loans. For purposes hereof, each mutual fund that is an
Affiliate of Lender shall be deemed to be a single Eligible Assignee, whether or
not such fund is managed by the same fund manager as other mutual funds that are
Affiliates of the same Lender.
(c) Lender may from time to time, without the consent of any other
Person, grant participations to one or more other Person all or any portion of
its Commitment and/or Extensions of Credit; provided, however, that (i) Lender's
obligations under this Agreement shall remain unchanged, (ii) Lender shall
remain solely responsible to the other parties hereto for the performance of
such obligations, (iii) the participating banks or other financial institutions
shall not be a Lender hereunder for any purpose except, if the participation
agreement so provides, for the purposes of Section 3 (but only to the extent
that the cost of such benefits to Company does not exceed the cost which Company
would have incurred in respect of Lender absent the participation) and subject
to Sections 10.05 and 10.06, (iv) Borrower shall continue to deal solely and
directly with Lender in connection with Lender's rights and obligations under
this Agreement, (v) the participation agreement shall not restrict an increase
in the combined Commitment or in granting
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Lender's Commitment, so long as the amount of the participation interest is not
increased, and (vi) the consent of the holder of such participation interest
shall not be required for amendments or waivers of provisions of the Loan
Documents; provided, however, that Lender may, in any agreement with a
participant, give such participant the right to consent to any matter which (A)
extends the Maturity Date as to such participant or any other date upon which
any payment of money is due to such participant, (B) reduces the rate of
interest owing to such participant, any fee or any other monetary amount owing
to such participant, or (C) reduces the amount of any installment of principal
owing to such participant. If Lender sells a participation to any Person that is
a "foreign corporation, partnership or trust" within the meaning of the Code, it
shall include in its participation agreement with such Person a covenant by such
Person that such Person will comply with the provisions of Section 10.21 as if
such Person were a Lender and provide that Borrower shall be a third party
beneficiary of such covenant.
10.05 SET OFF. In addition to any rights and remedies of Lender or
any assignee or participant of Lender or any Affiliate thereof (each a,
"Proceeding Party") provided by law, upon the occurrence and during the
continuance of any Event of Default, each Proceeding Party is authorized at any
time and from time to time, without prior notice to any Borrower Party, any such
notice being waived by Borrower Parties to the fullest extent permitted by law,
to proceed directly, by right of set off, banker's lien or otherwise, against
any assets of the Borrower Parties which may be in the hands of such Proceeding
Party (including all general or special, time or demand, provisional or other
deposits and other indebtedness owing by such Proceeding Party to or for the
credit or the account of Borrower) and apply such assets against the
Obligations, irrespective of whether such Proceeding Party shall have made any
demand therefor and although such Obligations may be unmatured. Lender agrees
promptly to notify Company after any such set-off and application made by
Lender; provided, however, that the failure to give such notice shall not affect
the validity of such set off and application.
10.06 NOT USED.
10.07 NO WAIVER; CUMULATIVE REMEDIES.
(a) No failure by Lender to exercise, and no delay by Lender in
exercising, any right, remedy, power or privilege hereunder, shall operate as a
waiver thereof; nor shall any single or partial exercise of any right, remedy,
power or privilege under any Loan Document preclude any other or further
exercise thereof or the exercise of any other right, remedy, power or privilege.
(b) The rights, remedies, powers and privileges herein or therein
provided are cumulative and not exclusive of any rights, remedies, powers and
privileges provided by Law. Any decision by Lender not to require payment of any
interest (including Default Interest), fee, cost or other amount payable under
any Loan Document or to calculate any amount payable by a particular method on
any occasion shall in no way limit or be deemed a waiver of Lender's right to
require full payment thereof, or to calculate an amount payable by another
method that is not inconsistent with this Agreement, on any other or subsequent
occasion.
(c) The terms and conditions of Section 9 are for the sole benefit
of Lender.
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<PAGE>
10.08 USURY. Notwithstanding anything to the contrary contained in
any Loan Document, the interest paid or agreed to be paid under the Loan
Documents shall not exceed the maximum rate of non-usurious interest permitted
by applicable Law (the "Maximum Rate"). If Lender shall receive interest in an
amount that exceeds the Maximum Rate, the excessive interest shall be applied to
the principal of the Outstanding Obligations or, if it exceeds the unpaid
principal, refunded to the Borrower. In determining whether the interest
contracted for, charged, or received by Lender exceeds the Maximum Rate, such
Person may, to the extent permitted by applicable Law, (a) characterize any
payment that is not principal as an expense, fee, or premium rather than
interest, (b) exclude voluntary prepayments and the effects thereof, and (c)
amortize, prorate, allocate, and spread in equal or unequal parts the total
amount of interest throughout the contemplated term of the Obligations.
10.09 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
10.10 INTEGRATION. This Agreement, together with the other Loan
Document is and any letter agreements referred to herein, comprises the complete
and integrated agreement of the parties on the subject matter hereof and
supersedes all prior agreements, written or oral, on the subject matter hereof.
In the event of any conflict between the provisions of this Agreement and those
of any other Loan Document, the provisions of this Agreement shall control and
govern; provided that the inclusion of supplemental rights or remedies in favor
of Lender in any other Loan Document shall not be deemed a conflict with this
Agreement. Each Loan Document was drafted with the joint participation of the
respective parties thereto and shall be construed neither against nor in favor
of any party, but rather in accordance with the fair meaning thereof.
10.11 NATURE OF LENDERS' OBLIGATIONS. Nothing contained in this
Agreement or any other Loan Document and no action taken by Lender pursuant
hereto or thereto may, or may be deemed to, make Lender a partnership, an
association, a joint venture or other entity, either among themselves or with
Borrower or any Affiliate of Borrower.
10.12 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All
representations and warranties made hereunder and in any other Loan Document,
certificate or statement delivered pursuant hereto or thereto or in connection
herewith or therewith shall survive the execution and delivery thereof. Such
representations and warranties have been or will be relied upon by Lender,
notwithstanding any investigation made by Lender or on its behalf.
10.13 INDEMNITY BY BORROWER.
(a) Borrower agrees to indemnify, save and hold harmless Lender
and its Affiliates, directors, officers, agents, attorneys and employees
(collectively the "Indemnitees") from and against: (i) any and all claims,
demands, actions or causes of action that are asserted against any Indemnitee by
any Person (other than Lender) relating directly or indirectly to a claim,
demand, action or cause of action that such Person asserts or may assert against
any Borrower Party, any of their Affiliates or any of their officers or
directors; (ii) any and all claims, demands, actions or causes of action (other
than by Lender) arising out of or relating to, the Loan Documents, any
predecessor loan documents, the Commitment, the use or contemplated use of the
proceeds of any Loan, or the relationship of any Borrower Party and Lender under
this Agreement; (iii) any administrative or investigative proceeding by any
Governmental Authority arising out of or related to a claim, demand, action or
cause of action described in subsection (i) or (ii) above; and (iv) any and all
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liabilities, losses, costs or expenses (including Attorney Costs) that any
Indemnitee suffers or incurs as a result of the assertion of any foregoing
claim, demand, action, cause of action or proceeding, or as a result of the
preparation of any defense in connection with any foregoing claim, demand,
action, cause of action or proceeding, in all cases, whether or not arising out
of the negligence of an Indemnitee, except as aforesaid, whether or not an
Indemnitee is a party to such clam, demand, action, cause of action or
proceeding (all the foregoing, collectively, the "Indemnified Liabilities");
provided that no Indemnitee shall be entitled to indemnification for any loss
caused by its own gross negligence or willful misconduct or for any loss
asserted against it by another Indemnitee. The foregoing indemnity shall not
extend to any indirect or consequential damages except to the extent such
damages are recoverable under a third-party claim against an Indemnitee. The
agreements in this Section shall survive repayment of all Obligations.
(b) Promptly after receipt by an Indemnitee of a notice of the
commencement of any action or proceeding that may give rise to indemnification
hereunder, such Indemnitee will notify Company. Company shall have the right to
undertake, conduct and control through counsel of its own choosing (which
counsel shall be reasonably acceptable to the Indemnitees) and at the sole
expense of Company, the conduct and settlement of any Indemnified Liabilities,
and the Indemnitees shall cooperate with Company in connection therewith;
provided that Company shall permit any Indemnitee to participate in such conduct
and settlement through counsel chosen by such Indemnitee, but the fees and
expenses of such counsel shall be borne by such Indemnitee. Notwithstanding the
foregoing, if the interests of Company and any Indemnitee become adverse in any
such claim or course of action, such Indemnitee shall have the right to employ
its own counsel, and the reasonable fees and expenses of such counsel shall be
at Company's costs and expense. Borrower shall not be liable for any settlement
of any claim or action effected without its prior written consent, such consent
not to be unreasonably withheld.
10.14 NONLIABILITY OF LENDERS. Borrower acknowledges and agrees
that:
(a) Any inspections of any property of any Borrower Party made by
or through Lender are for purposes of administration of the Loan Documents only,
and Borrower is not entitled to rely upon the same (whether or not such
inspections are at the expense of Borrower);
(b) By accepting or approving anything required to be observed,
performed, fulfilled or given to Lender pursuant to the Loan Documents, Lender
shall not be deemed to have warranted or represented the sufficiency, legality,
effectiveness or legal effect of the same, or of any term, provision or
condition thereof, and such acceptance or approval thereof shall not constitute
a warranty or representation to anyone with respect thereto by Lender;
(c) The relationship between Borrower and Lender is, and shall at
all times remain, solely that of borrower and lender; Lender shall not under any
circumstance be deemed to be in a relationship of confidence or trust or a
fiduciary relationship with Borrower or its Affiliates, or to owe any fiduciary
duty to Borrower or its Affiliates; Lender does not undertake or assume any
responsibility or duty to Borrower or its Affiliates to select, review, inspect,
supervise, pass judgment upon or inform Borrower or its Affiliates of any matter
in connection with their property or the operations of Borrower or its
Affiliates; Borrower and its Affiliates shall rely entirely upon their own
judgment with respect to such matters; and any review, inspection, supervision,
exercise of judgment or supply of information undertaken or assumed by Lender in
connection with such matters is solely
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for the protection of Lender and neither Borrower nor any other Person is
entitled to rely thereon; and
(d) Lender shall not be responsible or liable to any Person for
any loss, damage, liability or claim of any kind relating to injury or death to
Persons or damage to property caused by the actions, inaction or negligence of
Borrower and/or its Affiliates, and Borrower hereby indemnifies and holds Lender
and its Affiliates harmless from any such loss, damage, liability or claim
subject to the procedures and limitations governing indemnification under
Section 10.13.
10.15 NO THIRD PARTIES BENEFITED. This Agreement is made for the
purpose of defining and setting forth certain obligations, rights and duties of
Borrower and Lender in connection with the Extensions of Credit, and is made for
the sole benefit of Borrower and Lender, and Lender's successors and assigns.
Except as provided in Sections 10.04 and 10.13, no other Person shall have any
rights of any nature hereunder or by reason hereof.
10.16 SEVERABILITY. Any provision of the Loan Documents that is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions thereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
10.17 CONFIDENTIALITY. Lender shall use any confidential non-public
information concerning the Borrower Parties and their Subsidiaries that is
furnished to Lender by or on behalf of the Borrower Parties and their
Subsidiaries in connection with the Loan Documents (collectively, "Confidential
Information") solely for the purpose of evaluating and providing products and
services to them and administering and enforcing the Loan Documents, and it will
hold the Confidential Information in confidence. Notwithstanding the foregoing,
Lender may disclose Confidential Information (a) to its affiliates or any of its
affiliates' directors, officers, employees, auditors, counsel, advisors, or
representatives (collectively, the "Representatives") whom it determines need to
know such information for the purposes set forth in this Section; (b) to any
bank or financial institution or other entity to which Lender has assigned or
desires to assign an interest or participation in the Loan Documents or the
Obligations, provided that any such foregoing recipient of such Confidential
Information agrees to keep such Confidential Information confidential as
specified herein; (c) to any governmental agency or regulatory body having or
claiming to have authority to regulate or oversee any aspect of Lender's
business or that of its Representatives in connection with the exercise of such
authority or claimed authority ; (d) to the extent necessary or appropriate to
effect or preserve Lender's or any of its Affiliates' security (if any) for any
Obligation or to enforce any right or remedy or in connection with any claims
asserted by or against Lender or any of its Representatives; and (e) pursuant to
any subpoena or any similar legal process. For purposes hereof, the term
"Confidential Information" shall not include information that (x) is in Lender's
possession prior to its being provided by or on behalf of the Borrower Parties,
provided that such information is not known by Lender to be subject to another
confidentiality agreement with, or other legal or contractual obligation of
confidentiality to, a Borrower Party, (y) is or becomes publicly available
(other than through a breach hereof by Lender), or (z) becomes available to
Lender on a nonconfidential basis, provided that the source of such information
was not known by Lender to be bound by a confidentiality agreement or other
legal or contractual obligation of confidentiality with respect to such
information.
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10.18 FURTHER ASSURANCES. Each Borrower Party shall, and shall cause
its Subsidiaries to, at their expense and without expense to Lender, do, execute
and deliver such further acts and documents as Lender from time to time
reasonably requires for the assuring and confirming unto Lender the rights
hereby created or intended now or hereafter so to be, or for carrying out the
intention or facilitating the performance of the terms of any Loan Document.
10.19 HEADINGS. Section headings in this Agreement and the other
Loan Documents are included for convenience of reference only and are not part
of this Agreement or the other Loan Documents for any other purpose.
10.20 TIME OF THE ESSENCE. Time is of the essence of the Loan
Documents
10.21 NOT USED.
10.22 COMPELLED RETURN OF PAYMENTS OR PROCEEDS. If Lender is for any
reason compelled to surrender any payment from Borrower because such payment is
for any reason invalidated, declared fraudulent, set aside, or determined to be
void or voidable as a preference, an impermissible setoff, or a diversion of
trust funds, then each Loan Document and the Obligations to which such payment
was applied or intended to be applied shall be revived with respect thereto as
if such application was never made; and Borrower shall be liable to pay to
Lender, and shall indemnify Lender for, and hold Lender harmless from, any loss
with respect to, the amount of such payment surrendered. This Section shall be
effective notwithstanding any contrary action Lender may take in reliance upon
its receipt of any such payment. Any such contrary action so taken by Lender
shall be without prejudice to Lender's rights under this Agreement and shall be
deemed to have been conditioned upon the application of such payment having
become final and indefeasible. The provisions of this Section shall survive
termination of the Commitment, the expiration of the Letters of Credit and the
payment and satisfaction of all Obligations.
10.23 GOVERNING LAW.
(a) THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAW OF THE STATE OF MISSOURI APPLICABLE TO AGREEMENTS MADE
AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE; PROVIDED THAT LENDER SHALL
RETAIN ALL RIGHTS ARISING UNDER FEDERAL LAW.
(b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT
OR ANY OTHER LOAN DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF MISSOURI
SITTING IN THE COUNTY OF ST. LOUIS OR OF THE UNITED STATES FOR THE EASTERN
DISTRICT OF SUCH STATE, AND BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH
BORROWER PARTY AND LENDER CONSENT, FOR ITSELF AND IN RESPECT OF ITS PROPERTY, TO
THE NON-EXCLUSIVE JURISDICTION OF THOSE COURTS. EACH BORROWER PARTY AND EACH
LENDER IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING
OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR
HEREAFTER HAVE TO THE BRINGING OF ANY ACTION OR PROCEEDING IN SUCH JURISDICTION
IN RESPECT OF ANY LOAN DOCUMENT OR OTHER DOCUMENT RELATED THERETO. EACH
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BORROWER PARTY AND EACH LENDER WAIVES PERSONAL SERVICE OF ANY SUMMONS, COMPLAINT
OR OTHER PROCESS, WHICH MAY BE MADE BY ANY OTHER MEANS PERMITTED BY THE LAW OF
SUCH STATE.
10.24 WAIVER OF RIGHT TO TRIAL BY JURY. EACH PARTY TO THIS AGREEMENT
HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION
OR CAUSE OF ACTION ARISING UNDER ANY LOAN DOCUMENT OR IN ANY WAY CONNECTED WITH
OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO OR ANY OF THEM
WITH RESPECT TO ANY LOAN DOCUMENT, OR THE TRANSACTIONS RELATED THERETO, IN EACH
CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER FOUNDED IN CONTRACT
OR TORT OR OTHERWISE; AND EACH PARTY HEREBY AGREES AND CONSENTS THAT ANY SUCH
CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT
A JURY, AND THAT ANY PARTY TO THIS AGREEMENT MAY FILE AN ORIGINAL COUNTERPART OR
A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE
SIGNATORIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
10.25 ORAL AGREEMENTS. ORAL AGREEMENTS OR COMMITMENTS TO LOAN MONEY,
EXTEND CREDIT OR TO FORBEAR FROM ENFORCING REPAYMENT OF A DEBT INCLUDING
PROMISES TO EXTEND OR RENEW SUCH DEBT ARE NOT ENFORCEABLE. TO PROTECT YOU
(BORROWER) AND US (LENDERS) FROM MISUNDERSTANDING OR DISAPPOINTMENT, ANY
AGREEMENTS WE REACH COVERING SUCH MATTERS ARE CONTAINED IN THIS WRITING, WHICH,
TOGETHER WITH THE LOAN DOCUMENTS, IS THE COMPLETE AND EXCLUSIVE STATEMENT OF THE
AGREEMENT BETWEEN US, EXCEPT AS WE MAY LATER AGREE IN WRITING TO MODIFY IT.
10.26 CREDIT AGREEMENT. This Agreement amends and restates in its
entirety the Original Credit Agreement.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
INSITUFORM TECHNOLOGIES, INC.
By: /s/ Christian G. Farman
-----------------------------------
Name: Christian G. Farman
Title: Vice President & Chief
Financial Officer
BANK OF AMERICA, N.A.
By: /s/ Kevin L. Handley
-----------------------------------
Name: Kevin L. Handley
Title: Senior Vice President
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EXHIBIT A
FORM OF REQUEST FOR EXTENSION OF CREDIT
Date: _________, ____
To: Bank of America, N.A.
Ladies and Gentlemen:
Reference is made to that certain Amended and Restated Credit Agreement
dated as of March 12, 2004 between Insituform Technologies, Inc., a Delaware
corporation ("Company"), and BANK OF AMERICA, N.A., (as amended, restated,
extended, supplemented or otherwise modified in writing from time to time, the
"Agreement"; the terms defined therein being used herein as therein defined).
The undersigned hereby requests (select one):
A Borrowing of Loans
1. On _______________________________________.
2. In the amount of $____________
The foregoing request complies with the requirements of Section 2.01 of
the Agreement. The undersigned hereby certifies that the following statements
are true on the date hereof, and will be true on the above date, before and
after giving effect and to the application of the proceeds therefrom:
(a) The representations and warranties made by any
Borrower Party in the Agreement, or which are contained in the Master
Guaranty, any Compliance Certificate, the Intercreditor Agreement or
any other material certificate furnished at any time under or in
connection therewith, are and will be correct on and as of the date of
this Extension of Credit in all material respects, except to the extent
that such representations and warranties specifically refer to any
earlier date; and
<PAGE>
(b) No Default or Event of Default has occurred and is
continuing on the date hereof or after giving effect to this Extension
of Credit.
INSITUFORM TECHNOLOGIES, INC.
By: ______________________________
Name: ____________________________
Title: ___________________________
Form of Request for Extension of Credit
<PAGE>
EXHIBIT B
FORM OF COMPLIANCE CERTIFICATE
Financial Statement Date: _________, ____,
To: Bank of America, N.A.
Ladies and Gentlemen:
Reference is made to that certain Amended and Restated Credit Agreement
dated as of March 12, 2004 between Insituform Technologies, Inc., a Delaware
corporation ("Company") and BANK OF AMERICA, N.A., (as amended, restated,
extended, supplemented or otherwise modified in writing from time to time, the
"Agreement;" the terms defined therein being used herein as therein defined).
The undersigned Responsible Officer hereby certifies as of the date
hereof that he is the ______________________________ of Company, and that, as
such, he is authorized to execute and deliver this Certificate to Lender on the
behalf of Company, and that:
[Use following for fiscal YEAR-END financial statements]
1. Attached hereto as Schedule 1 are the year-end audited
financial statements required by Section 6.01(a) of the Agreement for the fiscal
year of Company ended as of the above date, together with the report and opinion
of an independent certified public accountant required by such section.
[Use following for fiscal QUARTER-END financial statements]
1. Attached hereto as Schedule 1 are the unaudited financial
statements required by Section 6.01(b) of the Agreement for the fiscal quarter
of Company ended as of the above date. Such financial statements fairly present
in all material respects the financial condition, results of operations and
changes in cash flows of Company and its Subsidiaries in accordance with GAAP as
at such date and for such periods, subject only to normal year-end audit
adjustments and the absence of footnotes.
2. The undersigned has reviewed and is familiar with the terms of
the Agreement and has made, or has caused to be made under his supervision, a
detailed review of the transactions and conditions (financial or otherwise) of
Company during the accounting period covered by the attached financial
statements.
3. A review of the activities of Borrower Parties during such
fiscal period has been made under my supervision with a view to determining
whether during such fiscal period Borrower Parties performed and observed all
their respective Obligations under the Loan Documents, and
Form of Compliance Certificate
B-1
<PAGE>
[SELECT ONE]
[THE EXAMINATIONS DESCRIBED IN PARAGRAPHS 2 AND 3 ABOVE DID NOT
DISCLOSE, AND I HAVE NO KNOWLEDGE OF, THE EXISTENCE OF ANY CONDITION OR EVENT
WHICH CONSTITUTES A DEFAULT OR EVENT OF DEFAULT AS OF THE DATE OF THIS
COMPLIANCE CERTIFICATE.]
-OR-
[THE FOLLOWING IS A LIST OF EACH DEFAULT OR EVENT OF DEFAULT AND ITS
NATURE AND STATUS:]
4. There is no Default or Event of Default as defined and
provided in the Note Purchase Agreement-1997 and the Note Purchase
Agreement-2003.
5. Attached hereto are the most recent compliance certificates
submitted by Borrower pursuant to the Note Purchase Agreement-1997 and the Note
Purchase Agreement-2003.
6. The representations and warranties of the Borrower contained
in Article V of the Agreement, or which are contained in any document furnished
at any time under or in connection with the Loan Documents, are true and correct
on and as of the date hereof, except to the extent that such representations and
warranties specifically refer to an earlier date, in which case they are true
and correct as of such earlier date, and except that for purposes of this
Compliance Certificate, the representations and warranties contained in Section
5.11 of the Agreement shall be deemed to refer to the most recent statements
furnished pursuant to Section 6.01 of the Agreement, including the statements in
connection with which the Compliance Certificate is delivered.
IN WITNESS WHEREOF, the undersigned has executed this Certificate as of
________________, ____.
INSITUFORM TECHNOLOGIES, INC.
By: _______________________________
Name: _____________________________
Title: ____________________________
Form of Compliance Certificate
B-2
<PAGE>
EXHIBIT C
PROMISSORY NOTE
$25,000,000.00 March 12, 2004
FOR VALUE RECEIVED, the undersigned, Insituform Technologies, Inc.
("Borrower"), hereby promises to pay to the order of Bank of America, N.A.
("Lender"), on the Maturity Date (as defined in the Credit Agreement referred
below) the sum of Twenty-Five Million Dollars ($25,000,000.00), or such lesser
principal amount of Loans (as defined in the Credit Agreement referred to below)
payable by Borrower to Lender on such Maturity Date under that certain Amended
and Restated Credit Agreement dated as of March 12, 2004 between Borrower, and
Lender (as amended, restated, extended, supplemented or otherwise modified in
writing from time to time, the "Agreement;" the terms defined therein being used
herein as therein defined).
Borrower promises to pay interest on the unpaid principal amount of
each Loan from the date of such Loan until such principal amount is paid in
full, at such interest rates, and payable at such times as are specified in the
Agreement. All payments of principal and interest shall be made to Lender in
immediately available funds at Lender's Payment office. If any amount is not
paid in full when due hereunder, such unpaid amount shall bear interest, to be
paid upon demand, from the due date thereof until the date of actual payment
(and before as well as after judgment) computed at the per annum rate set forth
in the Agreement.
This Note is one of the "Notes" referred to in the Agreement. Reference
is hereby made to the Agreement for rights and obligations of payment and
prepayment, events of default and the right of Lender to accelerate the maturity
hereof upon the occurrence of such events. Loans made by Lender shall be
evidenced by one or more loan accounts or records maintained by Lender in the
ordinary course of business. Lender may also attach schedules to this Note and
endorse thereon the date, amount and maturity of its Loans and payments with
respect thereto.
Borrower, for itself, its successors and assigns, hereby waives
diligence, presentment, protest and demand and notice of protest, demand,
dishonor and non-payment of this Note.
Form Promissory Note
C-1
<PAGE>
Borrower agrees to pay all collection expenses, court costs and
Attorney Costs (whether or not litigation is commenced) which may be incurred by
Lender in connection with the collection or enforcement of this Note.
THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF MISSOURI.
INSITUFORM TECHNOLOGIES, INC.
By ________________________________
Name ______________________________
Title _____________________________
Form Promissory Note
C-2
<PAGE>
EXHIBIT D
MASTER GUARANTY
This MASTER GUARANTY ("Guaranty"), dated as of March 12, 2004, is made
by each of the corporations from time to time party hereto (each, in its
capacity hereunder, a "Guarantor" and collectively "Guarantors"), jointly and
severally in favor of the Guarantied Parties referred to below with reference to
the following facts:
RECITALS
A. Pursuant to that Amended and Restated Credit Agreement dated
as of March 12, 2004 among Insituform Technologies, Inc., a Delaware corporation
("Company") and BANK OF AMERICA, N.A. ("Lender") (as amended, restated,
extended, supplemented or otherwise modified in writing from time to time, the
"Credit Agreement") the Lender and its successors and assigns, (collectively,
the "Guarantied Parties") are making certain credit facilities available to
Borrower.
B. As a condition to the availability of such credit facilities,
Guarantors are required to enter into this Master Guaranty and to guaranty the
Guarantied Obligations as hereinafter provided.
C. Guarantors expect to realize direct and indirect benefits as
the result of the availability of the aforementioned credit facilities to
Borrowers, as the result of financial or business support which will be provided
to the Guarantors by Borrowers.
AGREEMENT
NOW, THEREFORE, in order to induce the Guarantied Parties to extend the
aforementioned credit facilities, and for other good and valuable consideration,
the receipt and adequacy of which hereby are acknowledged, Guarantors hereby
covenant, agree and guaranty as follows:
1. GENERAL. Unless the context of this Guaranty clearly requires
otherwise, (a) references to the plural include the singular and vice versa, (b)
references to any Person include such Person's successors and assigns but, if
applicable, only if such successors and assigns are permitted by this Guaranty,
(c) references to one gender include all genders, (d) "including" is not
limiting, (e) "or" has the inclusive meaning represented by the phrase "and/or,"
(f) the words "hereof", "herein", "hereby", "hereunder" and similar terms in
this Guaranty refer to this Guaranty as a whole, including its Exhibits, and not
to any particular provision of this Guaranty, (g) the word "Section" or
"section" and "Page" or "page" refer to a section or page, respectively, of this
Guaranty unless it expressly refers to something else, (h) reference to any
agreement, document, or instrument, including this Guaranty, any other Loan
Document and any agreement, document or instrument defined herein, means such
agreement, document, or instrument as it may have been or may be amended,
restated, extended, renewed, replaced, or otherwise modified and in effect from
time to time in accordance with the terms thereof and, if applicable, the terms
hereof, and includes all attachments thereto and instruments incorporated
therein, if any, and (i) general and specific references to any Law means such
Law as amended, modified, codified or reenacted, in whole or in
Form of Master Guaranty
D-1
<PAGE>
part, and in effect from time to time. Section captions are for convenience only
and do not affect the interpretation or construction of this Guaranty.
2. DEFINITIONS. All capitalized terms not otherwise defined
herein have the meanings given them in the Credit Agreement.
3. ACKNOWLEDGEMENT OF CAPACITY AS A COVERED PERSON UNDER THE
CREDIT AGREEMENT. Each Guarantor acknowledges that it has reviewed the Credit
Agreement and agrees that it is a "Covered Person" (as that term is defined in
the Credit Agreement and used in the Credit Agreement and the other Loan
Documents). All of the representations and warranties, covenants, and agreements
contained in the Credit Agreement and the other Loan Documents which are
applicable to a Covered Person are incorporated into this Guaranty by this
reference and each Guarantor, as such a Covered Person, hereby makes such
representations and warranties to, and makes such covenants and agreements with,
the Guarantied Parties. Each Guarantor further acknowledges and agrees that the
failure of a Guarantor to comply with any terms of the Credit Agreement or the
other Loan Documents applicable to such Guarantor as a Covered Person will,
subject to the terms of the Credit Agreement, result in a Default and/or Event
of Default under the Credit Agreement and the other Loan Documents, entitling
the Guarantied Parties to all of their remedies thereunder and under applicable
law and in equity.
4. GUARANTY.
(a) UNLIMITED GUARANTY OF PAYMENT AND PERFORMANCE. Guarantors
hereby jointly and severally guaranty to the Guarantied Parties, for the benefit
of the Guarantied Parties, the full and prompt payment and performance of all
Obligations of Company, any Subsidiary Borrower and any other Borrower Party at
any time and from time to time owed to the Guarantied Parties under one or more
of the Loan Documents, whether due or to become due, matured or unmatured,
liquidated or unliquidated, or contingent or noncontingent, including
obligations of performance as well as obligations of payment, and including
interest that accrues after the commencement of any bankruptcy or insolvency
proceeding by or against any Borrower, any Guarantor or any other Person
(collectively, the "Guarantied Obligations"). Subject to Section 21, each
Guarantor understands and acknowledges that there is no limit on the Guarantied
Obligations.
(b) CURRENCY OF PAYMENT. Payments hereunder in respect of any
Guarantied Obligations shall be made in Dollars.
(c) NATURE OF GUARANTY. This is a continuing, absolute and
unconditional guaranty of payment and performance and not merely of collection.
Each Guarantor's liability with respect to the Guarantied Obligations is
primary, not secondary. Upon the occurrence of any Event of Default and at any
time thereafter, the Guarantied Parties may proceed directly against any
Guarantor without first proceeding against any Borrower, any other Person liable
for the payment or performance of the Guarantied Obligations, or any collateral
or other security for the Guarantied Obligations. The Guarantied Parties will
not be required to mitigate damages or take any other action to reduce, collect
or enforce the Guarantied Obligations. Only upon Final Payment shall this
Guaranty be released, subject to being automatically reinstated as provided in
Section 7 herein.
(d) PLACE FOR PERFORMANCE. All obligations of Guarantors under
this Guaranty are performable and payable at the Lending Office.
Form of Master Guaranty
D-2
<PAGE>
5. NO RELEASE OF GUARANTORS. Each Guarantor's liability under
this Guaranty will not be reduced, extinguished, discharged or released by, and
no Guarantor is entitled to raise as a defense, any:
(a) invalidity, irregularity or unenforceability of the Guarantied
Obligations, any Borrower's Obligations or other obligations under the Loan
Documents to which it is a party, or of such Guarantor's obligations under the
Loan Documents to which it is a party, including this Guaranty;
(b) existing or future offset, claim, counterclaim or defense of
any Borrower, such Guarantor or any other party against the Guarantied Parties
or against payment of the Obligations or the Guarantied Obligations (whether
such offset, claim, counterclaim or defense arises in connection with the
Obligations or the Guarantied Obligations or the transactions creating the
Obligations or the Guarantied Obligations or otherwise);
(c) failure of such Guarantor to be given notice of a Default or
Event of Default by any Borrower;
(d) waivers of Defaults or Events of Default or other waivers
under the Loan Documents;
(e) extensions of due dates for payments, modifications of
interest rates or other payment terms with respect to the Guarantied Obligations
or any other accommodation, indulgence or forbearance granted to any Borrower;
(f) reorganization, merger or consolidation of any Borrower or
such Guarantor into or with any other Person;
(g) release of or non-perfection with respect to any or all of any
collateral or any other security for the Guarantied Obligations;
(h) taking or accepting of any other security or collateral for,
or guaranty of, any or all of the Guarantied Obligations;
(i) the death of or release of, or settlement or compromise with,
any one or more other Persons who have guarantied, or are otherwise liable for
the payment or performance of, any or all of the Guarantied Obligations;
(j) assignment or other transfer of, or granting of a
participation in, any of the Guarantied Obligations or any collateral or other
security therefor, by the Guarantied Parties;
(k) other acts or omissions which, in the absence of this Section
5 would operate so as to reduce, extinguish, discharge or release such
Guarantor's liability under this Guaranty (except for the full and indefeasible
payment of the Guarantied Obligations, cancellation or termination of the
Commitment, expiration of all Letters of Credit, and termination of any other
commitment to extend credit or make advances to or for the account of any
Borrower).
6. WAIVERS.
Form of Master Guaranty
D-3
<PAGE>
(a) NOTICE. Each Guarantor hereby waives notice of (i) acceptance
of this Guaranty, (ii) any amendment, restatement or other modification of any
of the Loan Documents (including modifications to interest rates or other
payment terms of the Guarantied Obligations), (iii) Extensions of Credit to any
Borrowers by the Guarantied Parties and fundings of Extensions of Credit to any
Borrower by the Guarantied Parties, (iv) the occurrence of a Default or Event of
Default, (v) any matter referred to in Section 5 of this Guaranty, and (vi) any
other action at any time taken or omitted by the Guarantied Parties, and
generally, all demands and notices of every kind in connection with this
Guaranty and the Loan Documents, except as expressly provided herein and in the
Credit Agreement.
(b) RIGHT OF CONTRIBUTION, ETC. Each Guarantor hereby waives any
right of contribution, subrogation, reimbursement, indemnity, or repayment, and
any other "claim", as that term is defined in the United States Bankruptcy Code,
which such Guarantor might now have or hereafter acquire against any Borrower or
any other Person liable for the payment or performance of the Obligations (other
than pursuant to this Guaranty) that arises from the existence or performance of
such Guarantor's obligations under this Guaranty; and such Guarantor waives the
right to participate in any existing or future collateral or other security for
the Guarantied Obligations. Each Guarantor further agrees that such Guarantor
will not enter into any agreement providing, directly or indirectly, for any
contribution, subrogation, reimbursement, indemnity or repayment by Borrowers on
account of any payment made by such Guarantor hereunder, and that any such
agreement would be void. Until payment in full of all Obligations and
termination of the Commitment, no Guarantor has any right of contribution,
subrogation, reimbursement, indemnity or repayment and no right of recourse to
or with respect to any assets or property of any other guarantor (including any
Guarantor) or other Person liable for any of the Guarantied Obligations (other
than pursuant to Section 20 below).
(c) OTHER. Each Guarantor hereby waives (i) diligence,
presentment, demand for payment, protest or notice, whether of nonpayment,
dishonor, protest or otherwise, (ii) any and all claims, counterclaims or
defenses based upon, related to or arising out of (a) any matter referred to in
Section 5 of this Guaranty, (b) any issue as to whether any sale or other
disposition of any security for the Guarantied Obligations was conducted in a
commercially reasonable fashion, (c) any election of remedies by the Guarantied
Parties, and (d) a theory that this Guaranty should be strictly construed
against the Guarantied Parties, and (iv) all other defenses (except payment in
full of all Obligations and termination of the Commitment), including any
statute(s) of limitations, under applicable Law that would, but for this clause
(iv), be available to such Guarantor as a defense against, or a reduction,
extinguishment, discharge or release of its obligations under, this Guaranty.
7. REINSTATEMENT OR GUARANTY IN CERTAIN CIRCUMSTANCES. Each
Guarantor agrees that, if any or all of a payment made by or on behalf of
Borrowers of any Guarantied Obligation is returned by any Person at any time for
any reason, including pursuant to any settlement, order (whether or not final)
of a court of competent jurisdiction, provision of any Debtor Relief Law or
other applicable Law or because of acts or omissions of Borrowers, the
Guarantied Obligations will not be deemed to have been satisfied to the extent
of the returned payment and the obligations of such Guarantor will be deemed to
be reinstated automatically and to continue in full force and effect. If any
Borrower ceases to be liable to the Guarantied Parties for any of the
Obligations (other than by reason of payment in full of all Obligations and
termination of the Commitment), then any prior release or discharge from this
Guaranty will be without effect and this Guaranty and
Form of Master Guaranty
D-4
<PAGE>
the obligations of each Guarantor hereunder will be automatically reinstated and
continue in full force and effect.
8. REPRESENTATIONS AND WARRANTIES. Each Guarantor represents and
warrants to the Guarantied Parties as follows:
(a) AUTHORIZATION. Each Guarantor is duly authorized to execute
and perform this Guaranty, and this Guaranty has been properly authorized by all
requisite corporate, membership, or partnership action (as the case may be) of
such Guarantor. No consent, approval or authorization of, or declaration or
filing with, any Governmental Authority or any other Person, is required in
connection with such Guarantor's execution, delivery or performance of this
Guaranty, except for those already duly obtained.
(b) DUE EXECUTION. This Guaranty has been executed on behalf of
each Guarantor by a legally competent Person duly authorized to do so.
(c) ENFORCEABILITY. This Guaranty constitutes the legal, valid and
binding obligation of each Guarantor, enforceable against such Guarantor in
accordance with its terms, except to the extent that the enforceability thereof
against such Guarantor may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar Laws affecting creditor's rights generally or by equitable
principles of general application.
(d) LEGAL RESTRAINTS. The execution of this Guaranty by each
Guarantor, and the performance by such Guarantor of its obligations under this
Guaranty, will not violate or constitute a default under the Charter Documents
of such Guarantor, any Material Agreement, or any Material Law, and will not,
except as expressly contemplated or permitted in this Guaranty, result in any
Security Interest being imposed on any of such Guarantor's property.
(e) INDEPENDENT CREDIT EVALUATION. Each Guarantor has
independently, and without reliance on any information supplied by the
Guarantied Parties, taken, and will continue to take, whatever steps such
Guarantor deems necessary to evaluate the financial condition and affairs of
Borrowers and each other Guarantor. No Guarantied Party has any duty to advise
any Guarantor of information at any time known to it regarding the financial
condition or affairs of any Borrower or any other Guarantor.
(f) NO REPRESENTATION BY THE GUARANTIED PARTIES. No Guarantied
Party has made any representation, warranty or statement to any Guarantor to
induce such Guarantor to execute this Guaranty.
9. SURVIVAL OF REPRESENTATIONS. All representations, warranties,
and covenants of each Guarantor contained herein survive the execution and
delivery of this Guaranty, and terminate only upon Final Payment.
10. AUTHORIZATION TO CHARGE ACCOUNTS. Each Guarantor hereby
authorizes each Guarantied Party, if and to the extent any amount payable by
such Guarantor under this Guaranty is not otherwise paid when due, to charge
such amount against any or all of the accounts of such Guarantor with such
Guarantied Party or any Affiliate of such Guarantied Party, with such Guarantor
remaining liable for any deficiency.
Form of Master Guaranty
D-5
<PAGE>
11. GUARANTIED PARTIES' OFFSET RIGHTS. Upon the occurrence of any
Event of Default and at any time and from time to time thereafter, each
Guarantied Party is hereby authorized, without notice to any Guarantor (any such
notice being expressly waived by each Guarantor), to setoff against the
Guarantied Obligations any and all deposits (general or special, time or demand,
provisional or final) at any time held, or any other Indebtedness at any time
owing by such Guarantied Party to or for the credit or the account of such
Guarantor, irrespective of whether or not demand has been made under the Credit
Agreement, any Note, or this Guaranty, and to remit the proceeds of such setoff
to such Guarantied Party for distribution to such Guarantied Party and
application to the Guarantied Obligations as provided in the Credit Agreement.
12. ENFORCEMENT. Each Guarantor acknowledges that all of the
Guarantors are liable jointly and severally for the full amount of the
Guarantied Obligations. Suits for the enforcement of this Guaranty may be
brought, at the option of the Guarantied Parties, against all Guarantors, or
successively against each Guarantor, or against one or more but not against all
Guarantors.
13. ATTORNEY'S FEES AND OTHER COSTS. If Guarantors fail to pay the
Guarantied Obligations as required by this Guaranty, then Guarantors will pay
all reasonable costs and expenses incurred by the Guarantied Parties in
enforcing this Guaranty, including Attorney Costs (whether or not there is
litigation), court costs and all costs incurred in connection with any
proceedings under any Debtor Relief Law.
14. RECORDS. The Guarantied Parties' books and records showing the
accounts between the Guarantied Parties and any Borrower are admissible in
evidence in any action or proceeding with respect to this Guaranty and
constitute prima facie proof of the information therein.
15. BINDING NATURE OF CERTAIN ADJUDICATIONS. Each Guarantor will
be conclusively bound by the final adjudication in any action or proceeding,
legal or otherwise, involving any controversy arising under, in connection with,
or in any way related to, any of the Guarantied Obligations, and by a final
judgment, award or decree entered therein, if such Guarantor had the right, or
was given the opportunity, to participate in such action or proceeding and was
given notice of such action or proceeding in time to exercise such right or
avail itself of such opportunity.
16. APPLICATION OF PAYMENTS. All payments made under this Guaranty
will be allocated among the principal and interest and other components of the
Guarantied Obligations and the other obligations of a Guarantor hereunder in
such order and amount as the Guarantied Parties may determine in their sole and
absolute discretion.
17. LIMITATION OF LIABILITY. No Guarantied Party will have any
liability with respect to, and each Guarantor hereby waives, releases and agrees
not to sue for, (a) any loss or damage sustained by any Guarantor that may occur
as a result of, in connection with, or that is in any way related to, any act or
failure to act referred to in Section 5 of this Guaranty, or (b) any special,
indirect or consequential damages suffered by any Guarantor in connection with
any claim related to this Guaranty.
Form of Master Guaranty
D-6
<PAGE>
18. MISCELLANEOUS.
(a) NOTICES. All notices, consents, requests and demands to or
upon the respective parties hereto shall be given by Requisite Notice at the
address of Company set forth on Schedule 9.02 to the Credit Agreement. No notice
given to or demand made on any Guarantor by the Guarantied Parties in any
instance entitles any Borrower to notice or demand in any other instance.
(b) AMENDMENTS AND WAIVERS. No amendment to, waiver of, or
departure from full compliance with any provision of this Guaranty, or consent
to any departure by any Guarantor herefrom, will be effective unless it is in
writing and signed by authorized officers of such Guarantor and Lender;
provided, however, that any such waiver or consent will be effective only in the
specific instance and for the purpose for which given. No failure by Lender to
exercise, and no delay by any Guarantied Party in exercising, any right, remedy,
power or privilege hereunder will operate as a waiver thereof, nor will any
single or partial exercise by any Guarantied Party of any right, remedy, power
or privilege hereunder preclude any other exercise thereof, or the exercise of
any other right, remedy, power or privilege.
(c) RIGHTS CUMULATIVE. Each of the rights and remedies of the
Guarantied Parties under this Guaranty is in addition to all of their other
rights and remedies under applicable Law, and nothing in this Guaranty may be
construed as limiting any such rights or remedies.
(d) SUCCESSORS AND ASSIGNS. This Guaranty binds Guarantors and
their respective successors and assigns and inures to the benefit of the
Guarantied Parties, and each of its successors, transferees, participants and
assignees. No Guarantor may delegate or transfer any of its obligations under
this Guaranty without the prior written consent of Lender. With respect to each
Guarantor's successors and assigns, such successors and assigns include any
receiver, trustee or debtor-in-possession of or for such Guarantor.
(e) SEVERABILITY. Any provision of this Guaranty which is
prohibited, unenforceable or not authorized in any jurisdiction is, as to such
jurisdiction, ineffective to the extent of such prohibition, unenforceability or
nonauthorization without invalidating the remaining provisions hereof or
affecting the validity, enforceability or legality of such provision in any
other jurisdiction.
(f) NO THIRD PARTY RIGHTS. This Guaranty is solely for the benefit
of the parties hereto and the Guarantied Parties, and their respective
successors and assigns, and no other Person has any right, benefit, priority or
interest under, or because of the existence of, this Guaranty.
(g) COUNTERPARTS. This Guaranty may be executed by the parties
hereto on any number of separate counterparts, and all such counterparts taken
together constitute one and the same instrument. It is not necessary in making
proof of this Guaranty to produce or account for more than one counterpart
signed by the party to be charged.
(h) COUNTERPART FACSIMILE EXECUTION. For purposes of this
Guaranty, a document (or signature page thereto) signed and transmitted by
facsimile machine or telecopier is to be treated as an original document. The
signature of any Person thereon, for purposes hereof, is to be considered as an
original signature, and the document transmitted is to be considered to have the
same binding effect as an original signature on an original document. At the
request of any party hereto, any facsimile or telecopy document is to be
re-executed in original form by the Persons who executed the facsimile or
telecopy document. No party hereto may raise the use of a facsimile
Form of Master Guaranty
D-7
<PAGE>
machine or telecopier or the fact that any signature was transmitted through the
use of a facsimile or telecopier machine as a defense to the enforcement of this
Guaranty or any amendment or other document executed in compliance with this
Section.
(i) FINAL EXPRESSION; NO COURSE OF DEALING. This Guaranty,
together with the Credit Agreement, the other Loan Documents and any other
agreement executed in connection herewith or therewith, is intended by the
parties as a final expression of their agreement and is intended as a complete
and exclusive statement of the terms and conditions thereof. Acceptance of or
acquiescence in a course of performance or course of dealing rendered or taken
under or with respect to this Guaranty, the Credit Agreement or the other Loan
Documents will not be relevant to determine the meaning of this Guaranty, the
Credit Agreement or the other Loan Documents even though the accepting or
acquiescing party had knowledge of the nature of the performance and opportunity
for objection.
(j) NEGOTIATED TRANSACTION. Each Guarantor and Guarantied Party
represent to the other that in the negotiation and drafting of this Guaranty
each has been represented by and has relied upon the advice of counsel of its
choice. Each Guarantor and Guarantied Party affirm that its counsel has had a
substantial role in the drafting and negotiation of this Guaranty; therefore,
this Guaranty will be deemed drafted by each of Borrowers and the Guarantied
Parties, and the rule of construction to the effect that any ambiguities are to
be resolved against the drafter will not be employed in the interpretation of
this Guaranty.
(k) ASSIGNMENT BY GUARANTIED PARTIES. To the extent permitted in
the Credit Agreement, the Guarantied Parties may grant a participation interest
in or assign or transfer to another Person any instrument, document or agreement
evidencing any of the Guarantied Obligations and the Guarantied Parties' rights
under this Guaranty.
(l) CHOICE OF LAW, FORUM. WAIVER OF JURY TRIAL.
(a) THIS GUARANTY SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAW OF THE STATE OF MISSOURI APPLICABLE TO AGREEMENTS MADE
AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE; PROVIDED THAT LENDER SHALL
RETAIN ALL RIGHTS ARISING UNDER FEDERAL LAW.
(b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS GUARANTY
OR ANY OTHER LOAN DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF MISSOURI
SITTING IN THE COUNTY OF ST. LOUIS OR OF THE UNITED STATES FOR THE EASTERN
DISTRICT OF SUCH STATE, AND BY EXECUTION AND DELIVERY OF THIS GUARANTY, EACH
GUARANTOR AND LENDER CONSENT, FOR ITSELF AND IN RESPECT OF ITS PROPERTY, TO THE
NON-EXCLUSIVE JURISDICTION OF THOSE COURTS. EACH GUARANTOR AND LENDER
IRREVOCABLY WAIVE ANY OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING OF VENUE
OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER
HAVE TO THE BRINGING OF ANY ACTION OR PROCEEDING IN SUCH JURISDICTION IN RESPECT
OF ANY LOAN DOCUMENT OR OTHER DOCUMENT RELATED THERETO. EACH GUARANTOR AND
LENDER WAIVE PERSONAL SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER PROCESS,
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WHICH MAY BE MADE BY ANY OTHER MEANS PERMITTED BY THE LAW OF SUCH STATE.
(c) EACH PARTY TO THIS GUARANTY HEREBY EXPRESSLY WAIVES ANY RIGHT
TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION ARISING UNDER
ANY LOAN DOCUMENT OR IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE
DEALINGS OF THE PARTIES HERETO OR ANY OF THEM WITH RESPECT TO ANY LOAN DOCUMENT,
OR THE TRANSACTIONS RELATED THERETO, IN EACH CASE WHETHER NOW EXISTING OR
HEREAFTER ARISING, AND WHETHER FOUNDED IN CONTRACT OR TORT OR OTHERWISE; AND
EACH PARTY HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR
CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY, AND THAT ANY
PARTY TO THIS GUARANTY MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS
SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE SIGNATORIES
HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
19. ADDITIONAL GUARANTORS. Any Person required to become a
Guarantor pursuant to Section 6.10 of the Credit Agreement shall, upon complying
with such section, be deemed a Guarantor and this Guaranty shall be deemed
amended to include such additional Person as a party hereto as though a
signatory hereto, with no amendment or further action required hereunder, and
thereafter, all references to Guarantors shall include such additional Person.
20. RIGHT OF CONTRIBUTION. Each Guarantor hereby agrees that to
the extent that a Guarantor shall have paid more than its proportionate share of
all payments made hereunder, such Guarantor shall be entitled to seek and
receive contribution from and against any other Guarantor hereunder who has not
paid its proportionate share of all such payments. The provisions of this
Section shall in no respect limit the obligations and liabilities of any
Guarantor to the Guarantied Parties, and, subject to the provisions of Section
21 below, each Guarantor shall remain liable to the Guarantied Parties for the
full amount guaranteed by such Guarantor hereunder. The "proportionate share" of
any Guarantor shall be a fraction (which shall in no event exceed 1.00) the
numerator of which is the excess, if any, of the fair value of the assets of
such Guarantor over a fair estimate of the liabilities of such Guarantor and the
denominator of which is the excess (but not less than $1.00) of the fair value
of the aggregate assets (without duplication) of all Guarantors over a fair
estimate of the aggregate liabilities (without duplication) of all Guarantors.
All relevant calculations shall be made as of the date such Guarantor became a
Guarantor.
21. LIABILITY. Notwithstanding anything to the contrary elsewhere
contained herein or in any Loan Document to which any Guarantor is a Party, the
aggregate liability of each Guarantor hereunder (other than Company) for payment
and performance of the Guarantied Obligations shall not exceed an amount which,
in the aggregate, is $1.00 less than that amount which if so paid or performed
would constitute or result in a "fraudulent transfer," "fraudulent conveyance"
or terms of similar import, under applicable state or federal Law, including
without limitation, Section 548 of the United States Bankruptcy Code. The
liability of each Guarantor hereunder is independent of any other guaranties at
any time in effect with respect to all or any part of the Guarantied
Obligations, and each Guarantor's liability hereunder may be enforced regardless
of the existence of any such guaranties. Any termination by or release of any
Guarantor in whole or in part (whether it be another Guarantor under this
instrument or not) shall not affect the continuing liability of any
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Guarantor hereunder, and no notice of any such termination or release shall be
required. The execution hereof by each Guarantor is not founded upon an
expectation or understanding that there will be any other Guarantor of the
Guarantied Obligations.
22. NOT USED.
(b) Guarantors shall indemnify the Guarantied Parties against and
hold the Guarantied Parties harmless from all loss and damage resulting from any
change in exchange rates between the date any claim is reduced to judgment and
the date of payment (or, in the case of partial payments, the date of each
partial payment) thereof by any Guarantor. This indemnity shall constitute an
obligation separate and independent from the other obligations contained in this
Guaranty, shall give rise to a separate and independent cause of action, shall
apply irrespective of any indulgence granted by the Guarantied Parties from time
to time, and shall continue in full force and effect notwithstanding any
judgment or order for a liquidated sum in respect of an amount due hereunder or
under any judgment or order.
23. PAYMENTS EXEMPT FROM TAXES. (a) Any and all payments by
Guarantors to or for the account of the Guarantied Parties hereunder 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 any Guarantied Party, taxes imposed on or measured by its net income,
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 such Guarantied Party is
organized, in which its principal office is located or in which it maintains a
lending office, and any other taxes withheld because such Guarantied Party
failed to timely deliver the forms required pursuant to Section 10.21 of the
Credit Agreement (all such non-excluded taxes, duties, levies, imposts,
deductions, assessments, fees, withholdings or similar charges, and liabilities
being hereinafter referred to as "Taxes").
(b) If a Guarantor shall be required by any Laws to deduct any
Taxes from or in respect of any sum payable under any Loan Document to any
Guarantied Party, (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), such Guarantied Party receives an
amount equal to the sum it would have received had no such deductions been made,
(ii) such Guarantor shall make such deductions, (iii) such Guarantor 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, such Guarantor shall furnish to Lender the original or a certified
copy of a receipt evidencing payment thereof.
(c) Each Guarantor will provide the Guarantied Parties with
original tax receipts, notarized copies of tax receipts, or such other
documentation as will prove payment of tax in a court of law applying the United
States Federal Rules of Evidence, for all taxes paid by a Guarantor pursuant to
subsection (b) above. Each Guarantor will deliver receipts to Lender within 30
days after the due date for the related tax.
IN WITNESS WHEREOF, this Guaranty has been duly executed as of the date
first above written.
Form of Master Guaranty
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GUARANTORS:
AFFHOLDER, INC.
By ________________________________
Name ______________________________
Title _____________________________
INA ACQUISITION CORP
By ________________________________
Name ______________________________
Title _____________________________
INSITUFORM TECHNOLOGIES USA, INC.
By ________________________________
Name ______________________________
Title _____________________________
KINSEL INDUSTRIES, INC.
By ________________________________
Name ______________________________
Title _____________________________
Form of Master Guaranty
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TRACKS OF TEXAS, INC.
By ________________________________
Name ______________________________
Title _____________________________
ACKNOWLEDGED:
BANK OF AMERICA, N.A.,
By: ________________________________
Form of Master Guaranty
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EXHIBIT E
INSTRUMENT OF JOINDER FOR
ADDITIONAL GUARANTORS
Dated: _____, _____
Reference is made to that certain Amended and Restated Credit Agreement
dated as of March 12, 2004 between Insituform Technologies, Inc., a Delaware
corporation ("Company") and BANK OF AMERICA, N.A. (as amended, restated,
extended, supplemented or otherwise modified in writing from time to time, the
"Agreement;" the terms defined therein being used herein as therein defined).
_________________________________, a direct or indirect Domestic
Subsidiary of Company ("Subsidiary") hereby agrees to become a Guarantor and
agrees to be bound by all the terms and conditions of the Guaranty applicable to
a Guarantor from and after the date hereof as if a signatory to the Guaranty.
The undersigned Subsidiary hereby represents and warrants to the matters set
forth in Section 15 of the Guaranty applicable to it as of the date hereof.
Instrument of Joinder For
Additional Guarantors and Borrowers
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The undersigned hereby consent to the Subsidiary becoming a party to
the Guaranty. This Instrument of Joinder is executed by the parties hereto as of
the date first written above.
"NEW GUARANTOR"
By ___________________________________
Name _________________________________
Title ________________________________
EXISTING BORROWER PARTY TO THE CREDIT
AGREEMENT AND EXISTING GUARANTORS
PARTY TO THE GUARANTY:
INSITUFORM TECHNOLOGIES, INC.
By ___________________________________
Name _________________________________
Title ________________________________
AFFHOLDER, INC.
By __________________________________