sv1za
As filed with the Securities
and Exchange Commission on September 21, 2009
Registration
No. 333-151559
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
AMENDMENT NO. 4
TO
Form S-1
REGISTRATION
STATEMENT
UNDER
THE SECURITIES ACT OF
1933
Mistras Group, Inc.
(Exact name of registrant as
specified in its charter)
|
|
|
|
|
Delaware
|
|
8711
|
|
22-3341267
|
(State or other jurisdiction
of
incorporation or organization)
|
|
(Primary Standard Industrial
Classification Code Number)
|
|
(I.R.S. Employer
Identification Number)
|
195 Clarksville Road
Princeton Junction, New Jersey
08550
(609) 716-4000
(Address, including zip code,
and telephone number, including area code, of registrants
principal executive offices)
Sotirios J.
Vahaviolos, Ph.D.
Chairman, President and Chief
Executive Officer
195 Clarksville Road
Princeton Junction, New Jersey
08550
(609) 716-4000
(Name, address, including zip
code, and telephone number, including area code, of agent for
service)
With copies to:
|
|
|
Andrew C. Freedman, Esq.
Sheldon G. Nussbaum, Esq.
Fulbright & Jaworski L.L.P.
666 Fifth Avenue
New York, New York 10103
Telephone
(212) 318-3000
Fax
(212) 318-3400
|
|
William J. Whelan, III, Esq.
Cravath, Swaine & Moore LLP
Worldwide Plaza
825 Eighth Avenue
New York, New York 10019
Telephone (212) 474-1000
Fax (212) 474-3700
|
Approximate date of commencement of proposed sale to the
public: As soon as practicable after this Registration
Statement is declared effective.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to
Rule 415 under the Securities Act, check the following
box. o
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act,
please check the following box and list the Securities Act
registration statement number of the earlier effective
registration statement for the same
offering. o
If this Form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering. o
If this Form is a post-effective amendment filed pursuant to
Rule 462(d) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering. o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2 of the Exchange Act.
|
|
|
|
Large
accelerated
filer o
|
Accelerated
filer o
|
Non-accelerated
filer þ
|
Smaller reporting
company o
|
(Do not check if a smaller
reporting company)
CALCULATION OF REGISTRATION
FEE
|
|
|
|
|
|
|
|
|
|
|
Title of Each Class of
|
|
|
Proposed Maximum
|
|
|
Amount of
|
Securities to be Registered
|
|
|
Aggregate Offering Price(1) (2)
|
|
|
Registration Fee(3)
|
Common stock, $0.01 par value per share
|
|
|
$
|
172,500,000
|
|
|
|
$
|
9,625.50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Estimated solely for the purpose of
calculating the registration fee under Rule 457(o) of the
Securities Act.
|
|
(2)
|
|
Includes shares of common stock
that may be purchased by the underwriters to cover
over-allotments, if any.
|
|
(3)
|
|
$6,780 previously paid by wire
transfer on June 6, 2008.
|
The registrant hereby amends this Registration Statement on
such date or dates as may be necessary to delay its effective
date until the registrant shall file a further amendment which
specifically states that this Registration Statement shall
thereafter become effective in accordance with Section 8(a)
of the Securities Act or until this Registration Statement shall
become effective on such date as the Commission, acting pursuant
to said Section 8(a), may determine.
The
information in this prospectus is not complete and may be
changed. We and the selling stockholders may not sell these
securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus
is not an offer to sell these securities and it is not
soliciting an offer to buy these securities in any state where
the offer or sale is not permitted.
|
SUBJECT TO
COMPLETION, DATED September 21, 2009
Shares
Mistras Group, Inc.
Common Stock
Prior to this offering, there has been no public market for our
common stock. The initial public offering price of the common
stock is expected to be between $
and $ per share. We have applied
to list our common stock on the New York Stock Exchange under
the symbol MG.
We are
selling shares
of common stock and the selling stockholders are
selling shares
of common stock. We will not receive any of the proceeds from
the shares of common stock sold by the selling stockholders.
The underwriters have an option to purchase a maximum
of
and
additional shares of common stock from us and the selling
stockholders, respectively, to cover over-allotments of shares.
Investing in our common stock involves risks. See Risk
Factors on page 14.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underwriting
|
|
|
|
|
|
|
|
|
|
Price to
|
|
|
Discounts and
|
|
|
Proceeds to Mistras
|
|
|
Proceeds to Selling
|
|
|
|
Public
|
|
|
Commissions
|
|
|
Group, Inc.
|
|
|
Stockholders
|
|
|
|
|
Per Share
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Total
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
Delivery of the shares of common stock will be made on or
about ,
2009.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or determined if this prospectus is truthful or
complete. Any representation to the contrary is a criminal
offense.
Joint Book-Running Managers
|
|
|
J.P.
Morgan |
Credit Suisse |
BofA Merrill Lynch |
Robert W. Baird &
Co.
The date of this prospectus
is ,
2009.
A world of ndt solutions software and products services international
A leading global provider of proprietary technology-enabled non-destructive testing (ndt) inspection solutions that
ensures the integrity of industrial and public infrastructure |
Table of
contents
You should rely only on the information contained in this
document or to which we have referred you. We have not
authorized anyone to provide you with information that is
different. This document may only be used where it is legal to
sell these securities. The information in this document may only
be accurate on the date of this document.
Industry and
market data
This prospectus includes market and industry data and forecasts
that we obtained from internal research, publicly available
information and industry publications and surveys. Industry
publications and surveys generally state that the information
contained therein has been obtained from sources believed to be
reliable. Unless otherwise noted, statements as to our market
position relative to our competitors are approximated and based
on the above-mentioned third-party data and internal analysis
and estimates as of the date of this prospectus. Although we
believe the industry and market data and statements as to market
position to be reliable as of the date of this prospectus, we
have not independently verified this information and it could
prove inaccurate. Industry and market data could be wrong
because of the method by which sources obtained their data and
because information cannot always be verified with certainty due
to the limits on the availability and reliability of raw data,
the voluntary nature of the data gathering process and other
limitations and uncertainties. In addition, we do not know all
of the assumptions regarding general economic conditions or
growth that were used in preparing the forecasts from sources
cited herein.
Dealer prospectus
delivery obligation
Until ,
2009 (25 days after the commencement of the offering), all
dealers that effect transactions in these securities, whether or
not participating in this offering, may be required to deliver a
prospectus. This is in addition to the dealers obligation
to deliver a prospectus when acting as an underwriter and with
respect to unsold allotments or subscriptions.
Prospectus
summary
This summary highlights information contained elsewhere in
this prospectus. This summary does not contain all of the
information that may be important to you. You should read this
entire prospectus carefully, including the risks discussed under
Risk Factors and the financial statements and
related notes included elsewhere in this prospectus before
making an investment decision. In this prospectus, our fiscal
years, which end on May 31, are identified according to the
calendar year in which they end (e.g., the fiscal year ended
May 31, 2009 is referred to as fiscal 2009),
and unless otherwise specified or the context otherwise
requires, Mistras, we, us
and our refer to Mistras Group, Inc. and its
consolidated subsidiaries and their predecessors.
Our
business
We are a leading global provider of technology-enabled asset
protection solutions used to evaluate the structural integrity
of critical energy, industrial and public infrastructure. We
combine industry-leading products and technologies, expertise in
mechanical integrity (MI) and non-destructive testing (NDT)
services and proprietary data analysis software to deliver a
comprehensive portfolio of customized solutions, ranging from
routine inspections to complex, plant-wide asset integrity
assessments and management. These mission critical solutions
enhance our customers ability to extend the useful life of
their assets, increase productivity, minimize repair costs,
comply with governmental safety and environmental regulations,
manage risk and avoid catastrophic disasters. Given the role our
services play in ensuring the safe and efficient operation of
infrastructure, we have historically provided a majority of our
services to our customers on a regular, recurring basis. We
serve a global customer base of companies with asset-intensive
infrastructure, including companies in the oil and gas, fossil
and nuclear power, public infrastructure, chemicals, aerospace
and defense, transportation, primary metals and metalworking,
pharmaceuticals and food processing industries. As of
August 1, 2009, we had approximately 2,000 employees,
including 29 Ph.D.s and more than 100 other degreed
engineers and highly-skilled, certified technicians, in 68
offices across 15 countries. We have established long-term
relationships as a critical solutions provider to many leading
companies, including American Electric Power, Bayer, Bechtel,
BP, Chevron, Dow Chemical, Duke Energy, DuPont, Embraer,
ExxonMobil, First Energy, General Electric, Pfizer, Rio Tinto
Alcan, Rolls Royce, Shell, The Boeing Company and Valero, and to
various federal, state and local governmental infrastructure and
defense authorities, including the departments of transportation
of several states. The following chart represents revenues we
generated in certain of our end markets for fiscal 2009.
1
Mistras revenues
by end market
(fiscal 2009)
Our asset protection solutions have evolved over time as we have
combined the disciplines of NDT, MI services and data analysis
software to provide value to our customers. The foundation of
our business is NDT, which is the examination of assets without
impacting the future usefulness or impairing the integrity of
these assets. The ability to inspect infrastructure assets and
not interfere with their operating performance makes NDT a
highly attractive alternative to many traditional intrusive
inspection techniques, which may require dismantling equipment
or shutting down a plant, refinery, mill or site. Our MI
services are a systematic engineering-based approach to
developing best practices for ensuring the on-going integrity
and safety of equipment and industrial facilities. MI services
involve conducting an inventory of infrastructure assets,
developing and implementing inspection and maintenance
procedures, training personnel in executing these procedures and
managing inspections, testing and assessments of customer
assets. By assisting customers in implementing MI programs we
enable them to identify gaps between existing and desired
practices, find and track deficiencies and degradations to be
corrected and establish quality assurance standards for
fabrication, engineering and installation of infrastructure
assets. We believe our MI services improve plant safety and
reliability and regulatory compliance, and in so doing reduce
maintenance costs. Our solutions also incorporate comprehensive
data analysis from our proprietary asset protection software to
provide customers with detailed, integrated and cost-effective
solutions that rate the risks of alternative maintenance
approaches and recommend actions in accordance with consensus
industry codes and standards.
As a global asset protection leader, we provide a comprehensive
range of solutions that includes traditional outsourced NDT
inspection services, advanced asset protection solutions, such
as MI services, and a proprietary portfolio of both hardware and
software products and systems for capturing and analyzing
inspection data in real-time. Our solutions are targeted to
optimize the safety and operational performance of
infrastructure-intensive industries during the design,
fabrication, maintenance, inspection and retirement phases of
the assets life. Since inception,
2
we have increased our capabilities and the size of our customer
base through the development of applied technologies and managed
support services, organic growth and the successful and seamless
integration of acquired companies. These acquisitions have
provided us with additional products, technologies, resources
and customers that have enhanced our sustainable competitive
advantages over our competition.
We generated revenues of $209.1 million,
$152.3 million and $122.2 million and adjusted EBITDA
of $31.1 million, $28.1 million and $19.2 million
for fiscal 2009, 2008 and 2007, respectively. For fiscal 2009,
we generated over 80% of our revenues from our Services segment.
Our
industry
Asset protection is a large and rapidly growing industry that
consists of NDT inspection, MI services and inspection data
warehousing and analysis. NDT plays a crucial role in assuring
the operational and structural integrity of critical
infrastructure without compromising the usefulness of the tested
materials or equipment. The evolution of NDT services, in
combination with broader industry trends and regulatory
requirements, has made NDT an integral and increasingly
outsourced part of many asset-intensive industries.
Well-publicized industrial and public infrastructure failures
and accidents have also raised the level of awareness of
regulators, as well as owners and operators, of the benefits
that asset protection can provide.
We believe the following key dynamics drive the growth of the
asset protection industry:
|
|
|
Extending the Useful Life of Aging
Infrastructure. The prohibitive cost and challenge of
building new infrastructure has resulted in the significant
aging of existing infrastructure and caused companies to seek
ways to extend the useful life of existing assets. Because aging
infrastructure requires relatively higher levels of maintenance
and repair, as well as more frequent, extensive and ongoing
testing, companies and public authorities are increasing
spending to ensure the operational and structural integrity of
existing infrastructure.
|
|
|
Outsourcing of Non-Core Activities and Technical Resource
Constraints. While some of our customers have
historically performed NDT services in-house, the increasing
sophistication and automation of NDT programs, together with a
decreasing supply of skilled professionals and stricter
governmental regulations, has led many companies and public
authorities to outsource NDT to providers that have the
necessary technical product portfolio, engineering expertise,
technical workforce and proven track record of results-oriented
performance to effectively meet their increasing requirements.
|
|
|
Increasing Asset and Capacity Utilization. Due to
high energy prices, high repair and replacement costs and the
limited construction of new infrastructure, existing
infrastructure in some of our target markets is being used at
higher capacities, causing increased stress and fatigue that
accelerate deterioration. In order to sustain high capacity
utilization rates, customers are increasingly using asset
protection solutions to efficiently ensure the integrity and
safety of their assets. Implementation of asset protection
solutions can lead to increased productivity as a result of
reduced maintenance-related downtime.
|
|
|
Increasing Corrosion from Low-Quality Inputs. High
commodities prices and increasing energy demands have led to the
use of lower grade inputs and feedstock, such as low-grade coal
or petroleum, in the refinery and power generation processes.
These lower grade inputs can rapidly corrode the infrastructure
they come into contact with, which in turn increases the
|
3
|
|
|
need for asset protection solutions to identify such corrosion
and enable infrastructure owners to proactively combat the
problems caused by such corrosion.
|
|
|
|
Increasing Use of Advanced Materials. Customers in
our target markets are increasingly utilizing advanced materials
and other unique technologies in the manufacturing and
construction of new infrastructure and aerospace applications.
As a result, they require advanced testing, assessment and
maintenance technologies to protect these assets. We believe
that demand for NDT solutions will increase as companies and
public authorities continue to use these advanced materials, not
only during the operating phase of the lifecycle of their
assets, but also during the design and construction phases by
incorporating technologies such as embedded sensors.
|
|
|
Meeting Safety Regulations. Owners and operators of
infrastructure assets increasingly face strict government
regulations and safety requirements. Failure to meet these
standards can result in significant financial liabilities,
increased scrutiny by the Occupational Safety & Health
Administration (OSHA) and other regulators, higher insurance
premiums and tarnished corporate brand value. As a result, these
owners and operators are seeking highly reliable asset
protection suppliers with a proven track record of providing
asset protection services, products and systems to assist them
in meeting these increasingly stringent regulations.
|
|
|
Expanding Addressable End-Markets. Advances in NDT
sensor technology and asset protection software systems, and the
continued emergence of new technologies, are creating increased
demand for asset protection solutions in applications where
existing techniques were previously ineffective. Further, we
expect increased demand in relatively new markets, such as the
pharmaceutical and food processing industries, where
infrastructure is only now aging to a point where significant
maintenance is required.
|
|
|
Expanding Addressable Geographies. We believe that a
substantial driver of incremental demand will come from
international markets, as companies and governments in these
markets build and maintain infrastructure and applications that
require the use of asset protection solutions.
|
Our competitive
strengths
We believe the following competitive strengths contribute to our
being a leading provider of asset protection solutions and will
allow us to further capitalize on growth opportunities in our
industry:
|
|
|
Single Source Provider for Asset Protection Solutions
Worldwide. We believe we are the only company with a
comprehensive portfolio of proprietary and integrated asset
protection solutions, including services, products and systems
worldwide, which positions us to be the leading single source
provider for a customers asset protection requirements. In
addition, collaboration between our services teams and product
design engineers generates enhancements to our services,
products and systems, which provide a source of competitive
advantage compared to companies that provide only NDT services
or NDT products.
|
|
|
Long-Standing Trusted Provider to a Diversified and Growing
Customer Base. By providing critical and reliable NDT
services, products and systems for more than 30 years and
expanding our asset protection solutions, we have become a
trusted partner to a large and growing customer base across
numerous infrastructure-intensive industries globally. Seven of
our top 10 customers by fiscal 2009 revenues have used our
solutions for at least 10 years. We leverage
|
4
|
|
|
our strong relationships to sell additional solutions to our
existing customers while also attracting new customers. As asset
protection is increasingly recognized by our customers as a
strategic advantage, we believe our reputation and history of
successful execution are key competitive differentiators.
|
|
|
|
Repository of Customer-Specific Inspection Data. Our
enterprise software solutions enable us to capture and store our
customers testing and inspection data in a centralized
database. As a result, we have accumulated large amounts of
proprietary information that allows us to provide our customers
with value-added services, such as benchmarking, predictive
maintenance, inspection scheduling, data analytics and
regulatory compliance. We believe our ability to provide these
customized products and services, along with the high cost of
switching to an alternative vendor, provide us with significant
competitive advantages.
|
|
|
Proprietary Products, Software and Technology
Packages. We have developed systems that have
become the cornerstone of several unique NDT applications. These
proprietary products allow us to efficiently and effectively
provide unique solutions to our customers complex
applications, resulting in a significant competitive advantage.
In addition to the proprietary products and systems that we sell
to customers on a stand-alone basis, we also develop a range of
proprietary sensors, instruments, systems and software used
exclusively by our Services segment.
|
|
|
Deep Domain Knowledge and Extensive Industry
Experience. We are an industry leader in developing
advanced asset protection solutions, including acoustic emission
(AE) testing for non-intrusive on-line monitoring of storage
tanks and pressure vessels, bridges and transformers, portable
corrosion mapping, ultrasonic testing (UT) systems, on-line
plant asset integrity management with sensor fusion, enterprise
software solutions for plant-wide and fleet-wide inspection data
archiving and management, advanced and thick composites
inspection and ultrasonic phased array inspection of thick wall
boilers. In addition, many of the members of our team have been
instrumental in developing the testing standards followed by
international standards-setting bodies, such as the American
Society of Non-Destructive Testing and comparable associations
in other countries.
|
|
|
Collaborating with Our Customers. Our asset
protection solutions have historically been designed in response
to our customers unique performance specifications and are
supported by our proprietary technologies. Our sales and
engineering teams work closely with our customers research
and design staff during the design phase of our products in
order to incorporate our products into specified infrastructure
projects. As a result, we believe that our close, collaborative
relationships with our customers provide us a significant
competitive advantage.
|
|
|
Experienced Management Team. Our management team has
a track record of leadership in NDT, averaging over
20 years experience in the industry. These individuals also
have extensive experience in growing businesses organically and
in acquiring and integrating companies, which we believe is
important to facilitate future growth in the fragmented asset
protection industry.
|
5
Our growth
strategy
Our growth strategy emphasizes the following key elements:
|
|
|
Continue to Develop Technology-Enabled Asset Protection
Services, Products and Systems. We intend to maintain
and enhance our technological leadership by continuing to invest
in the internal development of new services, products and
systems. Our highly trained team of Ph.D.s, engineers and
highly-skilled, certified technicians have been instrumental in
developing numerous significant NDT standards, and we believe
their knowledge base will enable us to innovate a wide range of
new asset protection solutions more rapidly than our competition.
|
|
|
Increase Revenues from Our Existing Customers. Many
of our customers are multinational corporations with asset
protection requirements from multiple divisions at multiple
locations across the globe. Currently, we capture a relatively
small portion of their overall expenditures on these solutions.
We believe our superior services, products and systems, combined
with the trend of outsourcing asset protection solutions to a
small number of trusted service providers, positions us to
significantly expand both the number of divisions and locations
that we serve as well as the types of solutions we provide.
|
|
|
Add New Customers in Existing Target Markets. Our
current customer base represents a small fraction of the total
number of companies in our target markets. Our scale, scope of
products and services and expertise in creating
technology-enabled solutions have allowed us to build a
reputation for high quality and has increased customer awareness
about us and our asset protection solutions. We intend to
continue to leverage our competitive strengths to win new
business as customers in our existing target markets continue to
seek a single source and trusted provider of advanced asset
protection solutions.
|
|
|
Expand Our Customer Base into New End Markets. We
believe we have significant opportunities to rapidly expand our
customer base in relatively new end markets, including the
maritime shipping, wind turbine and other alternative energy and
natural gas transportation industries and the market for public
infrastructure, such as highways and bridges. The expansion of
our addressable markets is being driven by the increased
recognition and adoption of asset protection services, products
and systems and new NDT technologies enabling further
applications to address additional end-market needs and aging
infrastructure.
|
|
|
Continue to Capitalize on Acquisitions. We intend to
continue employing a disciplined acquisition strategy to
broaden, complement and enhance our product and service
offerings, add new customers and certified personnel, expand our
sales channels, supplement our internal development efforts and
accelerate our expected growth. We believe the market for asset
protection solutions is highly fragmented with a large number of
potential acquisition opportunities. We have a proven ability to
integrate complementary businesses, as demonstrated by the
success of our past acquisitions. We believe we have improved
the operational performance and profitability of our acquired
businesses by successfully integrating and selling our suite of
comprehensive asset protection solutions to the customers of
these acquired businesses.
|
6
Summary
risks
Before you invest in our stock, you should carefully consider
all the information in this prospectus, including matters set
forth under the heading Risk Factors. We believe
that the following are some of the major risks and uncertainties
that may affect us:
|
|
|
our business currently depends on certain significant customers
and any reduction in business with these customers would harm
our future operating results;
|
|
|
an accident or incident involving our asset protection solutions
could expose us to claims, harm our reputation and adversely
affect our ability to compete for business;
|
|
|
an ability to attract, develop and retain a sufficient number of
trained engineers, scientists and other highly skilled workers
as well as members of senior management;
|
|
|
strengths and actions of our competitors;
|
|
|
our current dependence on customers in the oil and gas industry;
|
|
|
the timing, size and integration success of potential future
acquisitions;
|
|
|
catastrophic events, including natural disasters that could
disrupt our business or the business of our customers, which
could significantly harm our operations, financial results and
cash flow; and
|
|
|
the current economic downturn.
|
Corporate
information
We were founded by former AT&T Bell Laboratories
researchers in 1978 and operated as Physical Acoustics
Corporation until December 29, 1994, when we reorganized
and began operating as Mistras Holdings Corp., a Delaware
corporation. In February 2007, we changed our name to Mistras
Group, Inc. Since inception, we have increased our asset
protection services, products and systems offerings through a
combination of organic growth and the successful integration of
acquired companies.
Our principal executive offices are located at 195 Clarksville
Road, Princeton Junction, NJ 08550, and our telephone number at
that address is
(609) 716-4000.
Our website is located at www.mistrasgroup.com.
Information on, or accessible through, our website is not a
part of, and is not incorporated into, this prospectus.
Our trademarks include
Mistrastm,
Physical Acoustics
Corporation®,
PCMS®,
Controlled Vibrations
Inc.tm,
NOESIStm,
AEwintm,
AEwinPosttm,
UTwintm,
UTIAtm,
LSTtm,
Vibra-Metricstm,
TANKPACtm,
MONPACtm,
VPACtm,
POWERPACtm
and Sensor
Highwaytm.
Other trademarks or service marks appearing in this prospectus
are the property of their respective holders.
7
The
offering
|
|
|
Us |
|
shares
of common stock |
|
Selling stockholders |
|
shares
of common stock |
|
Total |
|
shares
of common stock |
|
Over-allotment option |
|
|
|
Us |
|
shares
of common stock |
|
Selling stockholders |
|
shares
of common stock |
|
Total |
|
shares
of common stock |
|
Common stock to be outstanding after the offering |
|
shares
of common stock |
|
|
|
Use of proceeds |
|
We estimate that the net proceeds to us from this offering will
be approximately $ . We plan to use
these net proceeds for general corporate purposes, including
working capital and possible acquisitions. In addition, we
currently expect that we will use a portion of these net
proceeds to repay all or a portion of the indebtedness
outstanding under our $55.0 million secured revolving
credit facility under our credit agreement with Bank of America,
N.A., JPMorgan Chase Bank, N.A., TD Bank, N.A. and Capital One,
N.A. As of August 31, 2009, we had borrowed a total of
$40.8 million under our current credit agreement, and had
$14.2 million of availability under the $55.0 million
revolving credit facility. We will not receive any proceeds from
the sale of shares by the selling stockholders. See Use of
Proceeds. |
|
|
|
Dividend policy |
|
We currently have no plans to pay dividends on our common stock. |
|
Risk factors |
|
You should carefully read and consider the information set forth
under Risk Factors, together with all of the other
information set forth in this prospectus, before deciding to
invest in shares of our common stock. |
|
|
|
Listing |
|
We have applied to list our common stock on the New York Stock
Exchange under the symbol MG. |
Except as otherwise indicated or the context otherwise requires,
throughout this prospectus the number of shares of common stock
shown to be outstanding after this offering and other
share-related information is based on the number of shares
outstanding as
of ,
and:
|
|
|
reflects
a -for-
stock split, effected
on ;
|
|
|
reflects the conversion of all outstanding shares of our
preferred stock into an aggregate
of shares
of common stock upon the completion of this offering;
|
|
|
assumes no exercise of the underwriters over-allotment
option;
|
|
|
excludes shares
of common stock issuable upon the exercise of stock options
outstanding as
of ,
at a weighted average exercise price of
$ per share; and
|
|
|
excludes shares
of common stock reserved for future awards under the 2009
Long-Term Incentive Plan.
|
8
The following table sets forth the number of shares of common
stock to be sold by the directors and executive officers who are
selling such shares in this offering. For more information on
persons selling shares of common stock in this offering, please
see Principal and Selling Stockholders.
|
|
|
|
|
|
|
|
|
Shares being sold
|
|
|
|
in this offering
|
|
|
|
Number
|
|
|
|
|
Directors and Executive Officers
|
|
|
|
|
Sotirios J. Vahaviolos
|
|
|
|
|
Chairman, President, Chief Executive Officer and Director
|
|
|
|
|
Mark F. Carlos
|
|
|
|
|
Group Executive Vice President, Products and Systems
|
|
|
|
|
Phillip T. Cole
|
|
|
|
|
Group Executive Vice President, International
|
|
|
|
|
Michael J. Lange
|
|
|
|
|
Group Executive Vice President, Services, and Director
|
|
|
|
|
|
|
Our executive officers, directors and each person, or group of
affiliated persons, known by us to beneficially own more than
five percent of our voting securities, taken together as a
group, will own approximately % of
our outstanding common stock after this offering. For
information on the number of shares of common stock to be
received by these individuals or groups upon the conversion of
our preferred stock at the completion of this offering, please
see Certain Relationships and Related
TransactionsConversion of All Preferred Stock upon
Completion of this Offering.
9
Summary
historical consolidated financial data
The following table sets forth our summary historical
consolidated financial information and other data. The
historical statement of operations and cash flow data for fiscal
2009, 2008 and 2007 and the historical balance sheet data as of
May 31, 2009 are derived from, and should be read in
conjunction with, our audited consolidated financial statements
and related notes appearing elsewhere in this prospectus.
The information contained in this table should also be read in
conjunction with Use of Proceeds,
Capitalization, Selected Historical
Consolidated Financial Information,
Managements Discussion and Analysis of Financial
Condition and Results of Operations and the consolidated
financial statements and accompanying notes thereto, all
included elsewhere in this prospectus.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
|
|
(in thousands, except share and
per share data)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
209,133
|
|
|
$
|
152,268
|
|
|
$
|
122,241
|
|
Cost of revenues
|
|
|
131,167
|
|
|
|
90,590
|
|
|
|
75,702
|
|
Depreciation
|
|
|
8,700
|
|
|
|
6,847
|
|
|
|
4,666
|
|
|
|
|
|
|
|
Gross profit
|
|
|
69,266
|
|
|
|
54,831
|
|
|
|
41,873
|
|
Selling, general and administrative expenses
|
|
|
47,150
|
|
|
|
32,943
|
|
|
|
26,408
|
|
Research and engineering expenses
|
|
|
1,255
|
|
|
|
954
|
|
|
|
703
|
|
Depreciation and amortization
|
|
|
3,936
|
|
|
|
4,576
|
|
|
|
4,025
|
|
Legal settlement
|
|
|
2,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
14,825
|
|
|
|
16,358
|
|
|
|
10,737
|
|
Other expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
4,614
|
|
|
|
3,531
|
|
|
|
4,482
|
|
Loss on extinguishment of long-term debt
|
|
|
|
|
|
|
|
|
|
|
460
|
|
|
|
|
|
|
|
Income before provision for income taxes and minority interest
|
|
|
10,211
|
|
|
|
12,827
|
|
|
|
5,795
|
|
Provision for income taxes
|
|
|
4,558
|
|
|
|
5,380
|
|
|
|
208
|
|
|
|
|
|
|
|
Income before minority interest
|
|
|
5,653
|
|
|
|
7,447
|
|
|
|
5,587
|
|
Minority interest, net of taxes
|
|
|
(187
|
)
|
|
|
(8
|
)
|
|
|
(199
|
)
|
|
|
|
|
|
|
Net income
|
|
|
5,466
|
|
|
|
7,439
|
|
|
|
5,388
|
|
Accretion of preferred stock
|
|
|
(27,114
|
)
|
|
|
(32,872
|
)
|
|
|
(3,520
|
)
|
|
|
|
|
|
|
Net (loss) income available to common stockholders
|
|
$
|
(21,648
|
)
|
|
$
|
(25,433
|
)
|
|
$
|
1,868
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
1,000,000
|
|
|
|
1,000,000
|
|
|
|
991,348
|
|
Diluted
|
|
|
1,000,000
|
|
|
|
1,000,000
|
|
|
|
1,007,803
|
|
(Loss) earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(21.65
|
)
|
|
$
|
(25.43
|
)
|
|
$
|
1.88
|
|
Diluted
|
|
|
(21.65
|
)
|
|
|
(25.43
|
)
|
|
|
1.85
|
|
Pro forma diluted earnings per common share(1)
|
|
|
3.50
|
|
|
|
4.81
|
|
|
|
3.56
|
|
Other Financial Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
$
|
12,661
|
|
|
$
|
12,851
|
|
|
$
|
14,006
|
|
Net cash used in investing activities
|
|
|
(15,888
|
)
|
|
|
(19,446
|
)
|
|
|
(4,259
|
)
|
Net cash provided by (used in) financing activities
|
|
|
4,912
|
|
|
|
6,320
|
|
|
|
(8,122
|
)
|
EBITDA(2)
|
|
|
27,274
|
|
|
|
27,773
|
|
|
|
18,769
|
|
Adjusted EBITDA(2)
|
|
|
31,122
|
|
|
|
28,091
|
|
|
|
19,229
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
As of May 31, 2009
|
|
|
|
Actual
|
|
|
As adjusted(3)
|
|
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
5,668
|
|
|
|
|
|
Total assets
|
|
|
151,274
|
|
|
|
|
|
Total long-term debt, including current portion(4)
|
|
|
66,251
|
|
|
|
|
|
Obligations under capital leases, including current portion
|
|
|
14,525
|
|
|
|
|
|
Convertible redeemable preferred stock
|
|
|
90,983
|
|
|
|
|
|
Total stockholders (deficit) equity
|
|
|
(47,912
|
)
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Pro forma diluted earnings per
common share gives effect to the assumed conversion of our
preferred stock for all periods presented. It is computed by
dividing net income by the pro forma number of weighted average
shares outstanding used in the calculation of diluted (loss)
earnings per share, but after assuming conversion of our
preferred stock and exercise of any dilutive stock options. The
calculation for this, as well as our basic and diluted (loss)
earnings per common share, follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
|
|
(in thousands, except share and
per share data)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
Pro forma diluted earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
5,466
|
|
|
$
|
7,439
|
|
|
$
|
5,388
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding
|
|
|
1,000,000
|
|
|
|
1,000,000
|
|
|
|
991,348
|
|
Common stock equivalents of outstanding stock options
|
|
|
42,755
|
|
|
|
26,520
|
|
|
|
16,455
|
|
Common stock equivalents of conversion of preferred shares
|
|
|
519,906
|
|
|
|
519,906
|
|
|
|
503,829
|
|
|
|
|
|
|
|
Total shares
|
|
|
1,562,661
|
|
|
|
1,546,426
|
|
|
|
1,511,632
|
|
|
|
|
|
|
|
Pro forma diluted earnings per common share
|
|
$
|
3.50
|
|
|
$
|
4.81
|
|
|
$
|
3.56
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
|
|
(in thousands, except share and
per share data)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
Basic (loss) earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income available to common stockholders
|
|
$
|
(21,648
|
)
|
|
$
|
(25,433
|
)
|
|
$
|
1,868
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding
|
|
|
1,000,000
|
|
|
|
1,000,000
|
|
|
|
991,348
|
|
|
|
|
|
|
|
Basic (loss) earnings per common share
|
|
$
|
(21.65
|
)
|
|
$
|
(25.43
|
)
|
|
$
|
1.88
|
|
|
|
|
|
|
|
Diluted (loss) earnings per common share:*
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income available to common stockholders
|
|
$
|
(21,648
|
)
|
|
$
|
(25,433
|
)
|
|
$
|
1,868
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding
|
|
|
1,000,000
|
|
|
|
1,000,000
|
|
|
|
991,348
|
|
Common stock equivalents of outstanding stock options
|
|
|
|
|
|
|
|
|
|
|
16,455
|
|
|
|
|
|
|
|
Total shares
|
|
|
1,000,000
|
|
|
|
1,000,000
|
|
|
|
1,007,803
|
|
|
|
|
|
|
|
Diluted (loss) earnings per common share
|
|
$
|
(21.65
|
)
|
|
$
|
(25.43
|
)
|
|
$
|
1.85
|
|
|
|
* Excludes certain stock options and preferred shares which
would be anti-dilutive
|
|
|
|
|
(2)
|
|
EBITDA and adjusted EBITDA are
performance measures used by management that are not calculated
in accordance with U.S. generally accepted accounting principles
(GAAP). EBITDA is defined in this prospectus as net income plus:
interest expense, provision for income taxes and depreciation
and amortization. Adjusted EBITDA is defined in this prospectus
as net income plus: interest expense, provision for income
taxes, depreciation and amortization, stock-based compensation
expense and certain one-time and generally non-recurring items
(which items are described in the next paragraph and the
reconciliation table below).
|
|
|
|
Our management uses EBITDA and
adjusted EBITDA as measures of operating performance to assist
in comparing performance from period to period on a consistent
basis, as measures for planning and forecasting overall
expectations and for evaluating actual results against such
expectations and as performance evaluation metrics off which to
base executive and employee incentive compensation programs.
|
|
|
|
|
|
We believe investors and other
external users of our financial statements benefit from the
presentation of EBITDA and adjusted EBITDA in evaluating our
operating performance because they provide an additional tool to
compare our operating performance on a consistent basis by
removing the impact of certain items that management believes do
not directly reflect our core operations. For instance, EBITDA
and adjusted EBITDA generally exclude interest expense, taxes
and depreciation, amortization and non-cash stock compensation,
each of which can vary substantially from company to company
depending upon accounting methods and the book value and age of
assets, capital structure, capital investment cycles and the
method by which assets were acquired. Similarly, our adjusted
EBITDA (and not our EBITDA) for fiscal 2009 excludes the impact
of a one-time payment we made to settle a lawsuit and the
writeoff of $1.6 million in accounts receivable we expected
to collect from a customer that declared bankruptcy in fiscal
2009. These items were excluded because management believes
these events were highly unique to us in fiscal 2009. Our
adjusted EBITDA for fiscal 2009 and 2008 also excludes the
impact of stock compensation expenses, because these expenses
actually did not involve us paying or agreeing to pay any cash.
|
|
|
|
|
|
Although EBITDA and adjusted EBITDA
are widely used by investors and securities analysts in their
evaluations of companies, you should not consider them either in
isolation or as a substitute for analyzing our results as
reported under U.S. generally accepted accounting
principles (GAAP). EBITDA and adjusted EBITDA are generally
limited as analytical tools because they exclude, among other
things, the statement of operations impact of depreciation and
amortization, interest expense and the provision for income
taxes and therefore do not necessarily represent an accurate
measure of profitability, particularly in situations where a
company is highly leveraged or has a disadvantageous tax
structure. As a result, EBITDA and adjusted
|
12
|
|
|
|
|
EBITDA are of limited value in
evaluating our operating performance because (i) we use a
significant amount of capital assets and depreciation and
amortization expense is a necessary element of our costs and
ability to generate revenues; (ii) we have a significant
amount of debt and interest expense is a necessary element of
our costs and ability to generate revenues; and (iii) we
generally incur significant U.S. federal, state and foreign
income taxes each year and the provision for income taxes is a
necessary element of our costs. EBITDA and adjusted EBITDA also
do not reflect historical cash expenditures or future
requirements for capital expenditures or contractual
commitments, changes in, or cash requirements for, our working
capital needs and all non-cash income or expense items that are
reflected in our statements of cash flows. Our adjusted EBITDA
for fiscal 2009 excludes the impact of an actual cash
expenditure for the settlement of a lawsuit and an amount we
were unable to collect in fiscal 2009 due to the bankruptcy of a
customer, and our adjusted EBITDA for fiscal 2009 and 2008
excludes the impact of stock compensation expenses that reduced
our net income under GAAP. Furthermore, because EBITDA and
adjusted EBITDA are not defined under GAAP, our definitions of
EBITDA and adjusted EBITDA may differ from, and therefore may
not be comparable to, similarly titled measures used by other
companies, thereby limiting their usefulness as comparative
measures. Because of these limitations, neither EBITDA nor
adjusted EBITDA should be considered as the primary measure of
our operating performance or as a measure of discretionary cash
available to us to invest in the growth of our business. We
strongly urge you to review the GAAP financial measures included
in this prospectus, our consolidated financial statements,
including the notes thereto, and the other financial information
contained in this prospectus, and not to rely on any single
financial measure to evaluate our business.
|
|
|
|
The following table provides a
reconciliation of net income to EBITDA and adjusted EBITDA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
|
|
(in thousands)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
Net income
|
|
$
|
5,466
|
|
|
$
|
7,439
|
|
|
$
|
5,388
|
|
Interest expense
|
|
|
4,614
|
|
|
|
3,531
|
|
|
|
4,482
|
|
Provision for income taxes
|
|
|
4,558
|
|
|
|
5,380
|
|
|
|
208
|
|
Depreciation and amortization
|
|
|
12,636
|
|
|
|
11,423
|
|
|
|
8,691
|
|
|
|
|
|
|
|
EBITDA
|
|
$
|
27,274
|
|
|
$
|
27,773
|
|
|
$
|
18,769
|
|
Legal settlement
|
|
|
2,100
|
|
|
|
|
|
|
|
|
|
Large customer bankruptcy
|
|
|
1,556
|
|
|
|
|
|
|
|
|
|
Stock compensation expense
|
|
|
192
|
|
|
|
318
|
|
|
|
|
|
Loss on extinguishment of debt
|
|
|
|
|
|
|
|
|
|
|
460
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
$
|
31,122
|
|
|
$
|
28,091
|
|
|
$
|
19,229
|
|
|
|
|
|
|
(3)
|
|
The As Adjusted column is unaudited
and gives effect to:
|
|
|
|
the conversion of all outstanding shares of our preferred stock
into shares of our common stock upon the completion of this
offering and
a -for-
stock split of our common stock; and
|
|
|
the sale by us
of shares
of our common stock in this offering at the initial public
offering price of $ per share (the
midpoint of the range shown on the cover page of this
prospectus), after deducting underwriting discounts and
commissions and estimated offering expenses payable by us.
|
|
|
|
(4)
|
|
As of August 31, 2009, we had
borrowed a total of $40.8 million under our current credit
agreement, and had $14.2 million of availability under the
$55.0 million revolving credit facility.
|
13
Risk
factors
An investment in our common stock involves a high degree of
risk. You should carefully read and consider the risks described
below, together with the other information contained in this
prospectus, including our financial statements and the notes
thereto and Managements Discussion and Analysis of
Financial Condition and Results of Operations, before
making an investment decision. If any of these risks actually
occur, our business, financial condition, results of operations
and future growth prospects may be adversely affected. As a
result, the trading price of our common stock would likely
decline, and you may lose all or part of your investment.
Risks related to
our business
Our operating
results could be adversely affected by a reduction in business
with our significant customers.
We derive a significant amount of revenues from a few customers.
For instance, various divisions or business units of one of our
customers were responsible for 17.1%, 16.8% and 16.5% of our
revenues for fiscal 2009, 2008 and 2007, respectively. Taken as
a group, our top 10 customers were responsible for 35.8%, 35.2%
and 38.6% of our revenues for fiscal 2009, 2008 and 2007,
respectively. Generally, our customers do not have an obligation
to make purchases from us and may stop ordering our products and
services at any time without financial penalty. The loss of any
of our significant customers, any substantial decline in sales
to these customers or any significant change in the timing or
volume of purchases by our customers could result in lower
revenues and could harm our business, financial condition or
results of operations.
An accident or
incident involving our asset protection solutions could expose
us to claims, harm our reputation and adversely affect our
ability to compete for business and, as a result, harm our
operating performance.
We are exposed to liabilities arising out of the solutions we
provide. For instance, we furnish the results of our testing and
inspections for use by our customers in their assessment of
their assets, facilities, plants and other structures. Such
results may be incorrect or incomplete, whether as a result of
poorly designed inspections, malfunctioning testing equipment or
our employees failure to adequately test or properly
record data. For example, one of our clients claimed one of our
x-ray inspection crews had improperly recorded inspection data
about a portion of its infrastructure, requiring us to provide a
new team to inspect that infrastructure over a period of three
months at our expense. Further, if an accident or incident
involving a structure we are testing or have tested occurs and
causes personal injuries to our personnel or third parties, or
property damage, such as the collapse of a bridge or an
explosion in a plant or facility, and particularly if these
injuries or damages could have been prevented by our customers
had we provided them with correct or complete results, we may
face significant claims by injured persons or related parties
and claims relating to any property damage or loss. Even if our
results are correct and complete, we may face claims for such
injuries or damage simply because we tested the structure or
facility in question. For instance, we recently inspected a
subset of welds made in a liquid storage tank farm under
construction for a customer in order to determine if the welds
were being made in accordance with applicable regulations. The
welds we tested were specified by the contractor that made them.
Weeks after our inspections were completed a weld in a tank
cracked, resulting in the spill of hazardous material. The
14
customer made a claim on its insurer, which in turn made claims
against us, among others, for the
clean-up
costs, which in this case are not significant. Though we believe
we did not test the weld that failed, if we are unable to prove
this fact we may decide to or be compelled by a court to pay
some of the
clean-up
costs. Our insurance coverage may not be adequate to cover the
damages from any such claims, forcing us to bear these uninsured
damages directly, which could harm our operating results and may
result in additional expenses and possible loss of revenues. An
accident or incident for which we are found partially or fully
responsible, even if fully insured, may also result in negative
publicity, which would harm our reputation among our customers
and the public, cause us to lose existing and future contracts
or make it more difficult for us to compete effectively, thereby
significantly harming our operating performance. Such an
accident or incident might also make it more expensive or
impossible for us to insure against similar events in the
future. Even unsuccessful claims relating to accidents could
result in substantial costs, including litigation expenses, and
diversion of our management resources.
If we are
unable to attract and retain a sufficient number of trained
engineers, scientists and other highly-skilled technicians at
competitive wages, our operational performance may be harmed and
our costs may increase.
We believe that our success depends, in part, upon our ability
to attract, develop and retain a sufficient number of trained
engineers, scientists and other highly-skilled, certified
technicians at competitive wages. The demand for such employees
is currently high, and we project that it may increase
substantially in the future. Accordingly, we have experienced
increases in our labor costs, particularly in our Services
segment, but also, to a lesser extent, in our International
segment. Many of the companies with which we compete for
experienced personnel have comparatively greater name
recognition and resources. In addition, in making employment
decisions, job candidates often consider the value of the stock
options they are to receive in connection with their employment.
Volatility in the future market price of our stock may,
therefore, adversely affect our ability to attract or retain key
employees. Furthermore, the requirement to expense stock options
may discourage us from granting the size or type of stock option
awards that job candidates require to join our company. The
markets for our products and services also require us to field
personnel trained and certified in accordance with standards set
by domestic or international standard-setting bodies, such as
the American Society of Non-Destructive Testing. Because of the
limited supply of these certified technicians, we expend
substantial resources maintaining in-house training and
certification programs. If we fail to attract sufficient new
personnel or fail to motivate and retain our current personnel,
our ability to perform under existing contracts and orders or to
pursue new business may be harmed, causing us to lose customers
and revenues, and the costs of performing such contracts and
orders may increase, which would likely reduce our margins.
If we lose
members of our senior management team upon whom we are
dependent, we may not be able to manage our operations and
achieve our strategic objectives.
Our future success depends to a considerable degree upon the
availability, contributions, vision, skills, experience and
effort of our senior management team. We do not maintain
key person insurance on any of our employees other
than Dr. Sotirios J. Vahaviolos, our Chairman, President
and Chief Executive Officer. We currently have no employment
agreements with members of our senior management team other than
Dr. Vahaviolos. Although we may enter into employment agreements
with certain executive officers after this offering, these
agreements will likely not guarantee the services of the
individual for a specified period of time. All of the agreements
with members of our senior management team other than
Dr. Vahaviolos are expected to
15
provide that their employment is at-will and may be terminated
by either us or the employee at any time and without notice.
Although we do not have any reason to believe that we may lose
the services of any of these persons in the foreseeable future,
the loss of the services of any of these persons might impede
our operations or the achievement of our strategic and financial
objectives. The loss or interruption of the service of members
of our senior management team could harm our business, financial
condition and results of operations and could significantly
reduce our ability to manage our operations and implement our
strategy.
We operate in
highly competitive markets and if we are unable to compete
successfully, we could lose market share and
revenues.
We face strong competition from NDT and a variety of niche asset
protection providers, both larger and smaller than we are. Many
of our competitors have greater financial resources than we do
and could focus their substantial financial resources to develop
a competing business model or develop products or services that
are more attractive to potential customers than what we offer.
Some of our competitors are business units of companies
substantially larger than us and have the ability to combine
asset protection solutions into an integrated offering to
customers who already purchase other types of products or
services from them. Our competitors may offer asset protection
solutions at prices below or without cost in order to improve
their competitive positions. Any of these competitive factors
could make it more difficult for us to attract and retain
customers, cause us to lower our prices in order to compete and
reduce our market share and revenues, any of which could have a
material adverse effect on our financial condition and results
of operations.
Due to our
dependency on customers in the oil and gas industry, we are
susceptible to prolonged negative trends relating to this
industry that could adversely affect our operating
results.
Our customers in the oil and gas industry (including the
petrochemical market) have accounted for a substantial portion
of our historical revenues. Specifically, they accounted for
approximately 58%, 50% and 52% of our revenues for fiscal 2009,
2008 and 2007, respectively. We continue to diversify our
customer base into industries other than the oil and gas
industry, but we may not be successful in doing so. If the oil
and gas industry were to suffer a prolonged or significant
downturn, our operating performance may be significantly harmed.
Our growth
strategy includes acquisitions. We may not be able to identify
suitable acquisition candidates or integrate acquired businesses
successfully, which may inhibit our rate of growth, and any
acquisitions that we do complete may expose us to a number of
unanticipated operational and financial risks.
Our historical growth has depended, and our future growth is
likely to continue to depend, to a certain extent, on our
ability to make acquisitions and successfully integrate acquired
businesses. We intend to continue to seek additional acquisition
opportunities, both to expand into new markets and to enhance
our position in existing markets globally. We may not be able to
successfully identify suitable candidates, negotiate appropriate
acquisition terms, obtain necessary financing on acceptable
terms, complete proposed acquisitions, successfully integrate
acquired businesses into our current operations or expand into
new markets. Once integrated,
16
acquired operations may not achieve levels of revenues,
profitability or productivity comparable with those achieved by
our current operations, or otherwise perform as expected.
Some of the risks associated with our acquisition strategy
include:
|
|
|
unexpected loss of key personnel and customers of the acquired
company;
|
|
|
making the acquired companys financial and accounting
standards consistent with our standards;
|
|
|
assumption of liability for risks and exposures (including
environmental-related costs), some of which we may not discover
during our due diligence; and
|
|
|
potential disruption of our ongoing business and distraction of
management.
|
Our ability to undertake acquisitions is limited by covenants in
our credit agreement and our financial resources, including
available cash and borrowing capacity. Future acquisitions could
result in potentially dilutive issuances of equity securities,
the incurrence of substantial additional indebtedness and other
expenses, impairment expenses related to goodwill and impairment
or amortization expenses related to other intangible assets, any
of which could harm our financial condition and results of
operations. Although management intends to evaluate the risks
inherent in any particular transaction, there are no assurances
that we will properly ascertain all such risks. Difficulties
encountered with acquisitions may harm our business, financial
condition and results of operations.
Catastrophic
events, such as natural disasters, epidemics, war and acts of
terrorism, could disrupt our business or the business of our
customers, which could significantly harm our operations,
financial results and cash flow.
Our operations and those of our customers are susceptible to the
occurrence of catastrophic events outside our control, ranging
from severe weather conditions to acts of war and terrorism. Any
such events could cause a serious business disruption that
reduces our customers ability to or interest in purchasing
our asset protection solutions, and have in the past resulted in
order cancellations and delays because customer equipment,
facilities or operations have been damaged, or are not
operational or available. For instance, order cancellations and
delays due to Hurricane Ike adversely affected our revenues in
fiscal 2009. Additionally, such events have resulted and may in
the future result in substantial delays in the provision of
solutions to our customers and the loss of valuable equipment.
Any cancellations, delays or losses due to a catastrophic event
may significantly reduce our revenues and harm our operating
performance.
We face risks
related to the current economic downturn.
The global economy is currently in a pronounced economic
downturn. Global financial markets are continuing to experience
disruptions, including severely diminished liquidity and credit
availability, declines in consumer confidence, declines in
economic growth, increases in unemployment rates, volatility in
interest and currency exchange rates and overall uncertainty
about economic stability. There may be further deterioration and
volatility in the global economy, the global financial markets
and consumer confidence. We are unable to predict the likely
duration and severity of the current global economic downturn or
disruptions in the financial markets. The downturn has already
resulted in some of our customers canceling and delaying orders
for our solutions, as well as some customers delaying payment
for items billed, which reduced our
17
gross margins and operating income in fiscal 2009. Some of our
customers have also recently requested price concessions. In
addition, current economic conditions have resulted in the
reduced creditworthiness, inability to obtain sufficient
financing, and bankruptcies of certain customers, increasing our
exposure to bad debt. For instance, in fiscal 2009, one of our
larger customers filed for bankruptcy due to a downturn in the
chemical industry combined with its own highly leveraged
position. If economic conditions deteriorate further, our
business, financial condition and results of operations could be
significantly harmed. Although we believe we have adequate
liquidity and capital resources to fund our operations as
planned, in light of current market conditions, our inability to
access the capital markets on favorable terms, or at all, may
harm our financial performance. The inability to obtain adequate
financing from debt or capital sources could force us to
self-fund strategic initiatives or even forgo certain
opportunities, which in turn could potentially harm our
performance.
We expect to
continue expanding and investing in our sales and marketing,
operations, engineering, research and development capabilities
and financial and reporting systems and, as a result, may
encounter difficulties in managing our growth, which could
disrupt our operations.
We expect to experience significant growth in the number of our
employees and the scope of our operations. To effectively manage
our anticipated future growth, we must continue to implement and
improve our managerial, operational, financial and reporting
systems, expand our facilities and continue to recruit and train
additional qualified personnel. We expect that all of these
measures will require significant expenditures and will demand
the attention of management. We may not be able to effectively
manage the expansion of our operations or recruit and adequately
train additional qualified personnel. Failure to manage our
growth effectively could lead us to over or under-invest in
technology and operations, result in weaknesses in our
infrastructure, systems or controls, give rise to operational
mistakes, loss of business opportunities, the loss of employees
and reduced productivity among remaining employees. Our expected
growth could require significant capital expenditures and may
divert financial resources from other projects, such as the
development of new solutions. If our management is unable to
effectively manage our expected growth, our expenses may
increase more than expected, our revenues could decline or may
grow more slowly than expected and we may be unable to implement
our business strategy.
The success of
our businesses depends, in part, on our ability to develop new
asset protection solutions and increase the functionality of our
current offerings.
The market for asset protection solutions is impacted by
technological change, uncertain product lifecycles, shifts in
customer demands and evolving industry standards and
regulations. We may not be able to successfully develop and
market new asset protection solutions that comply with present
or emerging industry regulations and technology standards. Also,
new regulations or technology standards could increase our cost
of doing business.
From time to time, our customers have requested greater
functionality in our solutions. As part of our strategy to
enhance our asset protection solutions and grow our business, we
plan to continue making substantial investments in the research
and development of new technologies. We believe our future
success will depend, in part, on our ability to continue to
design new, competitive asset protection solutions, enhance our
current solutions and provide new, value-added services.
Developing new solutions will require continued investment, and
we may experience unforeseen technological or operational
challenges. In addition, our asset protection
18
software is complex and can be expensive to develop, and new
software and software enhancements can require long development
and testing periods. If we are unable to develop new asset
protection solutions or enhancements to our current offerings,
or if the market does not accept such solutions, we will likely
lose opportunities to realize revenues and customers and our
business and results of operations will be adversely affected.
If our
software produces inaccurate information or is incompatible with
the systems used by our customers and makes us unable to
successfully provide our solutions, it could lead to a loss of
revenues and customers.
Our software is complex and, accordingly, may contain undetected
errors or failures. Software defects or inaccurate data may
cause incorrect recording, reporting or display of information
related to our asset protection solutions. Any such failures,
defects and inaccurate data may prevent us from successfully
providing our asset protection solutions, which would result in
lost revenues. Software defects or inaccurate data may lead to
customer dissatisfaction and our customers may seek to hold us
liable for any damages incurred. As a result, we could lose
customers, our reputation may be harmed and our financial
condition and results of operations would be materially
adversely affected.
We currently serve a commercial, industrial and governmental
customer base that uses a wide variety of constantly changing
hardware, software solutions and operating systems. Our asset
protection solutions need to interface with these non-standard
systems in order to gather and assess data. Our business depends
on the following factors, among others:
|
|
|
our ability to integrate our technology with new and existing
hardware and software systems;
|
|
|
our ability to anticipate and support new standards, especially
Internet-based standards; and
|
|
|
our ability to integrate additional software modules under
development with our existing technology and operational
processes.
|
If we are unable to adequately address any of these factors, our
results of operations and prospects for growth and profitability
would be harmed.
If we fail to
successfully educate current and potential customers regarding
the benefits of our asset protection solutions or the market for
these solutions otherwise fails to develop, our ability to grow
our business could be adversely impacted.
Our future success depends on continued and growing commercial
acceptance of our asset protection solutions and our ability to
obtain additional contracts. We anticipate that revenues related
to our asset protection solutions will constitute a substantial
portion of our revenues for the foreseeable future. If we are
unable to educate our potential customers about the advantages
our solutions have over competing products and services, or our
current customers stop purchasing our asset protection
solutions, our operating results could be significantly harmed.
In addition, because the asset protection solutions industry is
rapidly evolving, we could lose insight into trends that may be
emerging, which would further harm our competitive position by
making it difficult to predict and respond to customer needs. If
the market for our asset protection solutions does not continue
to develop, our ability to grow our business would be limited
and we might not be able to maintain profitability.
19
Our results of
operations could be harmed if our operating expenses do not
correspond with the timing of our revenues.
Most of our operating expenses, such as employee compensation
and property rental expense, are relatively fixed over the
short-term. Moreover, our spending levels are based in part on
our expectations regarding future revenues. As a result, if
revenues for a particular quarter are below expectations, we
would not be able to proportionately reduce operating expenses
for that quarter without a substantial disruption to our
business. This shortfall in revenues could adversely affect our
operating results for that quarter and could cause the market
price of our common stock to decline substantially.
The seasonal
nature of our business reduces our revenues in our first and
third fiscal quarters.
Our business is seasonal. Our first and third fiscal quarter
revenues are typically lower than our revenues in the second and
fourth fiscal quarters because demand for our asset protection
solutions from the oil and gas as well as the fossil and nuclear
power industries increases during their non-peak production
periods. For instance, U.S. refineries non-peak
periods are generally in our second fiscal quarter, when they
are retooling to produce more heating oil for winter, and in our
fourth fiscal quarter, when they are retooling to produce more
gasoline for summer. As a result of these trends, we generally
have reduced cash flows in our second and fourth fiscal
quarters, which may require us to borrow under our credit
agreement or otherwise, to discontinue planned operations, or to
curtail our operations. We expect that the negative impact of
seasonality on our first and third fiscal quarter revenues and
second and fourth fiscal quarter cash flows will continue.
Growth in
revenues from our Services segment or traditional NDT services
relative to revenues from our Products and Systems and
International segments, may reduce our overall gross profit
margin.
Our gross profit margin on revenues from our Services segment
has historically been lower than our gross profit margin on
revenues from our other segments because our services have
higher labor-related costs. For instance, the gross profit
margin in our Services segment for fiscal 2009 was 28.9%, while
our gross profit margin in our Products and Systems segment and
in our International segment was 49.0% and 43.2%, respectively.
Our overall gross profit margin was 33.1% during the same
period. Moreover, our gross profit margin on traditional NDT
services has historically been lower than our gross profit
margin in our Services segment as a whole. As a result, we
expect our overall gross profit margin will be lower in periods
when revenues from our services, and particularly from
traditional NDT services, has increased as a percentage of total
revenues and will be higher in periods when revenues from our
International or Products and Systems segments has increased as
a percentage of total revenues. Fluctuations in our gross profit
margin may affect our level of profitability in any period,
which may negatively affect the price of our common stock.
We have
identified two significant deficiencies in our internal controls
over financial reporting.
In connection with the audit of our financial results for fiscal
2009, we and our independent registered accounting firm reported
to our audit committee two significant deficiencies concerning
the substantial number of our internal control processes that
are still being formalized or are manual in nature and the
design of certain controls related to the financial statement
closing process. These processes, at times, require significant
effort to execute and, therefore,
20
generally may not provide a sustainable platform for an
effective and efficient financial statement closing process. A
significant deficiency is a deficiency, or a combination of
deficiencies, in internal control over financial reporting that
is less severe than a material weakness, yet important enough to
merit attention by those responsible for oversight of the
registrants financial reporting. If we are unable to
remedy these significant deficiencies, or if we discover other
significant deficiencies in the future, then we may not be able
to provide reasonable assurance regarding the reliability of our
financial statements, which could have an adverse effect on our
business or operating results.
Our business
is currently subject to governmental regulation, and may become
subject to modified or new government regulation that may
negatively impact our ability to market our asset protection
solutions.
We incur substantial costs in complying with various government
regulations and licensing requirements. For example, the
transportation and overnight storage of radioactive materials
used in providing certain of our asset protection solutions is
subject to regulation under federal and state laws and licensing
requirements. Our Services segment is currently licensed to
handle radioactive materials by the U.S. Nuclear Regulatory
Commission (NRC) and 18 state regulatory agencies. If we
allegedly fail to comply with these regulations, we may be
investigated and incur significant legal expenses associated
with such investigations, and if we are found to have violated
these regulations, we may be fined or lose one or more of our
licenses to perform further projects. While we are investigated,
we may be required to suspend work on the projects associated
with our alleged noncompliance, resulting in loss of profits or
customers, and damage to our reputation. For instance, in
January, 2007, we were investigated due to an incident involving
radiation exposure resulting from the misconduct of one of our
employees. As a result, our customer required us to briefly
suspend work on the associated project. We were found to have
violated regulations governing the handling of radioactive
materials, and as a result we incurred significant legal
expenses. A more serious violation could result in lost profits
and damage to our reputation. Many of our customers have strict
requirements concerning safety or loss time occurrences. In the
future, federal, state, provincial or local governmental
agencies may seek to change current regulations or impose
additional regulations on our business. Any modified or new
government regulation applicable to our current or future asset
protection solutions may negatively impact the marketing and
provision of those solutions and increase our costs and the
price of our solutions.
A significant
stockholder controls the direction of our business. The
concentrated ownership of our common stock may prevent you and
other stockholders from influencing significant corporate
decisions.
Dr. Sotirios J. Vahaviolos, our Chairman, President and
Chief Executive Officer, will own
approximately % of our outstanding
common stock after this offering. As a result,
Dr. Vahaviolos will have the ability to exert substantial
influence over all matters requiring approval by our
stockholders, including the election and removal of directors,
amendments to our certificate of incorporation, and any proposed
merger, consolidation or sale of all or substantially all of our
assets and other corporate transactions. This concentration of
ownership could be disadvantageous to other stockholders with
differing interests from Dr. Vahaviolos.
21
An inability
to protect our intellectual property could negatively affect our
business and results of operations.
Our ability to compete effectively depends in part upon the
maintenance and protection of the intellectual property related
to our asset protection solutions. Patent protection is
unavailable for certain aspects of the technology and
operational processes important to our business. Any patent held
by us or to be issued to us, or any of our pending patent
applications, could be unenforceable, challenged, invalidated or
circumvented. Some of our trademarks that are not in use may
become available to others. To date, we have relied principally
on copyright, trademark and trade secrecy laws, as well as
confidentiality agreements and licensing arrangements, to
establish and protect our intellectual property. However, we
have not obtained confidentiality agreements from all of our
customers and vendors, and although we have entered into
confidentiality agreements with all of our employees in our
Products and Systems segment and certain of our other employees
involved in the development of our intellectual property, we
cannot be certain that these agreements will be honored or
enforceable. Some of our confidentiality agreements are not in
writing, and some customers are subject to laws and regulations
that require them to disclose information that we would
otherwise seek to keep confidential. Although we do not transfer
ownership of some of our more advanced asset protection products
and systems and, instead, sell to our customers services using
these products and systems, in part, in an effort to protect the
intellectual property upon which they are based, this strategy
may not be successful and our customers or third parties may
reverse engineer or otherwise derive this intellectual property
and use it without our authorization. Policing unauthorized use
of our intellectual property is difficult and expensive. The
steps that we have taken or may take might not prevent
misappropriation of the intellectual property on which we rely.
In addition, effective protection may be unavailable or limited
in jurisdictions outside the United States, as the intellectual
property laws of foreign countries sometimes offer less
protection or have onerous filing requirements. From time to
time, third parties may infringe our intellectual property
rights. Litigation may be necessary to enforce or protect our
rights or to determine the validity and scope of the rights of
others. Any litigation could be unsuccessful, cause us to incur
substantial costs, divert resources away from our daily
operations and result in the impairment of our intellectual
property. Failure to adequately enforce our rights could cause
us to lose valuable rights in our intellectual property and may
negatively affect our business.
We may be
subject to damaging and disruptive intellectual property
litigation related to allegations that our asset protection
solutions infringe on the intellectual property of others, which
could prevent us from offering those solutions.
Third-party patent applications and patents may be applicable to
our asset protection solutions. As a result, third parties may
in the future make infringement and other allegations that could
subject us to intellectual property litigation relating to our
solutions. Such litigation would be time consuming and
expensive, divert attention and resources away from our daily
operations, impede or prevent delivery of our solutions and
require us to pay significant royalties, licensing fees and
damages. In addition, parties making infringement and other
claims may be able to obtain injunctive or other equitable
relief that could effectively block our ability to provide our
solutions and could cause us to pay substantial damages. In the
event of a successful claim of infringement, we may need to seek
one or more licenses from third parties in order to continue to
offer the related solution, which may not be available at a
reasonable cost, or at all. For example, in 2004 a competitor
brought a patent infringement lawsuit against us based on our
use of certain sensor technology in our inspection of a bridge.
We incurred approximately $0.6
22
million in expenses to defend against and settle this lawsuit,
and to enter into a license to use this technology. Under this
license agreement, we have paid the competitor immaterial
amounts for fees and royalties for use of the technology, which
we no longer use in our business.
We may require
additional capital to support business growth, which might not
be available.
We intend to continue making investments to support our business
growth and may require additional funds to respond to business
challenges or opportunities, including the need to develop new,
or enhance our current, asset protection solutions, enhance our
operating infrastructure or acquire complementary businesses and
technologies. Accordingly, we may need to engage in equity or
debt financings to secure additional funds. If we raise
additional funds through further issuances of equity or
convertible debt securities, our current stockholders, including
investors in this offering, could suffer significant dilution,
and any new equity securities we issue could have rights,
preferences and privileges superior to those of holders of our
common stock. Any debt financing secured by us in the future
could involve restrictive covenants relating to our
capital-raising activities and other financial and operational
matters, which may make it more difficult for us to obtain
additional capital and to pursue business opportunities,
including potential acquisitions. In addition, we may not be
able to obtain additional financing on terms favorable to us, if
at all. If we are unable to obtain adequate financing or
financing on terms satisfactory to us when we require it, our
ability to continue to support our business growth and to
respond to business challenges could be significantly limited.
Our credit
agreement contains financial and operating restrictions that may
limit our access to credit. If we fail to comply with financial
or other covenants in our credit agreement, we may be required
to repay indebtedness to our existing lenders, which may harm
our liquidity.
Provisions in our credit agreement with Bank of America, N.A.,
JPMorgan Chase Bank, N.A., TD Bank, N.A. and Capital One, N.A.
impose restrictions on our ability to, among other things:
|
|
|
create liens;
|
|
make investments;
|
|
incur more debt;
|
|
merge or consolidate;
|
|
make dispositions of property;
|
|
pay dividends and make distributions;
|
|
enter into a new line of business;
|
|
enter into transactions with affiliates; and
|
|
enter into burdensome agreements.
|
Our credit agreement also contains financial covenants that
require us to maintain compliance with specified financial
ratios. As of May 31, 2009 we were not in compliance with
certain covenants in our former credit agreement limiting our
incurrence of certain indebtedness and requiring us to maintain
a certain debt service coverage ratio, and we may not be able to
comply with such covenants in the future. Although this prior
noncompliance with these covenants was waived by our lenders,
our failure to comply with these covenants in the future may
result in the declaration of an event of default, which could
prevent us from borrowing under our credit agreement. In
addition to preventing additional borrowings under our credit
agreement, an event of default, if not cured or waived, may
result in the acceleration of the maturity of indebtedness
outstanding under the agreement, which would require us to pay
all
23
amounts outstanding and, in addition, our lenders may require us
to cash collateralize letters of credit issued thereunder. If an
event of default occurs, we may not be able to cure it within
any applicable cure period, if at all. If the maturity of our
indebtedness is accelerated, we then may not have sufficient
funds available for repayment or the ability to borrow or obtain
sufficient funds to replace the accelerated indebtedness on
terms acceptable to us, or at all.
We may become
subject to commercial disputes or product liability claims, that
could harm our business by distracting our management from the
operation of our business, by increasing our expenses and, if we
do not prevail, by subjecting us to potential monetary damages
and other remedies.
We face potential liability for, among other things, contract,
negligence and product liability claims related to our provision
of asset protection solutions. For instance, our customers may
assert that we have failed to perform under our agreements with
them, or our customers or third parties may claim damages
arising out of misuse of our products, the malfunctioning of our
products due to design or manufacturing flaws, or the use of our
products with components or systems not manufactured or sold by
us. We currently do not carry product liability insurance and we
may not have sufficient resources to satisfy any liability
resulting from product liability or other claims. Any of these
claims or disputes could result in monetary damages and
equitable or other remedies that could harm our financial
position or operations. Even if we prevail in or settle these
claims or disputes, they may distract our management from
operating our business and the cost of defending or settling
them could harm our operating results, financial position and
cash flows.
We rely on a
limited number of suppliers to provide us radioisotopes and a
material interruption in supply could prevent or limit our
ability to fill orders for our products.
We depend upon a limited number of third-party suppliers for the
radioisotopes we use to provide certain advanced asset
protection solutions. Our principal suppliers are Industrial
Nuclear Company, QSA Global Inc. and Source
Production & Equipment Co., Inc. We also utilize other
commercial isotope manufacturers located in the United States
and overseas. To date, we have been able to obtain the required
radioisotopes for our asset protection solutions without any
significant delays or interruptions. If we lose any of these
suppliers, we may be required to find and enter into supply
arrangements with one or more replacement suppliers. Obtaining
alternative sources of supply could involve significant delays
and other costs and these supply sources may not be available to
us on reasonable terms or at all. Any disruption of supplies
could delay delivery of our products that use radioisotopes,
which could adversely affect our business and financial results
and result in lost or deferred sales.
Our sales
cycles can be lengthy, unpredictable and require significant
employee time and financial resources with no assurances that we
will realize revenues.
Our sales cycles are often long and unpredictable. Many of our
current and potential customers have extended budgeting and
procurement processes. We believe that they also tend to be risk
averse and follow industry trends rather than be the first to
purchase new products or services, which can extend the lead
time for or prevent acceptance of new products or services.
Accordingly, they may take longer to reach a decision to
purchase our solutions. This extended sales process, which often
lasts between three and six months, requires the dedication of
significant time and financial resources, with no certainty of
success or recovery of our related
24
expenses. It is not unusual for our current and potential
customers to go through the entire sales process and not make
any purchases.
Any real or
perceived internal or external electronic security breaches in
connection with the use of our asset protection solutions could
harm our reputation, inhibit market acceptance of our solutions
and cause us to lose customers.
We and our customers use our asset protection solutions to
compile and analyze sensitive or confidential customer-related
information. In addition, some of our asset protection solutions
allow us to remotely control equipment at commercial,
institutional and industrial locations. Our asset protection
solutions rely on the secure electronic transmission of
proprietary data over the Internet or other networks.
Well-publicized compromises of Internet security could have the
effect of substantially reducing confidence in the Internet as a
medium of data transmission. The occurrence or perception of
security breaches in connection with our asset protection
solutions or our customers concerns about Internet
security or the security of our solutions, whether warranted or
not, would likely harm our reputation or business, inhibit
market acceptance of our asset protection solutions and cause us
to lose customers, any of which would harm our financial
condition and results of operations.
We may come into contact with sensitive consumer information or
data when we perform installation, maintenance or testing
functions for our customers. Even the perception that we have
improperly handled sensitive, confidential information would
have a negative effect on our business. If, in handling this
information, we fail to comply with privacy or security laws, we
could incur civil liability to government agencies, customers
and individuals whose privacy is compromised. In addition, third
parties may attempt to breach our security or inappropriately
harm our asset protection solutions through computer viruses,
electronic break-ins and other disruptions. If a breach is
successful, confidential information may be improperly obtained,
for which we may be subject to lawsuits and other liabilities.
Our
international operations are subject to risks relating to
non-U.S.
operations.
In fiscal 2009, 2008 and 2007, we generated approximately 22%,
22% and 25% respectively, of our revenues outside the United
States and we expect to increase our international presence over
time. Our primary operations outside the United States are in
Europe, Asia, Canada and South America. There are numerous risks
inherent in doing business in international markets, including:
|
|
|
fluctuations in interest rates and currency exchange rates,
including the relatively weak position of the U.S. dollar;
|
|
|
varying regional and geopolitical business conditions and
demands;
|
|
|
compliance with applicable foreign regulations and licensing
requirements, and U.S. regulation with respect to our
business in other countries;
|
|
|
the cost and uncertainty of obtaining data and creating
solutions that are relevant to particular geographic markets;
|
|
|
the need to provide sufficient levels of technical support in
different locations;
|
|
|
the complexity of maintaining effective policies and procedures
in locations around the world;
|
25
|
|
|
the risks of divergent business expectations or difficulties in
establishing joint ventures with foreign partners;
|
|
|
political instability and civil unrest;
|
|
|
restrictions or limitations on outsourcing contracts or services
abroad;
|
|
|
restrictions or limitations on the repatriation of
funds; and
|
|
|
potentially adverse tax consequences.
|
We are expanding our sales and marketing efforts in certain
emerging markets, such as Brazil, Russia, India and China.
Expanding our business into emerging markets may present
additional risks beyond those associated with more developed
international markets. For example, in China and Russia, we may
encounter risks associated with the ongoing transition from
state business ownership to privatization. In any emerging
market, we may face the risks of working in cash-based
economies, dealing with inconsistent government policies and
encountering sudden currency revaluations.
We rely on
certification of our NDT solutions by industry standards-setting
bodies.
We currently have International Organization for Standardization
(ISO)
9001-2000
certifications for each of Mistras Services, Physical Acoustics
Corporation (PAC), Physical Acoustics Limited, and
Envirocoustics S.A. and we have ISO 14001:2004 certification for
Mistras Services and Physical Acoustics South America. Physical
Acoustics South America also has a OHSAS 18001 certification. In
addition, we currently have Nadcap (formerly National Aerospace
and Defense Contractors Accreditation Program) certification for
four of our locations in Auburn, Massachusetts; Springfield,
Massachusetts; Heath, Ohio; and Kent, Washington. We continually
review our NDT solutions for compliance with the requirements of
industry specification standards and the Nadcap special
processes quality requirements. However, if we fail to maintain
our ISO or Nadcap certifications, our business may be harmed
because our customers generally require that we have ISO and
Nadcap certification before they purchase our NDT solutions.
Risks related to
our common stock and this offering
We expect our
quarterly revenues and operating results to fluctuate. If we
fail to meet the expectations of market analysts or investors,
the market price of our common stock could decline
substantially.
Our quarterly operating results have fluctuated in the past and
are expected to do so in the future. Accordingly, we believe
that period-to-period comparisons of our results of operations
may be misleading. You should not rely upon the results of one
quarter as an indication of future performance. Our revenues and
operating results may fall below the expectations of securities
analysts or investors in any future period. Our failure to meet
these expectations would likely cause the market price of our
common stock to decline, perhaps substantially.
Our quarterly revenues and operating results may vary depending
on a number of factors, including:
|
|
|
revenue volume during the period;
|
|
|
demand for and acceptance of our asset protection solutions;
|
26
|
|
|
delays in the implementation and delivery of our asset
protection solutions, which may impact the timing of our
recognition of revenues;
|
|
|
delays or reductions in spending for asset protection solutions
by our customers and potential customers;
|
|
|
the long lead time associated with securing new customer
contracts;
|
|
|
the termination of existing customer contracts;
|
|
|
development of new relationships and maintenance and enhancement
of existing relationships with customers and strategic partners;
|
|
|
changes in pricing for asset protection solutions;
|
|
|
effects of recent acquisitions;
|
|
|
fluctuations in currency exchange rates;
|
|
|
changes in the price or availability of materials used in our
services; and
|
|
|
increased expenditures for sales and marketing, software
development and other corporate activities.
|
We currently
have no plans to pay dividends on our common
stock.
We have not declared or paid any cash dividends on our common
stock to date, and we do not anticipate declaring or paying any
dividends on our common stock in the foreseeable future. We
currently intend to retain all available funds and any future
earnings for use in the development, operation and growth of our
business. In addition, our credit agreement prohibits us from
paying dividends and future loan agreements may also prohibit
the payment of dividends. Any future determination relating to
our dividend policy will be at the discretion of our board of
directors and will depend on our results of operations,
financial condition, capital requirements, business
opportunities, contractual restrictions and other factors deemed
relevant. To the extent we do not pay dividends on our common
stock, investors must look solely to stock appreciation for a
return on their investment.
There is no
existing market for our common stock, and a trading market that
will provide you with adequate liquidity may not develop. The
price of our common stock may fluctuate significantly, and you
could lose all or part of your investment.
Prior to this offering, there has been no public market for our
common stock. We cannot predict the extent to which investor
interest will lead to the development of an active and liquid
trading market in our common stock on the New York Stock
Exchange or otherwise. If an active and liquid trading market
does not develop, you may have difficulty selling any of our
common stock.
The initial public offering price for the shares will be
determined by negotiations between us and the representatives of
the underwriters and may not be indicative of the market price
of the common stock on the New York Stock Exchange after the
offering. The market price of our common stock may decline below
the initial public offering price. The market price of our
27
common stock may also be influenced by many factors, some of
which are beyond our control, including:
|
|
|
our quarterly or annual earnings or those of other companies in
our industry;
|
|
|
announcements by us or our competitors of significant contracts
or acquisitions;
|
|
|
changes in accounting standards, policies, guidance,
interpretations or principles;
|
|
|
general economic and stock market conditions;
|
|
|
the failure of securities analysts to cover our common stock
after this offering or changes in financial estimates by
analysts;
|
|
|
future sales of our common stock; and
|
|
|
the other factors described in this Risk Factors section.
|
The stock markets have generally experienced extreme price and
volume fluctuations. This volatility has had a significant
impact on the market price of securities issued by many
companies, including those in our industry. These changes
frequently appear to occur without regard to the operating
performance of these companies. The price of our common stock
could fluctuate for reasons that have little or nothing to do
with our company, and these fluctuations could materially reduce
our stock price.
In the past, some companies that have had volatile market prices
for their securities have been subject to class action or
derivative lawsuits. The filing of a lawsuit against us,
regardless of the outcome, could have a material adverse effect
on our business, financial condition and results of operations,
as it could result in substantial legal costs and a diversion of
our managements attention and resources.
Shares
eligible for future sale may cause the market price for our
common stock to decline even if our business is doing
well.
Future sales by us or by our existing stockholders of
substantial amounts of our common stock in the public market, or
the perception that these sales may occur, could cause the
market price of our common stock to decline. This could also
impair our ability to raise additional capital in the future
through the sale of our equity securities. Under our second
amended and restated certificate of incorporation that will be
in effect upon the completion of this offering, we are
authorized to issue up
to shares
of common stock, of
which shares
of common stock will be outstanding following this offering. Of
these shares, the shares of common stock sold in this offering
will be freely transferable without restriction or further
registration under the Securities Act of 1933, as amended
(Securities Act), by persons other than affiliates,
as that term is defined in Rule 144 under the Securities
Act. In
addition, shares
of common stock will become freely tradeable immediately upon
the termination of the
lock-up
agreements described below and an
additional shares
of common stock will become freely tradeable thereafter,
assuming no exercise of any outstanding warrants or options as
of .
Certain of our stockholders will be able to cause us to register
common stock that they own under the Securities Act pursuant to
registration rights that are described in Certain
Relationships and Related TransactionsRegistration
Rights. We also intend to register all shares of common
stock that we may issue under our 2009 Long-Term Incentive Plan.
28
Our executive officers and directors and certain of our
stockholders have entered into
lock-up
agreements described under the caption Underwriting,
pursuant to which they have agreed, subject to certain
exceptions and extensions, not to sell or transfer, directly or
indirectly, any shares of our common stock for a period of
180 days from the date of this prospectus or to exercise
registration rights during such period with respect to such
shares. However, after the
lock-up
period expires, or if the
lock-up
restrictions are waived by the representatives, such persons
will be able to sell their shares and exercise registration
rights to cause them to be registered. We cannot predict the
size of future issuances of our common stock or the effect, if
any, that future sales and issuances of shares of our common
stock, or the perception of such sales or issuances, would have
on the market price of our common stock.
We have not
determined any specific use for a significant portion of the
proceeds from this offering and we may use the proceeds in ways
with which you may not agree.
Our management will have considerable discretion in the
application of the net proceeds received by us. You will not
have the opportunity, as part of your investment decision, to
assess whether the proceeds are being used appropriately. You
must rely on the judgment of our management regarding the
application of the net proceeds of this offering. The net
proceeds may be used for corporate purposes that may not improve
our financial condition and results of operations or increase
our stock price.
Purchasers of
common stock will experience immediate and substantial
dilution.
Based on the initial public offering price of
$ per share (the midpoint of the
price range shown on the cover page of this prospectus),
purchasers of our common stock in this offering will experience
an immediate and substantial dilution in the net tangible book
value per share of common stock of
$ per share from the offering
price. Investors purchasing common stock in this offering will
contribute approximately % of the
total amount invested by stockholders since inception, but will
only own approximately % of the
shares of common stock outstanding. In addition, following this
offering we will also have a significant number of outstanding
warrants and options to purchase our common stock, with the
options having exercise prices significantly below the initial
public offering price of our common stock. You will incur
further dilution if outstanding options or warrants to purchase
common stock are exercised. In addition, our second amended and
restated certificate of incorporation that will be in effect
upon the completion of this offering allows us to issue
significant numbers of additional shares, including shares that
may be issued under our 2009 Long-Term Incentive Plan, which
could result in further dilution to purchasers of our common
stock in this offering.
Provisions of
our charter, bylaws and of Delaware law, as well as some of our
employment arrangements, could discourage, delay or prevent a
change of control of our company, which may adversely affect the
market price of our common stock.
Certain provisions of our second amended and restated
certificate of incorporation and amended and restated bylaws
that will be in effect upon the completion of this offering
could discourage, delay or prevent a merger, acquisition, or
other change of control that stockholders may consider
favorable, including transactions in which you might otherwise
receive a premium for your shares. These provisions also could
limit the price that investors might be willing to pay in the
future for shares of our common stock, thereby depressing the
market price of our common stock. Stockholders who wish to
participate in these transactions may not have the
29
opportunity to do so. Furthermore, these provisions could
prevent or frustrate attempts by our stockholders to replace or
remove our management. These provisions:
|
|
|
allow the authorized number of directors to be changed only by
resolution of our board of directors;
|
|
|
require that vacancies on the board of directors, including
newly created directorships, be filled only by a majority vote
of directors then in office;
|
|
|
authorize our board of directors to issue, without stockholder
approval, preferred stock that, if issued, could operate as a
poison pill to dilute the stock ownership of a
potential hostile acquiror to prevent an acquisition that is not
approved by our board of directors;
|
|
|
require that stockholder actions must be effected at a duly
called stockholder meeting by prohibiting stockholder action by
written consent;
|
|
|
prohibit cumulative voting in the election of directors, which
would otherwise allow holders of less than a plurality of stock
to elect some directors; and
|
|
|
establish advance notice requirements for stockholder
nominations to our board of directors or for stockholder
proposals that can be acted on at stockholder meetings and limit
the right to call special meetings of stockholders to the
Chairman of the Board, the Chief Executive Officer, the board of
directors acting pursuant to a resolution adopted by a majority
of directors or the Secretary upon the written request of
stockholders entitled to cast not less than 35% of all the votes
entitled to be cast at such meeting.
|
Some of our employment arrangements and stock option agreements
provide for severance payments and accelerated vesting of
benefits, including accelerated vesting of restricted stock and
options, upon a change of control. This offering will not
constitute a change of control under such agreements. These
provisions may discourage or prevent a change of control.
In addition, because we are incorporated in Delaware, we are
governed by the provisions of Section 203 of the Delaware
General Corporation Law, which may, unless certain criteria are
met, prohibit large stockholders, in particular those owning 15%
or more of our outstanding voting stock, from merging or
combining with us for a prescribed period of time.
Being a public
company will increase our administrative workload and
expenses.
As a public company with common stock listed on the New York
Stock Exchange, we will need to comply with new laws,
regulations and requirements, including certain provisions of
the Sarbanes-Oxley Act of 2002, related regulations of the
Securities and Exchange Commission (SEC) and the requirements of
the New York Stock Exchange, which we are not required to comply
with as a private company. Complying with these statutes,
regulations and requirements will occupy a significant amount of
time of our board of directors and management. The hiring of
additional personnel to handle these responsibilities will
increase our operating costs. We expect we will need to:
|
|
|
institute a more comprehensive compliance function;
|
|
|
design, establish, evaluate and maintain a system of internal
control over financial reporting in compliance with the
requirements of Section 404 of the Sarbanes-Oxley Act of
2002 and the related rules and regulations of the SEC and the
Public Company Accounting Oversight Board;
|
30
|
|
|
prepare and distribute periodic public reports in compliance
with our obligations under the federal securities laws;
|
|
|
establish new internal policies, such as those relating to
disclosure controls and procedures and insider trading;
|
|
|
involve and retain to a greater degree outside counsel and
accountants in the above activities; and
|
|
|
establish and maintain an investor relations function, including
the provision of certain information on our website.
|
In addition, we expect that being a public company subject to
these rules and regulations will make it more expensive for us
to obtain director and officer liability insurance, and we may
be required to accept reduced coverage or incur substantially
higher costs to obtain coverage. These factors could also make
it more difficult for us to attract and retain qualified
executive officers and qualified members of our board of
directors, particularly to serve on our audit and compensation
committees.
Our internal
controls over financial reporting do not currently meet the
standards required by Section 404 of the Sarbanes-Oxley
Act, and failure to achieve and maintain effective internal
controls over financial reporting in accordance with
Section 404 of the Sarbanes-Oxley Act could have a material
adverse effect on our business and stock price.
Our internal controls over financial reporting do not currently
meet the standards required by Section 404 of the
Sarbanes-Oxley Act, standards that we will be required to meet
in the course of preparing our 2011 annual report on
Form 10-K.
We do not currently have comprehensive documentation of our
internal controls, nor do we document or test our compliance
with these controls on a periodic basis in accordance with
Section 404 of the Sarbanes-Oxley Act. Furthermore, we have
not tested our internal controls in accordance with
Section 404 and, due to our lack of documentation, such a
test would not be possible to perform at this time.
We are in the early stages of addressing our internal controls
procedures to satisfy the requirements of Section 404,
which requires an annual management assessment of the
effectiveness of our internal controls over financial reporting.
If, as a public company, we are not able to timely or adequately
implement the requirements of Section 404, our independent
registered public accounting firm may not be able to attest to
the adequacy of our internal controls over financial reporting.
If we are unable to maintain adequate internal controls over
financial reporting, we may be unable to report our financial
information in a timely and reliable manner, may suffer adverse
regulatory consequences or violations of applicable stock
exchange listing rules and may breach the covenants under our
credit facilities. There could also be a negative reaction in
the financial markets due to a loss of investor confidence in us
and the reliability of our financial statements, which could
significantly harm our business.
In addition, we expect to incur incremental costs in order to
improve our internal controls over financial reporting and
comply with Section 404, including increased audit and
legal fees and costs associated with hiring additional
accounting and administrative staff.
31
Forward-looking
statements
This prospectus contains forward-looking statements that are
based on our managements beliefs and assumptions and on
information currently available to us. The forward-looking
statements are contained principally in the sections entitled
Prospectus Summary, Risk Factors,
Use of Proceeds, Managements Discussion
and Analysis of Financial Condition and Results of
Operations and Business. When used in this
prospectus, the words anticipate,
believe, could, estimate,
expect, intend, may,
plan, potential, predict,
project, should, would, and
similar expressions identify forward-looking statements.
Although we believe that our plans, intentions and expectations
reflected in any forward-looking statements are reasonable,
these plans, intentions or expectations are based on
assumptions, are subject to risks and uncertainties and may not
be achieved. Our actual results, performance or achievements
could differ materially from those contemplated, expressed or
implied by the forward-looking statements contained in this
prospectus. Important factors that could cause actual results to
differ materially from our forward-looking statements are set
forth in this prospectus, including under the heading Risk
Factors. Given these uncertainties, you should not place
undue reliance on these forward-looking statements. Also,
forward-looking statements represent our managements
beliefs and assumptions only as of the date of this prospectus.
All forward-looking statements attributable to us or persons
acting on our behalf are expressly qualified in their entirety
by the cautionary statements set forth in this prospectus. These
statements include, among other things, statements relating to:
|
|
|
our evaluation of the history and the dynamics supporting the
demand and growth in the asset protection solutions market;
|
|
|
estimates of market sizes and anticipated uses of our asset
protection solutions;
|
|
|
our business strategy and our underlying assumptions about data
and trends in the markets for asset protection solutions;
|
|
|
our ability to market, commercialize and achieve market
acceptance for our asset protection solutions;
|
|
|
our estimates regarding future revenues, expenses, capital
requirements, liquidity, the sufficiency of our cash resources
and our needs for additional financing;
|
|
|
our anticipated use of the proceeds of this offering;
|
|
|
our ability to protect our intellectual property and operate our
business without infringing upon the intellectual property
rights of others; and
|
|
|
managements goals, expectations and objectives and other
similar expressions concerning matters that are not historical
facts.
|
Actual events, results and outcomes may differ materially from
our expectations due to a variety of factors. Although it is not
possible to identify all of these factors, they include, among
others, the following:
|
|
|
loss of or reduction in business with a significant customer;
|
|
|
an accident or incident involving our asset protection solutions;
|
32
|
|
|
our ability to attract and retain trained engineers, scientists
and other highly skilled workers as well as members of senior
management;
|
|
|
strengths and actions of our competitors;
|
|
|
our current dependence on customers in the oil and gas industry;
|
|
|
the timing, size and integration success of potential future
acquisitions;
|
|
|
catastrophic events that cause disruptions to our business or
the business of our customers; and
|
|
|
the current economic downturn.
|
Potential investors are urged to carefully consider these
factors and the other factors described under Risk
Factors in evaluating any forward-looking statements and
are cautioned not to place undue reliance on these
forward-looking statements. Except as required by applicable
law, we undertake no obligation to publicly update any
forward-looking statements or to update the reasons actual
results could differ materially from those anticipated in any
forward-looking statements, even if new information becomes
available in the future.
33
Use of
proceeds
We estimate that our net proceeds from the sale of our common
stock in this offering, based on the initial public offering
price of $ per share (the midpoint
of the price range shown on the cover page of this prospectus),
will be approximately $ , or
$ if the underwriters exercise
their over-allotment option in full, after deducting
underwriting discounts and commissions and estimated offering
expenses payable by us.
We plan to use these net proceeds for general corporate
purposes, including working capital and possible acquisitions,
although we have no present understandings, commitments or
agreements to acquire any businesses or technologies. In
addition, we currently expect that we will use a portion of
these net proceeds to repay all or a portion of the indebtedness
outstanding under our $55.0 million secured revolving
credit facility under our credit agreement with Bank of America,
N.A., JPMorgan Chase Bank, N.A., TD Bank, N.A. and Capital One,
N.A. The secured revolving credit facility currently bears
interest at the LIBOR or base rate, at our option, plus an
applicable margin ranging from 0% to 3.25% and a market
disruption increase of between 0.0% and 1.0%, if the lenders
determine it applicable. The applicable rate
was % as of August 31, 2009.
The secured revolving credit facility matures on July 21,
2012. We used the proceeds from indebtedness incurred during the
past year to repay the outstanding indebtedness of our prior
credit agreement, to fund two acquisitions that closed after the
end of fiscal 2009 and for other general working capital
purposes. As of August 31, 2009, we had borrowed a total of
$40.8 million under our current credit agreement, and had
$14.2 million of availability under the $55.0 million
revolving credit facility.
We will not receive any proceeds from the sale of shares by the
selling stockholders.
We have not yet determined the amount of our remaining net
proceeds to be used specifically for any of the foregoing
purposes. Accordingly, management will have flexibility in
applying our remaining net proceeds of this offering. Pending
their use, we intend to invest our net proceeds from this
offering in short-term, investment grade, interest-bearing
instruments.
Dividend
policy
We have never paid or declared any cash dividends on our common
stock. We currently intend to retain all available funds and any
future earnings to fund the development and expansion of our
business, and we do not anticipate paying any cash dividends in
the foreseeable future. Any future determination to pay
dividends will be at the discretion of our board of directors
and will depend on our financial condition, results of
operations, capital requirements and other factors that our
board of directors deems relevant. The terms of our current
credit agreement with Bank of America, N.A., JPMorgan Chase
Bank, N.A., TD Bank, N.A. and Capital One, N.A, preclude us, and
the terms of any future debt or credit facility may also
preclude us, from paying cash dividends.
34
Capitalization
The following table sets forth (1) our cash and cash
equivalents and (2) our capitalization as of May 31,
2009:
|
|
|
on an actual basis;
|
|
|
on a pro forma basis to reflect the conversion of all of our
outstanding preferred stock
into shares
of our common stock upon the completion of this offering,
a -for-
stock split of our common stock and the effectiveness of our
second amended and restated certificate of incorporation that
will be effective upon completion of this offering, as if such
transactions occurred on May 31, 2009; and
|
|
|
on a pro forma as adjusted basis to further reflect the sale of
shares of common stock by us in this offering at the initial
public offering price of $ per
share (the midpoint of the price range shown on the cover page
of this prospectus).
|
For purposes of the pro forma as adjusted column of the
capitalization table below, we have assumed the net proceeds
from this offering will be
$ million after deducting
underwriting discounts and commissions and estimated offering
expenses payable by us.
In addition, the table excludes the following:
|
|
|
shares of common stock
issuable upon the exercise of stock options outstanding as of
May 31, 2009 at a weighted average exercise price of
$ per share; and
|
|
|
shares of common stock
reserved for future awards under the 2009 Long-Term Incentive
Plan.
|
This table should be read in conjunction with our audited
consolidated financial statements, including the notes thereto,
Use of Proceeds, Selected Historical
Consolidated Financial Information, and
Managements Discussion and Analysis of Financial
Condition and Results of Operations, all included
elsewhere in this prospectus.
35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of May 31, 2009
|
|
|
|
|
|
|
|
|
|
Pro forma
|
|
(dollars in thousands)
|
|
Actual
|
|
|
Pro forma
|
|
|
as adjusted
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
5,668
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt, including current
portion(1)
|
|
$
|
66,251
|
|
|
|
|
|
|
|
|
|
Obligations under capital leases, including current portion
|
|
|
14,525
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
80,776
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible redeemable preferred stock
|
|
|
90,983
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders (deficit) equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock; $0.01 par value per share (actual:
|
|
|
|
|
|
|
|
|
|
|
|
|
2,000,000 shares authorized and 1,000,000 shares
issued and outstanding; pro
forma: shares
authorized and shares
issued and outstanding; pro forma as
adjusted: shares
authorized and shares issued
and outstanding)
|
|
|
10
|
|
|
|
|
|
|
|
|
|
Additional paid-in capital
|
|
|
1,037
|
|
|
|
|
|
|
|
|
|
Accumulated deficit
|
|
|
(47,376
|
)
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive income
|
|
|
(1,583
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders (deficit) equity
|
|
|
(47,912
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capitalization
|
|
$
|
123,847
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
As of August 31, 2009, we had
borrowed a total of $ million
under our current credit agreement, and had
$ million of availability
under the $55.0 million revolving credit facility, which is
net of $ million of
outstanding letters of credit.
|
36
Dilution
If you invest in our common stock, your interest will be diluted
to the extent of the difference between the initial public
offering price per share of our common stock and the net
tangible book value per share of our common stock immediately
after the completion of this offering. Dilution results from the
fact that the per share offering price of the common stock is
substantially in excess of the book value per share attributable
to the existing stockholders for the presently outstanding stock.
As of May 31, 2009, our net tangible book deficit was
approximately $98.5 million, or approximately
$ per share. Net tangible book
deficit per share represents the amount of total tangible assets
less our total liabilities, including our preferred stock,
divided by the number of shares outstanding. On a pro forma
basis, after giving effect to the conversion
of shares of our
preferred stock
into shares
of our common stock and
a -for-
stock split of our common stock, and excluding proceeds from
this offering, our pro forma net tangible book value as of
May 31, 2009 would have been approximately
$ million, or
$ per share.
On a pro forma as adjusted basis, after giving further effect to
the sale
of shares
of common stock in this offering at the initial public offering
price of $ per share (the midpoint
of the price range shown on the cover page of this prospectus)
and after deducting underwriting discounts and commissions and
estimated offering expenses payable by us, our pro forma as
adjusted net tangible book value as of May 31, 2009 would
have been approximately
$ million, or
$ per share. This represents an
immediate increase in pro forma net tangible book value from
this offering of $ per share to
our existing stockholders and an immediate dilution of
$ per share to new investors
purchasing common stock in this offering.
The following table illustrates this dilution to new investors
on a per share basis:
|
|
|
|
|
|
|
|
|
|
Assumed initial public offering price
|
|
|
|
|
|
$
|
|
|
Pro forma net tangible book value per share as
of ,
2009
|
|
$
|
|
|
|
|
|
|
Increase in pro forma net tangible book value per share
attributable to investors purchasing shares in this offering
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net tangible book value per share after this offering
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilution in pro forma net tangible book value per share to
investors in this offering
|
|
|
|
|
|
$
|
|
|
|
|
The following table summarizes, as of May 31, 2009, the
differences between the number of shares of common stock owned
by existing stockholders and the number to be owned by new
public investors, the aggregate cash consideration paid to us
after deducting underwriting discounts and estimated offering
expenses payable by us and the average price per share paid by
our existing stockholders and to be paid by new public investors
purchasing shares of
37
common stock in this offering at the initial public offering
price of $ per share (the midpoint
of the price range shown on the cover page of this prospectus).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
|
|
|
|
|
|
|
|
|
|
purchased(1)
|
|
|
Total consideration
|
|
|
Average price
|
|
|
|
Number
|
|
|
Percent
|
|
|
Amount
|
|
|
Percent
|
|
|
per share
|
|
|
|
|
Existing stockholders(1)
|
|
|
|
|
|
|
%
|
|
|
$
|
|
|
|
|
%
|
|
|
$
|
|
|
New public investors
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
100.0%
|
|
|
$
|
|
|
|
|
100.0%
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
The number of shares disclosed for
the existing stockholders includes shares being sold by the
selling stockholders in this offering and includes the preferred
shares converted to common stock at the time of the offering.
The number of shares disclosed for the new investors does not
include the shares being purchased by the new investors from the
selling stockholders in this offering.
|
The discussion and tables above assume no exercise of the
underwriters over-allotment option. If the underwriters
exercise their over-allotment option in full, the number of
shares of common stock held by new investors will increase to
approximately shares,
or approximately % of the total
number of shares of our common stock to be outstanding after
this offering, our existing stockholders would own
approximately % of the total number
of shares of our common stock to be outstanding after this
offering, the pro forma as adjusted net tangible book value per
share of common stock would be approximately
$ and the dilution in pro forma as
adjusted net tangible book value per share of common stock to
new investors would be
$ .
In addition, the above discussion and tables assume no exercise
of stock options.
As of May 31, 2009, we had outstanding options to purchase
a total of shares of
common stock at a weighted average exercise price of
$ per share. If all of these
outstanding options had been exercised as of May 31, 2009,
our pro forma net tangible book value would have been
$ per share of common stock, pro
forma as adjusted net tangible book value after this offering
would be $ per share of common
stock and dilution in pro forma as adjusted net tangible book
value to investors in this offering would be
$ per share of common stock.
In addition, if all of these outstanding options as of
May 31, 2009 were exercised, on an as adjusted basis after
deducting underwriting discounts and estimated offering expenses
payable by us, (i) existing stockholders would have
purchased shares
representing % of the total shares
for $ , or
approximately % of the total
consideration paid, with an average price per share of
$ and
(ii) shares
purchased by new stockholders in this offering would represent
approximately % of total shares for
approximately $ , or
approximately % of the total
consideration paid.
38
Selected
historical consolidated financial information
The following tables set forth our selected historical
consolidated financial data for the periods indicated. The
selected statement of operations and cash flow data for fiscal
2009, 2008 and 2007 and the selected balance sheet data as of
May 31, 2009 and 2008 have been derived from our audited
financial statements and related notes thereto included
elsewhere in this prospectus. The statement of operations and
cash flow data for fiscal 2006 and fiscal 2005 and the selected
balance sheet data as of May 31, 2007, 2006 and 2005 have
been derived from our audited financial statements not included
in this prospectus. The information presented below should be
read in conjunction with Managements Discussion and
Analysis of Financial Condition and Results of Operations
and the audited and unaudited financial statements and the notes
thereto included elsewhere in this prospectus.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
|
|
(dollars in thousands, except per share data)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
209,133
|
|
|
$
|
152,268
|
|
|
$
|
122,241
|
|
|
$
|
93,741
|
|
|
$
|
80,813
|
|
Cost of revenues
|
|
|
131,167
|
|
|
|
90,590
|
|
|
|
75,702
|
|
|
|
55,908
|
|
|
|
51,426
|
|
Depreciation
|
|
|
8,700
|
|
|
|
6,847
|
|
|
|
4,666
|
|
|
|
3,013
|
|
|
|
2,947
|
|
|
|
|
|
|
|
Gross profit
|
|
|
69,266
|
|
|
|
54,831
|
|
|
|
41,873
|
|
|
|
34,820
|
|
|
|
26,440
|
|
Selling, general and administrative expenses
|
|
|
47,150
|
|
|
|
32,943
|
|
|
|
26,408
|
|
|
|
24,748
|
|
|
|
20,994
|
|
Research and engineering expenses
|
|
|
1,255
|
|
|
|
954
|
|
|
|
703
|
|
|
|
660
|
|
|
|
1,029
|
|
Depreciation and amortization
|
|
|
3,936
|
|
|
|
4,576
|
|
|
|
4,025
|
|
|
|
4,165
|
|
|
|
3,988
|
|
Legal settlement
|
|
|
2,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
14,825
|
|
|
|
16,358
|
|
|
|
10,737
|
|
|
|
5,247
|
|
|
|
429
|
|
Interest expense
|
|
|
4,614
|
|
|
|
3,531
|
|
|
|
4,482
|
|
|
|
4,225
|
|
|
|
4,589
|
|
Loss on extinguishment of long-term debt
|
|
|
|
|
|
|
|
|
|
|
460
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before provision for (benefit from) income taxes
and minority interest
|
|
|
10,211
|
|
|
|
12,827
|
|
|
|
5,795
|
|
|
|
1,022
|
|
|
|
(4,160
|
)
|
Provision for (benefits from) income taxes
|
|
|
4,558
|
|
|
|
5,380
|
|
|
|
208
|
|
|
|
503
|
|
|
|
(71
|
)
|
|
|
|
|
|
|
Income (loss) before minority interest
|
|
|
5,653
|
|
|
|
7,447
|
|
|
|
5,587
|
|
|
|
519
|
|
|
|
(4,089
|
)
|
Minority interest, net of taxes
|
|
|
(187
|
)
|
|
|
(8
|
)
|
|
|
(199
|
)
|
|
|
(17
|
)
|
|
|
16
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
5,466
|
|
|
|
7,439
|
|
|
|
5,388
|
|
|
|
502
|
|
|
|
(4,073
|
)
|
Accretion of preferred stock
|
|
|
(27,114
|
)
|
|
|
(32,872
|
)
|
|
|
(3,520
|
)
|
|
|
(2,922
|
)
|
|
|
(2,062
|
)
|
|
|
|
|
|
|
Net (loss) income available to common stockholders
|
|
$
|
(21,648
|
)
|
|
$
|
(25,433
|
)
|
|
$
|
1,868
|
|
|
$
|
(2,420
|
)
|
|
$
|
(6,135
|
)
|
|
|
|
|
|
|
Weighted average number of common shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
1,000,000
|
|
|
|
1,000,000
|
|
|
|
991,348
|
|
|
|
977,115
|
|
|
|
965,577
|
|
Diluted
|
|
|
1,000,000
|
|
|
|
1,000,000
|
|
|
|
1,007,803
|
|
|
|
977,115
|
|
|
|
965,577
|
|
(Loss) earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(21.65
|
)
|
|
$
|
(25.43
|
)
|
|
$
|
1.88
|
|
|
$
|
2.48
|
|
|
$
|
(6.35
|
)
|
Diluted
|
|
|
(21.65
|
)
|
|
|
(25.43
|
)
|
|
|
1.85
|
|
|
|
2.48
|
|
|
|
(6.35
|
)
|
Pro forma diluted earnings (loss) per common share(1)
|
|
|
3.50
|
|
|
|
4.81
|
|
|
|
3.56
|
|
|
|
0.35
|
|
|
|
(3.22
|
)
|
Other Financial Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
$
|
12,661
|
|
|
$
|
12,851
|
|
|
$
|
14,006
|
|
|
$
|
6,208
|
|
|
$
|
3,024
|
|
Net cash used in investing activities
|
|
|
(15,888
|
)
|
|
|
(19,446
|
)
|
|
|
(4,259
|
)
|
|
|
(2,387
|
)
|
|
|
(3,193
|
)
|
Net cash provided by (used in) financing activities
|
|
|
4,912
|
|
|
|
6,320
|
|
|
|
(8,122
|
)
|
|
|
(2,654
|
)
|
|
|
(183
|
)
|
EBITDA(2)
|
|
|
27,274
|
|
|
|
27,773
|
|
|
|
18,769
|
|
|
|
12,408
|
|
|
|
7,380
|
|
Adjusted EBITDA(2)
|
|
|
31,122
|
|
|
|
28,091
|
|
|
|
19,229
|
|
|
|
12,408
|
|
|
|
7,380
|
|
|
|
39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of the end of fiscal
|
|
(dollars in thousands)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
5,668
|
|
|
$
|
3,555
|
|
|
$
|
3,767
|
|
|
$
|
1,976
|
|
|
$
|
700
|
|
Total assets
|
|
|
151,274
|
|
|
|
119,822
|
|
|
|
79,885
|
|
|
|
74,425
|
|
|
|
71,149
|
|
Total long-term debt, including current portion
|
|
|
66,251
|
|
|
|
48,270
|
|
|
|
25,403
|
|
|
|
29,668
|
|
|
|
38,622
|
|
Obligations under capital leases, including current portion
|
|
|
14,525
|
|
|
|
11,842
|
|
|
|
9,970
|
|
|
|
8,275
|
|
|
|
7,283
|
|
Convertible redeemable preferred stock
|
|
|
90,983
|
|
|
|
63,869
|
|
|
|
30,995
|
|
|
|
26,575
|
|
|
|
15,623
|
|
Total stockholders (deficit) equity
|
|
|
(47,912
|
)
|
|
|
(24,475
|
)
|
|
|
903
|
|
|
|
(1,326
|
)
|
|
|
1,113
|
|
|
|
|
|
|
(1)
|
|
Pro forma diluted (loss) earnings
per common share gives effect to the assumed conversion of our
preferred stock for all periods presented. It is computed by
dividing net income by the pro forma number of weighted average
shares outstanding used in the calculation of diluted earnings
(loss) per share, but after assuming conversion of our preferred
stock and exercise of any diluted stock options. The calculation
for this, as well as our basic and diluted (loss) earnings per
common share, follows.
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
|
|
(in thousands, except share and
per share data)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
Basic (loss) earnings per
common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income available to common stockholders
|
|
$
|
(21,648
|
)
|
|
$
|
(25,433
|
)
|
|
$
|
1,868
|
|
|
$
|
(2,420
|
)
|
|
$
|
(6,135
|
)
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding
|
|
|
1,000,000
|
|
|
|
1,000,000
|
|
|
|
991,348
|
|
|
|
977,115
|
|
|
|
965,577
|
|
|
|
|
|
|
|
Basic (loss) earnings per common share
|
|
$
|
(21.65
|
)
|
|
$
|
(25.43
|
)
|
|
$
|
1.88
|
|
|
$
|
(2.48
|
)
|
|
$
|
(6.35
|
)
|
|
|
|
|
|
|
Diluted (loss) earning per
common share:*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income available to common stockholders
|
|
$
|
(21,648
|
)
|
|
$
|
(25,433
|
)
|
|
$
|
1,868
|
|
|
$
|
(2,420
|
)
|
|
$
|
(6,135
|
)
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding
|
|
|
1,000,000
|
|
|
|
1,000,000
|
|
|
|
991,348
|
|
|
|
977,115
|
|
|
|
965,577
|
|
Common stock equivalents of outstanding stock options
|
|
|
|
|
|
|
|
|
|
|
16,455
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shares
|
|
|
1,000,000
|
|
|
|
1,000,000
|
|
|
|
1,007,803
|
|
|
|
977,115
|
|
|
|
965,577
|
|
|
|
|
|
|
|
Diluted (loss) earnings per common share
|
|
$
|
(21.65
|
)
|
|
$
|
(25.43
|
)
|
|
$
|
1.85
|
|
|
$
|
(2.48
|
)
|
|
$
|
(6.35
|
)
|
|
|
*Inclusion of certain stock options and conversion of preferred
shares would be anti-dilutive.
|
|
41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
|
|
(in thousands, except share and
per share data)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
Pro forma diluted earnings (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
5,466
|
|
|
$
|
7,439
|
|
|
$
|
5,388
|
|
|
$
|
502
|
|
|
$
|
(4,073
|
)
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding
|
|
|
1,000,000
|
|
|
|
1,000,000
|
|
|
|
991,348
|
|
|
|
977,115
|
|
|
|
965,577
|
|
Common stock equivalents of outstanding stock options
|
|
|
42,755
|
|
|
|
26,520
|
|
|
|
16,455
|
|
|
|
21,721
|
|
|
|
|
|
Common stock equivalents of conversion of preferred shares
|
|
|
519,906
|
|
|
|
519,906
|
|
|
|
503,829
|
|
|
|
420,067
|
|
|
|
298,701
|
|
|
|
|
|
|
|
Total shares
|
|
|
1,562,661
|
|
|
|
1,546,426
|
|
|
|
1,511,632
|
|
|
|
1,418,903
|
|
|
|
1,264,278
|
|
|
|
|
|
|
|
Pro forma diluted earnings (loss) per common share
|
|
$
|
3.50
|
|
|
$
|
4.81
|
|
|
$
|
3.56
|
|
|
$
|
0.35
|
|
|
$
|
(3.22
|
)
|
|
|
|
|
|
(2)
|
|
EBITDA and adjusted EBITDA are
performance measures used by management that are not calculated
in accordance with U.S. generally accepted accounting principles
(GAAP). EBITDA is defined in this prospectus as net income plus:
interest expense, provision for income taxes and depreciation
and amortization. Adjusted EBITDA is defined in this prospectus
as net income plus: interest expense, provision for income
taxes, depreciation and amortization, stock-based compensation
expense and certain one-time and generally non-recurring items
(which items are described in the next paragraph and the
reconciliation table below).
|
|
|
|
Our management uses EBITDA and
adjusted EBITDA as measures of operating performance to assist
in comparing performance from period to period on a consistent
basis, as measures for planning and forecasting overall
expectations and for evaluating actual results against such
expectations and as performance evaluation metrics off which to
base executive and employee incentive compensation programs.
|
|
|
|
|
|
We believe investors and other
external users of our financial statements benefit from the
presentation of EBITDA and adjusted EBITDA in evaluating our
operating performance because they provide an additional tool to
compare our operating performance on a consistent basis by
removing the impact of certain items that management believes do
not directly reflect our core operations. For instance, EBITDA
and adjusted EBITDA generally exclude interest expense, taxes
and depreciation, amortization and non-cash stock compensation,
each of which can vary substantially from company to company
depending upon accounting methods and the book value and age of
assets, capital structure, capital investment cycles and the
method by which assets were acquired. Similarly, our adjusted
EBITDA (and not our EBITDA) for fiscal 2009 excludes the impact
of a one-time payment we made to settle a lawsuit and the
writeoff of $1.6 million in accounts receivable we expected
to collect from a customer that declared bankruptcy in fiscal
2009. These items were excluded because management believes
these events were highly unique to us in fiscal 2009. Our
adjusted EBITDA for fiscal 2009 and 2008 also excludes the
impact of stock compensation expenses, because these expenses
actually did not involve us paying or agreeing to pay any cash.
|
|
|
|
|
|
Although EBITDA and adjusted EBITDA
are widely used by investors and securities analysts in their
evaluations of companies, you should not consider them either in
isolation or as a substitute for analyzing our results as
reported under U.S. generally accepted accounting
principles (GAAP). EBITDA and adjusted EBITDA are generally
limited as analytical tools because they exclude, among other
things, the statement of operations impact of depreciation and
amortization, interest expense and the provision for income
taxes and therefore do not necessarily represent an accurate
measure of profitability, particularly in situations where a
company is highly leveraged or has a disadvantageous tax
structure. As a result, EBITDA and adjusted EBITDA are of
limited value in evaluating our operating performance because
(i) we use a significant amount of capital assets and
depreciation and amortization expense is a necessary element of
our costs and ability to generate revenues; (ii) we have a
significant amount of debt and interest expense is a necessary
element of our costs and ability to generate revenues; and
(iii) we generally incur significant U.S. federal,
state and foreign income taxes each year and the provision for
income
|
42
|
|
|
|
|
taxes is a necessary element of our
costs. EBITDA and adjusted EBITDA also do not reflect historical
cash expenditures or future requirements for capital
expenditures or contractual commitments, changes in, or cash
requirements for, our working capital needs and all non-cash
income or expense items that are reflected in our statements of
cash flows. Our adjusted EBITDA for fiscal 2009 excludes the
impact of an actual cash expenditure for the settlement of a
lawsuit and an amount we were unable to collect in fiscal 2009
due to the bankruptcy of a customer, and our adjusted EBITDA for
fiscal 2009 and 2008 excludes the impact of stock compensation
expenses that reduced our net income under GAAP. Furthermore,
because EBITDA and adjusted EBITDA are not defined under GAAP,
our definitions of EBITDA and adjusted EBITDA may differ from,
and therefore may not be comparable to, similarly titled
measures used by other companies, thereby limiting their
usefulness as comparative measures. Because of these
limitations, neither EBITDA nor adjusted EBITDA should be
considered as the primary measure of our operating performance
or as a measure of discretionary cash available to us to invest
in the growth of our business. We strongly urge you to review
the GAAP financial measures included in this prospectus, our
consolidated financial statements, including the notes thereto,
and the other financial information contained in this
prospectus, and not to rely on any single financial measure to
evaluate our business.
|
|
|
|
The following table provides a
reconciliation of net income to EBITDA and adjusted EBITDA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
|
|
(in thousands)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
Net income (loss)
|
|
$
|
5,466
|
|
|
$
|
7,439
|
|
|
$
|
5,388
|
|
|
$
|
502
|
|
|
$
|
(4,073
|
)
|
Interest expense
|
|
|
4,614
|
|
|
|
3,531
|
|
|
|
4,482
|
|
|
|
4,225
|
|
|
|
4,589
|
|
Provision for income taxes
|
|
|
4,558
|
|
|
|
5,380
|
|
|
|
208
|
|
|
|
503
|
|
|
|
(71
|
)
|
Depreciation and amortization
|
|
|
12,636
|
|
|
|
11,423
|
|
|
|
8,691
|
|
|
|
7,178
|
|
|
|
6,935
|
|
|
|
|
|
|
|
EBITDA
|
|
$
|
27,274
|
|
|
$
|
27,773
|
|
|
$
|
18,769
|
|
|
$
|
12,408
|
|
|
$
|
7,380
|
|
Legal settlement
|
|
|
2,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Large customer bankruptcy
|
|
|
1,556
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock compensation expense
|
|
|
192
|
|
|
|
318
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on extinguishment of debt
|
|
|
|
|
|
|
|
|
|
|
460
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
$
|
31,122
|
|
|
$
|
28,091
|
|
|
$
|
19,229
|
|
|
$
|
12,408
|
|
|
$
|
7,380
|
|
|
|
43
Managements
discussion and analysis of financial
condition and results of operations
You should read the following discussion together with the
financial statements and the notes thereto included elsewhere in
this prospectus. This discussion contains forward-looking
statements that are based on managements current
expectations, estimates and projections about our business and
operations. The cautionary statements made in this prospectus
should be read as applying to all related forward-looking
statements wherever they appear in this prospectus. Our actual
results may differ materially from those currently anticipated
and expressed in such forward-looking statements as a result of
a number of factors, including but not limited to those we
discuss under Risk Factors and Forward-Looking
Statements.
Overview
We are a leading global provider of technology-enabled asset
protection solutions used to evaluate the structural integrity
of critical energy, industrial and public infrastructure. We
combine industry-leading products and technologies, expertise in
mechanical integrity (MI) and non-destructive testing (NDT)
services and proprietary data analysis software to deliver a
comprehensive portfolio of customized solutions, ranging from
routine inspections to complex, plant-wide asset integrity
assessments and management. These mission critical solutions
enhance our customers ability to extend the useful life of
their assets, increase productivity, minimize repair costs,
comply with governmental safety and environmental regulations,
manage risk and avoid catastrophic disasters. Given the role our
services play in ensuring the safe and efficient operation of
infrastructure, we have historically provided a majority of our
services to our customers on a regular, recurring basis. We
serve a global customer base of companies with asset-intensive
infrastructure, including companies in the oil and gas, fossil
and nuclear power, public infrastructure, chemicals, aerospace
and defense, transportation, primary metals and metalworking,
pharmaceuticals and food processing industries. During fiscal
2009, we provided our asset protection solutions to
approximately 4,500 customers. As of August 1, 2009, we had
approximately 2,000 employees, including 29 Ph.D.s
and more than 100 other degreed engineers and highly-skilled,
certified technicians, in 68 offices across 15 countries. We
have established long-term relationships as a critical solutions
provider to many leading companies in our target markets. Our
current principal market is the oil and gas industry, which
accounted for approximately 58%, 50% and 52% of our revenues for
fiscal 2009, 2008 and 2007, respectively.
During the last three fiscal years, we have focused on
introducing our advanced asset protection solutions to our
customers using proprietary, technology-enabled software and
testing instruments, including those developed by our Products
and Systems segment. During this period, the demand for
outsourced asset protection solutions has, in general,
increased, creating demand from which our entire industry has
benefited. We have experienced compounded annual revenue growth
(CAGR) of 30.7% over the last three fiscal years, including the
impact of acquisitions and currency fluctuations. During the
same period, revenues from our customers in the oil and gas
market, historically our largest target market, had a CAGR of
39.0%. All of our other target markets, collectively, had a CAGR
of 22.0%. We believe further growth can be realized in all of
our target markets. Concurrent with this growth, we have worked
to build our infrastructure to profitably absorb additional
growth and have made a number of small acquisitions in an effort
to leverage our fixed costs, grow our base of experienced
personnel, expand our technical capabilities and increase our
geographical reach.
44
Since inception, we have increased our capabilities and the size
of our customer base through the development of applied
technologies and managed support services, organic growth and
the successful and seamless integration of acquired companies.
These acquisitions have provided us with additional products,
technologies, resources and customers that have enhanced our
sustainable competitive advantages over our competition.
The global economy is currently in a pronounced economic
downturn. Global financial markets are continuing to experience
disruptions, including severely diminished liquidity and credit
availability, declines in consumer confidence, declines in
economic growth, increases in unemployment rates, volatility in
interest and currency exchange rates and overall uncertainty
about economic stability. There may be further deterioration and
volatility in the global economy and the global financial
markets. Although this economic downturn has negatively impacted
our revenues and profitability in fiscal 2009, and may
negatively impact our future results if it continues, we believe
it also has allowed us to selectively hire new talented
individuals that otherwise might not have been available to us,
to acquire and develop new technology in order to aggressively
expand our proprietary portfolio of customized solutions, and to
make acquisitions of complementary businesses at reasonable
valuations. We believe we will be able to derive additional
revenues from these strategic investments with favorable gross
margins in future periods, which we believe would at least in
part offset any further negative revenue impact we incur from
the economic downturn during those periods. Also, although some
of our customers have delayed turnaround projects and other
large-scale inspection projects, they have historically seldom
postponed such projects indefinitely, so we expect increased
revenues if and when our customers request we complete these
projects. However, due to the severity of the economic downturn,
these projects instead may continue to be delayed.
Basis of
presentation
Consolidated
results of operations
Our three segments are:
|
|
|
Services. This segment provides asset protection
solutions in North and Central America with the largest
concentration in the United States.
|
|
|
Products and Systems. This segment designs,
manufactures, sells, installs and services our asset protection
products and systems, including equipment and instrumentation,
predominantly in the United States.
|
|
|
International. This segment offers services,
products and systems similar to those of our other segments to
global markets, principally in Europe, the Middle East, Africa,
Asia and South America, but not to customers in China and South
Korea, which are served by our Products and Systems segment.
|
General corporate services, including accounting, audit and
contract management, are provided to the segments and are
reported as intersegment transactions within corporate and
eliminations. Sales to the International segment from the
Products and Systems segment and subsequent sales by the
International segment of the same items are recorded and
reflected in the operating performance of both segments.
Additionally, engineering charges and royalty fees charged to
the Services and International segments by the Products and
Systems segment are
45
reflected in the operating performance of each segment. All such
intersegment transactions are eliminated in corporate and
eliminations.
The accounting policies of the reportable segments are the same
as those described in the summary of our significant accounting
policies in Note 2 to our audited consolidated financial
statements included elsewhere in this prospectus. Segment income
from operations is determined based on internal performance
measures used by the Chief Executive Officer, the chief
operating decision maker, to assess the performance of each
business in a given period and to make decisions as to resource
allocations. In connection with that assessment, the Chief
Executive Officer may exclude items such as charges for
stock-based compensation and certain other acquisition-related
charges and balances, technology and product development costs,
certain gains and losses from dispositions, and litigation
settlements or other charges. Certain general and administrative
costs such as human resources, information technology and
training are allocated to the segments. Segment income from
operations also excludes interest and other financial charges
and income taxes. Corporate and other assets are comprised
principally of cash, deposits, property, plant and equipment,
domestic deferred taxes, deferred charges and other assets.
Corporate loss from operations consists of depreciation on the
corporate office facilities and equipment, administrative
charges related to corporate personnel and other charges that
cannot be readily identified for allocation to a particular
segment.
Statement of
operations overview
The following describes certain line items in our statement of
operations and some of the factors that affect our operating
results.
Revenues
Our revenues are generated by sales of our services, products
and systems. The majority of our revenues are derived under
time-and-materials
contracts for specified asset protection services on a
project-by-project
basis. The duration of our projects vary depending on their
scope. Some of our projects last from a few weeks to a few
months, but the more significant projects can last for more than
a year and can require long-term deployment of substantial
personnel, equipment and resources. The start date of our
projects can be postponed or delayed and the duration of our
projects can be shortened or increased due to a variety of
factors beyond our control. In addition to the timing of these
projects and the seasonality of our business, the amount and
origination of our revenues often vary from period to period. A
percentage of our revenues are usually attributable to recurring
work from our existing customers. Although our top ten customers
are responsible for a large percentage of our revenues, we
generate our revenues from most of these customers by providing
asset protection solutions to a number of their business
locations. Decisions regarding the purchase of our solutions by
these customers are made either on a corporate basis or on a
location-by-location
basis. Also included in our revenues are software license fees
and product sales, as well as an estimate for any sales returns
and customer allowances. Revenues under our
time-and-materials
services contracts are based on the hours of service we provide
our customers at negotiated rates, plus any actual costs of
materials and other direct expenses that we incur on the
project, with little or no
mark-up.
Because these expenses, such as travel and lodging or
subcontracted services, can change significantly from project to
project, changes in our revenues may not be indicative of
business trends.
46
Cost of
revenues
Our cost of revenues includes our direct compensation and
related benefits to support our sales, together with
reimbursable costs, materials consumed or used in manufacturing
our products and certain overhead costs, such as non-billable
time, equipment rentals, fringe benefits and repair and
maintenance.
Depreciation
included in gross profit
Our depreciation represents the expense charge for our
capitalized assets. Depending on the nature of the original item
capitalized, these depreciation expenses are reported in one of
two places in our statement of operations. Depreciation used in
determining gross profit is directly related to our revenues and
primarily relates to depreciation of equipment used for the
delivery of our asset protection solutions and to a lesser
extent depreciation of manufacturing equipment. We also have
other depreciation primarily related to our corporate
headquarters which is included in deriving our income from
operations as discussed below.
Gross
profit
Our gross profit equals our revenues less our cost of revenues
and attributed depreciation. Our gross profit, both in absolute
dollars and as a percentage of revenues, can vary based on our
volume, sales mix, actual manufacturing costs and our
utilization of labor. As a result, gross profit may vary from
quarter to quarter. For instance, our gross profit can decline
during holiday periods when we incur labor costs without any
corresponding revenues. Under our
time-and-materials
contracts, we negotiate hourly billing rates and charge our
clients based on the actual time that we expend on a project.
Our profit margins on
time-and-materials
contracts fluctuate based on actual labor and overhead costs
that we directly charge or allocate to contracts compared to
negotiated billing rates.
In recent years, there has been an increasing demand for asset
protection solutions and, until recently, a limited supply of
certified technicians. Accordingly, we have experienced
increases in our cost of labor in our Services segment. The
customers of our Services segment are aware of these supply
constraints and generally have, to some extent, accepted
corresponding price increases for our services. In the current
economic environment, we are uncertain whether our ability to
increase prices for our services will continue. In our Products
and Systems segment, our ability to increase prices for any
product or system to offset associated cost increases is based
principally on the extent to which its incorporates our
proprietary technology. We believe our efforts to develop and
offer our customers value-added proprietary solutions instead of
commodity-type products help us, in part, to resist margin
erosion. Our International segment offers services, products and
systems similar to those of our other segments, so our ability
to increase prices in this segment as costs increase is
determined by the same factors affecting the pricing of our
other segments, and the relative mix of services, products and
systems it provides in the applicable period.
Selling,
general and administrative expenses
Our selling, general and administrative expenses are comprised
primarily of expenses of our sales and marketing operations,
field location administrative costs and our corporate
headquarters related to our executive, general management,
finance, accounting and administrative functions and legal fees
and expenses. These costs can vary based on our volume of
business or
47
as expenses are incurred to support corporate activities and
initiatives such as training. The largest single category is
salaries and related costs. In the near term, we expect these
expenses to increase as we support the growth of our business
and expand our sales and marketing efforts, improve our
information processes and systems and implement the financial
reporting, compliance and other infrastructure required for a
public company. We also expect that our selling, general and
administrative expenses will decline as a percentage of our
revenues, particularly over the long term.
Research and
engineering
Research and engineering expense consists primarily of
engineering salaries and personnel-related costs and the cost of
products, materials and outside services used in our process and
product development activities primarily in our Products and
Systems segment. Other research and development is conducted in
our Services segment by various billable personnel and our
management on a collaborative basis. These costs are not
separated and are included in cost of revenues. Specific
development costs on software are capitalized and amortized in
our depreciation and amortization included in our income from
operations. From time-to-time, we receive minor grants or
contracts for paid research which are recorded in our revenues
with the related costs included in cost of revenues. We expect
to continue our investment in research and engineering
activities and anticipate that our associated expense will
increase in absolute terms in the future as we hire additional
personnel and increase research and engineering activity.
However, as a percentage of revenues, we expect research and
engineering expense to decline over time.
Depreciation
and amortization included in income from
operations
Our depreciation and amortization used in deriving our income
from operations represents the expense charge for our
capitalized assets, and primarily relates to buildings and
improvements, including our corporate headquarters, office
furniture, equipment, and intangibles acquired as part of our
acquisitions of other businesses. These intangible assets
include, but are not limited to, non-competition agreements,
customer lists and trade names. To the extent we ascribe value
to identifiable intangible assets that have finite lives, we
amortize those values over the estimated useful lives of those
assets. Such amortization expense, although non-cash in the
period expensed, directly impacts our results of operations. It
is difficult to predict with any precision the amount of expense
we may record relating to acquired intangible assets. Because
many of the intangible assets we acquire are short-lived
intangible assets, we would expect to see higher amortization
expense in the first 12 to 18 months after an acquisition
has been consummated.
Income from
operations
Our income from operations is our gross profit less our selling,
general and administrative expenses, research and engineering
and depreciation and amortization included in income from
operations. We refer to our income from operations as a
percentage of our revenues as our operating margin.
48
Interest
expense
Our interest expense consists primarily of interest paid to our
lenders under our credit agreement. Also included is the
interest incurred on our capital leases and on subordinated
notes issued as part of our acquisitions. We adjust the interest
differential on our interest rate swap quarterly to reflect the
difference from our current borrowing rate to the notional
amount of our interest rate swap contracts.
Income
taxes
Income tax expense varies as a function of income before income
tax expense and permanent non-tax deductible expenses, such as
certain amounts of meals and entertainment expense, valuation
allowance requirements and other permanent differences. Prior to
fiscal 2007, we had net operating loss carryforwards (NOLs) for
federal and state purposes, but as a result of our pre-tax
income in fiscal 2007, we used a majority of these NOLs. As of
May 31, 2009 we had $2.6 million of NOLs available to
offset state taxable income in future years. These state NOLs
will expire, if not utilized, at varying dates beginning in 2011
depending on the laws of each state and we have provided a
valuation allowance of $0.2 million. Our effective income
tax rate will be subject to many variables, including the
absolute amount and future geographic distribution of our
pre-tax income. We also plan to continue our acquisition
strategy, and, as such, we anticipate that there will be
variability in our effective tax rate from quarter to quarter
and year to year, especially to the extent that our permanent
differences increase or decrease. As a result of any of these
factors, our future effective income tax rate may fluctuate
significantly over the next few years.
Minority
interest, net of taxes
The minority interest represents the ownership interests of
other stockholders in our international subsidiaries, where 100%
ownership is not permitted or de minimis local ownership is
helpful for business purposes. For fiscal 2007, this amount
primarily consisted of the net income of Envirocoustics
A.B.E.E., which we first consolidated in fiscal 2006. We
acquired this entity on April 25, 2007.
49
Consolidated
results of operations
Fiscal 2009, 2008
and 2007
Our revenues, gross profit, income from operations and net
income for fiscal 2009, 2008 and 2007 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
|
|
(dollars in thousands)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
Revenues
|
|
$
|
209,133
|
|
|
$
|
152,268
|
|
|
$
|
122,241
|
|
|
|
|
|
|
|
Gross profit
|
|
|
69,266
|
|
|
|
54,831
|
|
|
|
41,873
|
|
|
|
|
|
|
|
Gross margin %
|
|
|
33.1%
|
|
|
|
36.0%
|
|
|
|
34.3%
|
|
|
|
|
|
|
|
Income from operations
|
|
$
|
14,825
|
|
|
$
|
16,358
|
|
|
$
|
10,737
|
|
|
|
|
|
|
|
Operating margin as percentage of revenues
|
|
|
7.1%
|
|
|
|
10.7%
|
|
|
|
8.8%
|
|
|
|
|
|
|
|
Interest expense
|
|
|
4,614
|
|
|
|
3,531
|
|
|
|
4,482
|
|
|
|
|
|
|
|
Loss on extinguishment of long-term debt
|
|
|
|
|
|
|
|
|
|
|
460
|
|
|
|
|
|
|
|
Income before provision for income taxes and minority interest
|
|
|
10,211
|
|
|
|
12,827
|
|
|
|
5,795
|
|
Provision for income taxes
|
|
|
4,558
|
|
|
|
5,380
|
|
|
|
208
|
|
|
|
|
|
|
|
Income before minority interest
|
|
|
5,653
|
|
|
|
7,447
|
|
|
|
5,587
|
|
Minority interest, net of taxes
|
|
|
(187
|
)
|
|
|
(8
|
)
|
|
|
(199
|
)
|
|
|
|
|
|
|
Net income
|
|
$
|
5,466
|
|
|
$
|
7,439
|
|
|
$
|
5,388
|
|
|
|
|
|
|
|
Net income as percentage of revenues
|
|
|
2.6%
|
|
|
|
4.9%
|
|
|
|
4.4%
|
|
|
|
Fiscal 2009
compared to fiscal 2008
Revenues. Revenues increased $56.9 million, or
37.3%, for fiscal 2009 compared to fiscal 2008 as a result of
growth in all our segments. For fiscal 2009 and fiscal 2008, we
estimate that our organic, as compared to acquisition-driven,
growth rate was approximately 16% and 17%, respectively. In
fiscal 2009, we estimate that all of our segments had organic
growth, and that the Services and International segments had
double digit organic growth rates. This organic growth was the
result of continued demand for our asset protection solutions,
including growth from new and existing customers, and did not
result from any unusually large one-time projects. In fiscal
2009, we estimate that growth from acquisitions was
approximately 23% compared to 6% in fiscal 2008, primarily
because we acquired 5 NDT companies in fiscal 2009 and
7 NDT companies in 2008, increasing our capabilities and
adding to our base of qualified technicians.
In the second half of fiscal 2009 we believe the economic
downturn resulted in greater than usual reductions or delays in
capital spending by our customers. Several anticipated regular
maintenance projects as well as projects requiring intensive
work during a temporary asset shutdown, or
turnaround projects, were either reduced in scope or
have been delayed until fiscal 2010 or later.
50
Despite the economic downturn, we experienced growth in many of
our target markets in fiscal 2009 as compared to fiscal 2008.
The largest dollar increase was attributable to customers in the
oil and gas market, which accounted for approximately 58% of our
total revenues. This growth was achieved globally on several new
and existing projects. Overall this market provided 57.6% and
49.8% of our total revenues for fiscal 2009 and 2008,
respectively. As of May 31, 2009, we serviced approximately
20% of the U.S. refineries and 36% of refineries producing
50,000-100,000 barrels per day. The remainder of the growth
in our revenues was broadly distributed among customers in our
other target markets, with the largest increases in this period
attributable to customers in the chemical market, where we
obtained a new long-term service contract, and in the industrial
and manufacturing sector where we obtained new customers through
our acquisitions. The most significant decrease in fiscal 2009
was in the electronics and transportation industries, but these
industries together accounted for less than 3.0% of our total
revenues in fiscal 2009. Our top ten customers represented 35.8%
of our revenues for fiscal 2009 compared to 35.2% in fiscal
2008. One of these top ten customers filed for bankruptcy in
January 2009. Our revenues from this customer were
$6.4 million for fiscal 2009. Although we have increased
our allowance for doubtful accounts receivable attributable to
this long-term customer by approximately $1.6 million as a
result of this bankruptcy, we continue to work for this customer
under the protection of the bankruptcy court.
Gross profit. Our gross profit increased
$14.4 million, or 26.3%, in fiscal 2009 compared to fiscal
2008. As a percentage of revenues, our gross profit was 33.1%
and 36.0% in fiscal 2009 and fiscal 2008, respectively. The
non-depreciation portion of our cost of revenues as a percentage
of revenues increased to 62.7% in fiscal 2009 from 59.5% in
fiscal 2008. Depreciation expense included in determining gross
profit for fiscal years 2009 and 2008 was $8.7 million, or
4.2% of revenues, and $6.8 million, or 4.5% of revenues,
respectively.
Despite the 37.3% increase in our fiscal 2009 revenues, our
gross profit as a percentage of revenues declined to 33.1% in
fiscal 2009 from 36.0% in fiscal 2008. Some of this decline
resulted from our sales mix, since our Services segment
generated the largest portion of the revenue increase and our
gross margins on revenues from our Services segment are
generally lower than that of our other segments. A large portion
of this cost can be attributed to the economic downturn, because
when our customers delay or reschedule projects, this delays our
recognition of revenues from those projects while we continue to
incur labor expenses. We also incurred the cost to hire and
train employees in order to develop several new specialties
within our asset protection solutions, or centers of
excellence, including centers for industrial tube and
off-shore oil rig platform riser inspections and new pipeline
construction. In addition, our business was disrupted during
September 2008 by Hurricane Ike and in our third fiscal quarter
by strikes threatened by employees of several of our customers,
which were subsequently resolved. As we anticipated, several of
our recently acquired businesses had lower margins than we
normally achieve and we would expect that these margins will
improve as we fully integrate these acquired businesses into our
business model. Our payroll costs, including workers
compensation insurance, also increased during fiscal 2009, but
unlike in fiscal 2008, we did not benefit from a
$1.0 million adjustment, resulting from favorable claims
experienced.
Income from operations. Our income from operations
of $14.8 million for fiscal 2009 decreased
$1.5 million, or 9.4%, compared to fiscal 2008. As a
percentage of revenues, our income from operations was 7.1% in
fiscal 2009, compared to 10.7% in fiscal 2008. In fiscal 2009,
we increased our allowance for doubtful accounts by
approximately $1.6 million to provide for estimated losses
in connection with a large customer bankruptcy and incurred
$2.1 million in
51
expenses in connection with a lawsuit settlement. Without these
charges, our fiscal 2009 income from operations would have been
approximately 9% of revenues.
The percentage of total operating income for fiscal 2009
contributed by our segments was Services: 92.3%; Products and
Systems: 11.2%; International: 27.6%; and Corporate and
Eliminations: (31.1%). For fiscal 2008, the operating income
contributed by our segments was: Services: 89.6%; Products and
Systems: 16.6%; International: 14.7%; and Corporate and
Eliminations: (20.9%).
As a percentage of revenues, selling, general and administrative
expenses for fiscal 2009 were 22.5% compared to 21.6% for fiscal
2008. Our selling, general and administrative expenses for
fiscal 2009 increased $14.2 million, or 43.1%, over fiscal
2008, primarily due to the cost of additional infrastructure to
support our growth, including several new locations obtained
through our acquisitions. Our recent acquisitions accounted for
approximately $6.0 million of this increase. In addition,
the $1.6 million increase in our allowance for doubtful
accounts due to the bankruptcy of our customer was included in
this expense category. Other increases in our selling, general
and administrative expenses included higher compensation and
benefit expenses over the previous year attributed to normal
salary increases as well as our investment in additional
management and corporate staff. A significant portion of these
increases (as well as other increases in cost of revenues)
supported our development of additional centers of excellence.
Our professional fees were also higher as we incurred more
expense in connection with the preparations necessary to operate
as a publicly traded company. Depreciation and amortization
included in the determination of income from operations for
fiscal 2009 and fiscal 2008 was $3.9 million, or 1.9% of
revenues, and $4.6 million, or 3.0% of revenues,
respectively.
Interest expense. Interest expense was
$4.6 million and $3.5 million for fiscal 2009 and
fiscal 2008, respectively. The $1.1 million increase in
fiscal 2009 interest expense was primarily due to increased
borrowing for our acquisitions and purchases of equipment, as
well as working capital requirements. For both years, we
incurred additional expense related to the market rate
adjustments to our interest rate swaps, as the fixed rate on
these swaps was higher than market rates during both annual
periods. The total interest expense adjustments for these swap
arrangements for fiscal 2009 and fiscal 2008 was approximately
$0.2 million and $0.6 million, respectively. On
July 1, 2008, we borrowed $20.0 million to replenish
our revolving line of credit and finance several acquisitions
and on January 7, 2009, we increased our revolver by
$5.0 million for a total of $20.0 million.
Minority Interest, net of taxes. The increase in
fiscal 2009 of $0.2 million in the minority interest is
related to the increased profit, primarily from Diapac, our
subsidiary in Russia. For fiscal 2007, this amount primarily
consisted of the net income of Envirocoustics A.B.E.E., which we
first consolidated in fiscal 2006. We acquired this entity on
April 25, 2007.
Income taxes. Our effective income tax rate was
44.6% for fiscal 2009 compared to 41.9% for fiscal 2008. The
increase was primarily due to the impact of higher state taxes
and US taxes on our foreign profits, net of other adjustments.
Net income. Our net income for fiscal 2009 of
$5.5 million, or 2.6% of our revenues, was
$2.0 million lower than our net income for fiscal 2008,
which was $7.4 million, or 4.9% of revenues. This decrease
in net income was primarily the result of the combination of
higher revenues and higher costs of revenues as a percentage of
revenues, and other operating costs such as the additional
$1.6 million allowance for doubtful accounts and higher
interest expense, depreciation and provision for income taxes.
The $1.6 million increase in our allowance for
52
doubtful accounts and $2.1 million incurred in connection
with the lawsuit settlement, both of which we consider generally
non-recurring or unusual, caused our net income to be lower by
approximately 1% on an after-tax basis. Our net income in fiscal
2008 also benefited from a $1.0 million pre-tax adjustment.
Fiscal 2008
compared to fiscal 2007
Revenues. Revenues increased $30.0 million, or
24.6%, for fiscal 2008 compared to fiscal 2007 as a result of
growth in all our segments. In fiscal 2008, the largest increase
in our revenues was attributable to customers in the oil and gas
market, which accounted for approximately 50% of our total
revenues. The remainder of the growth in our revenues was
broadly distributed among customers in our other target markets,
with the largest increases attributable to growth in revenues
from customers in the fossil and nuclear power and chemicals
markets and other process industries. In fiscal 2008, we
completed a significant number of projects for existing
customers in the public infrastructure market. However, there
was a small decrease in revenues from customers in this market
in fiscal 2008 because we completed a significant new bridge
project in fiscal 2007. The increase in fiscal 2008 revenues was
largely driven by our Services segment, which represented
$25.2 million of the total increase, and resulted primarily
from an increase in the overall customer demand for asset
protection solutions, and revenues contributed from acquired
businesses.
Gross profit. Our gross profit for fiscal 2008
increased $13.0 million, or 30.9%, over fiscal 2007. As a
percentage of revenues, our gross profit was 36.0% and 34.3% in
fiscal 2008 and fiscal 2007, respectively. In dollar terms, the
increase in our gross profit during our 2008 fiscal year was
primarily the result of increased revenues and our raising
prices to keep pace with escalating labor rates, partially
offset by increased depreciation expense due to purchases of
field test equipment and additional fleet vehicles to support
our revenue growth. Our gross profit in fiscal 2008 also
benefitted by 0.7% as we reduced our estimated accrual for
workers compensation claims due to favorable claim experience.
As a percentage of revenues, depreciation expense included in
gross profit for fiscal 2008 and fiscal 2007 was 4.5% and 3.8%,
respectively.
Income from operations. Our income from operations
of $16.4 million in fiscal 2008 increased
$5.6 million, or 52.4%, compared to fiscal 2007. As a
percentage of revenues, for fiscal 2008, our income from
operations was 10.7%, compared to 8.8% for fiscal 2007. This
increase was a result of increased revenues and gross profit,
offset by increases in selling, general and administrative
expenses and depreciation and amortization. Our selling, general
and administrative expenses included in the determination of
income from operations for fiscal 2008 increased
$6.5 million, or 24.7%, over fiscal 2007 due to additional
infrastructure costs for several new locations obtained through
acquisitions, increases to our international staff and increased
audit costs. As a percentage of revenues, our selling, general
and administrative expenses in fiscal 2008 and fiscal 2007 were
21.6%.
Interest expense. Interest expense was
$3.5 million and $4.5 million during fiscal 2008 and
2007, respectively. In fiscal 2007, we paid $1.2 million of
conditional interest in connection with a bank refinancing,
which accounted for most of the $1.0 million decrease in
interest expense. The decrease in interest expense was also due
to lower market rates of interest in fiscal 2008, offset by the
additional expense for an adjustment to our interest rate swaps
during this period because the fixed rate on these swaps was
higher than market rates during the period. In the
53
last quarter of fiscal 2008 our interest also began to increase
as a result of financing our acquisitions.
Loss on extinguishment of long-term debt. The
$0.5 million loss on the extinguishment of debt during
fiscal 2007 related to the write-off of certain capitalized
financing costs related to the refinancing of our debt through a
new credit arrangement.
Income taxes. Our effective income tax rate was
41.9% for fiscal 2008. For fiscal 2007, we had an effective rate
of 3.6%. This increase was primarily as a result of releasing
the deferred tax valuation allowances during fiscal 2007 and the
higher international tax rates on the income of certain of our
subsidiaries that we do not consolidate for tax purposes.
Net income. Our net income for fiscal 2008 of
$7.4 million, or 4.9% of our revenues, was
$2.1 million greater than our net income for fiscal 2007,
which was $5.4 million, or 4.4% of revenues. This 38.1%
increase in net income was primarily as a result of the impact
of higher revenues net of higher cost of revenues and operating
costs on a percentage basis, lower interest expense and a higher
provision for income taxes.
Segment
data
Selected consolidated financial information by segment for
fiscal 2009, 2008 and 2007 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
|
|
(dollars in thousands)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
Revenues(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
Services
|
|
$
|
167,543
|
|
|
$
|
116,027
|
|
|
$
|
90,867
|
|
Products and Systems
|
|
|
17,310
|
|
|
|
16,675
|
|
|
|
14,916
|
|
International
|
|
|
29,165
|
|
|
|
23,727
|
|
|
|
20,935
|
|
Corporate and eliminations
|
|
|
(4,885
|
)
|
|
|
(4,161
|
)
|
|
|
(4,477
|
)
|
|
|
|
|
|
|
|
|
$
|
209,133
|
|
|
$
|
152,268
|
|
|
$
|
122,241
|
|
|
|
|
|
|
(1)
|
|
Revenues by operating segment
includes intercompany transactions, which are eliminated in
corporate and eliminations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
|
|
(dollars in thousands)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
Gross profit
|
|
|
|
|
|
|
|
|
|
|
|
|
Services
|
|
$
|
48,480
|
|
|
$
|
36,301
|
|
|
$
|
26,436
|
|
Products and Systems
|
|
|
8,476
|
|
|
|
8,829
|
|
|
|
7,377
|
|
International
|
|
|
12,602
|
|
|
|
9,932
|
|
|
|
8,634
|
|
Corporate and eliminations
|
|
|
(292
|
)
|
|
|
(231
|
)
|
|
|
(574
|
)
|
|
|
|
|
|
|
|
|
$
|
69,266
|
|
|
$
|
54,831
|
|
|
$
|
41,873
|
|
|
|
54
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
|
|
(dollars in thousands)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
Income from operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Services
|
|
$
|
13,681
|
|
|
$
|
14,649
|
|
|
$
|
8,299
|
|
Products and Systems
|
|
|
1,664
|
|
|
|
2,723
|
|
|
|
2,640
|
|
International
|
|
|
4,091
|
|
|
|
2,408
|
|
|
|
2,146
|
|
Corporate and eliminations
|
|
|
(4,611
|
)
|
|
|
(3,422
|
)
|
|
|
(2,348
|
)
|
|
|
|
|
|
|
|
|
$
|
14,825
|
|
|
$
|
16,358
|
|
|
$
|
10,737
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
|
|
(dollars in thousands)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
Depreciation and amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
Services
|
|
$
|
10,603
|
|
|
$
|
9,529
|
|
|
$
|
7,101
|
|
Products and Systems
|
|
|
1,038
|
|
|
|
1,017
|
|
|
|
926
|
|
International
|
|
|
900
|
|
|
|
861
|
|
|
|
760
|
|
Corporate and eliminations
|
|
|
95
|
|
|
|
16
|
|
|
|
(96
|
)
|
|
|
|
|
|
|
|
|
$
|
12,636
|
|
|
$
|
11,423
|
|
|
$
|
8,691
|
|
|
|
Segment
results for fiscal 2009, 2008 and 2007
Segment discussions that follow provide supplemental information
regarding the significant factors contributing to the changes in
results for each of our business segments.
Services
segment
Revenues. Over the last three years, the largest
increase in our total revenues was from our Services segment.
Our segment revenues had a CAGR of 36.9% during this period with
annual increases in fiscal 2009, 2008 and 2007 of $51.5, $25.2
and $25.4 million, respectively. As a percentage of prior
year segment revenues, these increases represent 44.4%, 27.7%
and 38.9%. Our organic growth in this segment has averaged
approximately 23% a year over this three-year period. In fiscal
2009, the organic growth in our Services segment was estimated
to be approximately 16%. On average, over the past three fiscal
years, customers in the oil and gas industry accounted for 58.9%
of the business of our Services segment and in fiscal 2009
customers in the oil and gas industry accounted for 62.2% of the
segment revenues, primarily due to a new project that we
obtained with an existing customer. The three-year CAGR from
this target market has been 41.1%. We also have double digit
CAGRs in most of our other target markets due to strong demand,
the addition of new customers and revenues from existing
customers. We continue to increase our revenues by providing
existing customers different types of asset protection solutions.
In fiscal 2009, our Services revenues increased
$51.5 million, or 44.4%, compared to fiscal 2008. We
estimate $33.6 million of these revenues are from
acquisitions compared to $7.3 million in the prior year.
The balance of the growth came from several new projects as well
as from other overall growth in the segment. We did experience
some slowing in our revenue growth because
55
of the economic downturn, especially in our third and fourth
fiscal quarters. We attribute this to an uncertain economy, a
customer bankruptcy, and threatened strikes by employees of
several customer refineries that were subsequently resolved. In
addition, many of our customers postponed holiday turnaround
projects and other large-scale projects until later this
calendar year or next; therefore, unlike most prior years, we
did not have many large scale turnarounds in fiscal 2009. Our
customers have historically seldom postponed these types of
projects indefinitely, so we expect our revenues may be
increased in future periods when our customers ask us to
complete projects that they postponed in fiscal 2009. In
addition, in September 2008 our operations in the Gulf Coast
region were disrupted by Hurricane Ike.
In fiscal 2008, our Services revenues increased
$25.2 million, or 27.7%, compared to fiscal 2007. The
increase was largely driven by an increase in the overall
customer demand for our asset protection solutions, including a
large project, and to a lesser extent, revenues from businesses
we acquired. We estimate that our organic growth rate in our
Services segment revenues in fiscal 2008 was approximately 20%.
Our top ten customers accounted for approximately 44%, 45% and
50% of our Services segment revenues during fiscal 2009, 2008
and 2007, respectively. As previously noted, one of our top ten
customers in this segment had filed for bankruptcy in January
2009. Revenues from this customer represented 3.8% of revenues
in our Services segment for fiscal 2009, and we believe our
relationship with this customer will continue.
Gross profit. During this three-year period, gross
profit as a percentage of revenues in our Services segment has
been 28.9%, 31.3% and 29.1% for fiscal 2009, 2008 and 2007,
respectively. Cost of our Services has been 66.7%, 63.7% and
66.8% during the same periods. Depreciation included in the
determination of gross profit has been 4.3%, 5.0% and 4.1%. We
continued to invest in additional field test equipment and fleet
vehicles, which generate depreciation expense, to support our
growth and reduce other operating costs, such as repairs and
maintenance.
Our gross profit for fiscal 2009 was $48.5 million, or
$12.2 million greater than the prior year. The percentage
decrease in gross profit in fiscal 2009 was caused by higher
amounts of non-billable time that represented either development
of new centers of excellence and training or represented lost
billing opportunities related to the economic downturn. Several
of our customers extended holiday shut-downs or delayed
scheduled work, requiring us to pay our employees without any
corresponding revenues. As we expected, several of our recently
acquired businesses that are highly seasonal had lower margins
than those normally achieved under our business model. Finally,
Hurricane Ike negatively impacted our margins in the Gulf Coast
as we lost revenues and incurred higher costs related to
non-productive labor. In fiscal 2009, our depreciation increased
$1.4 million or 24.8% and represents both new assets
acquired and increased depreciation from our acquired businesses.
In fiscal 2008, our gross profit in our Services segment
increased by $9.9 million to $36.3 million from
$26.4 million in the previous fiscal year. As a percentage
of segment revenues, our gross profit increased to 31.3% from
29.1% in fiscal 2007. Contributing to the increase were
increased revenues, higher sales prices and a reduction in
workers compensation costs due to favorable claim
experience. The adjustment for our workers compensation
costs recorded in our fourth fiscal quarter improved our fiscal
2008 segment gross profit by 1.0%. The impact of these positive
factors was reduced by increased personnel costs, an unusually
large mid-year project that yielded minimal gross profit and
additional depreciation. Depreciation expense of
56
$5.8 million, or 5.0%, of segment revenues in fiscal 2008,
increased from $3.8 million, or 4.1%, of segment revenues
in fiscal 2007, due to continued investment.
The increased depreciation expense in fiscal 2008 over fiscal
2007 of $2.0 million was primarily a full year charge for
assets purchased in 2007 which incurred only a partial year
depreciation expense in 2007. In addition, part of the increase
was attributed to assets acquired through our acquisitions.
Income from operations. As a percentage of segment
revenues, our income from operations was 8.2%, 12.6% and 9.1% in
fiscal 2009, 2008 and 2007, respectively.
Our segment income from operations was $13.7 million,
$14.6 million and $8.3 million for fiscal 2009, 2008
and 2007, respectively. Selling, general and administrative
expenses in our Services segment for fiscal 2009, 2008 and 2007
were 17.5%, 15.5% and 16.3% of segment revenues, respectively.
In fiscal 2009, our higher cost of revenues, along with the
additional $1.6 million allowance for doubtful accounts for
a customer bankruptcy and a $2.1 million legal settlement,
were the primary causes of the decrease in operating margin.
Selling, general and administrative expenses in our Services
segment for fiscal 2009 compared to fiscal 2008 increased
$11.4 million, or 63.6%. In addition to a $2.0 million
increase in our allowance for doubtful accounts, major increases
in these expenses included approximately $6.0 million
related to higher operating costs (primarily payroll expense and
a corresponding increase in occupancy costs for rents and
utilities) supporting our acquisitions. In addition, we hired
new management and other personnel, and invested in new
training, safety and quality programs to support new customer
offerings and infrastructure, and we estimate this additional
compensation and other expense accounted for another
$1.5 million of the increase. Other expense increases for
travel, lab support, supplies and other miscellaneous increases
comprised the balance or $1.9 million of the net increase.
Depreciation and amortization expense used in determining income
from operations was $3.3 million, or 2.0% of revenues and
$3.7 million, or 3.2% of revenues for fiscal 2009 and
fiscal 2008, respectively.
In fiscal 2008, these expenses increased by $3.1 million,
or 21.2%. Over $2.4 million related to higher operating
costs (primarily payroll expense) supporting our acquisitions.
The remainder included increased bonus payments to our managers
for improved performance.
Products and
Systems segment
Revenues. The Products and Systems segment also
experienced growth in their revenues in the last three years.
Revenues were $17.3 million, $16.7 million and
$14.9 million for fiscal 2009, 2008 and 2007, respectively.
In fiscal 2009, 2008 and 2007, the segment revenue growth was
3.8%, 11.8% and 11.9%, respectively, a CAGR of 9.1% overall. The
largest customer for this segment is our International segment,
which remarkets our products, or, to a lesser extent, uses the
products in their field testing and engineering services. Other
larger markets representing
20-29% of
segment revenues have been other test and research laboratories
and industrial companies, including aerospace companies. In
addition, our oil and gas and fossil and nuclear power markets
account for a similar amount of business on an annual basis.
In fiscal 2009, our Products and Systems revenues increased
$0.6 million compared to fiscal 2008 due to increases
across many of our product lines, including our acoustic
emission and vibration systems, as well as on-line monitoring
systems. In addition, shipments to our North America, or
57
NAFTA, customers international subsidiaries increased
$1.6 million compared to the same period last year because
of increased demand, primarily for our AE products and systems.
Offsetting these increases in revenues was a $1.1 million
decrease in revenues from direct sales to third-party
international customers as compared to fiscal 2008, when the
segment had a large system sale to such a customer. In this
segment we had no concentration risk from any single customer
since our largest customer represents less than 4.0% of our
segment revenues.
The $1.8 million increase in our fiscal 2008 segment
revenues resulted primarily from approximately $1.4 million
in sales from new product introductions, including a line of
handheld testing equipment and acoustic emission sensing
devices. The remainder of the increase was attributable to
approximately $0.4 million in product sales to our
international customers.
Gross profit. Our segment gross profit for fiscal
2009, 2008 and 2007 was $8.5 million, $8.8 million and
$7.4 million, respectively. Our segment gross profit as a
percentage of revenues for the same three years was 49.0%, 52.9%
and 49.5%, respectively. Depreciation expense used in
determining gross profit for fiscal 2009, fiscal 2008 and fiscal
2007 was $0.8 million, or 4.9% of revenues,
$0.7 million, or 4.3% of revenues, and $0.7 million,
or 4.8% of revenues, respectively. The gross profit in this
segment can fluctuate depending on volume and product mix. For
example, our ultrasonic NDT solutions require more product
engineering and large components are fabricated at a lower
margin.
For the majority of fiscal 2009, our segment gross margin was
higher than the previous year. However, segment revenues in the
fourth quarter of the year were 11.6% below the same quarter in
fiscal 2008 due to the economic downturn, which reduced our
margins for all of fiscal 2009. This was primarily due to our
customers delaying or canceling sales orders, though requests
for proposals from our customers remained at reasonable levels
throughout the quarter.
In fiscal 2008, our gross margin in this segment benefited from
engineering billed to our international subsidiary required on
our sensor highway systems, which was a new product introduced
that year on a large infrastructure project. This increase was
partly offset due to a higher than average cost of revenues
associated with the delay of a large order while we continued to
incur our fixed costs.
Income from operations. Our segment income from
operations for fiscal 2009, 2008 and 2007 was $1.7 million,
$2.7 million and $2.6 million, respectively. As a
percentage of segment revenues, our operating income was 9.6%,
16.3% and 17.7% in fiscal 2009, 2008 and 2007, respectively. In
fiscal 2009, as a percentage of segment revenues, our segment
income from operations decreased because of the items noted
above in the discussion of our segment gross profit for fiscal
2009. We believe that with the recent addition of our Group
Executive Vice President of Marketing and Sales and other hires,
as well as new opportunities in public infrastructure and
on-line monitoring, this trend will improve.
Segment selling, general and administrative expenses, which
after gross profit, are the largest determinant of our income
from operations in fiscal 2009, 2008 and 2007, were
$5.4 million, or 31.0% of revenues, $4.8 million, or
29.0% of revenues, and $3.8 million, or 25.7% of revenues,
respectively. The largest increase in these costs, particularly
in the last two fiscal years, can be attributed to increases in
our sales force to better capture market opportunities in our
target markets. Due to the time required for technical training
of new sales personnel, we believe the financial benefit of
these new hires have not yet matched our investment. Similarly,
our research and engineering expenses have increased as a result
of new hires, and were $1.3 million,
58
$0.9 million and $0.7 million in fiscal 2009, 2008 and
2007, respectively. As a percentage of our Products and Systems
segment sales, these costs have represented 7.3%, 5.7% and 4.7%
for the three years, respectively.
International
segment
Revenues. Our International segment revenues for
fiscal 2009, 2008 and 2007 have been $29.2 million,
$23.7 million and $20.9 million, respectively, and are
subject to currency fluctuations. For the last three fiscal
years, the segment revenues, including currency fluctuations,
had a CAGR of 18.2%, with annual increases of 22.9%, 13.3% and
18.4% during fiscal 2009, 2008 and 2007, respectively. We
estimate the organic segment growth during the past three years
to be approximately 27% (2009), 6% (2008) and 11% (2007).
Revenues from customers in the oil and gas and chemicals markets
have historically comprised over 50% of our segment revenues.
Most of this business is centered in major oil refineries in
Russia and Brazil. Other revenues are more widely distributed
including industrial, manufacturing and other testing companies,
research centers and universities.
Our International segment contributed $5.4 million to our
revenue growth for fiscal 2009 compared to fiscal 2008. For
fiscal 2009, we estimate the organic segment growth was
approximately 27% and acquisition segment growth was
approximately 9%. Currency fluctuations compared to fiscal year
2008 resulted in 12.1% less segment revenues. The overall
decrease caused by the strengthening of the dollar was
$2.9 million, most of this variance occurring in the last
half of the year. As with our other segments, we estimate that
our organic segment growth slowed in the third and fourth fiscal
quarters, but was still approximately 7% in our fourth fiscal
quarter. $2.2 million of our growth was from a new project
for a refinery in Russia and $1.2 million was from the
United Kingdom and The Netherlands, where a portion of the
growth was attributable to an acquisition of a company
specializing in tank inspections. All of our other foreign
locations in this segment also had positive growth of revenues.
During fiscal 2008 and fiscal 2007, the U.S. dollar was
generally weaker compared to most of the currencies of countries
in which our international subsidiaries operate. As a result,
the translation of the amounts of non-dollar-denominated
transactions into dollars resulted in increases to all line
items in our statement of operations, which account for a
portion of the increases as noted below.
In fiscal 2008, revenues in our International segment increased
$2.8 million, or 13.3%, over our segment revenues in fiscal
2007, primarily as a result of a $1.4 million increase in
revenues associated with our operations in the United Kingdom
and The Netherlands and a $1.4 million increase in revenues
from our South American operations. Approximately
$1.6 million of the increase in segment revenues in fiscal
2008 were attributable to the weaker U.S. dollar. The
remainder of the increase was due in part to the sale of our new
sensor highway products in the United Kingdom and The
Netherlands as well as increased business in the oil and gas
markets in South America. We had minor decreases in segment
revenues attributable to customers in Russia and France, but
these were offset by translation gains caused by the exchange
rate.
Gross profit. Our segment gross profit margin was
43.2%, 41.9% and 41.2% in fiscal 2009, fiscal 2008 and fiscal
2007, respectively. Although fairly consistent on an annual
basis, quarterly results can vary based on sales mix,
seasonality, currency and other factors. In the second half of
fiscal
59
2009, our segment gross margin was 37.3%, which included a 2.4%
customer sales allowance. For the entire year, our gross profit
in this segment was $12.6 million.
In fiscal 2008, the gross profit in our International segment
was $9.9 million, or 41.9% of segment revenues, compared to
$8.6 million, or 41.2% of segment revenues, in fiscal 2007.
Although our segment gross profit in fiscal 2008 increased over
fiscal 2007, the amount of the increase was offset by additional
costs related to project delays incurred to support
customization of new products introduced for a bridge monitoring
project. In addition, our overall gross profit margin was
impacted by the increase as a percentage of total revenues of
revenues attributable to customers in South America where we
performed traditional NDT services with a lower gross profit
margin.
Income from operations. Our income from operations
from our International segment for fiscal 2009, 2008 and 2007
was $4.1 million, $2.4 million and $2.1 million,
respectively. As a percentage of segment revenues, our income
from operations was 14.0%, 10.1% and 10.3% in fiscal 2009, 2008
and 2007, respectively. Our segment selling, general and
administrative expenses, the largest factor in determining
income from operations for fiscal 2009, 2008 and 2007 were
$8.0 million, or 27.6% of segment revenues,
$6.8 million, or 28.6% of segment revenues, and
$5.9 million, or 28.0% of segment revenues, respectively.
In fiscal 2009, currency fluctuation was more impactful than in
previous years because our segment expenses were approximately
$1.0 million lower than the local currency equivalent. The
overall increase from fiscal 2008 is attributable to new segment
expenses related to an acquisition made in Holland and
additional hires and training costs in our South American
operation. Foreign currency transaction gains and losses
included in income from operations were $0.2 million in
fiscal 2009 and were not significant in fiscal 2008.
Corporate and
eliminations
The elimination in revenues and cost of revenues primarily
relates to the accounting elimination of revenues from sales of
our Products and Systems segment to the International segment.
The other major item in the corporate and eliminations grouping
are the general and administrative costs not allocated to the
other segments. These costs primarily include those for
non-segment management, accounting and auditing, acquisition
transactional costs and stock compensation expense and certain
other costs. As a percentage of our total revenues, these costs
have generally remained constant over the last three fiscal
years, consisting of 2.1%, 2.2% and 1.6% of total revenues for
fiscal 2009, 2008 and 2007, respectively. The increase in
operating expenses in 2009 and 2008 primarily related to higher
compensation and additional staff, audit and accounting fees and
other general increases in expense at our corporate offices.
60
Quarterly results
of operations
The following table sets forth our unaudited quarterly
statements of operations data and operations data as a percent
of revenues for the eight fiscal quarters ended May 31,
2009. The unaudited quarterly information, in our opinion,
reflects all adjustments, consisting of normal accruals,
necessary for a fair statement of the data for each of those
quarters. This data should be read in conjunction with the
financial statements and the related notes included elsewhere in
this prospectus. These quarterly operating results are not
necessarily indicative of our operating results for any future
period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal quarter ending
|
|
May 31
|
|
|
February 28,
|
|
|
November 30,
|
|
|
August 31,
|
|
|
May 31
|
|
|
February 29,
|
|
|
November 30,
|
|
|
August 31,
|
|
(dollars in thousands)
|
|
2009(1)
|
|
|
2009(1)
|
|
|
2008(2)
|
|
|
2008
|
|
|
2008(3)
|
|
|
2008
|
|
|
2007
|
|
|
2007
|
|
|
|
|
Revenues
|
|
$
|
55,860
|
|
|
$
|
47,001
|
|
|
$
|
59,275
|
|
|
$
|
46,997
|
|
|
$
|
48,023
|
|
|
$
|
37,167
|
|
|
$
|
37,218
|
|
|
$
|
29,860
|
|
Cost of revenues
|
|
|
35,358
|
|
|
|
31,607
|
|
|
|
35,676
|
|
|
|
28,526
|
|
|
|
26,885
|
|
|
|
24,527
|
|
|
|
21,917
|
|
|
|
17,261
|
|
Depreciation
|
|
|
2,490
|
|
|
|
2,290
|
|
|
|
2,061
|
|
|
|
1,859
|
|
|
|
2,108
|
|
|
|
1,661
|
|
|
|
1,569
|
|
|
|
1,509
|
|
|
|
|
|
|
|
Gross profit
|
|
|
18,012
|
|
|
|
13,104
|
|
|
|
21,538
|
|
|
|
16,612
|
|
|
|
19,030
|
|
|
|
10,979
|
|
|
|
13,732
|
|
|
|
11,090
|
|
Selling, general and administrative expenses
|
|
|
12,640
|
|
|
|
12,110
|
|
|
|
11,325
|
|
|
|
11,075
|
|
|
|
9,240
|
|
|
|
8,182
|
|
|
|
7,956
|
|
|
|
7,565
|
|
Research and engineering
|
|
|
345
|
|
|
|
317
|
|
|
|
309
|
|
|
|
284
|
|
|
|
263
|
|
|
|
228
|
|
|
|
243
|
|
|
|
220
|
|
Depreciation and amortization
|
|
|
819
|
|
|
|
891
|
|
|
|
798
|
|
|
|
1,428
|
|
|
|
1,487
|
|
|
|
1,057
|
|
|
|
1,001
|
|
|
|
1,031
|
|
Legal settlement
|
|
|
(40
|
)
|
|
|
89
|
|
|
|
1,915
|
|
|
|
136
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
4,248
|
|
|
|
(303
|
)
|
|
|
7,191
|
|
|
|
3,689
|
|
|
|
8,040
|
|
|
|
1,512
|
|
|
|
4,532
|
|
|
|
2,274
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
1,502
|
|
|
$
|
(788
|
)
|
|
$
|
3,235
|
|
|
$
|
1,517
|
|
|
$
|
4,291
|
|
|
$
|
540
|
|
|
$
|
1,934
|
|
|
$
|
674
|
|
|
|
|
|
|
(1)
|
|
In the fiscal quarters ended
February 28, 2009 and May 31, 2009, we estimated the
bad debt expense related to a large customer who filed
bankruptcy. The expense provision made was $1.2 million and
$0.4 million in these quarters, respectively. There is
another $0.7 million which we believe will be collectible.
|
|
(2)
|
|
In the fiscal quarter ended
November 30, 2008, we first estimated the legal expense
associated with a class action lawsuit. This item has been
settled and payments made to the class in June 2009.
|
|
(3)
|
|
In the fiscal quarter ended
May 31, 2008, we adjusted our estimate for losses and
expenses under our workers compensation policies as a
result of favorable loss experience. This adjustment resulted in
a favorable impact on the quarters gross profit and
operating income of approximately $1.0 million and
represents 2.1% of revenues.
|
Liquidity and
capital resources
Overview
We have primarily funded our operations through the issuance of
preferred stock in a series of financings, bank borrowings,
capital lease financing transactions and cash provided from
operations. We have used these proceeds to fund our operations,
develop our technology, expand our sales and marketing efforts
to new markets and acquire small companies or assets, primarily
to add certified technicians and enhance our capabilities and
geographic reach. We believe that our existing cash and cash
equivalents, our anticipated cash flows from operating
activities, borrowings under our credit agreement and the net
proceeds from this offering will be sufficient to meet our
anticipated cash needs over the next 12 months.
61
Cash flows
table
The following table summarizes our cash flows for fiscal 2009,
2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal year
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
Net cash provided by (used in):
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$
|
12,661
|
|
|
$
|
12,851
|
|
|
$
|
14,006
|
|
Investing activities
|
|
|
(15,888
|
)
|
|
|
(19,446
|
)
|
|
|
(4,259
|
)
|
Financing activities
|
|
|
4,912
|
|
|
|
6,320
|
|
|
|
(8,122
|
)
|
Effect of exchange rate changes on cash
|
|
|
428
|
|
|
|
63
|
|
|
|
166
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents
|
|
$
|
2,113
|
|
|
$
|
(212
|
)
|
|
$
|
1,791
|
|
|
|
Cash flows from
operating activities
Cash provided by our operating activities primarily consists of
net income adjusted for certain non-cash items, including
depreciation and amortization, deferred taxes and bad debt
expense and the effect of changes in working capital and other
activities.
Cash provided by our operating activities in fiscal 2009 was
$12.7 million and consisted of $5.5 million of net
income plus $15.4 million of non-cash items, consisting
primarily of depreciation and amortization of $12.6 million
and provision for doubtful accounts of $2.1 million, less
$8.2 million of net cash used for working capital purposes
and other activities. Cash used for working capital and other
activities in fiscal 2009 primarily reflected a
$8.8 million increase in accounts receivable attributable
to our increase in revenues, a $1.1 million increase in
prepaid expenses and other current assets due to an increase in
estimated tax payments and a decrease in accounts payable of
$2.2 million due primarily to the timing of payments to
vendors. These were partially offset by a $6.0 million
increase in accrued expenses and other current liabilities due
to a $2.1 million accrual in connection with our fiscal
2009 legal settlement and the overall growth in our operations.
Cash provided by our operating activities in fiscal 2008 was
$12.9 million and consisted of $7.4 million of net
income plus $13.0 million of non-cash items, consisting
primarily of depreciation and amortization of
$11.4 million, less $7.6 million of net cash used for
working capital purposes and other activities. Cash used for
working capital and other activities in fiscal 2008 primarily
reflected a $9.2 million increase in accounts receivable
and a $1.8 million increase in inventories attributable to
our seasonal increase in revenues and a $1.0 million
increase in other expenses related to the preparation and filing
of our S-1
registration statement in connection with this offering. These
increases were partially offset by a $6.3 million increase
in accounts payable and accrued expenses as our operations
continued to grow, and a $0.1 million increase in our
income taxes payable due to our increased profitability.
Cash provided by operating activities in fiscal 2007 was
$14.0 million and consisted of $5.4 million of net
income plus $8.9 million of non-cash items, consisting
primarily of $8.7 million of depreciation and amortization,
less $0.3 million of cash used to support changes in
operating assets and liabilities. In addition to depreciation
and amortization, the adjustments to cash included a non-cash
credit of $1.3 million due to the release of the deferred
tax valuation allowance. The $0.3 million in net cash used
to support operating assets and liabilities primarily reflected
a $2.3 million net increase in our accounts receivable
offset by increases in our
62
accounts payable and accrued expenses as our operations
continued to grow. Cash was also provided by a $1.2 million
increase in income taxes payable due to our improved
profitability. A total of $0.9 million of cash was used for
a variety of items, including purchases of inventories and other
assets.
Cash flows from
investing activities
Cash used in investing activities for fiscal 2009 was
$15.9 million of which $10.5 million was used to
acquire four services businesses and one international business.
In connection with the acquisitions, we also incurred
$9.3 million of seller notes payable and related
obligations. Additionally, in fiscal 2009 we acquired
$12.9 million in property and equipment, of which
$5.4 million were cash purchases and $7.5 million were
acquired through capital leases.
For fiscal 2008, cash used in investing activities was
$19.4 million, of which $15.5 million was used to
acquire seven services businesses and $3.7 million in
property and equipment. In connection with the acquisitions, we
also incurred $12.9 million of seller notes payable and
related obligations. In addition, $5.0 million of property
and equipment was acquired through capital lease obligations.
Cash used in investing activities was $4.3 million for
fiscal 2007. Cash purchases for property and equipment for
fiscal 2007 was $2.6 million. Cash spent for acquisitions
in fiscal 2007 was $2.0 million. All of these expenditures
support our growth or specific customer projects and
opportunities.
Cash flows from
financing activities
For fiscal 2009, cash provided from financing activities was
$4.9 million, which included $20.0 million in
borrowings from long-term debt to finance five acquisitions and
net borrowings of $2.4 million from our revolving credit
facility to fund operations. During fiscal 2009 we made
$12.3 million and $4.8 million in principal repayments
on our long-term debt and capital leases, respectively. During
fiscal 2009, we refinanced our existing term loan and revolver
with a new credit facility comprised of a $25.0 million
term loan and $55.0 million revolver, a portion of which
($2.0 million U.S. dollar equivalent) will be
available to be borrowed in Canadian dollars. The proceeds were
used to repay the outstanding indebtedness of our prior credit
agreement and to fund two acquisitions that closed after the end
of fiscal 2009.
For fiscal 2008 cash provided from financing activities was
$6.3 million. In fiscal 2008, we used our revolving credit
facility to borrow $13.1 million to finance a portion of
the purchase prices of the seven acquisitions noted above.
During fiscal 2008, we also paid obligations under our capital
leases and bank debt of $3.6 million and $3.2 million,
respectively. Subsequent to year end, we amended our credit
agreement to provide for an additional $20.0 million term
loan facility from our lenders that we used to repay the
borrowing under our revolving credit facility.
Cash flows used in financing activities in fiscal 2007 were
$8.1 million and consisted primarily of net repayments to
our banks and other note holders of $5.3 million and
another $2.4 million repayment of capital lease
obligations. On October 31, 2006, as subsequently amended
and restated on April 23, 2007 and further amended on
December 14, 2007, May 30, 2007 and July 1, 2008,
we entered into our credit agreement, which initially provided
for a $15.0 million revolving credit facility and a
$25.0 million term loan facility. The proceeds from the
senior credit facility were used to repay the outstanding
indebtedness under our prior credit and term loans.
63
Effect of
exchange rate on changes in cash
For fiscal 2009, 2008 and 2007, exchange rate changes increased
our cash by $0.4 million, $0.1 million and
$0.2 million, respectively.
Cash balance and
credit facility borrowings
As of May 31, 2009 we had $5.7 million in cash and
$4.5 million available to us under our former secured
revolving credit facility. At May 31, 2009, our former
credit agreement provided for two term loans in the amount of
$25.0 million (2007 term loan) and
$20.0 million (2008 term loan) and a
$20 million secured revolving credit facility
(revolver). The aggregate principal amount owed
under the term loans and the revolving credit facility was
$36.3 million and $15.5 million, respectively, as of
May 31, 2009. Borrowings under this credit agreement
accrued interest at either the prime rate (3.25% at May 31,
2009) or the LIBOR rate (0.32% at May 31, 2009), plus
an applicable margin of 1.5% to 2.3% as defined in the
agreement. The outstanding principal and accrued interest under
the 2007 term loan and the revolver were to mature on
October 31, 2012. The 2008 term loan was to mature on
June 27, 2014.
As of May 31, 2009 we were not in compliance with the
following two covenants in our former credit agreement:
(1) the requirement that we maintain a minimum debt service
coverage ratio, as described below, of at least 1.10 to 1.00,
and (2) the requirement that we not create, incur, assume
or allow to exist more than a total of $10 million of any
indebtedness in respect of capital leases, synthetic lease
obligations (as defined in our former credit agreement) and
purchase money obligations for certain fixed or capital assets
(limited indebtedness). On July 22, 2009 our
former credit agreement was amended, effective as of
May 31, 2009, to decrease the minimum debt service coverage
ratio to 1.05 to 1.00, and effective as of August 31, 2007,
to increase the maximum limited indebtedness to
$22 million, so that we were treated as being in compliance
with these two covenants during all reporting periods after
August 31, 2007.
On July 22, 2009, in connection with the refinancing of our
former credit facility, we entered into our current credit
agreement with Bank of America, N.A., JPMorgan Chase Bank, N.A.,
TD Bank, N.A. and Capital One, N.A., which provided for a
$25.0 million term loan and a $55.0 million secured
revolving credit facility. Borrowings under our credit agreement
currently bear interest at the LIBOR or base rate, at our
option, plus an applicable margin ranging from 0% to 3.25% and
a market disruption increase of between 0.0% and 1.0%, if the
lenders determine it applicable. The outstanding principal and
accrued interest under the term loan matures on July 21,
2012. Borrowings made under the revolving credit facility are
payable at the same time. There is a provision in our credit
facility that requires us to repay 25% of the immediately
preceding fiscal years free cash flow if our
ratio of funded debt to EBITDA, as defined in our
credit agreement, is less than a fixed amount on or before
October 1 each year. Free cash flow means the sum of
EBITDA, as defined in our credit agreement, minus all taxes paid
or payable in cash, minus cash interest paid, minus all capital
expenditures made in cash, minus all scheduled and non-scheduled
principal payments on funded debt made in the period and plus or
minus changes in working capital. Funded debt means
all outstanding liabilities for borrowed money and other
interest-bearing liabilities. We do not expect to be required to
make payments under this provision.
Our credit agreement also contains financial and other covenants
limiting our ability to, among other things, create liens, make
investments and certain capital expenditures, incur more
64
indebtedness, merge or consolidate, acquire other companies,
make dispositions of property, pay dividends and make
distributions to stockholders, enter into a new line of
business, enter into transactions with affiliates and enter into
burdensome agreements.
Our credit agreement also contains financial covenants that
require us to maintain the following:
|
|
|
a minimum EBITDA, as defined in our credit agreement, of
$37.5 million in fiscal 2010, $40 million in fiscal
2011 and $45 million in fiscal 2012;
|
|
|
|
a minimum debt service coverage ratio, or the ratio of:
(A) EBITDA, as defined in our credit agreement, less cash
taxes, dividends, cash distributions, withdrawals and other
distributions paid or made, to (B) the sum of: (i) the
current portion of
long-term
liabilities, including any conditional payments due under any
earn-out
agreements deemed due and owing, (ii) the current portion
of capitalized lease obligations, and (iii) interest
expense on all obligations repaid, in each case, during the
preceding 12 months, of at least 1.10 to 1.0 in fiscal
2010, at least 1.15 to 1.0 in fiscal 2011, at least 1.20 to 1.0
in fiscal 2012; and,
|
|
|
|
a funded debt leverage ratio, or the ratio of: (A) all
outstanding liabilities for borrowed money and other
interest-bearing
liabilities, including current and long term liabilities, other
than the capitalized lease on our headquarters, to
(B) EBITDA, as defined in our credit agreement, not
exceeding: 3.0 to 1.0 during the first and second quarters of
fiscal 2010, 2.5 to 1.0 in the third and fourth quarters of
fiscal 2010 and in the first quarter of fiscal 2011, or 2.25 to
1.0 in the second quarter of fiscal 2011 and thereafter.
|
EBITDA, as defined in our credit agreement, means, for any
period: (A) our net income less (B) our income (or
plus loss) from discontinued operations and extraordinary items,
plus (C) income tax expenses, plus (D) interest
expense, plus (E) depreciation, deletion and amortization
(including
non-cash
loss on retirement of assets), plus (F) stock option
expense, less (G) cash expense related to stock options,
plus (H) certain amounts as a result of our completion of
acquisitions after the date of our credit agreement, plus
(I) up to $2.1 million for amounts we expended
settling a specific lawsuit, plus (J) amounts expended by
us in connection with this offering, plus (K) amounts
expended by us in connection with negotiating and closing the
initial borrowings under our credit agreement, all as adjusted
for certain historical expenses, accounting adjustments and
other
non-cash
charges, subject to the approval of certain of our lenders.
Future sources of
cash
We expect our future sources of cash to include cash flow from
operations, cash borrowed under our revolving credit facility
and cash borrowed from leasing companies to purchase equipment
and fleet service vehicles. Our revolving credit facility is
available for cash advances required for working capital and
letters of credit to support our operations. To meet our short-
and long-term liquidity requirements, we expect primarily to
rely on cash generated from our operating activities. We are
currently funding our acquisitions through our available cash,
borrowings under our revolving credit facility and seller notes.
Future uses of
cash
We expect our future uses of cash will primarily be for
acquisitions, international expansion, purchases or manufacture
of field testing equipment to support growth, additional
investments
65
in technology and software products and the replacement of
existing assets and equipment used in our operations. We often
make purchases to support new sources of revenues, particularly
in our Services segment, but generally only do so with a high
degree of certainty about related customer orders and pricing.
In addition, we have a certain amount of replacement equipment,
including our fleet vehicles. We historically spend
approximately 5% to 6% of our total revenues on capital
expenditures, excluding acquisitions, and will fund this through
a combination of cash and lease financing. Our cash capital
expenditures, excluding acquisitions, for fiscal 2009, 2008 and
2007 were 2.6%, 2.4% and 2.1% of revenues, respectively.
Our anticipated acquisitions may also require capital. In some
cases, additional equipment will be needed to upgrade the
capabilities of these acquired companies. We believe that after
this offering, our future acquisition and capital spending will
increase as we aggressively pursue growth opportunities. Other
investments in infrastructure, training and software may also be
required to match our growth, but we plan to continue using a
disciplined approach to building our business. In addition, we
will use cash to fund our operating leases, capital leases and
long-term debt repayment and various other obligations,
including the commitments discussed in the table below, as they
arise.
We will also use cash to support our working capital
requirements for our operations, particularly in the event of
further growth and due to the impacts of seasonality on our
business. Our future working capital requirements will depend on
many factors, including the rate of our revenue growth, our
introduction of new solutions and enhancements to existing
solutions and our expansion of sales and marketing and product
development activities. To the extent that our cash and cash
equivalents, cash flows from operating activities and net
proceeds of this offering are insufficient to fund our future
activities, we may need to raise additional funds through bank
credit arrangements or public or private equity or debt
financings. We also may need to raise additional funds in the
event we determine in the future to effect one or more
acquisitions of businesses, technologies or products that will
complement our existing operations. In the event additional
funding is required, we may not be able to obtain bank credit
arrangements or effect an equity or debt financing on terms
acceptable to us or at all.
We may also use cash in connection with legal proceedings and
claims which arise in the ordinary course of business. We paid
approximately $1.8 million in fiscal 2010 related to our
fiscal 2009 legal settlement.
Contractual
obligations
We generally do not enter into long-term minimum purchase
commitments. Our principal commitments, in addition to those
related to our long-term debt discussed below, consist of
obligations under facility leases for office space and equipment
leases.
66
The following table summarizes our outstanding contractual
obligations as of May 31, 2009 and has been adjusted to
reflect the revised principal payments under our new debt
facility entered into on July 22, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments due by period
|
|
|
|
|
|
|
Fiscal
|
|
|
Fiscal
|
|
|
Fiscal
|
|
|
Fiscal
|
|
|
Fiscal
|
|
|
Beyond
|
|
(in thousands)
|
|
Total
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
2014
|
|
|
fiscal 2015
|
|
|
|
|
Long-term debt
|
|
$
|
66,251
|
|
|
$
|
11,181
|
|
|
$
|
12,288
|
|
|
$
|
11,501
|
|
|
$
|
30,425
|
|
|
$
|
184
|
|
|
$
|
672
|
|
Capital lease obligations(1)
|
|
|
16,269
|
|
|
|
5,773
|
|
|
|
4,661
|
|
|
|
3,078
|
|
|
|
1,495
|
|
|
|
963
|
|
|
|
299
|
|
Operating lease obligations
|
|
|
6,736
|
|
|
|
2,113
|
|
|
|
1,605
|
|
|
|
1,153
|
|
|
|
958
|
|
|
|
637
|
|
|
|
270
|
|
|
|
|
|
|
|
Total
|
|
$
|
89,256
|
|
|
$
|
19,067
|
|
|
$
|
18,554
|
|
|
$
|
15,732
|
|
|
$
|
32,878
|
|
|
$
|
1,784
|
|
|
$
|
1,241
|
|
|
|
|
|
|
(1)
|
|
Includes estimated cash interest to
be paid over the remaining terms of the leases.
|
In addition to the above, we have certain contingent payments
possibly payable in connection with our acquisitions.
Off-balance sheet
arrangements
During fiscal 2009, 2008 and 2007, we did not have any
relationships with unconsolidated entities or financial
partnerships, such as entities often referred to as structured
finance or special purpose entities, which would have been
established for the purpose of facilitating off-balance sheet
arrangements or other contractually narrow or limited purposes.
Effects of
inflation and changing prices
Our results of operations and financial condition have not been
significantly affected by inflation and changing prices.
Quantitative and
qualitative disclosures about market risk
Interest rate
sensitivity
We had cash and cash equivalents of $5.7 million at
May 31, 2009. These amounts are held for working capital
purposes and were invested primarily in deposits, money market
funds and short-term, interest-bearing, investment-grade
securities. In addition, some of the net proceeds of this
offering may be invested in short-term, interest-bearing,
investment-grade securities pending their application. Due to
the short-term nature of these investments, we believe that we
do not have any material exposure to changes in the fair value
of our investment portfolio as a result of changes in interest
rates. Declines in interest rates, however, will reduce future
investment income. If overall interest rates had fallen by 10%
in fiscal 2009, our interest income would not have been
materially affected.
We had $36.3 million of debt outstanding under our term
loan facility at May 31, 2009. Although the interest rate
on our term loan facility is variable and adjusts periodically,
it is currently based on the
30-day LIBOR
rate (0.32% at May 31, 2009). If the LIBOR rate fluctuated
67
by 10% for the year ending May 31, 2009, interest expense
in fiscal 2009 would have fluctuated by approximately $38,000.
We use interest rate swaps to manage our floating interest rate
exposure. In 2007, we entered into two interest rate swap
contracts whereby we would receive or pay an amount equal to the
difference between a fixed rate and the quoted
90-day LIBOR
rate on a quarterly basis. At May 31, 2009, the following
outlines the significant terms of the contracts and the amount
we will pay above our contractual rates.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable
|
|
|
Fixed
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional
|
|
|
interest
|
|
|
interest
|
|
|
Fair value
|
|
Contract date
|
|
Term
|
|
|
amount
|
|
|
rate
|
|
|
rate
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
November 20, 2006
|
|
|
4 years
|
|
|
$
|
8,000
|
|
|
|
LIBOR
|
|
|
|
5.17%
|
|
|
$
|
(517
|
)
|
|
$
|
(321
|
)
|
November 30, 2006
|
|
|
3 years
|
|
|
|
8,000
|
|
|
|
LIBOR
|
|
|
|
5.05%
|
|
|
|
(199
|
)
|
|
|
(234
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
16,000
|
|
|
|
|
|
|
|
|
|
|
$
|
(716
|
)
|
|
$
|
(555
|
)
|
|
|
Foreign currency
risk
We have foreign currency exposure related to our operations in
foreign locations. This foreign currency exposure, particularly
the Euro, British Pound Sterling, Brazilian Real, Russian Ruble,
Japanese Yen, Canadian Dollar and the Indian Rupee, arises
primarily from the translation of our foreign subsidiaries
financial statements into U.S. dollars. For example, a
portion of our annual sales and operating costs are denominated
in British pound sterling and we have exposure related to sales
and operating costs increasing or decreasing based on changes in
currency exchange rates. If the U.S. dollar increases in
value against these foreign currencies, the value in
U.S. dollars of the assets and liabilities originally
recorded in these foreign currencies will decrease. Conversely,
if the U.S. dollar decreases in value against these foreign
currencies, the value in U.S. dollars of the assets and
liabilities originally recorded in these foreign currencies will
increase. Thus, increases and decreases in the value of the
U.S. dollar relative to these foreign currencies have a
direct impact on the value in U.S. dollars of our foreign
currency denominated assets and liabilities, even if the value
of these items has not changed in their original currency. We do
not currently enter into forward exchange contracts to hedge
exposures denominated in foreign currencies. A 10% change in the
average U.S. dollar exchange rates for fiscal 2009 would
cause a change in consolidated operating income of approximately
$0.4 million. We may consider entering into hedging or
forward exchange contracts in the future.
Fair value of
financial instruments
We do not have material exposure to market risk with respect to
investments, as our investments consist primarily of highly
liquid investments purchased with a remaining maturity of three
months or less. We do not use derivative financial instruments
for speculative or trading purposes; however, this does not
preclude our adoption of specific hedging strategies in the
future.
68
Critical
accounting estimates
The preparation of financial statements requires that we make
estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of financial statements and the reported
amounts of revenues and expenses during the reporting period.
Our more significant estimates include: the valuation of
goodwill and intangible assets; the impairment of long-lived
assets, allowances for doubtful accounts; foreign currency
translation; derivative financial instruments; reserves for
self-insured workers compensation and health benefits; and
deferred income tax valuation allowances. We base our estimates
on historical experience and on various other assumptions that
we believe to be reasonable. We evaluate our estimates and
assumptions on an ongoing basis. Our actual results may differ
significantly from these estimates under different assumptions
or conditions. There have been no material changes to these
estimates for the periods presented in this prospectus.
We believe that of our significant accounting policies, which
are described below and in Note 2 to our audited
consolidated financial statements included in this prospectus,
the following accounting policies involve a greater degree of
judgment and complexity. Accordingly, these are the policies we
believe are the most critical to aid in fully understanding and
evaluating our financial condition and results of operations.
Accounts
receivable
Accounts receivable are stated net of an allowance for doubtful
accounts and sales allowances. Outstanding accounts receivable
balances are reviewed periodically, and allowances are provided
at such time as management believes it is probable that such
balances will not be collected within a reasonable period of
time. We extend credit to our customers based upon credit
evaluations in the normal course of business, primarily with
30-day
terms. Bad debts are provided on the allowance method based on
historical experience and managements evaluation of
outstanding accounts receivable. Accounts are written off when
they are deemed uncollectible. The allowance for doubtful
accounts was $3.3 million and $1.3 million as of
May 31, 2009 and 2008, respectively. The May 31, 2009
allowance includes approximately $1.6 million related to
pre-petition accounts receivable of a large customer that filed
a bankruptcy petition under Chapter 11 during fiscal 2009.
This represents 67% of the customers outstanding
pre-petition accounts receivable as of May 31, 2009. The
outstanding pre-petition accounts receivable with this customer
not included in our allowance as of May 31, 2009 was
approximately $0.8 million. We currently do not believe
there are any other outcomes with regard to our assumptions that
are reasonably likely to occur that would have a material impact
on our fiscal 2009 and 2008 financial statements.
Foreign currency
translation
The financial position and results of operations of our foreign
subsidiaries are measured using the local currency as the
functional currency. There are a total of eight foreign
subsidiaries operating in a currency other than the
U.S. dollar. Assets and liabilities of the foreign
subsidiaries are translated into the U.S. dollar at the
exchange rates in effect at the balance sheet date. Income and
expenses are translated at the average exchange rate during the
year. Translation gains and losses not included in earnings are
reported in accumulated other comprehensive income within
stockholders equity. Foreign currency transaction gains
and losses are included in net income (loss), and were
$0.2 million in fiscal 2009 and not significant in fiscal
2008 and
69
2007. We are at risk for changes in foreign currencies relative
to the U.S. dollar. See Quantitative and qualitative
disclosures about market riskForeign currency risk.
We currently do not believe there are other outcomes that are
reasonably likely to occur with regard to our translation
process that would have a material impact on our fiscal 2009 and
2008 financial statements.
Long-lived assets outside of the U.S. totaled
$11.1 million and $3.0 million as of May 31, 2009
and 2008, respectively.
Goodwill and
intangible assets
Goodwill represents the excess of the purchase price over the
fair market value of net assets of the acquired business at the
date of acquisition. We test for impairment annually in our
fiscal fourth quarter using a two-step process. The first step
identifies potential impairment by comparing the fair value of
our reporting units to their carrying value. If the fair value
is less than the carrying value, the second step measures the
amount of impairment, if any. The impairment loss is the amount
by which the carrying amount of goodwill exceeds the implied
fair value of that goodwill. The reporting units are determined
in accordance with SFAS No. 131 Disclosures about
Segments of an Enterprise and Related Information and
SFAS No. 142 Goodwill and Other Intangibles. We
have concluded that our reporting units are the Services Segment
and Physical Acoustics LTD., a division within the International
Segment. The fair value of the reporting unit is determined
using an income approach valuation model, specifically
discounted cash flows. Our discounted cash flow analysis
incorporates the following key assumptions: growth projections,
our weighted average costs of capital, future capital
expenditures and tax rates. There have been no significant
changes in the assumptions and methodologies used for valuing
goodwill since the prior year. There was $38.6 million and
$28.6 million of goodwill at May 31, 2009 and 2008,
respectively. The fair value of our reporting units materially
exceeds the carrying value for fiscal 2009 and 2008.
Accordingly, there have been no impairments of goodwill. None of
the reporting units were at risk for impairment in fiscal 2009.
A material negative change in our key assumptions would need to
occur for our step one tests to indicate an impairment.
Intangible assets are recorded at cost. Intangible assets with
finite lives are amortized on a straight-line basis over their
estimated useful lives.
Impairment of
long-lived assets
We review the recoverability of our long-lived assets on a
periodic basis in order to identify business conditions that may
indicate a possible impairment. Business conditions that
indicate a possible impairment, among others, include decreases
in market prices of long-lived assets, an adverse change in our
business that could affect the value of long-lived assets and a
projection of operating cash flow losses associated with the use
of long-lived assets. We have evaluated the business conditions
that may indicate a potential impairment and concluded that our
asset groups are not at risk for impairment in fiscal 2009 and
2008. A material negative change in business conditions would
need to occur for our assessment to indicate impairment. When
indicators of impairment are present, the assessment for
potential impairment is based primarily on our ability to
recover the carrying value of our long-lived assets from
expected future undiscounted cash flows. Our analysis includes
the future cash flows (based on our internal projections)
directly associated with our asset groups, excludes interest
charges, is based on all available evidence regarding the use of
the asset groups and covers the remaining useful life of the
asset groups. Our asset groups are determined in accordance with
SFAS No. 144 Accounting
70
for the Impairment or Disposal of Long-Lived Assets and include
the divisions within our Services, Products and Systems and
International Segments. Corporate long-lived assets are not
independent of the cash flows of other assets and liabilities of
other asset groups. Accordingly, the analysis of our corporate
asset group includes the assets and liabilities of the
consolidated entity. If the total expected future undiscounted
cash flows are less than the carrying amount of the assets, a
loss is recognized for the difference between fair value
(computed based upon the expected future discounted cash flows)
and the carrying value of the assets. Our long lived assets are
comprised primarily of property, plant and equipment. We had
$33.6 million and $26.5 million in net property, plant
and equipment as of May 31, 2009 and 2008, respectively,
and did not record any impairment charges in the two fiscal
years ended on those dates.
Derivative
financial instruments
We recognize our derivatives as either assets or liabilities,
and measure those instruments at fair value and recognize the
changes in fair value of the derivative in net income or other
comprehensive income, as appropriate. We hedge a portion of our
variable rate interest payments on debt using interest rate swap
contracts to convert variable payments into fixed payments. We
do not apply hedge accounting to our interest rate swap
contracts. Changes in the fair value of these instruments are
reported as a component of interest expense. Derivative
liabilities were $0.7 million and $0.6 million at
May 31, 2009 and 2008, respectively. We are at risk for
changes in interest rates. See Quantitative and
qualitative disclosures about market risk Interest
rate sensitivity. We currently do not believe there are
other outcomes that are reasonably likely to occur with regard
to our derivative financial instruments that would have a
material impact on our fiscal 2009 and 2008 financial statements.
Income
taxes
Income taxes are accounted for under the asset and liability
method. This process requires that we estimate our income taxes
in each of the jurisdictions in which we operate and estimate
actual current tax payable and related tax expense together with
assessing temporary differences resulting from differing
treatment of certain items, such as depreciation, for tax and
accounting purposes. Deferred income tax assets and liabilities
are recognized based on the future tax consequences attributable
to differences between the financial statement carrying amounts
of existing assets and liabilities and their respective tax
bases and tax credit carryforwards. Deferred income tax assets
and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect
on deferred income tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the
enactment date. A valuation allowance is provided if it is more
likely than not that some or all of the deferred income tax
assets will not be realized. We consider all available evidence,
both positive and negative, to determine whether, based on the
weight of the evidence, a valuation allowance is needed.
Evidence used includes information about our current financial
position and our results of operations for the current and
preceding years, as well as all currently available information
about future years, including our anticipated future
performance, the reversal of deferred tax liabilities and tax
planning strategies. As of May 31, 2009, we had net
deferred income taxes of $0.4 million. We believe that it
is more likely than not that we will have sufficient future
taxable income to allow us to realize the benefits of the net
deferred tax assets. We currently do not believe there are other
outcomes that are reasonably likely to occur with regard to
income taxes that would have a material impact on our fiscal
2009 and 2008 financial statements.
71
Recent accounting
pronouncements
SFAS No. 141R. In December 2007, the FASB
issued SFAS No. 141 (revised 2007), Business
Combinations (SFAS 141R) which replaces SFAS 141,
Business Combinations (SFAS 141). SFAS 141R applies to
all business combinations, including combinations among mutual
entities and combinations by contract alone. SFAS 141R
requires that all business combinations will be accounted for by
applying the acquisition method. This standard will
significantly change the accounting for business combinations
both during the period of the acquisition and in subsequent
periods. Among the more significant changes in the accounting
for acquisitions are the following:
|
|
|
In-process research and development (IPR&D) will be
accounted for as an asset, with the cost recognized as research
and development is realized or abandoned. IPR&D is
presently expensed at the time of the acquisition.
|
|
|
Assets acquired or liabilities assumed in a business combination
that arise from a contingency will be measured at fair value at
acquisition date if the fair value can be determined during the
measurement period.
|
|
|
Decreases in valuation allowances on acquired deferred tax
assets will be recognized in operations. Such changes were
considered to be subsequent changes in consideration and were
recorded as decreases in goodwill.
|
|
|
Transaction costs will generally be expensed. Certain such costs
are presently treated as costs of the acquisition.
|
SFAS 141R is effective for business combinations
consummated in periods beginning on or after December 15,
2008. Early application is prohibited. We will adopt
SFAS 141R on June 1, 2009 and the effects will depend
on future acquisitions. In the fourth quarter of fiscal year
2009, we expensed $150 of direct costs related to business
combinations that were in process but not completed by the
effective date of SFAS 141R.
SFAS No. 160. In December 2007, the FASB
issued SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements (SFAS 160), an
amendment of ARB No. 51, which will change the accounting
and reporting related to noncontrolling interests.
SFAS 160, which is effective for fiscal years and interim
periods beginning on or after December 15, 2008, requires
that ownership interests in the subsidiaries held by parties
other than the parent be presented in the consolidated balance
sheet with equity and the amount of consolidated net income
attributable to the parent and to the noncontrolling interest be
clearly identified and presented on the face of the consolidated
income statement. Additionally, the statement requires that
changes in a parents ownership interest in a subsidiary be
accounted for as an equity transaction. We will adopt
SFAS 160 on June 1, 2009 and, accordingly, minority
interest in the accompanying consolidated balance sheets will be
reclassified to equity. Earnings attributable to minority
interests will be included in net income although such earnings
will continue to be deducted to measure earnings per share.
SFAS No. 161. In March 2008, the FASB
issued SFAS No. 161, Disclosures about Derivative
Instruments and Hedging Activities (SFAS 161).
SFAS 161 is intended to help investors better understand
how derivative instruments and hedging activities affect an
entitys financial position, financial performance and cash
flows through enhanced disclosure requirements. SFAS 161 is
effective for
72
financial statements issued for fiscal years and interim periods
beginning after November 15, 2008, with earlier adoption
encouraged. We will adopt SFAS 161 on June 1, 2009.
SFAS No. 165. In May 2009, the FASB issued
SFAS No. 165, Subsequent Events
(SFAS 165). SFAS 165 establishes
general standards of accounting for and disclosures of events
that occur after the balance sheet date but before financial
statements are issued and is effective for interim and annual
periods ending after June 15, 2009. We do not anticipate
the adoption of SFAS 165 on June 1, 2009 will have a
material effect on our results of operations, financial position
or cash flows.
SFAS No. 167. In June 2009, the FASB
issued SFAS No. 167, Amendment to FASB
Interpretation No. 46(R) (SFAS 167)
which amends Interpretation 46(R) to require an enterprise to
perform an analysis to determine whether the enterprises
variable interest or interests give it a controlling financial
interest in a variable interest entity. SFAS 167 is
effective for interim and annual reporting periods that begin
after November 15, 2009. We do not expect adoption of
SFAS 167 in fiscal year 2010 to have a material effect on
our results of operations, financial position or cash flows as
we do not have any variable interest entities.
73
Business
Our
business
We are a leading global provider of technology-enabled asset
protection solutions used to evaluate the structural integrity
of critical energy, industrial and public infrastructure. We
combine industry-leading products and technologies, expertise in
mechanical integrity (MI) and non-destructive testing (NDT)
services and proprietary data analysis software to deliver a
comprehensive portfolio of customized solutions, ranging from
routine inspections to complex, plant-wide asset integrity
assessments and management. These mission critical solutions
enhance our customers ability to extend the useful life of
their assets, increase productivity, minimize repair costs,
comply with governmental safety and environmental regulations,
manage risk and avoid catastrophic disasters. Given the role our
services play in ensuring the safe and efficient operation of
infrastructure, we have historically provided a majority of our
services to our customers on a regular, recurring basis. We
serve a global customer base of companies with asset-intensive
infrastructure, including companies in the oil and gas, fossil
and nuclear power, public infrastructure, chemicals, aerospace
and defense, transportation, primary metals and metalworking,
pharmaceuticals and food processing industries. As of
August 1, 2009, we had approximately 2,000 employees,
including 29 Ph.D.s and more than 100 other degreed
engineers and highly-skilled, certified technicians, in 68
offices across 15 countries. We have established long-term
relationships as a critical solutions provider to many of the
leading companies in our target markets. The following chart
represents revenues we generated in certain of our end markets
for fiscal 2009.
Mistras revenues
by end market
(fiscal 2009)
74
Our asset protection solutions have evolved over time as we have
combined the disciplines of NDT, MI services and data analysis
software to provide value to our customers. The foundation of
our business is NDT, which is the examination of assets without
impacting the future usefulness or impairing the integrity of
these assets. The ability to inspect infrastructure assets and
not interfere with their operating performance makes NDT a
highly attractive alternative to many traditional intrusive
inspection techniques, which may require dismantling equipment
or shutting down a plant, refinery, mill or site. Our MI
services are a systematic engineering-based approach to
developing best practices for ensuring the on-going integrity
and safety of equipment and industrial facilities. MI services
involve conducting an inventory of infrastructure assets,
developing and implementing inspection and maintenance
procedures, training personnel in executing these procedures and
managing inspections, testing and assessments of customer
assets. By assisting customers in implementing MI programs we
enable them to identify gaps between existing and desired
practices, find and track deficiencies and degradations to be
corrected and establish quality assurance standards for
fabrication, engineering and installation of infrastructure
assets. We believe our MI services improve plant safety and
reliability and regulatory compliance, and in so doing reduce
maintenance costs. Our solutions also incorporate comprehensive
data analysis from our proprietary asset protection software to
provide customers with detailed, integrated and cost-effective
solutions that rate the risks of alternative maintenance
approaches and recommend actions in accordance with consensus
industry codes and standards.
As a global asset protection leader, we provide a comprehensive
range of solutions that includes:
|
|
|
traditional outsourced NDT services conducted by our
technicians, mechanical integrity assessments, above-ground
storage tank inspection and American Petroleum Institute visual
inspections and predictive maintenance program development;
|
|
|
advanced asset protection solutions, in most cases involving
proprietary AE, digital radiography, infrared, wireless
and/or
automated ultrasonic sensors, which are operated by our highly
trained technicians;
|
|
|
a proprietary and customized portfolio of software products for
testing and analyzing data captured in real-time by our
technicians and sensors, including advanced features such as
pattern recognition and neural networks;
|
|
|
enterprise software and relational databases to store and
analyze inspection data comparing to prior operations and
testing of similar assets, industrial standards and specific
risk conditions, such as use with highly flammable or corrosive
materials, and developing asset integrity management plans based
on risk-based inspection that specify an optimal schedule for
the testing, maintenance and retirement of assets; and
|
|
|
on-line monitoring systems that provide for secure web-based
remote or
on-site
asset inspection, real-time reports about and analysis of plant
or enterprise-wide structural integrity data, comparison of
integrity data to our library of historical inspection data and
analysis to better assess structural integrity and provide
alerts for and prioritize future inspections and maintenance.
|
We offer our customers either a customized package of services,
products and systems or our enterprise software and other niche
products on a stand-alone basis. For example, customers can
purchase most of our sensors and accompanying software to
integrate with their own
75
systems, or they can purchase a complete turn-key solution,
including our installation, monitoring and assessment services.
Importantly, however, we do not sell certain of our advanced and
proprietary software and other products as stand-alone
offerings; instead, we embed them in our comprehensive service
offerings to protect our investment in intellectual property
while providing a substantial source of recurring revenues.
We generated revenues of $209.1 million,
$152.3 million and $122.2 million and adjusted EBITDA
of $31.1 million, $28.1 million and $19.2 million
for fiscal 2009, 2008 and 2007, respectively. For fiscal 2009,
we generated over 80% of our revenues from our Services segment.
Our revenues are diversified, with our top 10 customers
accounting for 35.8%, 35.2% and 38.6% of our revenues during
fiscal 2009, 2008 and 2007, respectively. We provide our asset
protection solutions to multiple divisions, locations and
business units of major refineries across the globe. Our largest
such customer accounted for 17.1%, 16.8% and 16.5% of our
revenues for fiscal 2009, 2008 and 2007, respectively. No other
customer accounted for more than 5.0% of our revenues during
fiscal 2009, 2008 or 2007.
Asset protection
industry overview
Asset protection is a large and rapidly growing industry that
consists of NDT inspection, MI services and inspection data
warehousing and analysis. NDT plays a crucial role in assuring
the operational and structural integrity of critical
infrastructure without compromising the usefulness of the tested
materials or equipment. The evolution of NDT services, in
combination with broader industry trends, including increased
asset utilization and aging of infrastructure, the desire by
companies to extend the useful life of their existing
infrastructure, new construction projects, enhanced government
regulation and the shortage of certified NDT professionals have
made NDT an integral and increasingly outsourced part of many
asset-intensive industries. Well-publicized industrial and
public infrastructure failures and accidents have also raised
the level of awareness of regulators, as well as owners and
operators, of the benefits that asset protection can provide.
Historically, NDT solutions predominantly used qualitative
testing methods aimed primarily at detecting defects in the
tested materials. This methodology, which we categorize as
traditional NDT, is typically labor intensive and,
as a result, considerably dependent upon the availability and
skill level of the engineers and scientists performing the
inspection services. The traditional NDT market is highly
fragmented, with a significant number of small vendors providing
inspection services to divisions of companies or local
governments situated in close proximity to the vendors
field inspection engineers and scientists. Today, we believe
that customers are increasingly looking for a single vendor
capable of providing a wider spectrum of asset protection
solutions for their global infrastructure. This shift in
underlying demand, which began in the early 1990s, has
contributed to a transition from traditional NDT solutions to
more advanced solutions that employ automated digital sensor
technologies and accompanying enterprise software, allowing for
the effective capture, storage, analysis and reporting of
inspection and engineering results electronically and in digital
formats. These advanced techniques, taken together with advances
in wired and wireless communication and information
technologies, have further enabled the development of remote
monitoring systems, asset-management and predictive maintenance
capabilities and other data analytics and management. We believe
that as advanced asset protection solutions continue to gain
acceptance among asset-intensive organizations, only those
vendors offering broad, complete and integrated solutions,
scalable operations and a global footprint will have a distinct
competitive advantage. Moreover, we believe that vendors that
are able to effectively deliver both advanced
76
solutions and data analytics, by virtue of their ownership of
customers data, develop a significant barrier to entry for
competitors, and so develop the capability to create significant
recurring revenues.
We believe the following represent key dynamics driving the
growth of the asset protection industry:
|
|
|
Extending the Useful Life of Aging
Infrastructure. The prohibitive cost and challenge of
building new infrastructure has resulted in the significant
aging of existing infrastructure and caused companies to seek
ways to extend the useful life of existing assets. For example,
due to the significant cost associated with constructing new
refineries, stringent environmental regulations which have
increased the costs of managing them and difficulty in finding
suitable locations on which to build them, no new refineries
have been constructed in the United States since 1976. Because
aging infrastructure requires relatively higher levels of
maintenance and repair in comparison to new infrastructure, as
well as more frequent, extensive and ongoing testing, companies
and public authorities are increasing spending to ensure the
operational and structural integrity of existing infrastructure.
|
|
|
Outsourcing of Non-Core Activities and Technical Resource
Constraints. While some of our customers have
historically performed NDT services in-house, the increasing
sophistication and automation of NDT programs, together with a
decreasing supply of skilled professionals and stricter
governmental regulations, has led many companies and public
authorities to outsource NDT to providers that have the
necessary technical product portfolio, engineering expertise,
technical workforce and proven track record of results-oriented
performance to effectively meet their increasing requirements.
|
|
|
Increasing Asset and Capacity Utilization. Due to
high energy prices, high repair and replacement costs and the
limited construction of new infrastructure, existing
infrastructure in some of our target markets is being used at
higher capacities, causing increased stress and fatigue that
accelerate deterioration. These higher prices and costs also
motivate our customers to complete repairs, maintenance,
replacements and upgrades more quickly. For example, increasing
demand for refined petroleum products, combined with high plant
utilization rates routinely in excess of 85%, is driving
refineries to upgrade facilities to make them more efficient and
expand capacity. In order to sustain high capacity utilization
rates, customers are increasingly using asset protection
solutions to efficiently ensure the integrity and safety of
their assets. Implementation of asset protection solutions can
also lead to increased productivity as a result of reduced
maintenance-related downtime.
|
|
|
Increasing Corrosion from Low-Quality Inputs. High
commodities prices and increasing energy demands have led to the
use of lower grade inputs and feedstock, such as low-grade coal
or petroleum, in the refinery and power generation processes.
These lower grade inputs can rapidly corrode the infrastructure
they come into contact with, which in turn increases the need
for asset protection solutions to identify such corrosion and
enable infrastructure owners to proactively combat the problems
caused by such corrosion.
|
|
|
Increasing Use of Advanced Materials. Customers in
our target markets are increasingly utilizing advanced
materials, such as composites, and other unique technologies in
the manufacturing and construction of new infrastructure and
aerospace applications. As a result, they require advanced
testing, assessment and maintenance technologies to protect
these assets, since many of these advanced materials cannot be
tested using traditional NDT techniques. We believe that demand
for NDT solutions will increase as companies and public
|
77
|
|
|
authorities continue to use these advanced materials, not only
during the operating phase of the lifecycle of their assets, but
also during the design and construction phases by incorporating
technologies such as embedded sensors.
|
|
|
|
Meeting Safety Regulations. Owners and operators of
infrastructure assets increasingly face strict government
regulations and safety requirements. Failure to meet these
standards can result in significant financial liabilities,
increased scrutiny by OSHA and other regulators, higher
insurance premiums and tarnished corporate brand value. The
numerous failings in equipment, maintenance and inspection that
led to the Texas City refinery explosion in 2005 created
significant damage to the reputation of refineries and led OSHA
to strengthen process safety enforcement standards. As a result,
these owners and operators are seeking highly reliable asset
protection suppliers with a proven track record of providing
asset protection services, products and systems to assist them
in meeting these increasingly stringent regulations.
|
|
|
Expanding Addressable End-Markets. Advances in NDT
sensor technology and asset protection software systems, and the
continued emergence of new technologies, are creating increased
demand for asset protection solutions in applications where
existing techniques were previously ineffective. Further, we
expect increased demand in relatively new markets, such as the
pharmaceutical and food processing industries, where
infrastructure is only now aging to a point where significant
maintenance is required.
|
|
|
Expanding Addressable Geographies. We believe that a
substantial driver of incremental demand will come from
international markets, including Asia, Europe and Latin America.
Specifically, as companies and governments in these markets
build and maintain infrastructure and applications that require
the use of asset protection solutions, we believe demand for our
solutions will increase.
|
We believe that the market available to us will continue to grow
rapidly as a result of macro-market trends, including aging
infrastructure, use of more advanced materials, such as
composites, and the increasing outsourcing of asset protection
solutions by companies who historically performed these services
using internal resources.
Our target
markets
We focus our sales, marketing and product development efforts on
a range of infrastructure-intensive industries and governmental
authorities. With our portfolio of asset protection services,
products and systems, we can effectively serve our customer base
throughout the lifecycle of their assets, beginning at the
design stage, through the construction and maintenance phase
and, as necessary, through the decommissioning of their
infrastructure.
Our target markets include:
Oil and
gas
According to the United States Energy Information Administration
(EIA), in 2008 coal, oil and gas supplied approximately 80% of
global primary energy demand. In addition, there were
700 crude oil refineries in the world, with 153 of them in
North America. High energy prices are driving consistently high
utilization rates at these facilities. With aging infrastructure
and growing capacity constraints, asset protection continues to
grow as an indispensable tool in maintenance planning, quality
control and prevention of catastrophic failure in refineries and
78
petrochemical plants. Recent high oil and fossil fuel input
prices have placed additional pressure on industry participants
to increase capacity, focus on production efficiency and cost
reductions and shorten shut-down time or
turnarounds. Asset protection solutions are used for
both off-stream inspections, or inspection when the tested
infrastructure is shut-down, and increasingly, on-stream
inspections, or inspection when the tested infrastructure is
operating at normal levels. While we expect off-stream
inspection of vessels and piping during a plant shut-down or
turnaround to remain a routine practice by companies in these
industries, we expect the areas of greatest future growth to
occur as a result of on-stream inspections and monitoring of
facilities, such as offshore platforms, transport systems and
oil and gas transmission lines, because of the substantial
opportunity costs of shutting them down. On-stream inspection
enables companies to avoid the costs associated with shutdowns
during testing while enabling the economic and safety advantages
of advanced planning or predictive maintenance.
Traditional power
generation and transmission
Asset protection in the power industry has traditionally been
associated with the inspection of high-energy, critical steam
piping, boilers, rotating equipment, utility aerial man-lift
devices, large transformer testing and various other
applications for nuclear and fossil-fuel based power plants. We
believe that in recent years the use of asset protection
solutions have grown rapidly in this industry due to the aging
of critical power generation and transmission infrastructure.
For instance, the average age of a nuclear power plant in the
United States is over 30 years. Furthermore, global demand
for power generation and transmission has grown rapidly and is
expected to continue, primarily as a result of the energy needs
of emerging economies such as China and India. The chart below
is from the U.S. Government Energy Information
Administration and their estimate of this growth by kilowatt
hours.
|
|
|
Nuclear. For the year ended December 31, 2007,
U.S. commercial nuclear reactors operated at a capacity
utilization rate of approximately 92%. We believe that the need
to sustain these high utilization rates, while also maintaining
a high degree of safety, will result in increased spending on
testing, on-line monitoring and maintenance of these assets.
Industrial Information Resources projected that maintenance
spending on the North American reactor fleet will exceed
$800 million in 2008. The current U.S. administration
is proposing a reduction of
CO2
emissions to 1990 levels by 2020, with a further 80% reduction
by 2050. Meeting these aggressive goals while gradually
increasing the overall energy supply requires that all
non-emitting technologies must be advanced. A December 2008
Electric Power Research Institute
|
79
|
|
|
(EPRI) study called the PRISM analysis defines a possible
technology mix within the electricity sector that would help
achieve a comparable goal. In it, nuclear generation rises 20%
from current levels by 2020 and nearly 200% by 2050.
|
Globally, there were 436 nuclear reactors in operation as of
June 30, 2009 with 47 additional reactors under
construction. 55% of these reactors are more than 15 years
old. As of August 2009, there are currently 104 sites licensed
by the U.S. Nuclear Regulatory Commission, and since 2007,
there have been 22 applications for additional sites. We believe
it will be increasingly important to provide asset protection
solutions to the global nuclear power industry in order to
prevent potentially catastrophic events and help the nuclear
industry optimize availability and safety of their assets.
|
|
|
Fossil. The fossil fuel power generation market
consists of facilities that burn coal, natural gas or oil to
produce electricity. These facilities operate at high capacity
levels and can incur productivity loss if a shutdown is
required. As a result, there is a significant demand for
continual testing and maintenance of these facilities and their
assets. In addition, to meet growing electricity demand, fossil
power generation companies are increasing capital spending for
capacity expansions and new facility construction. In 2009, the
EIA reported that there are over 80 fossil power stations
proposed for construction in the United States.
|
|
|
Wind. Wind power has reached critical mass, with
wind installations in the United States alone increasing by
8.5MW, or 50%, in 2008. It is estimated that growth in 2009 will
continue to accelerate. There is significant demand for on-line
condition monitoring for wind turbines, because their three
critical components, or the main bearing, gearbox and generator,
need to be fully operational at all times for a turbine to work
efficiently and safely. Failure of a gearbox on a single wind
turbine rated at 1.5MW can cost up to $350,000 to replace, which
justifies the use of preventative maintenance monitoring and
services for units both in and out of warranty. Our asset
protection solutions are also being used in the research, design
and development of the composite based wind turbine blades to
improve their structural integrity and efficiency and are being
applied to inspect the structural integrity of the tower and
base.
|
Other Process
Industries
The process industries, or industries in which raw materials are
treated or prepared in a series of stages, include chemicals,
pharmaceuticals, food processing and paper and pulp. Three
process industries that we focus our efforts on are described
below.
|
|
|
Chemicals. As with oil and gas processing
facilities, chemical processing facilities require significant
spending on maintenance and monitoring. The average cost of
plant construction for chemical assets has increased
substantially (plant construction costs for processing of
certain chemical assets have doubled in the past 10 years),
which we believe creates a more concentrated focus on asset
protection solutions to limit further capital costs.
Additionally, growing chemical end-markets continue to put
strain on existing plants. Given their aging infrastructure,
growing capacity constraints and increasing capital costs, we
believe asset protection solutions continue to grow in
importance in maintenance planning, quality and cost control and
prevention of catastrophic failure in the chemicals industry.
|
|
|
|
Pharmaceuticals and food processing. Although the
pharmaceuticals and food processing industries have historically
not employed asset protection solutions as much as other
industries, we believe that in the future these industries will
increasingly use asset protection solutions throughout their
manufacturing and other processes. Because these industries use
|
80
|
|
|
equipment, structures, facilities and other infrastructure
similar to those of many of our other target markets, and these
assets have reached an age where structural failures are
becoming a significant risk we are seeing an increasing demand
from those companies looking to protect their existing
investments and avoid costly maintenance repairs and revenue
losses due to process or manufacturing line shutdowns. In
addition, advanced NDT is more effective than traditional NDT
solutions when testing the principal alloys and materials used
in these industries infrastructure assets.
|
Public
infrastructure
We believe that high profile infrastructure catastrophes, such
as the collapse of the I-35W bridge in Minneapolis, have caused
public authorities to more actively seek ways to prevent similar
events from occurring. Public authorities tasked with the
construction of new, and maintenance of existing, public
infrastructure, including bridges and highways, increasingly use
asset protection solutions to test and inspect these assets.
Importantly, these authorities now employ asset protection
solutions throughout the life of these assets, from their
original design and construction, with the use of embedded
sensing devices to enable on-line monitoring, through ongoing
maintenance requirements.
Aerospace and
defense
The operational safety, reliability, structural integrity and
maintenance of aircraft and associated products is critical to
the aerospace and defense industries. Industry participants
increasingly use asset protection solutions to perform
inspections upon delivery, and also periodically employ asset
protection solutions during the operational service of aircraft,
using advanced ultrasonic immersion systems or digital
radiography in order to precisely detect structural defects.
Industry participants also use asset protection solutions for
the inspection of advanced composites found in new classes of
aircraft, ultrasonic fatigue testing of complete aircraft
structures, corrosion detection and on-board monitoring of
landing gear and other critical components. We expect increased
demand for our solutions from the aerospace industry to result
from wider use of advanced composites and distributed on-line
sensor networks and other embedded analytical applications built
into the structure of assets to enable real-time performance
monitoring and condition-based maintenance.
Transportation
The use of asset protection solutions within the transportation
industry is primarily focused in the automotive and rail
segments. Within the automotive segment, manufacturers use asset
protection solutions throughout the entire design and
development process, including the inspection of raw material
inputs, during in-process manufacturing and, finally, during
end-product testing and analysis. Although asset protection
technologies have been utilized in the automobile industry for a
number of decades, we believe growth in the segment will
increase as automobile manufacturers begin to outsource their
asset protection requirements and take advantage of new
technologies that enable them to more thoroughly inspect their
products throughout the manufacturing process, reduce costs and
shorten time to market. Within the rail segment, asset
protection solutions are used primarily to test rails and
passenger and tank cars.
81
Primary metals
and metalworking
The quality control requirements driven by the low defect
tolerance within automated, robotic intensive metalwork
industries, such as screw machining, serve as key drivers for
the recent growth of NDT technologies, such as ultrasonics and
radiography. We expect that increasingly stringent quality
control requirements and competitive forces will drive the
demand for more costly finishing and polishing which, in turn,
will promote greater use of NDT throughout the production
lifecycle.
Our competitive
strengths
We believe the following competitive strengths contribute to our
being a leading provider of asset protection solutions and will
allow us to further capitalize on growth opportunities in our
industry:
|
|
|
Single Source Provider for Asset Protection Solutions
Worldwide. We believe we are the only company with a
comprehensive portfolio of proprietary and integrated asset
protection solutions, including services, products and systems
worldwide, which positions us to be the leading single source
provider for a customers asset protection requirements.
Through our network of 68 offices and independent
representatives in 15 countries around the world, we offer an
extensive portfolio of solutions that enables our customers to
consolidate all their inspection requirements and the associated
data storage and analytics on a single system that spans the
customers entire enterprise. This allows our customers to
more effectively manage their asset portfolio, plan asset
maintenance based on predictive analytics rather than simple
scheduled routines and track their assets globally, thereby
enhancing asset productivity and utilization while minimizing
the administrative costs of having multiple vendors. In
addition, collaboration between our services teams and product
design engineers generates enhancements to our services,
products and systems, which provide a source of competitive
advantage compared to companies that provide only NDT services
or NDT products.
|
|
|
Long-Standing Trusted Provider to a Diversified and Growing
Customer Base. By providing critical and reliable NDT
services, products and systems for more than 30 years and
expanding our asset protection solutions, we have become a
trusted partner to a large and growing customer base across
numerous infrastructure-intensive industries globally. Our
customers include some of the largest and most well-recognized
firms in the oil and gas, chemical, fossil and nuclear power,
aerospace and defense industries as well as the largest public
authorities. Seven of our top 10 customers by fiscal 2009
revenues have used our solutions for at least 10 years. We
leverage our strong relationships to sell additional solutions
to our existing customers while also attracting new customers.
As asset protection is increasingly recognized by our customers
as a strategic advantage, we believe our reputation and history
of successful execution are key competitive differentiators.
|
|
|
Repository of Customer-Specific Inspection Data. Our
enterprise software solutions enable us to capture and store our
customers testing and inspection data in a centralized
database. As a result, we have accumulated large amounts of
proprietary information that allows us to provide our customers
with value-added services, such as benchmarking, predictive
maintenance, inspection scheduling, data analytics and
regulatory compliance. We believe our ability to provide these
customized products and services, along with the high cost of
switching to an alternative vendor, provide us with significant
competitive advantages.
|
82
|
|
|
Proprietary Products, Software and Technology
Packages. We have developed systems that have become
the cornerstone of several unique NDT applications, such as
those used for the testing of pressure vessels (the MONPAC
technology package) or above-ground storage tanks (the TANKPAC
technology package). These proprietary products allow us to
efficiently and effectively provide unique solutions to our
customers complex applications, resulting in a significant
competitive advantage. In addition to the proprietary products
and systems that we sell to customers on a stand-alone basis, we
also develop a range of proprietary sensors, instruments,
systems and software used exclusively by our Services segment.
|
|
|
Deep Domain Knowledge and Extensive Industry
Experience. We are an industry leader in developing
advanced asset protection solutions, including acoustic emission
(AE) testing for non-intrusive on-line monitoring of storage
tanks and pressure vessels, bridges and transformers, portable
corrosion mapping, ultrasonic testing (UT) systems, on-line
plant asset integrity management with sensor fusion, enterprise
software solutions for plant-wide and fleet-wide inspection data
archiving and management, advanced and thick composites
inspection and ultrasonic phased array inspection of thick wall
boilers. In addition, many of the members of our team have been
instrumental in developing the testing standards followed by
international standards-setting bodies, such as the American
Society of Non-Destructive Testing and comparable associations
in other countries. The scientists and engineers on our research
and development team developed many of the advanced NDT
technologies we use in our business, including portable
corrosion mapping UT systems, enterprise software solutions for
plant-wide and fleet-wide inspection data archiving and
management, and non-intrusive above-ground tank testing.
|
|
|
Collaborating with Our Customers. Our asset
protection solutions have historically been designed in response
to our customers unique performance specifications and are
supported by our proprietary technologies. Our sales and
engineering teams work closely with our customers research
and design staff during the design phase of our products in
order to incorporate our products into specified infrastructure
projects, as well as with facilities maintenance personnel to
ensure that we are able to provide the asset protection
solutions necessary to meet these customers changing
demands. As a result, we believe that our close, collaborative
relationships with our customers provide us a significant
competitive advantage.
|
|
|
Experienced Management Team. Our management team has
a track record of leadership in NDT, averaging over
20 years experience in the industry. These individuals also
have extensive experience in growing businesses organically and
in acquiring and integrating companies, which we believe is
important to facilitate future growth in the fragmented asset
protection industry. In addition, our senior managers are
supported by highly experienced project managers who are
responsible for delivering our solutions to customers.
|
Our growth
strategy
Our growth strategy emphasizes the following key elements:
|
|
|
Continue to Develop Technology-Enabled Asset Protection
Services, Products and Systems. We intend to maintain
and enhance our technological leadership by continuing to invest
in the internal development of new services, products and
systems. Our highly trained team of Ph.D.s, engineers and
highly-skilled, certified technicians have been instrumental in
developing numerous significant asset protection standards, and
we believe their knowledge base will
|
83
|
|
|
enable us to innovate a wide range of new asset protection
solutions more rapidly than our competition.
|
|
|
|
Increase Revenues from Our Existing Customers. Many
of our customers are multinational corporations with asset
protection requirements from multiple divisions at multiple
locations across the globe. Currently, we capture a relatively
small portion of their overall expenditures on these solutions.
We believe our superior services, products and systems, combined
with the trend of outsourcing asset protection solutions to a
small number of trusted service providers, positions us to
significantly expand both the number of divisions and locations
that we serve as well as the types of solutions we provide. We
strive to be the preferred global partner for our customers and
aim to become the single source provider for their asset
protection solution requirements.
|
|
|
Add New Customers in Existing Target Markets. Our
current customer base represents a small fraction of the total
number of companies in our target markets with asset protection
requirements. Our scale, scope of products and services and
expertise in creating technology-enabled solutions have allowed
us to build a reputation for high-quality and has increased
customer awareness about us and our asset protection solutions.
We intend to leverage our reputation and solutions offerings to
win new customers within our existing target markets, especially
as asset protection solutions are adopted internationally. We
intend to continue to leverage our competitive strengths to win
new business as customers in our existing target markets
continue to seek a single source and trusted provider of
advanced asset protection solutions.
|
|
|
Expand Our Customer Base into New End Markets. We
believe we have significant opportunities to rapidly expand our
customer base in relatively new end markets, including the
maritime shipping, wind turbine and other alternative energy and
natural gas transportation industries and the market for public
infrastructure, such as highways and bridges. The expansion of
our addressable markets is being driven by the increased
recognition and adoption of asset protection services, products
and systems, and new NDT technologies enabling further
applications in industries such as healthcare and compressed and
liquefied natural gas transportation, and the aging of
infrastructure, such as construction and loading cranes and
ports, to the point where visual inspection has proven
inadequate and new asset protection solutions are required. We
expect to continue to expand our global sales organization, grow
our inspection data management and data mining services and find
new high-value applications, such as embedding our sensor
technology in assembly lines for electronics and distributed
sensor networks for aerospace applications. As companies in
these emerging end markets realize the benefits of our asset
protection solutions, we expect to expand our leadership
position by addressing customer needs and winning new business.
|
|
|
Continue to Capitalize on Acquisitions. We intend to
continue employing a disciplined acquisition strategy to
broaden, complement and enhance our product and service
offerings, add new customers and certified personnel, expand our
sales channels, supplement our internal development efforts and
accelerate our expected growth. We believe the market for asset
protection solutions is highly fragmented with a large number of
potential acquisition opportunities. We have a proven ability to
integrate complementary businesses, as demonstrated by the
success of our past acquisitions, which have often contributed
entirely new products and services that have added significantly
to our revenues and profitability. In addition, we have begun to
offer and sell our advanced asset protection solutions to
customers of companies we acquired that had previously relied on
traditional NDT solutions.
|
84
|
|
|
Importantly, we believe we have improved the operational
performance and profitability of our acquired businesses by
successfully integrating and selling a comprehensive suite of
solutions to the customers of these acquired businesses.
|
Our
solutions
We provide comprehensive asset protection solutions to a diverse
customer base. We combine the strengths of our proprietary
products, industry expertise, a suite of software solutions and
our highly skilled and experienced technicians and engineers to
deliver a broad set of inspection, engineering and information
technology services that address the complex business challenges
faced by our customers. Depending on the requirements of our
customers, we can provide them our software and other products
on a stand-alone basis or as a complete end-to-end solution
consisting of sensor products, services and software.
Importantly, as part of our solutions, we are increasingly
providing on-line asset monitoring and management software
enabling our customers to have real-time access to and assess
the structural health of their infrastructure.
Our
services
We provide a range of testing and inspection services to a
diversified customer base across energy-related, industrial and
public infrastructure industries. We either deploy our services
directly at the customers location or through our own
extensive network of field testing facilities. Our global
footprint allows us to provide asset protection solutions
through local offices in close proximity to our customers,
permitting us to keep response time to a minimum, while
maximizing our ability to develop meaningful, collaborative
customer relationships. Examples of our comprehensive portfolio
of services include: testing components of new construction as
they are built or assembled, providing corrosion monitoring data
to help customers determine whether to repair or retire
infrastructure, providing material analysis to ensure the
integrity of infrastructure components and supplying
non-invasive on-stream techniques that enable our customers to
pinpoint potential problem areas prior to failure. In addition,
we also provide services to assist in the planning and
scheduling of resources for repairs and maintenance activities.
Our experienced inspection professionals perform these services,
which are supported by our advanced proprietary software and
hardware products.
Traditional
NDT services
Our certified personnel provide a range of traditional
inspection services. For example, our visual inspectors provide
comprehensive assessments of the condition of our
customers plant equipment during capital construction
projects and maintenance shutdowns. Of the broad set of
traditional NDT techniques that we provide, several lend
themselves to integration with our other offerings and often
serve as the initial entry point to more advanced customer
engagements. For example, we provide a comprehensive program for
the inspection of above-ground storage tanks designed to meet
stringent industry standards for the inspection, repair,
alteration and reconstruction of oil and petrochemical storage
tanks. This program includes magnetic flux exclusion for the
rapid detection of floor plate corrosion, advanced ultrasonic
systems and leak detection of floor defects, remote ultrasonic
crawlers for shell and roof inspections and trained, certified
inspectors for visual inspection and documentation.
85
Advanced NDT
services
In addition to traditional NDT services, we provide a broad
range of proprietary advanced NDT services that we offer on a
stand-alone basis or in combination with software solutions such
as our proprietary enterprise plant condition monitoring
software and systems (PCMS). We also provide on-line monitoring
capabilities and other solutions that enable the delivery of
accurate and real-time information to our customers. Our
advanced NDT services require more complex equipment and more
skilled inspection professionals to operate this equipment and
interpret test results. Some of the technologies they use
include:
|
|
|
Automated ultrasonic testing
|
|
Wireless data acquisition
|
Guided ultrasonic long wave testing
|
|
On-line plant asset integrity monitoring
|
Infrared thermography
|
|
Risk-based inspection
|
Phased array ultrasonic testing
|
|
Digital radiography
|
Acoustic emission testing
|
|
Sensor fusion
|
|
|
Examples of our advanced NDT techniques include the following:
|
|
|
Automated Ultrasonic Phased Array Inspection. We
primarily use this technique to inspect welded areas during
large capital construction and maintenance projects to determine
whether the welds can withstand anticipated operating
conditions, such as high pressures or temperatures. This
technique employs an automated mobile scanner to obtain
structural ultrasonic inspection data from multiple angles and
locations. The principal competing technique is radiographic
inspection, which generally impedes or requires the construction
or maintenance work to be halted during the inspection. By using
ultrasonic phased array inspection, our customers can continue
to weld while our inspections are taking place, which shortens
downtime during maintenance projects and accelerates the
completion of construction projects.
|
|
|
Guided Ultrasonic Long Wave Testing. We typically
use this technique to locate corrosion or metal loss in large
volumes of piping. It allows us to inspect a long continuous
section of piping from one location and follow up with further
inspections on problem areas, as compared to more costly and
time-intensive methods which require inspections at multiple
locations along the same section of pipe. It also allows us to
inspect the entire pipe body, enabling us to identify a larger
percentage of flaws as compared to traditional techniques that
inspect only a small portion of pipe walls.
|
|
|
Advanced Infrared Inspection. We generally employ
this technique in place of ultrasonic inspections of large
operating systems, such as boilers in industrial power plants,
which rely on scans of sample areas of the system to test their
integrity rather than a scan of the entire system. Traditional
infrared inspection locates unexpected temperature differences
to alert inspection personnel to potential problems with
insulation, process systems, electrical systems and proper
operating parameters. Our proprietary advanced infrared system
enables us to scan large areas using a robotic crawler and not
only examine temperature differences but also precisely measure
the thickness of objects or materials. Our proprietary infrared
scanning system examines the entirety of the tested structure to
supply more comprehensive inspection data to plant engineers,
providing them a higher level of confidence when deciding
whether to repair, replace or retire the structure.
|
|
|
Line Scanning Thermography (LST). LST in an
inspection method that uses infrared thermal imaging developed
to measure the thickness of boiler tubes. A unique
characteristic of this
|
86
|
|
|
system compared to other thermography methods is LSTs
ability to develop an image almost instantly as it scans a
boiler tube, while the other methods are significantly slower.
Boiler tube inspections are traditionally inspected for loss of
wall thickness using ultrasonic contact thickness gauges, which
is a very tedious and time consuming method. The LST system can
test a large area faster than other NDT methods and record the
inspection with a digital image. Another application for which
LST has shown promise is the inspection of composite materials
for porosity, delaminations and non-visible impact damage.
Inspection speed, sensitivity to defects, and the capability to
store digital images are the key selling points of LST.
|
Mechanical
Integrity services
We provide a broad range of MI services that enable our
customers to meet stringent regulatory requirements. These
services increase plant safety, minimize unscheduled downtime
and allow our customers to plan for, repair and replace critical
components and systems before failure occurs. Our services are
designed to complement a comprehensive predictive and
preventative inspection and maintenance program that we can
provide for our customers in addition to the MI services.
Customers of our MI services have, in many instances, also
licensed our PCMS software, which allows for the storage and
analysis of data captured by our testing and inspection products
and services, and implemented this solution to complement our
inspection services.
As a result of the information captured by PCMS and the our
risk-based inspection (RBI) software module we are able to
provide a professional service known as Mechanical
Integrity Gap Analysis for process facilities. Our
Mechanical Integrity Gap Analysis service offers insight into
the level of plant readiness, how best to manage and monitor the
integrity of process facility assets, and how to extend the
useful lives of such assets. Our Mechanical Integrity Gap
Analysis service also assists customers in benchmarking and
managing their infrastructure through key performance indicators
and metrics.
Our products and
systems
Our
software
Our software solutions are designed to meet the demands of our
customers data analysis and asset integrity management
requirements. Some of our key software solutions include:
PCMS Enterprise
software: asset protection and reliability
Our PCMS application is an enterprise software system that
allows for the storage and analysis of data as captured by our
testing and inspection products and services. PCMS allows our
customers to design and develop asset integrity management plans
that include:
|
|
|
optimal systematic testing schedules for their infrastructure
based on real-time data captured by our sensors;
|
|
|
alerts that notify customers when to perform special testing
services on suspect areas, enabling them to identify and resolve
flaws on a timely basis; and
|
|
|
schedules for the maintenance and retirement of assets.
|
These plans are based on information stored in PCMS, which
include results based upon the rates of deterioration shown by
existing test results, information based on our past experiences
87
in the operation and testing of similar structures and standards
and recommended practices of numerous industrial
standards-setting bodies, such as the American Society of
Mechanical Engineers, the American Petroleum Institute and the
Occupational Safety and Health Administration. Using PCMS allows
our customers to demonstrate compliance with these standards and
practices, which typically helps them reduce their insurance
premiums and ensure asset, product and employee safety. PCMS
also offers significant advantages by allowing the information
it develops and stores to be organized, linked and synchronized
with enterprise software systems. We believe that as a result of
its superior functionality, PCMS is one of the more widely used
process condition management software systems in the world. For
instance, we believe approximately 37% of U.S. refineries
currently use PCMS.
In addition, our risk-based inspection (RBI) application enables
PCMS users to test and analyze their assets operating conditions
and other factors, such as operating temperature range and
contact with highly flammable or corrosive products. This allows
customers to classify or rank each asset according to the
probability and consequences of its structural failure and
schedule the appropriate frequency and types of testing for that
asset. We believe our RBI program allows our customers to
appropriately test their infrastructure in a more cost-effective
manner while reducing their overall risk profile, which
typically allows them to reduce their insurance premiums.
Application-based
software
We provide a comprehensive portfolio of application-specific
software products that covers a broad range of testing and
analysis methods, including neural networks, pattern
recognition, wavelet analysis and moment tensor analysis.
Some of the key software solutions we offer include:
|
|
|
Advanced Data Analysis Pattern Recognition & Neural
Networks Software (NOESIS): An advanced data analysis
and pattern recognition software package for AE applications.
NOESIS enables our AE experts to develop automated remote
monitoring systems for our customers.
|
|
|
AE Software Platform (AEwin and
AEwinPost): Windows-based real time applications
software for detection, processing and analysis of AE data. This
software locates the general location of flaws on or in our
customers structures.
|
|
|
Loose Parts Monitoring Software (LPMS): A software
program for monitoring, detecting and evaluating metallic loose
parts in nuclear reactor systems in accordance with strict
industry standards. LPMS alerts the operator on the plant floor
and central control room about potential loose parts, provides a
user-friendly interface for operators to differentiate between
noise and loose parts and identifies the location of the problem.
|
|
|
Automated UT and Imaging Analysis Software (UTwin and
UTIA): A complete software platform for analyzing
ultrasonic inspection data and visualizing and identifying the
location and size of potential flaws.
|
Technology
packages
In order to address some of the more common problems faced by
our customers, we have developed a number of robust technology
solutions. These packages generally allow more rapid and
effective testing of infrastructure because they minimize the
need for service professionals
88
to customize and integrate asset protection solutions with the
infrastructure and interpret test results. These packaged
solutions use proprietary and specialized testing procedures and
hardware, advanced pattern recognition, neural network software
and databases to compare test results against our prior testing
data or national and international structural integrity
standards. Some of our widely used technology packages in some
of our target markets are:
|
|
|
|
|
|
|
|
Technology
|
|
|
|
|
|
|
package
|
|
Type
|
|
Description
|
|
Benefits
|
|
|
TANKPAC
|
|
AE On-line Tank Floor Inspection
|
|
Tests to monitor for emissions resulting from active corrosion
of the tested infrastructure
|
|
Ability to perform tests on-stream
Non-intrusive testing
Quickly identify tanks that need
inspection and resolve associated problems
Leave good tanks operational and save
the shutdown and cleaning costs
|
MONPAC
|
|
AE Pressure Vessel Testing
|
|
An AE expert system that evaluates the condition of
metal pressure systems and tanks
|
|
Ability to perform tests on-stream
Rapid inspection capability
Global monitoring (100% inspection, including welds, repairs, base metal)
Reduction in inspection costs
Reduction in downtime resulting from improved information about plant condition
|
VPAC
|
|
Loss Control for Valves in Process Plants
|
|
Estimates valve leakage based on measurements made using our
inspection products
|
|
Cost savings from detection of valve leaks
Cost savings are achieved in maintenance planning, troubleshooting plant operations and monitoring of losses for environmental purposes
|
POWERPAC
|
|
AE On-line Power Transformer Monitoring
|
|
Through on-line monitoring, detects and locates partial
discharge in power transformers by utilizing AE
|
|
Non-intrusive testing
On-line testing identifies problems characterizing defects
Creates way to monitor problem transformers
|
|
|
89
Our other
products
AE
products
We are a leader in the design and manufacture of AE sensors,
instruments and turn-key systems used for the monitoring and
testing of materials, pressure components, processes and
structures. Though we principally sell our products as a system,
which includes a combination of sensors, an amplifier, signal
processing electronics, knowledge-based software and decision
and feedback electronics, we can also sell these as individual
components to certain customers that have the in-house expertise
to perform their own services. Our sensors listen to
structures and materials to detect real-time AE activity and to
determine the presence of structural flaws in the inspected
materials. Such materials include pressure vessels, storage
tanks, heat exchangers, piping, turbine blades and reactors.
In addition, we provide leak monitoring and detection systems
used in diverse applications, including the detection and
location of both gaseous and liquid leaks in valves, vessels,
pipelines and tanks. AE leak monitoring and detection, when
applied in a systematic preventive maintenance program, has
proven to substantially reduce costs by eliminating the need for
visual valve inspection and unscheduled down-time. In addition,
EPA requirements regarding fugitive emissions helps drive the
market for this leak detection equipment.
Our complete AE product line includes:
|
|
|
AE Sensors: We offer over 200 different types of
proprietary sensors, including a dual function sensor that is a
true accelerometer and an AE sensor that records low and high
frequencies simultaneously in one sensor body.
|
|
|
Multi-channel AE Systems: Multi-sensor parallel
processing systems capable of monitoring, detecting and locating
defects in large structures, such as vessels, pipelines and
platforms. These systems include our Sensor Highway II, which is
designed for on-line remote monitoring of bridges and large
transformers.
|
|
|
Hand-held Instruments: Portable AE systems easily
adaptable to OEM applications.
|
|
|
Wireless AE Systems: Our wireless sensors can
communicate with single base stations, or with base stations and
other sensors in geographically dispersed mesh
networks. Wireless capabilities are fully integrated into our
Sensor Highway II and Asset Condition Monitoring units.
|
|
|
Intrinsically Safe Products: Certified sensors and
AE systems to work in hazardous and potentially explosive
environments such as the petrochemical industry.
|
UT
technology
We design, manufacture and market ultrasonic equipment under our
NDT Automation brand name. While AE technology detects flaws and
pinpoints their location, our UT technology has the ability to
size defects in three-dimensional geometric representations. We
manufacture a complete line of UT scanners with automated or
manual capabilities, and design and fabricate custom scanners as
requested by customers.
90
Vibration sensors
and systems
We design, manufacture and market a broad portfolio of vibration
sensing products under our Vibra-Metrics brand name. These
include accelerometers, on-line condition-based management
systems, data delivery systems and a comprehensive assortment of
ancillary support products. Our patented Sensor Highway
monitoring systems offer fully automated, unattended remote data
acquisition and alarm reporting for rotating mechanical
equipment and machines, which enable us to provide real-time
predictive maintenance data to our customers.
On-line
monitoring
Our on-line monitoring offerings combine all of our asset
protection services, products and systems. We provide temporary,
periodic and continuous monitoring of static infrastructures
such as bridges, pipes, and transformers, as well as dynamic or
rotating assets such as pumps, motors, gearboxes, steam and gas
turbines. Temporary monitoring is typically used when there is a
known defect or problem and the condition needs to be monitored
until repaired or new equipment can be placed in service.
Periodic monitoring, or walk around monitoring, is
used as a preventative maintenance tool to take machine and
device readings, on a periodic basis, to observe any change in
the assets condition such as increased vibration or
unusual heat buildup and dissipation. Continuous monitoring is
applied 24/7 on critical assets to observe the
earliest onset of a defect and track its progression to avoid
catastrophic failure. Since 1988, we have provided these
solutions to over eighty projects for a variety of industries
and applications. Our monitoring systems can be accessed both
on-site and
remotely using state of the art wireless technology and can
interface with customer data via the internet or other
proprietary secured networks. These monitoring systems provide
browser -based hierarchical displays of critical information and
can include alarm and customer notification options using
messaging and email services. By simultaneously using different
sensing devices such as acoustic emission or sound, vibration,
temperature, strain or corrosion gauges, often referred to as
sensor fusion, we can monitor and correlate different sensor
results to provide more accurate fault detection and location
information while reducing or eliminating false alarms. The
information can also be used to correct operational procedures
that contributed to the failures.
We provide a range of custom outsourced monitoring services for
customers that do not have the resources to monitor their assets
or interpret sensor data. An example of a continuous monitoring
engagement involving static infrastructure is our monitoring of
aging bridges for factors of degradation. Wire breakage in
suspension bridges is usually the result of corrosion fatigue
which slowly degrades the integrity of the bridge. Since wire
breakage events are occasional and unpredictable, the most
effective way to track the extent of deterioration is by
continuous monitoring. Another example is offshore drilling
platforms, which often develop slight flaws in high stress
locations that can quickly and unpredictably expand into
catastrophic failures. In many circumstances, such flaws cannot
be reliably detected using conventional inspection techniques.
An example and prime candidate for our temporary on-line
monitoring solutions is a pressure vessel, such as a tank, in
which a crack has been identified, but that can still be safely
operated. In such cases, we are engaged to monitor the vessel
until the crack grows dangerous or until a planned maintenance
or shutdown occurs.
An example of continuous monitoring of dynamic or rotating
assets is our monitoring of wind turbines. Each wind turbine is
made up of a main bearing, gearbox and generator that combines
to form the drive train. A typical wind park engagement will
include around 50 wind turbines, each requiring drive train
monitoring for early detection of potential mechanical
91
faults, which in turn will allow for scheduling of maintenance
prior to the catastrophic failure of a component, and isolating
it to avoid damage to the other components in the drive train.
These components are difficult to replace since they are usually
installed on towers over 250 feet high, and replacement
components are costly and have long lead times.
Customers
During fiscal 2009, we provided our asset protection solutions
to approximately 4,500 different customers. The following table
lists some of our larger customers by revenues for fiscal 2009,
in each of our target markets.
|
|
|
|
|
|
|
|
Oil and gas,
|
|
|
|
Composite and
|
|
|
including
|
|
Nuclear and
|
|
part testing,
|
|
|
petrochemical
|
|
fossil power
|
|
including aerospace
|
|
Chemicals
|
|
|
BP(1)
|
|
American Electric Power
|
|
Avcorp Industries, Inc.
|
|
Air Products
|
Chevron
|
|
Bechtel
|
|
Boeing
|
|
Aux Sable Liquid
|
Conoco
|
|
Dominion
|
|
Danner Corporation
|
|
Products
|
ExxonMobil
|
|
Entergy
|
|
Embraer
|
|
Bayer
|
Lyondell-Basell
|
|
Exelon
|
|
Hitco
|
|
Dow Chemical
|
Petrobras
|
|
Florida Power & Light
|
|
Kaiser Aluminum
|
|
DuPont
|
Shell
|
|
General Electric
|
|
Rio Tinto
|
|
INEOS
|
Valero
|
|
PP&L
|
|
Rolls Royce
|
|
PCS Nitrogen
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pharmaceuticals
|
|
|
Primary metals
|
|
|
|
and food
|
|
Public
|
and metalworking
|
|
Transportation
|
|
processing
|
|
infrastructure
|
|
|
Doncasters
|
|
Dana Corporation
|
|
Anheuser-Busch
|
|
Bechtel
|
Eaton Corporation
|
|
Emergency One Inc.
|
|
ATS
|
|
Federal Highway Administration
|
Mid State Machine
|
|
Harley Davidson
|
|
Monsanto
|
|
High Steel Structures
|
Small Parts Incorporated
|
|
Sutphen Corporation
|
|
Pfizer
|
|
Parsons Engineering
|
Wollaston Alloys
|
|
|
|
Pilgrims Pride
|
|
|
|
|
|
|
|
(1)
|
|
Various divisions or business units
of BP were responsible for 17.1%, 16.8% and 16.5% of our
revenues during fiscal 2009, 2008 and 2007, respectively.
Predominantly all of these revenues are included in our Services
segment.
|
During the last three fiscal years, we derived our revenues from
providing our asset protection solutions to customers in the
United States and over 60 countries around the world. Foreign
countries where we provided asset protection solutions
responsible for more than approximately 1% of our revenues in
fiscal 2009, listed in descending order of revenues, were:
Canada, France, Brazil, United Kingdom, Russia, The Netherlands,
Japan, Serbia and China.
Competition
We operate in a highly competitive, but fragmented, market. Our
primary competitors are divisions of large companies, and many
of our other competitors are small companies, limited to a
specific product or technology and focused on a niche market or
geographic region. We believe that none of our competitors
currently provides the full range of asset protection and NDT
products, enterprise software and the traditional and advanced
services solutions that we offer. Our major competitors with
respect to NDT services include the Acuren division of
92
Rockwood Service Corporation, SGS Group, the TCM division of
Team, Inc. and APPLUS RTD, which is majority-owned by The
Carlyle Group. Our major competitor with respect to our PCMS
software is UltraPIPE, a division of Siemens, and to a lesser
extent, Lloyds Register Capstone, Inc. Our major
competitors with respect to our ultrasonic products are GE
Inspection Technologies and Olympus NDT. In the traditional NDT
market, we believe the principal competitive factors are project
management, execution, price, reputation and quality. In the
advanced NDT market, reputation, quality and size are more
significant competitive factors than price. In light of several
characteristics of the NDT industry and obstacles facing
competitors, only a few of our existing competitors can compete
with us on a global basis, and we believe few new companies are
likely to enter the market. Some of the most significant of such
characteristics and obstacles include: (1) having to
acquire or develop advanced NDT services, products and systems
technologies, which in our case occurred over many years of
customer engagements and at significant internal research and
development expense, (2) complex regulations and safety
codes that require significant industry experience,
(3) license requirements and evolved quality and safety
programs, (4) costly and time-consuming certification
processes, (5) capital requirements and (6) emphasis
by large customers on size and critical mass, length of
relationship and past service record.
Sales and
marketing
We sell our asset protection solutions through all of our 68
offices worldwide. As of August 1, 2009, our world-wide
sales and marketing team, together with our center of
excellence managers, consisted of 63 employees. In
addition, our project and laboratory managers as well as our
management are trained on our solutions and often are the source
of sales leads and customer contacts. Our direct sales and
marketing teams work closely with our customers research
and design personnel, reliability engineers and facilities
maintenance engineers to demonstrate the benefits and
capabilities of our asset protection solutions, refine our asset
protection solutions based on changing customer needs and
identify potential sales opportunities. We provide our asset
protection solutions under well known, industry-recognized brand
names including Physical Acoustics Corporation and
Vibra-Metrics, as well as lesser-known regional, local or
product specific brand names. We have started to promote the
name Mistras using the tag line of Delivering Asset
Protection Solutions. We divide our sales and marketing
efforts into services sales, software and other products sales
and marketing.
Services
sales
In addition to our general and center of excellence managers and
executives, our dedicated Services sales group employs 14
regional and business development managers and professionals,
each of whom is responsible for educating our existing and
potential customers about our asset protection solutions for a
specific geographic region. The sales cycle for our more
significant services engagements is typically three to six
months. We generally provide our services under one- to
three-year contracts, but none of our services contracts legally
obligate our customers to purchase from us on a going-forward
basis. Historically, a majority of our total services revenues
have been recurring because of the length of certain of our
client relationships and the number of our technicians who work
for extended and predictable periods at our customer locations.
93
Products &
systems sales
Our Products and Systems sales group employs 16 corporate level
sales managers and professionals, each of whom is responsible
for educating our existing and potential customers about our
diverse portfolio of asset protection solutions in a geographic
region. This team is supported by experts and scientists who
work globally to provide design, installation and other sales
support for more specialized niche applications, as well as
customer support after purchase. The sales cycle for our
software and other products is typically three to
12 months. We generally provide our software under one-year
renewable license agreements.
International
sales
Our International sales group employs 11 sales managers and
professionals, each of whom is responsible for educating our
existing and potential customers about our asset protection
solutions in the geographical areas outside the United States
other than China and South Korea. The sales cycle for our asset
protection solutions and the agreements under which we provide
them in these areas are substantially similar to those of our
other segments.
Marketing
Our marketing group consists of four employees, and focuses
primarily on supporting purchase decisions by our existing and
potential customers facilities managers, design engineers
and research and development personnel by providing them product
demonstrations, product testing, displays, marketing collateral
and training programs. In addition, we support our brands
through a range of print advertising and dedicated websites. Our
websites have been designed to be a readily available source of
information about our asset protection solutions, assisting our
sales, marketing and customer service activities on a
24-hour
basis.
Manufacturing
Our hardware products are manufactured in our Princeton
Junction, New Jersey facility. This is a modern manufacturing
facility equipped with the latest surface mount manufacturing
equipment and automated test equipment. Our Princeton Junction
facility includes all the capabilities and personnel to fully
produce all of our AE products, NDT Automation ultrasonic
equipment and Vibra-Metrics vibration sensing products.
Intellectual
property
Our success depends, in part, on our ability to maintain and
protect our proprietary technology and to conduct our business
without infringing on the proprietary rights of others. We
utilize a combination of intellectual property safeguards,
including patents, copyrights, trademarks and trade secrets, as
well as employee and third-party confidentiality agreements, to
protect our intellectual property.
As of August 1, 2009, in the United States we held nine
patents, which will expire at various times between 2010 and
2023, and had no outstanding patent applications. Although we
believe our existing patents have significant value, we
currently do not principally rely on our patented technologies
to provide our proprietary asset protection solutions. We
periodically assess appropriate circumstances for seeking patent
protection for those aspects of our technologies, designs,
methodologies and processes that we believe provide significant
competitive
94
advantages. We have also licensed certain patent rights from
third parties for new NDT technologies involving thermography
and a method to measure wall thinning and geometric changes in
boiler tubes. However, we do not significantly rely upon these
licensed technologies in providing our asset protection
solutions and the royalties we pay for these licenses are not
material.
As of August 1, 2009, the primary trademarks and service
marks that we held in the United States included Mistras,
Physical Acoustics Corporation (PAC), and Controlled Vibrations
Inc. Other trademarks or service marks that we utilize in
localized markets or product advertising include PCMS, NOESIS,
AEwin, AEwinPost, UTwin, UTIA, LST, Vibra-Metrics, MONPAC,
PERFPAC, TANKPAC, VPAC, POWERPAC, Sensor Highway, Quality
Services Laboratories Inc. (QSL) and NDT Automation.
Many elements of our asset protection solutions involve
proprietary know-how, technology or data that are not covered by
patents or patent applications because they are not patentable,
or patents covering them would be difficult to enforce,
including technical processes, equipment designs, algorithms and
procedures. We believe that this proprietary know-how,
technology and data is the most important component of our
intellectual property assets used in our asset protection
solutions, and is a primary differentiator of our asset
protection solutions from those of our competitors. We rely on
various trade secret protection techniques and agreements with
our customers, service providers and vendors to protect these
assets. All of our employees in our Products and Systems segment
and certain of our other employees involved in the development
of our intellectual property have entered into confidentiality
and proprietary information agreements with us. These agreements
require our employees not to use or disclose our confidential
information, to assign to us all of the inventions, designs and
technologies they develop during the course of employment with
us, and otherwise address intellectual property protection
issues. We also seek confidentiality agreements from our
customers and business partners before we disclose any sensitive
aspects of our asset protection solutions technology or business
strategies. We are not currently involved in any material
intellectual property claims.
Research and
development
Our research and development is principally conducted by 28
engineers and scientists at our Princeton Junction, New Jersey
headquarters, and supplemented by other employees in the United
States and throughout the world, including France, Greece,
Japan, Russia and the United Kingdom, who have other primary
responsibilities. Our total professional staff includes
29 employees who hold Ph.D.s, and 67 employees
who hold Level III certification, or the highest level of
certification from the American Society of Non-Destructive
Testing.
We work with many of our customers on developing new products or
applications for our technology. Research and development
expenses are reflected on our consolidated statements of
operations as research and engineering expenses. Our
company-sponsored research and engineering expenses were
approximately $1.3 million, $1.0 million, and
$0.7 million for fiscal 2009, 2008 and 2007, respectively.
While we have historically funded most of our research and
development expenditures, we had customer-sponsored research and
development revenues of approximately $0.6 million,
$0.6 million and $0.8 million in fiscal 2009, 2008 and
2007, respectively. In addition, in February 2009 the National
Institute of Standards and Technology (NIST) awarded us and our
university partners a $6.9 million research award under
their new Technology Innovation Program (TIP) for the
development and research of advanced technologies to enable
monitoring and inspection of the structural health of bridges,
roadways and water systems.
95
Employees
Providing our asset protection solutions requires a highly
skilled and technically proficient employee base. As of
August 1, 2009, we had approximately 2,000 employees
worldwide and approximately 1,750 of our employees were based
within the United States, of which approximately 80% were
hourly. Less than 10% of our employees in the United States are
unionized. We believe that we have good relations with our
employees.
Facilities
As of August 1, 2009, we operated 68 offices in 15
countries, with our corporate headquarters located in Princeton
Junction, New Jersey.
The locations of our operating properties are set forth below by
geographic region. As of August 1, 2009, we owned the
properties located in Olds, Alberta; Monroe, North Carolina;
Trainer, Pennsylvania; Houston and Pasadena, Texas; and
Gillette, Wyoming; and we occupied the other properties under
leases.
|
|
|
|
|
|
Geographic region
|
|
City and state or
country
|
|
|
|
|
United States
|
|
Decatur, Alabama
|
|
Bloomfield, New Mexico
|
|
|
Theodore, Alabama
|
|
Bohemia, New York
|
|
|
Bakersfield, California
|
|
Monroe, North Carolina
|
|
|
Benicia (near San Francisco), California
|
|
Heath, Ohio
|
|
|
Signal Hill (near Los Angeles), California
|
|
Independence, Ohio
|
|
|
Torrance, California
|
|
Lima, Ohio
|
|
|
Denver, Colorado
|
|
Carnegie, Pennsylvania
|
|
|
East Granby, Connecticut
|
|
Manchester, Pennsylvania
|
|
|
Waterford, Connecticut
|
|
Trainer, Pennsylvania
|
|
|
Newark, Delaware
|
|
Roebuck, South Carolina
|
|
|
Chubbuck, Idaho
|
|
Granbury, Texas
|
|
|
Burr Ridge, Illinois
|
|
Clear Lake, Texas
|
|
|
Edwardsville, Illinois
|
|
Corpus Christi, Texas
|
|
|
South Holland, Illinois
|
|
Houston, Texas (2 locations)
|
|
|
Hobart, Indiana
|
|
Pasadena, Texas
|
|
|
Noblesville, Indiana
|
|
Texas City, Texas
|
|
|
Ashland, Kentucky
|
|
North Salt Lake, Utah
|
|
|
Louisville, Kentucky
|
|
Hampton, Virginia
|
|
|
Prairieville, Louisiana
|
|
Richmond, Virginia
|
|
|
Baltimore, Maryland
|
|
Bellingham, Washington
|
|
|
Auburn, Massachusetts
|
|
Kent, Washington
|
|
|
Springfield, Massachusetts
|
|
Evanston, Wyoming
|
|
|
Old Bridge, New Jersey
|
|
Gillette, Wyoming
|
|
|
Princeton Junction, New Jersey
|
|
|
Asia-Pacific
|
|
Beijing, China
|
|
|
|
|
Thane, India
|
|
|
|
|
Tokyo, Japan
|
|
|
96
|
|
|
|
|
|
Geographic region
|
|
City and state or
country
|
|
|
|
|
Canada
|
|
Grande Prairie, Alberta
|
|
|
|
|
Olds, Alberta
|
|
|
|
|
Red Deer, Alberta
|
|
|
Europe
|
|
Cambridge, England
|
|
|
|
|
Sucy-en-Brie (near Paris), France
|
|
|
|
|
Vitrolles, France
|
|
|
|
|
Hamburg, Germany
|
|
|
|
|
Athens, Greece
|
|
|
|
|
Rotterdam, The Netherlands
|
|
|
|
|
Moscow, Russia
|
|
|
|
|
Gothenburg, Sweden
|
|
|
Middle East
|
|
Manama, Kingdom of Bahrain
|
|
|
South America
|
|
Buenos Aires, Argentina
|
|
|
|
|
Bahia, Brazil
|
|
|
|
|
Macae, Brazil
|
|
|
|
|
São Paulo, Brazil
|
|
|
|
|
São Sebastiao, Brazil
|
|
|
|
|
Environmental
matters
We are subject to numerous environmental, legal and regulatory
requirements related to our operations worldwide. In the United
States, these laws and regulations include, among others: the
Comprehensive Environmental Response, Compensation, and
Liability Act, the Resources Conservation and Recovery Act, the
Clean Air Act, the Federal Water Pollution Control Act, the
Toxic Substances Control Act, the Atomic Energy Act, the Energy
Reorganization Act of 1974, as amended, and applicable state
regulations.
In addition to the federal laws and regulations, states and
other countries where we do business often have numerous
environmental, legal and regulatory requirements by which we
must abide. We evaluate and address the environmental impact of
our operations by assessing properties in order to avoid future
liabilities and comply with environmental, legal and regulatory
requirements. Thus far, we are not involved in specific
environmental litigation and claims, including the remediation
of properties we own or have operated, as well as efforts to
meet or correct compliance-related matters. We do not expect
costs related to environmental matters to have a material
adverse effect on our consolidated cash flows, financial
position or results of operations.
Legal
proceedings
We are subject to periodic lawsuits, investigations and claims
that arise in the ordinary course of business. Although we
cannot predict with certainty the ultimate resolution of
lawsuits, investigations and claims asserted against us, we do
not believe that any currently pending legal proceeding to which
we are a party will have a material adverse effect on our
business, results of operations, cash flows or financial
condition. The costs of defense and amounts that may be
recovered in such matters may be covered by insurance.
97
Management
Executive
officers and directors
The following table sets forth certain information concerning
our executive officers, directors and director nominee as of
August 1, 2009:
|
|
|
|
|
|
|
|
Name
|
|
Age
|
|
Position
|
|
|
Sotirios J. Vahaviolos(1)
|
|
|
63
|
|
|
Chairman, President, Chief Executive Officer and Director
|
Paul Peterik(1)
|
|
|
59
|
|
|
Chief Financial Officer and Secretary
|
Mark F. Carlos(1)
|
|
|
58
|
|
|
Group Executive Vice President, Products and Systems
|
Phillip T. Cole(1)
|
|
|
56
|
|
|
Group Executive Vice President, International
|
Michael J. Lange(1)
|
|
|
49
|
|
|
Group Executive Vice President, Services, and Director
|
Ralph L. Genesi(1)
|
|
|
54
|
|
|
Group Executive Vice President, Marketing and Sales
|
Elizabeth Burgess(2)
|
|
|
44
|
|
|
Director
|
Daniel M. Dickinson(3)(4)
|
|
|
48
|
|
|
Director
|
James J. Forese(2)
|
|
|
73
|
|
|
Director
|
Richard H. Glanton(3)(4)(5)
|
|
|
63
|
|
|
Director nominee
|
Manuel N. Stamatakis(2)(3)(4)
|
|
|
62
|
|
|
Director
|
|
|
|
|
|
(1)
|
|
Executive Officer
|
|
(2)
|
|
Member of audit committee
|
|
(3)
|
|
Member of compensation committee
|
|
(4)
|
|
Member of nominating and corporate
governance committee
|
|
(5)
|
|
Mr. Glanton will be nominated
and elected as a director effective upon completion of this
offering.
|
Sotirios J. Vahaviolos has served as our Chairman,
President and Chief Executive Officer since he founded Mistras
in 1978 under the name Physical Acoustics Corp. Prior to joining
Mistras, Dr. Vahaviolos worked at AT&T Bell
Laboratories. Dr. Vahaviolos received a BS in Electrical
Engineering and graduated first in his class from Fairleigh
Dickinson University and received a Master of Science (EE),
Masters in Philosophy and a Ph.D.(EE) from the Columbia
University School of Engineering. During
Dr. Vahaviolos career in NDT, he has been elected
Fellow of The Institute of Electrical and Electronics Engineers,
a member of The American Society for Nondestructive Testing
(ASNT) where he served as its President from
1992-1993
and its Chairman from
1993-1994, a
member of Acoustic Emission Working Group (AEWG) and an honorary
life member of the International Committee for Nondestructive
Testing. Additionally, he was the recipient of ASNTs Gold
Medal in 2001 and AEWGs Gold Medal in 2005. He was also
one of the six founders of NDT Academia International in 2008.
Paul Pete Peterik joined Mistras in May 2005
as our Chief Financial Officer and Secretary. Prior to joining
Mistras, Mr. Peterik was the Chief Financial Officer of
Integrated Leasing Corp., a leasing company serving the
electronic payment processing industry, from August 2003 until
the business was sold in January 2005. From November 2002 to
August 2003, Mr. Peterik operated his own financial
consulting business for
start-up and
mid-sized companies. From 1980 to 2002,
98
Mr. Peterik was employed as chief financial officer or
chief operating officer at various private and public companies.
Mr. Peterik was employed with PricewaterhouseCoopers LLP
for nine years from 1971 to 1980, where he attained the position
of audit manager.
Mark F. Carlos is Group Executive Vice President
responsible for Products and Systems. Mr. Carlos
joined Mistras at its founding in 1978. Prior to joining
Mistras, Mr. Carlos worked at AT&T Bell Laboratories.
Mr. Carlos received a Masters in Business Administration
from Rider University and a Masters in Electrical Engineering
from Columbia University. Mr. Carlos is an elected Fellow
of ASNT and AEWG, and currently serves as the Vice Chairman of
the American Society for Testing and Materials NDT
Standards Writing Committee
E-3 and was
the recipient of its prestigious Charles W. Briggs Award in 2007.
Phillip T. Cole is Group Executive Vice President,
International, and Managing Director of Physical Acoustics
Limited (PAL). Mr. Cole founded Dunegan UK in 1983, which
was acquired by PAL in 1986. Mr. Cole obtained a
masters degree in physics and electronic engineering from
Loughborough University. Mr. Cole began his career at TI
Research in the U.K. where he focused on NDT
electromagnetic-acoustic devices.
Michael J. Lange is Group Executive Vice President
responsible for Services. He joined Mistras when it acquired
Quality Services Laboratories in November 2000. He was elected a
Director in 2003. Mr. Lange is a well recognized authority
in Radiography and has held an ASNT Level III Certificate
for almost 20 years. Mr. Lange received an Associate
of Science degree in NDT from the Spartan School of Aeronautics
in 1979.
Ralph L. Genesi is Group Executive Vice President,
Marketing and Sales. He joined Mistras in March of 2009
with more than 25 years of executive management experience
in marketing and sales as well as corporate profit and loss
responsibility. Prior to joining Mistras, Mr. Genesi was
President of Swantech, a division of the Curtiss Wright
Corporation. Previous he was Vice President and General Manager
for Siemens AG- Power Generation Information Technology Business
responsible for energy trading, fleet operations &
control solutions worldwide. He has also held positions as
President-Americas
Operations for Spectris Technologies Inc., a European holding
company and Director, Global Market & Sales
Development for Honeywell IAC. Mr. Genesi has an Electrical
Engineering degree from Fairleigh Dickinson University.
Elizabeth Burgess has served as a Director since October
2005. Ms. Burgess is a senior partner and co-founder of
Altus Capital Partners, a private equity fund launched in 2003,
and served as a Vice President of its predecessor fund, Max
Capital Partners, which she joined in 2000. She currently serves
on the board of directors for several private companies that are
part of the Altus Capital portfolio. Ms. Burgess received a
B.S. from the State University of New York at Plattsburgh and an
M.B.A. from Columbia University Graduate School of Business.
Daniel M. Dickinson has served as a Director since August
2003. Mr. Dickinson has been employed since 2001 by, and is
currently a Managing Partner of, Thayer | Hidden Creek, a
private investment firm located in Washington, D.C.
Mr. Dickinson serves as a director and a member of the
audit committee of Caterpillar, Inc. and as a director and a
member of the audit, governance and compensation committee of
IESI-BFC Ltd. as well as a director of several private
companies. Mr. Dickinson received a J.D. and M.B.A. from
the University of Chicago and a B.S. in Mechanical Engineering
and Materials Science from Duke University.
James J. Forese has served as a Director since August
2003. Mr. Forese joined Thayer | Hidden Creek in July 2003
and currently serves as an Operating Partner and Chief Operating
Officer.
99
Prior to joining Thayer | Hidden Creek, Mr. Forese worked
at IKON Office Solutions, most recently as the Chairman and
Chief Executive Officer. Mr. Forese serves as non-executive
Chairman of Spherion Corporation, a director and the audit
committee chair of IESI-BFC Ltd. and a director of several
private organizations. Mr. Forese served as a director, the
audit committee chair and member of the compensation committee
of Anheuser-Busch Companies Inc. Mr. Forese received a
B.E.E. in Electrical Engineering from Rensselaer Polytechnic
Institute and an M.B.A. from Massachusetts Institute of
Technology.
Richard H. Glanton will become a member of our board of
directors upon the completion of this offering. Mr. Glanton
is Chief Executive Officer and Chairman of the Philadelphia
Television Network, a privately-held media company. From May
2003 to May 2007, Mr. Glanton served as the Senior Vice
President of Corporate Development for Exelon Corporation. From
1986 to 2003 he was a partner in the law firm of Reed Smith LLP
in Philadelphia. Mr. Glanton currently is a director of
Aqua America, Inc. and The CEO Group, Inc. and is a member of
the Board of Trustees of Lincoln University. Mr. Glanton
received a BA in English from West Georgia College and a J.D.
from University of Virginia School of Law.
Manuel N. Stamatakis has served as a Director since 2002.
Mr. Stamatakis is the Chairman and Chief Executive Officer
of Capital Management Enterprises, Inc., a financial services
and employee benefits consulting company headquartered in Valley
Forge, Pennsylvania. Mr. Stamatakis currently serves as
Chairman of the Board of Drexel University College of Medicine,
the Philadelphia Shipyard Development Corporation, and the
Pennsylvania Supreme Court Investment Advisory Board.
Mr. Stamatakis received a Bachelors of Science in
Industrial Engineering from the Pennsylvania State University in
1969 and received an honorary Doctorate of Business
Administration from Drexel University.
Our executive officers are elected by, and serve at the
discretion of, our board of directors. There are no family
relationships among any of our directors or executive officers.
Board of
directors
Board
composition
Our board of directors currently consists of six members. Under
our second amended and restated certificate of incorporation
that will be in effect upon the completion of this offering, the
authorized number of directors may be changed only by resolution
of the board of directors. At each annual meeting of
stockholders commencing with the meeting in 2010, the directors
will be elected to serve until the earlier of their death,
resignation or removal or until their successors have been
elected and qualified.
Director
independence
In June 2009, our board of directors undertook a review of the
independence of the directors and considered whether any
director has a relationship with us that precludes a
determination of independence within the meaning of the rules of
the New York Stock Exchange. As a result of this review, our
board of directors determined that Ms. Burgess and
Messrs. Dickinson, Forese, Glanton and Stamatakis,
representing five of the six directors we will have upon
completion of the offering, are independent
directors as defined under the rules of the New York Stock
Exchange, constituting a majority of independent directors of
our board of directors as required by the rules of the New York
Stock Exchange.
100
Committees of the
board of directors
Upon the completion of this offering, we will have an audit
committee, a compensation committee and a nominating and
corporate governance committee with the composition and
responsibilities described below.
Audit
committee
Our audit committee will be comprised of Messrs. Forese and
Stamatakis and Ms. Burgess, each of whom is a non-employee
member of our board of directors, with Mr. Forese serving
as the initial chairperson of our audit committee. Our board of
directors has determined that each member of our audit committee
meets the requirements for independence and financial literacy,
and that Mr. Forese qualifies as an audit committee
financial expert, under the applicable requirements of the New
York Stock Exchange and SEC rules and regulations. The audit
committee will be responsible for, among other things:
|
|
|
selecting and hiring our independent auditors, and approving the
audit and non-audit services to be performed by our independent
auditors;
|
|
|
evaluating the qualifications, performance and independence of
our independent auditors;
|
|
|
monitoring the integrity of our financial statements and our
compliance with legal and regulatory requirements as they relate
to financial statements or accounting matters;
|
|
|
reviewing the adequacy and effectiveness of our internal control
policies and procedures;
|
|
|
discussing the scope and results of the audit with the
independent auditors and reviewing with management and the
independent auditors our interim and year-end operating
results; and
|
|
|
preparing the audit committee report that the SEC requires in
our annual proxy statement.
|
Compensation
committee
Our compensation committee will be comprised of
Messrs. Dickinson, Glanton and Stamatakis, each of whom is
a non-employee member of our board of directors, with
Mr. Dickinson serving as the initial chairperson of our
compensation committee. Our board of directors has determined
that each member of our compensation committee meets the
requirements for independence under the current requirements of
the New York Stock Exchange. The compensation committee will be
responsible for, among other things:
|
|
|
reviewing and approving for our executive officers: annual base
salaries, annual incentive bonuses, including the specific goals
and amount, equity compensation, employment agreements,
severance arrangements and change in control arrangements and
any other benefits, compensation or arrangements;
|
|
|
reviewing the succession planning for our executive officers;
|
|
|
overseeing compensation goals and bonus and stock compensation
criteria for our employees;
|
|
|
reviewing and recommending compensation programs for outside
directors;
|
|
|
preparing the compensation discussion and analysis and
compensation committee report that the SEC requires in our
annual proxy statement; and
|
101
|
|
|
administering, reviewing and making recommendations with respect
to our equity compensation plans.
|
Nominating and
governance committee
Our nominating and governance committee will be comprised of
Messrs. Dickinson, Glanton and Stamatakis, each of whom is
a non-employee member of our board of directors, with
Mr. Stamatakis serving as the initial chairperson of our
nominating and governance committee. Our board of directors has
determined that each member of our nominating and governance
committee satisfies the requirements for independence under the
current rules of the New York Stock Exchange. The nominating and
governance committee will be responsible for, among other things:
|
|
|
assisting our board of directors in identifying prospective
director nominees and recommending nominees for each annual
meeting of stockholders to the board of directors;
|
|
|
reviewing developments in corporate governance practices and
developing and recommending governance principles applicable to
our board of directors;
|
|
|
overseeing the evaluation of our board of directors and
management;
|
|
|
recommending members for each board committee to our board of
directors; and
|
|
|
reviewing and monitoring our code of ethics and actual and
potential conflicts of interest of members of our board of
directors and officers.
|
Code of
ethics
In connection with this offering our board of directors will
adopt a code of ethics for our principal executive and senior
financial officers. The code will apply to our principal
executive officer, principal financial officer, principal
accounting officer or controller, or persons performing similar
functions. Upon the effectiveness of the registration statement
of which this prospectus forms a part, the full text of our code
of ethics will be posted on our website at
www.mistrasgroup.com. We intend to disclose future
amendments to certain provisions of our code of ethics, or
waivers of such provisions, applicable to any principal
executive officer, principal financial officer, principal
accounting officer or controller, or persons performing similar
functions as required by law or regulation. The inclusion of our
website address in this prospectus does not include or
incorporate by reference the information on our website into
this prospectus.
Compensation
committee interlocks and insider participation
None of the members of our compensation committee is an officer
or employee of our company. None of our executive officers
currently serves, or in the past year has served, as a member of
the board of directors or compensation committee of any entity
that has one or more executive officers serving on our board of
directors or compensation committee.
Limitations on
liability and indemnification matters
Our second amended and restated certificate of incorporation and
amended and restated bylaws, each of which will be in effect
upon the completion of this offering, contain provisions
102
that limit the liability of our directors for monetary damages
to the fullest extent permitted by Delaware law. Consequently,
our directors will not be personally liable to us or our
stockholders for monetary damages for any breach of fiduciary
duties as directors, except liability for:
|
|
|
any breach of the directors duty of loyalty to us or our
stockholders;
|
|
|
any act or omission not in good faith or that involves
intentional misconduct or a knowing violation of law;
|
|
|
unlawful payments of dividends or unlawful stock repurchases or
redemptions as provided in Section 174 of the Delaware
General Corporation Law; or
|
|
|
any transaction from which the director derived an improper
personal benefit.
|
Our amended and restated bylaws also provide that we are
obligated to advance expenses incurred by a director or officer
in advance of the final disposition of any action or proceeding,
and permit us to secure insurance on behalf of any officer,
director, employee or other agent for any liability arising out
of his or her actions in that capacity, regardless of whether we
would otherwise be permitted to indemnify him or her under the
provisions of Delaware law. We have entered, and expect to
continue to enter, into agreements to indemnify our directors,
executive officers and other employees as determined by our
board of directors. With specified exceptions, these agreements
provide for indemnification for related expenses including,
among other things, attorneys fees, judgments, fines and
settlement amounts incurred by any of these individuals in any
action or proceeding. We believe that these bylaw provisions and
indemnification agreements are necessary to attract and retain
qualified persons as directors and officers. We also maintain
directors and officers liability insurance.
The limitation of liability and indemnification provisions in
our second amended and restated certificate of incorporation and
amended and restated bylaws may discourage stockholders from
bringing a lawsuit against our directors and officers for breach
of their fiduciary duty. They may also reduce the likelihood of
derivative litigation against our directors and officers, even
though an action, if successful, might benefit us and other
stockholders. Further, a stockholders investment may be
adversely affected to the extent that we pay the costs of
settlement and damage awards against directors and officers as
required by these indemnification provisions. At present, there
is no pending litigation or proceeding involving any of our
directors, officers or employees for which indemnification is
sought, and we are not aware of any threatened litigation that
may result in claims for indemnification.
There is no currently pending material litigation or proceeding
involving any of our directors or officers for which
indemnification is sought.
Director
compensation
We reimburse each member of our board of directors who is not an
employee for reasonable travel and other expenses in connection
with attending meetings of the board of directors or committees
thereof. Our directors received no other compensation for their
services as such in fiscal 2009.
103
Executive
compensation
Compensation
discussion and analysis
Our current compensation program for our named executive
officers (as defined under Summary
Compensation Table for 2009) was developed and implemented
by our board of directors while we were a private company.
Therefore, our current compensation program, and the process by
which it was developed, is less formal than that which we plan
to follow as a public company.
In connection with this offering, we will review our
compensation philosophy and expect to adopt compensation
policies and objectives that generally are more consistent with
those of a public, rather than private, company. To this end,
our compensation committee will undertake a review of director
and executive officer compensation trends at comparable
companies and provide recommendations to our board of directors
with respect to compensation arrangements following the
completion of this offering. We anticipate that individual
performance objectives will be identified in the future.
However, we cannot predict what the compensation
committees recommendations or such objectives will be.
We currently have no employment agreements with our named
executive officers other then Dr. Vahaviolos. We may enter
into employment agreements with our other named executive
officers on terms to be agreed between us and the executives
after this offering. We have established the following primary
objectives in negotiating these employment agreements:
|
|
|
attracting, retaining and motivating executive officers with the
knowledge, skills and experience that are critical to our
success;
|
|
|
ensuring that executive compensation is aligned with our
corporate strategies and business objectives; and
|
|
|
promoting the achievement of key strategic and financial
performance measures by linking cash incentives to the
achievement of operating results.
|
After completion of this offering, our compensation committee
will oversee our executive compensation program. For more
information on our compensation committee after completion of
the offering, see Compensation Committee above.
Given the limited formal procedures we have employed as a
private company, we expect that our approach to executive
compensation as a public company, as developed and implemented
by our compensation committee, will vary significantly from our
historical practice. We expect that the compensation committee
will meet periodically to make recommendations for base
salaries, bonuses, stock option awards, long-term incentive
awards and other compensation and benefits to be paid, granted
or provided to our named executive officers. In making these
recommendations, we expect that the compensation committee will
consider (1) our historical and expected performance,
(2) the alignment of individual performance with our
operational objectives, (3) the anticipated level of
difficulty in replacing our named executive officers with
persons of comparable experience, skill and knowledge, and
(4) the recommendations of any external advisors that it
may engage.
Components of
executive compensation for fiscal 2009
The principal components of our current executive compensation
program are base salary and an annual performance bonus
principally based on our revenues and EBITDA (and in the case of
our named executive officers other than Dr. Vahaviolos and
Mr. Peterik, on the financial
104
performance of the group for which each such named executive
officer is responsible). In addition, we maintain certain
benefits and perquisites for our named executive officers, which
are dependent, in part, on the country in which the named
executive officer is located. Although each element of
compensation described below is considered separately, our
existing compensation committee takes into account the aggregate
compensation package for each individual in its determination of
each individual component of that package. The components of
executive compensation have been as follows:
|
|
|
Base salary. Base salary is a fixed compensation
amount paid during the course of the fiscal year. Each named
executive officers base salary is reviewed on an annual
basis by our existing compensation committee. Historically, we
have not applied specific formulas to set base salary or to
determine salary increases, nor have we sought to formally
benchmark base salary against similarly situated companies.
Generally, salary is determined by reference to the scope of
each named executive officers responsibilities and is
intended to provide a basic level of compensation for performing
the job expected of him. We believe that each named executive
officers base salary must be competitive in our industry
and with the market generally with respect to the knowledge,
skills and experience that are necessary for him to meet the
requirements of his position.
|
|
|
Annual cash incentives. Annual cash incentives are
intended to reward named executive officers for individual
performance. The named executive officers have the potential to
earn cash incentives up to a maximum of 100 percent of base
salary. In fiscal 2009, the cash incentives were principally
based on our revenues and EBITDA. We chose revenues as a metric
in order to incentivize and reward revenue growth and EBITDA
because we believe it is a useful measure of our profitability.
The targets set by our compensation committee for fiscal 2009
were revenues of $200 million (after intercompany
eliminations) and EBITDA of $35 million. In addition, the
cash incentives for our named executive officers were based in
part on other factors, such as new product introduction,
customer base growth, customer retention, completion of
acquisitions and successful integration of acquired companies or
assets and, solely with respect to our named executive officers
other than Dr. Vahaviolos and Mr. Peterik, on the
performance of the group for which each is responsible, although
we did not assign a target for any of these factors. Instead,
with respect to these factors, we used our own experience and
judgment to determine whether and to what extent each named
executive officers cash incentives should be adjusted as a
result of his or her performance with respect to such factors.
Due to the economy and several non-recurring events we did not
fully achieve our EBITDA and revenue targets and accordingly
reduced bonus payments. The cash incentives paid to our named
executive officers ranged from approximately 19% to 39% of our
named executive officers base salaries. We did not adhere
to a fixed formula for determining the aggregate cash incentives
since the applicable targets for EBITDA were not met; nor did we
assign a fixed weight to the other metrics on which such
incentives were based.
|
|
|
Benefits and perquisites. Our named executive
officers are eligible to receive the same benefits that are
generally available to all employees. We provide a qualified
matching contribution to each employee, including our named
executive officers, who participates in our 401(k) plan. This
matching policy provides that we match half of the first 6% of
compensation that our named executive officers contribute to the
plan. We also provide certain additional benefits to our named
executive officers located outside the United States, including
health and dental insurance and a car allowance, which we
believe are consistent with those offered by other companies and
specifically with those companies with which we compete for
these employees. We did not provide any other personal benefits
or pension,
|
105
|
|
|
|
|
deferred compensation or other retirement benefits to our named
executive officers in fiscal 2009.
|
Vahaviolos
employment agreement
In September 2009, we entered into an employment agreement with
Dr. Vahaviolos for the positions of executive chairman of
the board and chief executive officer, which has an initial term
of two years and is automatically renewable for successive
one-year periods in the absence of an election by either party
to terminate. The employment agreement provides for an initial
annual base salary of $345,000, subject to annual review by the
compensation committee. Dr. Vahaviolos is entitled to
annual short-term incentive opportunities targeted at 75% of his
annual base salary. Under his employment agreement,
Dr. Vahaviolos was granted an option to purchase
150,000 shares of our common stock with an exercise price
equal to $175.00 per share pursuant to our 2007 Stock Option
Plan. The options are subject to a four-year vesting schedule,
with 25% of the options vesting each upon the first, second,
third and fourth anniversary of their issuance.
Under his employment agreement, Dr. Vahaviolos is entitled
to receive payments and other benefits upon the termination of
his employment. These payments and other benefits are described
under Potential payments upon termination of employment or
a change of control.
We currently have no employment agreements with our other named
executive officers.
Equity benefit
plans
2007 stock option
plan
Our 2007 Stock Option Plan provides for the grant of
nonstatutory and incentive stock options to our employees,
directors, consultants and other persons who perform services
for us. As of September , 2009, options to
purchase shares of common stock were outstanding
and shares
of common stock were reserved for future grant under the 2007
Stock Option Plan. Following this offering, our board of
directors does not intend to grant any further awards under the
2007 Stock Option Plan. Our board of directors has adopted the
2009 Long-Term Incentive Plan, under which we expect to make all
future awards. All outstanding stock options granted under the
2007 Stock Option Plan will remain outstanding and subject to
their respective terms and the terms of the 2007 Stock Option
Plan.
2009 long-term
incentive plan
Our board of directors and existing stockholders have adopted
and approved the 2009 Long-Term Incentive Plan, or 2009 Plan.
The 2009 Plan will become effective on the date of this
prospectus and is a comprehensive incentive compensation plan
under which we can grant equity-based and other incentive awards
to officers, employees and directors of, and consultants and
advisers to our company and our subsidiaries. The purpose of the
2009 Plan is to help us attract, motivate and retain such
persons and thereby enhance shareholder value.
We have reserved up
to shares
of our common stock for issuance under the 2009 Plan. Unissued
shares covered by awards that terminate, shares that are
forfeited, and shares withheld or surrendered for the payment of
the exercise price or withholding obligations associated with an
award will remain available for issuance under the 2009 Plan.
The number of shares issuable under the 2009 Plan is subject to
adjustment in the event of certain capital changes affecting
106
outstanding shares of our common stock, such as the payment of
a stock dividend, a spin-off or other form of recapitalization.
Awards under the 2009 Plan may be in the form of stock options,
restricted stock and other forms of stock-based incentives,
including stock appreciation rights and deferred stock rights.
|
|
|
Stock options represent the right to purchase shares of our
common stock within a specified period of time for a specified
price. The purchase price per share must be at least equal to
the fair market value per share on the date the option is
granted. Stock options may have a maximum term of ten years. Our
compensation committee will have the flexibility to grant stock
options that are intended to qualify as incentive stock
options under Section 422 of the Internal Revenue
Code.
|
|
|
|
Restricted stock awards consist of the issuance of shares of our
common stock subject to certain vesting conditions and transfer
restrictions that lapse based upon continuing service
and/or the
attainment of specified performance objectives. The holder of a
restricted stock award may be given the right to vote and
receive dividends on the shares covered by the award.
|
|
|
|
Stock appreciation rights entitle the holder to receive the
appreciation in the fair market value of the shares of our
common stock covered by the award between the date the award is
granted and the date the award is exercised. In general,
settlement of a stock appreciation right will be made in the
form of shares of our common stock with a value equal to the
amount of such appreciation.
|
|
|
|
Deferred stock awards represent the right to receive shares of
our common stock in the future, subject to applicable vesting
and other terms and conditions. Deferred stock awards are
generally settled in shares of our common stock at the time the
award vests, subject to any applicable deferral conditions as
may be permitted or required under the award. The holder of a
deferred stock award may not vote the shares covered by the
award unless and until the award vests and the shares are
issued. Dividend equivalents may or may not be payable with
respect to shares covered by deferred stock award.
|
|
|
|
Performance units are awards with an initial value established
by our compensation committee (or that is determined by
reference to a valuation formula specified by the committee) at
the time of the grant. In its discretion, the compensation
committee will set performance goals that, depending on the
extent to which they are met during a specified performance
period, will determine the number
and/or value
of performance units that will be paid out to the participant.
The compensation committee, in its sole discretion, may pay
earned performance units in the form of cash, shares of our
common stock or any combination thereof that has an aggregate
fair market value equal to the value of the earned performance
units at the close of the applicable performance period. The
determination of the compensation committee with respect to the
form and timing of payout of performance units will be set forth
in the applicable award agreement. The committee may, on such
terms and conditions as it may determine, provide a participant
who holds performance units with dividends or dividend
equivalents, payable in cash, shares of our common stock, other
securities, other awards or other property.
|
The 2009 Plan also provides for stock bonus and other forms of
stock-based awards and for cash incentive awards.
107
The 2009 Plan will be administered by the compensation committee
of our board of directors. Subject to the terms of the 2009
Plan, the compensation committee (or its designee) may select
the persons who will receive awards, the types of awards to be
granted, the purchase price (if any) to be paid for shares
covered by the awards, and the vesting, forfeiture and other
terms and conditions of the awards. In general, awards granted
under the 2009 Plan will not be transferrable.
In the event of a change in control or sale event as described
in the 2009 Plan, outstanding awards under the 2009 Plan may be
converted into equivalent awards with respect to shares of an
acquiring or successor company (or corporate parent), subject to
substantially similar vesting and other terms and conditions,
except that, if the individual is terminated other than for
cause within two years after a sale event or change in control,
the awards will vest in full. In general, if an outstanding
award is not so converted, it will become fully vested and will
be cashed out or otherwise entitled to participate in the change
in control transaction or sale event based upon its then
intrinsic value.
Unless sooner terminated by our board of directors, the 2009
Plan shall expire on the tenth anniversary of the date of its
adoption. The board of directors may amend or terminate the 2009
Plan at any time, provided, however, that no such action may
adversely affect outstanding awards without the holders
consent. Amendments to the 2009 Plan will be subject to
shareholder approval if and to the extent required in order to
comply with applicable legal or stock exchange requirements.
The 2009 Plan is intended to constitute a plan described in
Treasury
Regulation Section 1.162-27(f)(1),
pursuant to which the deduction limits under Section 162(m)
of the Internal Revenue Code do not apply during the applicable
reliance period, which would end upon the earliest of:
(i) the expiration of the 2009 Plan, (ii) a material
modification of the 2009 Plan, (iii) the issuance of all
available stock and other compensation that has been allocated
under the 2009 Plan, or (iv) the first stockholder meeting
at which directors are to be elected that occurs after the close
of the third calendar year in which we became publicly held.
108
Summary
compensation table for fiscal 2009(1)
The following table provides information regarding the
compensation of our Chief Executive Officer, Chief Financial
Officer and each of the next four most highly compensated
executive officers in fiscal 2009. We refer to these executive
officers as our named executive officers.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option
|
|
|
All other
|
|
|
|
|
|
|
|
|
|
Salary
|
|
|
Bonus
|
|
|
awards
|
|
|
compensation
|
|
|
Total
|
|
Name and principal
position
|
|
Year
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
|
|
Sotirios J. Vahaviolos
|
|
|
2009
|
|
|
$
|
312,716
|
|
|
$
|
120,000
|
|
|
$
|
|
|
|
$
|
36,594
|
(2)
|
|
$
|
469,310
|
|
Chairman, President and Chief Executive Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paul Pete Peterik
|
|
|
2009
|
|
|
|
219,527
|
|
|
|
74,000
|
|
|
|
|
|
|
|
28,586
|
(3)
|
|
|
322,113
|
|
Chief Financial Officer and Secretary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael J. Lange
|
|
|
2009
|
|
|
|
198,000
|
|
|
|
78,000
|
|
|
|
|
|
|
|
25,392
|
(4)
|
|
|
301,392
|
|
Group Executive Vice President, Services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mark F. Carlos
|
|
|
2009
|
|
|
|
149,775
|
|
|
|
28,400
|
|
|
|
|
|
|
|
12,729
|
(5)
|
|
|
190,904
|
|
Group Executive Vice President, Products and Systems
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Phillip T. Cole
|
|
|
2009
|
|
|
|
162,215
|
|
|
|
58,676
|
|
|
|
|
|
|
|
29,051
|
(6)
|
|
|
249,942
|
|
Group Executive Vice President, International
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ralph L. Genesi
|
|
|
2009
|
|
|
|
36,692
|
|
|
|
1,500
|
|
|
|
25,000
|
(8)
|
|
|
1,100
|
(7)
|
|
|
64,292
|
|
Group Executive Vice President, Marketing and Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Columns disclosing compensation
under the headings Stock Awards, Non-Equity
Incentive Plan Compensation, and Change in Pension
Value and Nonqualified Deferred Compensation Earnings are
not included because no compensation in these categories was
awarded to, earned by or paid to our named executive officers in
fiscal 2008.
|
|
(2)
|
|
Includes matching contributions
under our 401(k) Plan of $7,750 and vehicle allowances of
$14,712.
|
|
(3)
|
|
Includes matching contributions
under our 401(k) Plan of $8,313 and vehicle allowances of $7,800.
|
|
(4)
|
|
Includes matching contributions
under our 401(k) Plan of $4,854 and vehicle allowances of
$12,278.
|
|
(5)
|
|
Includes matching contributions
under our 401(k) Plan of $4,900 and vehicle allowances of $3,000.
|
|
(6)
|
|
Includes contributions for
retirement and health care insurance of $22,584 and vehicle
allowances of $6,467.
|
|
(7)
|
|
Includes vehicle allowances of
$1,000.
|
|
(8)
|
|
Represents the total compensation
expense for fiscal 2009, calculated in accordance with
SFAS No. 123R for the stock option grants received.
The annual valuation assumptions used in determined such amounts
are described elsewhere in this prospectus.
|
109
Grants of
plan-based awards
The following table provides information regarding grants of
plan-based awards to our named executive officers during fiscal
2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All other option
|
|
|
|
|
|
|
|
|
|
|
|
|
awards: number
|
|
|
|
|
|
Grant date fair
|
|
|
|
|
|
|
of securities
|
|
|
Exercise or
|
|
|
value of stock
|
|
|
|
|
|
|
underlying
|
|
|
base price of
|
|
|
and option
|
|
|
|
Grant
|
|
|
options
|
|
|
option awards
|
|
|
awards
|
|
Name
|
|
date
|
|
|
(#)
|
|
|
($/sh)
|
|
|
($)(2)
|
|
|
|
|
Ralph L. Genesi
|
|
|
4/9/09
|
|
|
|
12,500
|
(1)
|
|
$
|
130.00
|
|
|
$
|
601,250
|
|
|
|
|
|
|
(1)
|
|
This option grant was received upon
joining Mistras in 2009 pursuant to our 2007 Stock Option Plan.
The options vest in four annual installments commencing on the
first anniversary of the date of grant.
|
|
(2)
|
|
The amount in this column
represents the aggregate grant date fair value, computed in
accordance with SFAS No. 123(R), of the stock options
granted to Mr. Genesi in fiscal 2009. No other named
executive officer was granted options in fiscal 2009.
|
Outstanding
equity awards at 2009 fiscal-year end
The following table provides information regarding equity awards
granted to our named executive officers that were outstanding as
of May 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option awards
|
|
|
|
Number of
|
|
|
Number of
|
|
|
|
|
|
|
|
|
|
securities
|
|
|
securities
|
|
|
|
|
|
|
|
|
|
underlying
|
|
|
underlying
|
|
|
Option
|
|
|
|
|
|
|
unexercised
|
|
|
unexercised
|
|
|
exercise
|
|
|
Option
|
|
|
|
options
|
|
|
options
|
|
|
price
|
|
|
expiration
|
|
Name
|
|
exercisable
|
|
|
unexercisable
|
|
|
($/share)
|
|
|
date
|
|
|
|
|
Sotirios J. Vahaviolos
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
Paul Pete Peterik(1)
|
|
|
12,500
|
(1)
|
|
|
|
|
|
|
5.00
|
|
|
|
05/25/2015
|
|
Mark F. Carlos
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Phillip T. Cole
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael J. Lange
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ralph L. Genesi
|
|
|
|
|
|
|
12,500
|
(2)
|
|
|
130.00
|
|
|
|
04/09/2019
|
|
|
|
|
|
|
(1)
|
|
This option grant was received upon
joining Mistras in 2005 and is fully vested.
|
|
(2)
|
|
This option grant was received upon
joining Mistras in 2009 and the options vest in four annual
installments commencing on the first anniversary of the date of
grant.
|
Option exercises
during fiscal 2009
None of our named executive officers exercised stock options
during fiscal 2009.
Pension benefits
and non-qualified deferred compensation in fiscal 2009
We do not currently provide our named executive officers with
pension benefits or nonqualified deferred compensation.
110
Potential
payments upon termination of employment or a change of
control
As of the end of fiscal 2009 none of the named executive
officers would have been entitled to any payments upon
termination of employment or a change of control. In addition,
none of the named executive officers other than
Dr. Vahaviolos is currently entitled to receive any
benefits in connection with a termination of employment or a
change in control of us. In September 2009, we entered into an
employment agreement with Dr. Vahaviolos, our president and
chief executive officer, that require specific payments and
benefits to be provided to Dr. Vahaviolos in the event of
termination of employment under the circumstances described
below. Following is a description of the payments and benefits
that are owed by us to Dr. Vahaviolos upon termination.
Termination Without Cause or for Good Reason not in
Connection with a Change in Control. If we
terminate Dr. Vahaviolos employment without cause or
Dr. Vahaviolos terminates his employment for good reason,
then Dr. Vahaviolos is entitled to receive the following
payments and benefits:
|
|
|
an amount equal to his unpaid base salary earned through the
date of termination and unpaid short-term incentive award earned
for the preceding year;
|
|
|
|
an amount equal to any business expenses that were previously
incurred but not reimbursed and are otherwise eligible for
reimbursement;
|
|
|
|
any payments or benefits payable to him or his spouse or other
dependents under any other company employee plan or program, and
settlement of any unpaid long-term incentive awards that have
been earned;
|
|
|
|
an amount equal to the short-term incentive award that would
have been earned by him for the year in which the termination
occurs if his employment had not terminated, prorated for the
number of days elapsed since the beginning of that year, payable
when the bonus for such year would otherwise have been paid;
|
|
|
|
an amount equal to a multiple (the severance
multiplier) of (a) his highest annual rate of base
salary during the preceding 24 months, plus (b) his
target short-term incentive award for the calendar year in which
the termination occurs (or, if greater, the actual short-term
incentive award earned by him for the preceding calendar year).
The severance multiplier is 1.0 for payments and benefits
payable in the event of a termination without cause or for good
reason. However, the severance multiplier is 2.0 times if we
terminate Dr. Vahaviolos employment without cause at
the request of an acquiror or otherwise in contemplation of a
change in control in the period beginning six months prior to
the date of a change in control, or he terminates his employment
for good reason within two years after a change in control;
|
|
|
|
immediate vesting of his option award to purchase
150,000 shares of our common stock granted under the terms
of his employment agreement (the initial option
award) and any outstanding long-term incentive awards;
|
|
|
|
continued participation by him and his spouse or other
dependents in our group health plan, at the same benefit and
contribution levels in effect immediately before the termination
for 24 months or, if sooner, until similar coverage is
obtained under a new employers plan. If continued coverage
is not permitted by our plan or applicable law, we will pay the
cost of COBRA continuation coverage to the extent any of these
persons elects and is entitled to receive COBRA continuation
coverage;
|
111
|
|
|
continued payment by us for 24 months of the annual premium
cost of his $1.5 million term life insurance
policy; and
|
|
|
|
continued receipt for 24 months of those perquisites made
available to him during the 12 months preceding the
termination.
|
Under the employment agreement, Dr. Vahaviolos is deemed to
have been terminated without cause if he is terminated for any
reason other than: (1) a conviction of or a nolo contendre
plea to a felony or an indictment for a felony against Mistras
that have a material adverse effect on our business;
(2) fraud involving Mistras; (3) willful failure to
carry out material employment responsibilities; or
(4) willful violation of a material company policy, in each
case subject to a 30 day cure period if the act or omission
is curable by Dr. Vahaviolos.
Dr. Vahaviolos is deemed to have terminated his employment
for good reason if the termination follows: (1) a material
reduction in his status or position, including a reduction in
his duties, responsibilities or authority, or the assignment to
him of duties or responsibilities that are materially
inconsistent with his status or position; (2) a reduction
in his base salary or failure to pay such amount; (3) a
reduction in his total target incentive award opportunity;
(4) a breach by us of any of our material obligations under
the employment agreement; (5) a required relocation of his
principal place of employment of more than 50 miles; or
(6) in connection with a change in control, a failure by
the successor company to assume our obligations under his
employment agreement.
Termination in Connection with a Change in
Control. If we terminate
Dr. Vahaviolos employment without cause at the
request of an acquiror or otherwise in contemplation of a change
in control in the period beginning six months prior to the date
of a change in control, or we terminate him without cause or he
terminates his employment for good reason within two years after
a change in control, then he is entitled to receive the payments
and benefits described above, except that (1) the amount of
the pro rata short-term incentive award will be based on his
target short-term incentive award for the year in which the
termination occurs and payment will be made in a lump-sum
promptly after the time of such termination, and (2) the
severance multiplier is 2.0 for payments and benefits
In the event a change in control occurs and Dr. Vahaviolos
is still employed by or in service of Mistras or, if earlier,
upon the termination of his employment without cause in the
period beginning six months prior to the date of a change in
control, all his outstanding equity-based and other long-term
incentive awards will become vested upon the change in control
in accordance with their terms.
Under the employment agreement, a change in control is defined
as: (1) the acquisition of 40% or more of our common stock,
except in connection with a consolidation, merger or
reorganization where (a) the stockholders of Mistras
immediately prior to the transaction own at least a majority of
the voting securities of the surviving entity, (b) a
majority of the directors of the surviving entity were directors
of Mistras prior to the transaction, and (c) no person,
subject to certain exceptions, beneficially owns more than a
majority of the voting securities of the surviving entity;
(2) the completion of a consolidation, merger or
reorganization, unless (a) the stockholders of Mistras
immediately prior to the transaction own at least a majority of
the voting securities of the surviving entity, (b) a
majority of the directors of the surviving entity were directors
of Mistras prior to the transaction, or (c) no person,
entity, or group, subject to certain exceptions, beneficially
owns more than a majority of the voting securities of the
surviving entity; (3) a change in a majority of the members
of our board, without the approval of the then incumbent members
of the board; or
112
(4) the stockholders approve the complete liquidation or
dissolution of Mistras, or a sale or other disposition of all or
substantially all of the assets of Mistras.
Termination Due to Death or Disability. If
Dr. Vahaviolos employment terminates due to death or
is terminated by us due to disability, he (or his beneficiary)
is entitled to receive:
|
|
|
an amount equal to his unpaid base salary earned through the
date of termination, plus an amount equal to any business
expenses that were previously incurred but not reimbursed and
are otherwise eligible for reimbursement;
|
|
|
|
any payments or benefits payable to him or his spouse or other
dependents under any other company employee plan or program;
|
|
|
|
a lump-sum payment in an amount equal to (a) his base
salary for six months, plus (b) his unpaid short-term
incentive award earned for the preceding year, plus (c) his
target bonus for the preceding year, prorated for the number of
days elapsed since the beginning of that year;
|
|
|
|
immediate vesting of his option award to purchase
150,000 shares of our common stock granted under the terms
of his employment agreement (the initial option
award) and any outstanding long-term incentive awards;
|
|
|
|
continued participation by him and his spouse or other
dependents in our group health plan, at the same benefit and
contribution levels in effect immediately before the termination
for 24 months or, if sooner, until similar coverage is
obtained under a new employers plan. If continued coverage
is not permitted by our plan or applicable law, we will pay the
cost of COBRA continuation coverage to the extent any of these
persons elects and is entitled to receive COBRA continuation
coverage; and
|
|
|
|
continued payment by us for 24 months of the annual premium
cost of his $1.5 million term life insurance policy (if his
employment is terminated due to his disability).
|
Tax
Gross-Up
Payments. In the event Dr. Vahaviolos is
subject to the federal excise tax on excess parachute
payments for benefits he is entitled to under his
employment agreement or otherwise from us, he is entitled to
receive an amount necessary to offset the excise taxes and any
related income taxes, penalties and interest.
Obligations of Dr. Vahaviolos. Payment
and benefits under the employment agreement are subject to
compliance by Dr. Vahaviolos with the restrictive covenants
in the agreement, including non-disclosure, non-competition and
non-solicitation covenants. The non-competition and
non-solicitation covenants expire on the second anniversary of
the termination of Dr. Vahaviolos employment. The
non-disclosure covenant does not expire. If Dr. Vahaviolos
violates any of these covenants, he will not be entitled to
further payments and benefits under the employment agreement and
must repay us for the payments and the value of benefits
previously received under the agreement. All payments or
benefits under the employment agreement are conditioned on the
execution of a general release of claims by Dr. Vahaviolos
in favor of us, our affiliates, and our officers, directors and
employees.
113
Principal and
selling stockholders
The following table sets forth certain information regarding the
beneficial ownership of our common stock and the shares
beneficially owned by all selling stockholders as
of ,
2009, and as adjusted to reflect the sale of our common stock
offered by this prospectus by:
|
|
|
the executive officers named in the summary compensation table;
|
|
|
each of our directors;
|
|
|
all of our current directors and executive officers as a group;
|
|
|
each stockholder known by us to own beneficially more than five
percent of our common stock; and
|
|
|
all selling stockholders.
|
Beneficial ownership is determined in accordance with the rules
of the SEC and includes voting or investment power with respect
to the securities. Shares of common stock that may be acquired
by an individual or group within 60 days
of ,
2009, pursuant to the exercise of options or warrants, are
deemed to be outstanding for the purpose of computing the
percentage ownership of such individual or group, but are not
deemed to be outstanding for the purpose of computing the
percentage ownership of any other person shown in the table.
Percentage of ownership is based
on shares
of common stock outstanding
on ,
2009 which assumes the conversion of all outstanding shares of
our Class A Convertible Redeemable Preferred Stock,
Class B Convertible Redeemable Preferred Stock
into shares
of common stock
and shares
of common stock outstanding after the completion of this
offering.
Except as indicated in footnotes to this table, we believe that
the stockholders named in this table have sole voting and
investment power with respect to all shares of common stock
shown to be beneficially owned by them, based on information
provided to us by such stockholders. The address for the
directors and executive officers set forth below is 195
Clarksville Road, Princeton Junction, NJ 08550.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares beneficially
|
|
|
|
|
|
|
|
|
|
Shares beneficially
|
|
|
owned after this
|
|
|
|
|
|
|
Shares
|
|
|
owned after this
|
|
|
offering, assuming
|
|
|
|
Shares beneficially
|
|
|
being sold
|
|
|
offering, assuming
|
|
|
full exercise of the
|
|
|
|
owned prior to
|
|
|
in this
|
|
|
no exercise of the
|
|
|
over-allotment
|
|
|
|
this offering
|
|
|
offering
|
|
|
over-allotment option
|
|
|
option
|
|
Beneficial owner
|
|
Number
|
|
|
Percent
|
|
|
Number
|
|
|
Number
|
|
|
Percent
|
|
|
Number
|
|
|
Percent
|
|
|
|
|
Directors and Executive Officers
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sotirios J. Vahaviolos(1)
|
|
|
|
|
|
|
55.9%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chairman, President, Chief Executive Officer and Director
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
114
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares beneficially
|
|
|
|
|
|
|
|
|
|
Shares beneficially
|
|
|
owned after this
|
|
|
|
|
|
|
Shares
|
|
|
owned after this
|
|
|
offering, assuming
|
|
|
|
Shares beneficially
|
|
|
being sold
|
|
|
offering, assuming
|
|
|
full exercise of the
|
|
|
|
owned prior to
|
|
|
in this
|
|
|
no exercise of the
|
|
|
over-allotment
|
|
|
|
this offering
|
|
|
offering
|
|
|
over-allotment option
|
|
|
option
|
|
Beneficial owner
|
|
Number
|
|
|
Percent
|
|
|
Number
|
|
|
Number
|
|
|
Percent
|
|
|
Number
|
|
|
Percent
|
|
|
|
|
Paul Peterik(2)
|
|
|
|
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chief Financial Officer and Secretary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mark F. Carlos
|
|
|
|
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Group Executive Vice President, Products and Systems
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Phillip T. Cole
|
|
|
|
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Group Executive Vice President, International
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael J. Lange
|
|
|
|
|
|
|
3.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Group Executive Vice President, Services, and Director
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ralph L. Genesi
|
|
|
|
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Group Executive Vice President , Marketing and Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Elizabeth Burgess(3)
|
|
|
|
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Director
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Daniel M. Dickinson(4)
|
|
|
|
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Director
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
James J. Forese(4)
|
|
|
|
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Director
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Richard H. Glanton
|
|
|
|
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Director
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manuel N. Stamatakis
|
|
|
|
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Director
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All directors and executive officers as a group (11 persons)
|
|
|
|
|
|
|
61.7%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
115
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares beneficially
|
|
|
|
|
|
|
|
|
|
Shares beneficially
|
|
|
owned after this
|
|
|
|
|
|
|
Shares
|
|
|
owned after this
|
|
|
offering, assuming
|
|
|
|
Shares beneficially
|
|
|
being sold
|
|
|
offering, assuming
|
|
|
full exercise of the
|
|
|
|
owned prior to
|
|
|
in this
|
|
|
no exercise of the
|
|
|
over-allotment
|
|
|
|
this offering
|
|
|
offering
|
|
|
over-allotment option
|
|
|
option
|
|
Beneficial owner
|
|
Number
|
|
|
Percent
|
|
|
Number
|
|
|
Number
|
|
|
Percent
|
|
|
Number
|
|
|
Percent
|
|
|
|
|
Five Percent
Stockholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funds affiliated with
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Altus Capital Partners, Inc.(3)
|
|
|
|
|
|
|
11.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10 Wright St., Suite 110
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Westport, CT 06880
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TC NDT Holdings, LLC(4)
|
|
|
|
|
|
|
19.7%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1455 Pennsylvania Avenue, NW
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Washington, D.C. 20004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Selling Stockholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert J. Carroll
|
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Edward Lowenhar
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Richard Finlayson
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Samuel Ternowchek
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pedro Feres Filho
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jean-Claude Lenain
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shigenori Yuyama
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Herman Schoorlemmer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael Gynane
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Athanasia T. Vahaviolos
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Athanasios Anastasopoulos
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jonathan Watson
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charles J. Schulz Jr.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alain Proust
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adrian A. Pollock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Etienne De La Tullayec
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
Indicates beneficial ownership of
less than 1% of the total outstanding common stock.
|
116
|
|
|
(1)
|
|
Consists
of shares
of common stock
and shares
of Class B Convertible Redeemable Preferred Stock.
|
|
(2)
|
|
Consists
of shares
of common stock Mr. Peterik has the right to acquire
pursuant to outstanding options which are or will be immediately
exercisable within 60 days
of ,
2009.
|
|
(3)
|
|
Includes shares
of Class B Convertible Redeemable Preferred Stock held by
Altus Capital Partners, SBIC, L.P.
and shares
of Class B Convertible Redeemable Preferred Stock held by
Altus-Mistras Co-Investment, LLC. The voting and disposition of
the shares held by Altus Capital Partners, SBIC, L.P. is
determined by an investment committee consisting of Russell
Greenberg, Gregory Greenberg and Elizabeth Burgess, a member of
our board of directors. The voting and disposition of the shares
held by Altus-Mistras Co-Investment, LLC is determined by
Russell Greenberg. Ms. Burgess disclaims beneficial
ownership of all of these shares except to the extent of her
pecuniary interest therein.
|
|
(4)
|
|
Consists
of shares
of Class A Convertible Redeemable Preferred Stock
and shares
of Class B Convertible Redeemable Preferred Stock. Daniel
M. Dickinson and James J. Forese, each a member of our board of
directors, share voting and dispositive power over the shares
held by TC NDT Holdings, LLC with five other members of an
investment committee. Messrs. Dickinson and Forese disclaim
beneficial ownership of these shares except to the extent of
their pecuniary interest therein.
|
117
Certain
relationships and related transactions
The following is a description of the transactions we have
engaged in since June 1, 2006 with our directors and
officers and beneficial owners of more than five percent of our
voting securities and their affiliates.
Conversion of all
preferred stock upon completion of this offering
Each share of our Class A and Class B Convertible
Redeemable Preferred Stock is currently convertible into one
share of our common stock. The conversion rate for each series
of preferred stock is subject to (i) proportional
adjustments for, among other things, stock splits and dividends,
combinations, and recapitalizations, and
(ii) formula-weighted-average adjustments in the event that
we issue additional shares of common stock or securities
convertible into or exercisable for common stock at a purchase
price less than the price at which such series of preferred
stock was issued and sold by us, subject to certain customary
exceptions.
All shares of our Class A and Class B Convertible
Redeemable Preferred Stock will automatically convert into
shares of common stock upon completion of this offering. The
following table sets forth the number of shares of common stock
to be received by our officers, directors and security holders
who beneficially own more than five percent of any class of our
voting securities upon such conversion.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A Convertible
|
|
|
Class B Convertible
|
|
|
Common Stock
|
|
|
|
Redeemable
|
|
|
Redeemable
|
|
|
Issuable upon
|
|
Name
|
|
Preferred Stock
|
|
|
Preferred Stock
|
|
|
Conversion
|
|
|
|
|
Sotirios J. Vahaviolos
|
|
|
|
|
|
|
32,495
|
|
|
|
|
|
Funds affiliated with Altus Capital Partners, Inc
|
|
|
|
|
|
|
174,418
|
|
|
|
|
|
TC NDT Holdings, LLC
|
|
|
298,701
|
|
|
|
14,292
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
|
298,701
|
|
|
|
221,205
|
|
|
|
|
|
|
|
Registration
rights
In connection with our Class B Convertible Redeemable
Preferred Stock financing described above, we entered into an
amended and restated investor rights agreement with our
preferred stockholders, including Dr. Vahaviolos, our
Chairman, President and Chief Executive Officer, and entities
affiliated with Ms. Burgess, Mr. Dickinson and
Mr. Forese, our directors. Pursuant to this agreement, we
granted such stockholders certain registration rights with
respect to shares of our common stock issuable upon conversion
of the shares of the preferred stock held by them. For more
information regarding this agreement, please refer to the
section titled Description of Capital Stock
Registration Rights.
This is not a complete description of the amended and restated
investor rights agreement and is qualified by the full text of
the amended and restated investor rights agreement filed as an
exhibit to the registration statement of which this prospectus
is a part.
118
Acquisition of
Envirocoustics A.B.E.E.
On April 25, 2007, our wholly owned subsidiary, Physical
Acoustics Ltd., acquired 99% of the outstanding shares of
Envirocoustics A.B.E.E., a company incorporated under the laws
of Greece, which was majority-owned by Dr. Vahaviolos, our
Chairman, President and Chief Executive Officer. In
consideration for his shares of Envirocoustics A.B.E.E.,
Dr. Vahaviolos received approximately $400,000 in cash and
was issued 18,000 shares of our Class B Convertible
Redeemable Preferred Stock, which our board of directors
determined had an approximate fair market value of $50 per share.
On or about May 1, 2007, Envirocoustics A.B.E.E entered
into an employment agreement with the daughter of
Dr. Vahaviolos, our Chairman, President and Chief Executive
Officer., pursuant to which she serves as Vice President and
Managing Director of Envirocoustics A.B.E.E. The employment
agreement provides for a monthly salary in the amount of
approximately $8,900 and other compensation, including incentive
bonuses, plus travel and other expenses. During fiscal 2009,
Dr. Vahaviolos daughter received approximately
$143,000 in total compensation and benefits.
Leases
We lease our headquarters, located at 195 Clarksville Road,
Princeton Junction, New Jersey, from an entity majority owned by
Dr. Vahaviolos, our Chairman, President and Chief Executive
Officer. The lease currently provides for monthly payments of
$61,685 (which increases annually to a maximum of $71,882) and
terminates on October 31, 2014.
Our wholly owned subsidiary, Euro Physical Acoustics, leases
office space located at 27 Rue Magellan, Sucy-en-Brie, France,
which is partly owned by Dr. Vahaviolos, our Chairman,
President and Chief Executive Officer. The lease provides for
monthly payments of $15,719 and terminates January 12, 2016.
Employment and
indemnification arrangements with our executive officers and
directors
We have an employment agreement with Dr. Vahaviolos and we
may enter into employment agreements with our other named
executive officers after this offering. In addition, we will
enter into indemnification agreements with our directors and
officers. The indemnification agreements and our second amended
and restated certificate of incorporation and amended and
restated bylaws require us to indemnify our directors and
officers to the fullest extent permitted by Delaware law. For
more information on Dr. Vahaviolos employment
agreement, please see ManagementVahaviolos
employment agreement and Potential payments upon
termination of employment or a change of control.
Policy for
approval of related person transactions
We have adopted a formal policy that our executive officers,
directors, and principal stockholders, including their immediate
family members and affiliates, are not permitted to enter into a
related party transaction with us without the prior consent of
our audit committee, or other independent members of our board
of directors in the case it is inappropriate for our audit
committee to review such transaction due to a conflict of
interest. Any request for us to enter into a transaction with an
executive officer, director, principal stockholder, or any of
such
119
persons immediate family members or affiliates, in which
the amount involved exceeds $120,000, must first be presented to
our audit committee for review, consideration and approval. All
of our directors, executive officers and employees are required
to report to our audit committee any such related party
transaction. In approving or rejecting the proposed agreement,
our audit committee shall consider the relevant facts and
circumstances available and deemed relevant to the audit
committee, including, but not limited to, the risks, costs and
benefits to us, the terms of the transaction, the availability
of other sources for comparable services or products, and, if
applicable, the impact on a directors independence. Our
audit committee shall approve only those agreements that, in
light of known circumstances, are in, or are not inconsistent
with, our best interests, as our audit committee determines in
the good faith exercise of its discretion. All of the
transactions described above were entered into prior to the
adoption of this policy. Upon completion of this offering, we
will post this related party transaction policy on our website.
120
Description of
capital stock
Under our second amended and restated certificate of
incorporation that will be in effect upon the completion of this
offering, our authorized capital stock will consist
of shares
of common stock, $0.01 par value per share,
and shares
of authorized but undesignated preferred stock, $0.01 par
value per share. The following description summarizes the most
important terms of our capital stock. Because it is only a
summary, it does not contain all the information that may be
important to you. For a complete description you should refer to
our second amended and restated certificate of incorporation and
amended and restated bylaws, effective upon completion of this
offering, copies of which have been filed as exhibits to the
registration statement of which this prospectus is a part, and
to the applicable provisions of the Delaware General Corporation
Law.
Common
stock
As
of ,
2009, we
had shares
of common stock issued and outstanding, held
by
stockholders of record, and there were outstanding options to
purchase shares
of common stock.
Holders of common stock are entitled to one vote for each share
held of record on all matters submitted to a vote of the
stockholders and do not have cumulative voting rights. Subject
to preferences that may be applicable to any outstanding shares
of preferred stock, holders of common stock are entitled to
receive ratably such dividends, if any, as may be declared from
time to time by our board of directors out of funds legally
available for dividend payments. All outstanding shares of
common stock are fully paid and nonassessable, and the shares of
common stock to be issued upon completion of this offering will
be fully paid and nonassessable. The holders of common stock
have no preferences or rights of conversion, exchange,
pre-emption or other subscription rights. There are no
redemption or sinking fund provisions applicable to the common
stock. In the event of any liquidation, dissolution or
winding-up
of our affairs, holders of common stock will be entitled to
share ratably in our assets that are remaining after payment or
provision for payment of all of our debts and obligations and
after liquidation payments to holders of outstanding shares of
preferred stock, if any.
Preferred
stock
After giving effect to this offering, we will have no shares of
preferred stock outstanding.
Preferred stock, if issued, would have priority over the common
stock with respect to dividends and other distributions,
including the distribution of assets upon liquidation. Our board
of directors has the authority, without further stockholder
authorization, to issue from time to time shares of preferred
stock in one or more series and to fix the terms, limitations,
relative rights and preferences, and variations of each series.
Although we have no present plans to issue any shares of
preferred stock, the issuance of shares of preferred stock, or
the issuance of rights to purchase such shares, could decrease
the amount of earnings and assets available for distribution to
the holders of common stock, could adversely affect the rights
and powers, including voting rights, of the common stock, and
could have the effect of delaying, deterring, or preventing a
change of control of us or an unsolicited acquisition proposal.
121
Registration
rights
The holders
of shares
of our common stock issued upon conversion of the preferred
stock outstanding prior to the completion of this offering, or
their permitted transferees, are entitled to rights with respect
to the registration of these shares under the Securities Act.
These rights are provided under the terms of an amended and
restated registration rights agreement between us and the
holders of these shares, and include demand registration rights,
short form registration rights and piggyback registration
rights. We are generally required to pay all expenses incurred
in connection with registrations effected in connection with the
following rights, including expenses of counsel to the
registering security holders up to $35,000. All underwriting
discounts and selling commissions will be borne by the holders
of the shares being registered.
Demand registration rights. Subject to specified
limitations, the holders a majority of these registrable
securities may require that we register all or a portion of
these securities for sale under the Securities Act, if the
anticipated gross receipts from the sale of such securities are
at least $2.5 million. Stockholders with these registration
rights who are not part of an initial registration demand are
entitled to notice and are entitled to include their shares of
common stock in the registration. We are required to effect only
two registrations pursuant to this provision of the registration
agreement. We are not required to effect a demand registration
prior to 90 days after the completion of this offering.
Short form registration rights. If we become
eligible to file registration statements on
Form S-3,
subject to specified limitations, the holders of not less than
25% of these registrable securities can require us to register
all or a portion of its registrable securities on
Form S-3,
if the anticipated aggregate offering price of such securities
is at least $500,000. We may not be required to effect more than
two such registrations in any
12-month
period. Stockholders with these registration rights who are not
part of an initial registration demand are entitled to notice
and are entitled to include their shares of common stock in the
registration.
Piggyback registration rights. If at any time we
propose to register any of our equity securities under the
Securities Act, other than in connection with (i) a demand
registration described above, (ii) a registration relating
solely to our stock option plans or other employee benefit plans
or (iii) a registration relating solely to a business
combination or merger involving us, the holders of these
registrable securities are entitled to notice of such
registration and are entitled to include their shares of capital
stock in the registration. The underwriters, if any, may limit
the number of shares included in the underwritten offering if
they believe that including these shares would adversely affect
the offering. These piggyback registration rights are subject to
the limitations set forth in the
lock-up
agreements entered into by substantially all of the holders of
these registrable securities in connection with this offering,
as described below in the section entitled Shares Eligible
for Future Sale.
Compliance with
governance rules of the New York Stock Exchange
The New York Stock Exchange has adopted rules that provide that
listed companies of which more than 50% of the voting power is
held by a single person or a group of persons are not required
to comply with certain corporate governance rules and
requirements. In particular, such a controlled
company may elect to be exempt from certain rules that
require a majority of the board of directors of companies listed
on the New York Stock Exchange to be independent, as defined by
these rules, and which mandate independent director
representation on certain
122
committees of the board of directors. In addition, for listed
companies other than controlled companies, the New
York Stock Exchange requires:
|
|
|
that a company listed on that market must have an audit
committee comprised of at least three members all of whom are
independent under the rules of the applicable exchange and that
is otherwise in compliance with the rules established for audit
committees of public companies under the Securities Exchange Act
of 1934, as amended;
|
|
|
that director nominees must be selected, or recommended to the
board of directors for selection, by a majority of directors who
are independent under the rules of the applicable exchange, or a
nominations committee comprised solely of independent directors
with a written charter or board resolution addressing the
nomination process; and
|
|
|
that compensation for executive officers must be determined, or
recommended to the board of directors for determination, by a
majority of independent directors or a nominations committee
comprised solely of independent directors.
|
Upon the completion of this offering, we do not expect to avail
ourselves of the controlled company exceptions.
Anti-takeover
effects of our second amended and restated certificate of
incorporation and bylaws and of Delaware law
Certain provisions of Delaware law, our second amended and
restated certificate of incorporation and our bylaws contain
provisions that could have the effect of delaying, deferring or
discouraging another party from acquiring control of us. These
provisions, which are summarized below, may have the effect of
discouraging coercive takeover practices and inadequate takeover
bids. These provisions are also designed, in part, to encourage
persons seeking to acquire control of us to first negotiate with
our board of directors. We believe that the benefits of
increased protection of our potential ability to negotiate with
an unfriendly or unsolicited acquiror outweigh the disadvantages
of discouraging a proposal to acquire us because negotiation of
these proposals could result in an improvement of their terms.
Undesignated Preferred Stock. As discussed above,
our board of directors has the ability to issue preferred stock
with voting or other rights or preferences that could impede the
success of any attempt to change control of us. These and other
provisions may have the effect of deferring hostile takeovers or
delaying changes in control or management of our company.
Inability of Stockholders to Act by Written
Consent. We have provided in our second amended and
restated certificate of incorporation that our stockholders may
not act by written consent. This limit on the ability of our
stockholders to act by written consent may lengthen the amount
of time required to take stockholder actions. As a result, a
holder controlling a majority of our capital stock would not be
able to amend our bylaws or remove directors without holding a
meeting of our stockholders called in accordance with our bylaws.
Calling of Special Meetings of Stockholders. Our
bylaws provide that special meetings of the stockholders may be
called by the Chairman of the Board, the Chief Executive Officer
or by the board of directors acting pursuant to a resolution
adopted by a majority of the members. Additionally, our bylaws
provide that only stockholders entitled to cast not less than
35% of all the votes entitled to be cast at a special meeting of
stockholders can require the Secretary to call such a special
meeting, subject to the satisfaction of certain procedural and
informational
123
requirements. These provisions may impair or prevent smaller
stockholders from forcing consideration of a proposal, including
the removal of directors.
Requirements for Advance Notification of Stockholder
Nominations and Proposals. Our bylaws establish
advance notice procedures with respect to stockholder proposals
and the nomination of candidates for election as directors,
other than nominations made by or at the direction of the board
of directors or a committee of the board of directors. However,
our bylaws may have the effect of precluding the conduct of
certain business at a meeting if the proper procedures are not
followed. Any proposed business other than the nomination of
persons for election to our board of directors must constitute a
proper matter for stockholder action pursuant to the notice of
meeting delivered to us. For notice to be timely, it must be
received by our secretary not later than 90 nor earlier than 120
calendar days prior to the first anniversary of the previous
years annual meeting (or if the date of the annual meeting
is advanced more than 30 calendar days or delayed by more than
60 calendar days from such anniversary date, not later than 90
nor earlier than 120 calendar days prior to such meeting or the
10th calendar day after public disclosure of the date of
such meeting is first made). These provisions may also
discourage or deter a potential acquiror from conducting a
solicitation of proxies to elect the acquirors own slate
of directors or otherwise attempting to obtain control of our
company.
Board Vacancies Filled Only by Majority of Directors Then in
Office. Vacancies and newly created seats on our board
may be filled only by our board of directors. Only our board of
directors may determine the number of directors on our board.
The inability of stockholders to determine the number of
directors or to fill vacancies or newly created seats on the
board makes it more difficult to change the composition of our
board of directors.
No Cumulative Voting. The Delaware General
Corporation Law provides that stockholders are not entitled to
the right to cumulate votes in the election of directors unless
our second amended and restated certificate of incorporation
provides otherwise. Our second amended and restated certificate
of incorporation expressly prohibits cumulative voting.
Directors Removed Only for Cause. Our second amended
and restated certificate of incorporation provides that
directors may be removed by stockholders only for cause.
Delaware Anti-Takeover Statute. We are subject to
the provisions of Section 203 of the Delaware General
Corporation Law regulating corporate takeovers. In general,
Section 203 prohibits a publicly held Delaware corporation
from engaging, under certain circumstances, in a business
combination with an interested stockholder for a period of three
years following the date on which the person became an
interested stockholder unless:
|
|
|
Prior to the date of the transaction, the board of directors of
the corporation approved either the business combination or the
transaction which resulted in the stockholder becoming an
interested stockholder;
|
|
|
Upon completion of the transaction that resulted in the
stockholder becoming an interested stockholder, the interested
stockholder owned at least 85% of the voting stock of the
corporation outstanding at the time the transaction commenced,
excluding for purposes of determining the voting stock
outstanding, but not the outstanding voting stock owned by the
interested stockholder, (1) shares owned by persons who are
directors and also officers and (2) shares owned by
employee stock plans in which employee participants do not have
the right to determine confidentially whether shares held
subject to the plan will be tendered in a tender or exchange
offer; or
|
124
|
|
|
On or subsequent to the date of the transaction, the business
combination is approved by the board of directors and authorized
at an annual or special meeting of stockholders, and not by
written consent, by the affirmative vote of at least
662/3%
of the outstanding voting stock that is not owned by the
interested stockholder.
|
Generally, a business combination includes a merger, asset or
stock sale or other transaction resulting in a financial benefit
to the interested stockholder. An interested stockholder is a
person who, together with affiliates and associates, owns or,
within three years prior to the determination of interested
stockholder status, did own 15% or more of a corporations
outstanding voting stock. We expect the existence of this
provision to have an anti-takeover effect with respect to
transactions our board of directors does not approve in advance.
We also anticipate that Section 203 may also discourage
attempts that might result in a premium over the market price
for the shares of common stock held by stockholders.
The provisions of Delaware law, our second amended and restated
certificate of incorporation and our amended and restated bylaws
could have the effect of discouraging others from attempting
hostile takeovers and, as a consequence, they may also inhibit
temporary fluctuations in the market price of our common stock
that often result from actual or rumored hostile takeover
attempts. These provisions may also have the effect of
preventing changes in our management. It is possible that these
provisions could make it more difficult to accomplish
transactions that stockholders may otherwise deem to be in their
best interests.
Listing
We have applied to list our common stock on the New York Stock
Exchange under the symbol MG.
Transfer agent
and registrar
The transfer agent and registrar for our common stock is
American Stock Transfer and Trust Company. The transfer
agents postal address is 59 Maiden Lane, Plaza Level, New
York, NY 10038 and its telephone numbers for stockholder
services are
(800) 937-5449
and
(718) 921-8124.
125
Shares eligible
for future sale
Prior to this offering, there was no market for our common
stock. We can make no predictions as to the effect, if any, that
sales of shares or the availability of shares for sale will have
on the market price prevailing from time to time. Nevertheless,
sales of significant amounts of our common stock in the public
market, or the perception that those sales may occur, could
adversely affect prevailing market prices and impair our future
ability to raise capital through the sale of our equity at a
time and price we deem appropriate.
Upon completion of this
offering, shares
of common stock will be outstanding, based
on shares
outstanding as of May 31, 2009 and the issuance
of shares
of common stock upon the automatic conversion of all of the
outstanding shares of our preferred stock upon the completion of
this offering. The number of shares of common stock to be
outstanding upon completion of this offering:
|
|
|
gives effect to
a -for-
stock split of our common stock, which will be effective
immediately prior to this offering;
|
|
|
excludes shares
of common stock issuable upon the exercise of stock options
outstanding as of May 31, 2009 at a weighted average
exercise price of $ per share;
|
|
|
excludes shares
of common stock reserved for future grants or awards from time
to time under our 2009 Long-Term Incentive Plan; and
|
|
|
assumes no exercise by the underwriters of their option to
purchase up
to
additional shares of common stock from us.
|
Of these shares, shares (or in the event the underwriters
option to purchase additional shares is exercised in full,
shares) of our common stock sold in this offering will be freely
tradable without restriction under the Securities Act, except
for any shares of our common stock purchased by our
affiliates, as that term is defined in Rule 144
under the Securities Act, which would be subject to the
limitations and restrictions described below. The
remaining shares
of our common stock outstanding upon completion of this offering
are deemed restricted securities, as that term is
defined under Rule 144 of the Securities Act.
Restricted securities may be sold in the public market only if
registered or if they qualify for an exemption from registration
under Rule 144 under the Securities Act, which rules are
described below.
Rule 144
In general, under Rule 144 as currently in effect, a
person, or persons whose shares must be aggregated, who is
deemed to be our affiliate under Rule 144 and who has
beneficially owned restricted shares of our common stock for at
least six months (or one year if at such time 90 days or
less have passed since the date of this prospectus) is entitled
to sell within any three-month period a number of shares that
does not exceed the greater of the following:
|
|
|
one percent of the number of shares of common stock then
outstanding, which will equal
approximately shares
immediately after this offering, or
|
|
|
the average weekly trading volume of our common stock on the New
York Stock Exchange during the four calendar weeks preceding the
date of filing of a notice on Form 144 with respect to the
sale.
|
126
Sales by our affiliates are also generally subject to certain
manner of sale provisions and notice requirements and to the
availability of current public information about us.
A person, or persons whose shares must be aggregated, who is not
deemed to be our affiliate under Rule 144 and who has
beneficially owned restricted shares of our common stock for at
least six months (or one year if at such time 90 days or
less have passed since the date of this prospectus) is entitled
to sell an unlimited number of shares, subject to the
availability of current public information about us. A person
who is not deemed to be our affiliate and who has beneficially
owned restricted shares of our common stock for at least one
year is entitled to sell an unlimited number of shares without
complying with the current public information or any other
requirements of Rule 144.
Rule 701
In general, under Rule 701 as currently in effect, any of
our employees, consultants or advisors who purchase shares from
us in connection with a compensatory stock or option plan or
other written agreement in a transaction before the effective
date of this offering that was completed in reliance on
Rule 701 and complied with the requirements of
Rule 701 will, subject to the
lock-up
restrictions described below, be eligible to resell such shares
90 days after the effective date of this offering in
reliance on Rule 144, but without compliance with certain
restrictions, including the holding period, contained in
Rule 144.
Lock-up
agreements
Our officers and directors,
and ,
who will collectively hold after this
offering shares
of common stock, have agreed that they will not offer, sell,
contract to sell, pledge or otherwise dispose of, directly or
indirectly, any shares of our common stock or securities
convertible into or exchangeable or exercisable for any shares
of our common stock, enter into a transaction that would have
the same effect, or enter into any swap, hedge or other
arrangement that transfers, in whole or in part, any of the
economic consequences of ownership of our common stock, whether
any of these transactions are to be settled by delivery of our
common stock or other securities, in cash or otherwise, or
publicly disclose the intention to make any offer, sale, pledge
or disposition, or to enter into any transaction, swap, hedge or
other arrangement, without, in each case, the prior written
consent of the representatives of the underwriters for a period
of 180 days after the date of this prospectus subject to
extension under certain circumstances.
Registration of
shares in connection with equity incentive plans
We intend to file a registration statement on
Form S-8
under the Securities Act covering shares of common stock to be
issued pursuant to our 2009 Long-Term Incentive Plan. Based on
the number of shares reserved for issuance under these plans,
the registration statement would cover
approximately shares
in total. The registration statement will become effective upon
filing. Accordingly, shares of common stock registered under the
registration statement on
Form S-8
will be available for sale in the open market immediately,
subject to complying with Rule 144 volume limitations
applicable to affiliates, applicable
lock-up
agreements and the vesting requirements and restrictions on
transfer affecting any shares that are subject to restricted
stock awards.
127
Certain material
U.S. federal tax consequences for
non-U.S.
holders of common stock
Each prospective purchaser of common stock is advised to consult
a tax advisor with respect to current and possible future tax
consequences of purchasing, owning and disposing of our common
stock as well as any tax consequences that may arise under the
laws of any U.S. state, municipality or other taxing
jurisdiction.
The following discussion is a general summary of the material
U.S. federal income tax consequences of the ownership and
disposition of our common stock applicable to
Non-U.S. Holders.
As used herein, a
Non-U.S. Holder
means a beneficial owner of our common stock that is neither a
U.S. person nor a partnership for U.S. federal income
tax purposes, and that will hold shares of our common stock as
capital assets. For U.S. federal income tax purposes, a
U.S. person includes:
|
|
|
an individual who is a citizen or resident of the United States;
|
|
|
a corporation (or other business entity treated as a corporation
for U.S. federal income tax purposes) created or organized
in the United States or under the laws of the United States, any
state thereof or the District of Columbia;
|
|
|
an estate the income of which is includible in gross income
regardless of source; or
|
|
|
a trust that (A) is subject to the primary supervision of a
court within the United States and the control of one or more
U.S. persons, or (B) otherwise has validly elected to
be treated as a U.S. domestic trust for U.S. federal
income tax purposes.
|
If a partnership (including an entity treated as a partnership
for U.S. federal income tax purposes) holds shares of our
common stock, the U.S. federal income tax treatment of each
partner generally will depend on the status of the partner and
the activities of the partnership and the partner. Partnerships
acquiring our common stock, and partners in such partnerships,
should consult their own tax advisors with respect to the
U.S. federal income tax consequences of the ownership and
disposition of our common stock.
This summary does not consider specific facts and circumstances
that may be relevant to a particular
Non-U.S. Holders
tax position and does not consider U.S. state and local or
non-U.S. tax
consequences. It also does not consider
Non-U.S. Holders
subject to special tax treatment under the U.S. federal
income tax laws (including partnerships or other pass-through
entities, banks and insurance companies, dealers in securities,
holders of our common stock held as part of a
straddle, hedge, conversion
transaction or other risk-reduction transaction,
controlled foreign corporations, passive foreign investment
companies, companies that accumulate earnings to avoid
U.S. federal income tax, foreign tax-exempt organizations,
former U.S. citizens or residents, persons who hold or
receive common stock as compensation and persons subject to the
alternative minimum tax). This summary is based on provisions of
the U.S. Internal Revenue Code of 1986, as amended (the
Code), applicable final, temporary and proposed Treasury
regulations, administrative pronouncements of the
U.S. Internal Revenue Service (IRS) and judicial decisions,
all as in effect on the date hereof, and all of which are
subject to change, possibly on a retroactive basis, and
different interpretations.
This summary is included herein as general information only.
Accordingly, each prospective
Non-U.S. Holder
is urged to consult its own tax advisor with respect to the
U.S. federal, state,
128
local and
non-U.S. income,
estate and other tax consequences of owning and disposing of our
common stock.
U.S. Trade or
Business Income
For purposes of this discussion, dividend income and gain on the
sale or other taxable disposition of our common stock will be
considered to be U.S. trade or business income
if such income or gain is (i) effectively connected with
the conduct by a
Non-U.S. Holder
of a trade or business within the United States and (ii) in
the case of a
Non-U.S. Holder
that is eligible for the benefits of an income tax treaty with
the United States, attributable to a permanent establishment
(or, for an individual, a fixed base) maintained by the
Non-U.S. Holder
in the United States. Generally, U.S. trade or business
income is not subject to U.S. federal withholding tax
(provided the
Non-U.S. Holder
complies with applicable certification and disclosure
requirements); instead, U.S. trade or business income is
subject to U.S. federal income tax on a net income basis at
regular U.S. federal income tax rates in the same manner as
a U.S. person, unless an applicable income tax treaty
provides otherwise. Any U.S. trade or business income
received by a corporate
Non-U.S. holder
may be subject to an additional branch profits tax
at a 30% rate or such lower rate as may be specified by an
applicable income tax treaty.
Dividends
Distributions of cash or property that we pay will constitute
dividends for U.S. federal income tax purposes to the
extent paid from our current or accumulated earnings and profits
(as determined under U.S. federal income tax principles). A
Non-U.S. Holder
generally will be subject to U.S. federal withholding tax
at a 30% rate, or, if the
Non-U.S. Holder
is eligible, at a reduced rate prescribed by an applicable
income tax treaty, on any dividends received in respect of our
common stock. If the amount of a distribution exceeds our
current and accumulated earnings and profits, such excess first
will be treated as a tax-free return of capital to the extent of
the
Non-U.S. Holders
tax basis in our common stock (with a corresponding reduction in
such
Non-U.S. Holders
tax basis in our common stock), and thereafter will be treated
as capital gain. In order to obtain a reduced rate of
U.S. federal withholding tax under an applicable income tax
treaty, a
Non-U.S. Holder
will be required to provide a properly executed IRS
Form W-8BEN
certifying under penalties of perjury its entitlement to
benefits under the treaty. Special certification requirements
and other requirements apply to certain
Non-U.S. Holders
that are entities rather than individuals. A
Non-U.S. Holder
of our common stock that is eligible for a reduced rate of
U.S. federal withholding tax under an income tax treaty may
obtain a refund or credit of any excess amounts withheld by
filing an appropriate claim for a refund with the IRS on a
timely basis. A
Non-U.S. Holder
should consult its own tax advisor regarding its possible
entitlement to benefits under an income tax treaty and the
filing of a U.S. tax return for claiming a refund of
U.S. federal withholding tax.
The U.S. federal withholding tax does not apply to
dividends that are U.S. trade or business income, as
defined and discussed above, of a
Non-U.S. Holder
who provides a properly executed IRS
Form W-8ECI,
certifying under penalties of perjury that the dividends are
effectively connected with the
Non-U.S. Holders
conduct of a trade or business within the United States.
129
Dispositions of
Our Common Stock
A
Non-U.S. Holder
generally will not be subject to U.S. federal income or
withholding tax in respect of any gain on a sale or other
disposition of our common stock unless:
|
|
|
the gain is U.S. trade or business income, as defined and
discussed above;
|
|
|
the
Non-U.S. Holder
is an individual who is present in the United States for 183 or
more days in the taxable year of the disposition and meets other
conditions; or
|
|
|
we are or have been a U.S. real property holding
corporation (a USRPHC) under section 897
of the Code at any time during the shorter of the five-year
period ending on the date of disposition and the
Non-U.S. Holders
holding period for our common stock.
|
In general, a corporation is a USRPHC if the fair market value
of its U.S. real property interests (as defined
in the Code and applicable Treasury regulations) equals or
exceeds 50% of the sum of the fair market value of its worldwide
real property interests and its other assets used or held for
use in a trade or business. If we are determined to be a USRPHC,
the U.S. federal income and withholding taxes relating to
interests in USRPHCs nevertheless will not apply to gains
derived from the sale or other disposition of our common stock
by a
Non-U.S. Holder
whose shareholdings, actual and constructive, at all times
during the applicable period, amount to 5% or less of our common
stock, provided that our common stock is regularly traded on an
established securities market, within the meaning of the
applicable Treasury regulations. We are not currently a USRPHC,
and we do not anticipate becoming a USRPHC in the future.
However, no assurance can be given that we will not be a USRPHC,
or that our common stock will be considered regularly traded on
an established securities market, when a
Non-U.S. Holder
sells its shares of our common stock.
Federal Estate
Tax
If you are an individual, common stock held at the time of your
death will be included in your gross estate for
U.S. federal estate tax purposes, and may be subject to
U.S. federal estate tax, unless an applicable estate tax
treaty provides otherwise.
Information
Reporting and Backup Withholding Tax
We must annually report to the IRS and to each
Non-U.S. Holder
any dividend income that is subject to U.S. federal
withholding tax, or that is exempt from such withholding tax
pursuant to an income tax treaty. Copies of these information
returns also may be made available under the provisions of a
specific treaty or agreement to the tax authorities of the
country in which the
Non-U.S. Holder
resides. Under certain circumstances, the Code imposes a backup
withholding obligation (currently at a rate of 28%) on certain
reportable payments. Dividends paid to a
Non-U.S. Holder
of our common stock generally will be exempt from backup
withholding if the
Non-U.S. Holder
provides a properly executed IRS
Form W-8BEN
or otherwise establishes an exemption.
The payment of the proceeds from the disposition of our common
stock to or through the U.S. office of any broker,
U.S. or foreign, will be subject to information reporting
and possible backup withholding unless the holder certifies as
to its
non-U.S. status
under penalties of perjury or otherwise establishes an
exemption, provided that the broker does not have actual
knowledge or reason to know that the holder is a
U.S. person or that the conditions of any
130
other exemption are not, in fact, satisfied. The payment of the
proceeds from the disposition of our common stock to or through
a
non-U.S. office
of a
non-U.S. broker
is one that will not be subject to information reporting or
backup withholding unless the
non-U.S. broker
has certain types of relationships with the United States (a
U.S. related person). In the case of the
payment of the proceeds from the disposition of our common stock
to or through a non-U.S. office of a broker that is either a
U.S. person or a U.S. related person, the Treasury
regulations require information reporting (but not backup
withholding) on the payment unless the broker has documentary
evidence in its files that the holder is a
Non-U.S. Holder
and the broker has no knowledge to the contrary.
Non-U.S. Holders
should consult their own tax advisors on the application of
information reporting and backup withholding to them in their
particular circumstances (including upon their disposition of
our common stock).
Backup withholding is not an additional tax. Any amounts
withheld under the backup withholding rules from a payment to a
Non-U.S. Holder
will be refunded or credited against the
Non-U.S. Holders
U.S. federal income tax liability, if any, if the
Non-U.S. Holder
provides the required information to the IRS on a timely basis.
Non-U.S. Holders
should consult their own tax advisors regarding the filing of a
U.S. tax return for claiming a refund of such backup
withholding.
131
Underwriting
Under the terms and subject to the conditions contained in an
underwriting agreement
dated ,
2009, we and the selling stockholders have agreed to sell to the
underwriters named below, for whom J.P. Morgan Securities
Inc., Credit Suisse Securities (USA) LLC and Merrill Lynch,
Pierce, Fenner & Smith Incorporated are acting as
representatives, the following respective numbers of shares of
common stock:
|
|
|
|
|
|
|
|
|
Number
|
|
Underwriter
|
|
of shares
|
|
|
|
|
J.P. Morgan Securities Inc.
|
|
|
|
|
Credit Suisse Securities (USA) LLC
|
|
|
|
|
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
|
|
|
|
|
Robert W. Baird & Co.
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
The underwriting agreement provides that the underwriters are
obligated to purchase all the shares of common stock in the
offering if any are purchased, other than those shares covered
by the over-allotment option described below. The underwriting
agreement also provides that if an underwriter defaults, the
purchase commitments of non-defaulting underwriters may be
increased or the offering may be terminated.
We and the selling stockholders have granted to the underwriters
a 30-day
option to purchase on a pro rata basis up
to
additional shares from us and an aggregate
of
additional shares from the selling stockholders at the initial
public offering price less the underwriting discounts and
commissions. The option may be exercised only to cover any
over-allotments of common stock.
The underwriters propose to offer the shares of common stock
initially at the public offering price on the cover page of this
prospectus and to selling group members at that price less a
selling concession of $ per share.
The underwriters and selling group members may allow a discount
of $ per share on sales to other
broker/dealers. After the initial public offering, the
representatives may change the public offering price and
concession and discount to broker/dealers.
132
The following table summarizes the compensation and estimated
expenses we and the selling stockholders will pay:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per share
|
|
|
Total
|
|
|
|
Without
|
|
|
With
|
|
|
Without
|
|
|
With
|
|
|
|
over-
|
|
|
over-
|
|
|
over-
|
|
|
over-
|
|
|
|
allotment
|
|
|
allotment
|
|
|
allotment
|
|
|
allotment
|
|
|
|
|
Underwriting discounts and commissions paid by us
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Expenses payable by us
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Underwriting discounts and commissions paid by selling
stockholders
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Expenses payable by the selling stockholders
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
The representatives have informed us that they do not expect
sales to accounts over which they have discretionary authority
to exceed 5% of the shares of common stock being offered.
We have agreed that we will not offer, sell, contract to sell,
pledge or otherwise dispose of, directly or indirectly, or file
with the SEC a registration statement under the Securities Act
relating to, any shares of our common stock or securities
convertible into or exchangeable or exercisable for any shares
of our common stock, or publicly disclose the intention to make
any offer, sale, pledge, disposition or filing, without the
prior written consent of the representatives for a period of
180 days after the date of this prospectus. However, in the
event that either (1) during the last 17 days of the
lock-up
period, we release earnings results or material news or a
material event relating to us occurs or (2) prior to the
expiration of the
lock-up
period, we announce that we will release earnings results during
the 16-day
period beginning on the last day of the
lock-up
period, then in either case the expiration of the
lock-up
will be extended until the expiration of the
18-day
period beginning on the date of the release of the earnings
results or the occurrence of the material news or event, as
applicable, unless the representatives waive, in writing, such
an extension.
Our officers and directors and existing stockholders have agreed
that they will not offer, sell, contract to sell, pledge or
otherwise dispose of, directly or indirectly, any shares of our
common stock or securities convertible into or exchangeable or
exercisable for any shares of our common stock, enter into a
transaction that would have the same effect, or enter into any
swap, hedge or other arrangement that transfers, in whole or in
part, any of the economic consequences of ownership of our
common stock, whether any of these transactions are to be
settled by delivery of our common stock or other securities, in
cash or otherwise, or publicly disclose the intention to make
any offer, sale, pledge or disposition, or to enter into any
transaction, swap, hedge or other arrangement, without, in each
case, the prior written consent of the representatives for a
period of 180 days after the date of this prospectus.
However, in the event that either (1) during the last
17 days of the
lock-up
period, we release earnings results or material news or a
material event relating to us occurs or (2) prior to the
expiration of the
lock-up
period, we announce that we will release earnings results during
the 16-day
period beginning on the last day of the
lock-up
period, then in either case the expiration of the
lock-up
will be extended until the expiration of the
18-day
period beginning on the date of the release of the earnings
results or the occurrence of the material news or event, as
applicable, unless the representatives waive, in writing, such
an extension.
133
The underwriters have reserved for sale at the initial public
offering price up
to shares
of common stock for employees, directors and other persons
associated with us who have expressed an interest in purchasing
common stock in the offering. The number of shares available for
sale to the general public in the offering will be reduced to
the extent these persons purchase the reserved shares. Any
reserved shares not so purchased will be offered by the
underwriters to the general public on the same terms as the
other shares.
Each person buying shares through the directed share program
will agree that, for a period of 25 days from the date of
this prospectus, he or she will not, without the prior written
consent of J.P. Morgan Securities Inc., dispose of or hedge
any shares or any securities convertible into or exchangeable
for our common stock with respect to shares purchased in the
program.
When determining whether to release any of our shares of common
stock from
lock-up
agreements or whether to consent to any waiver of transfer
restrictions, the representatives will consider, among other
factors, the holders reasons for requesting the waiver,
the number of shares of common stock for which the release is
being requested and market conditions at the time.
We and the selling stockholders have agreed to indemnify the
underwriters against liabilities under the Securities Act, or
contribute to payments that the underwriters may be required to
make in that respect.
We have applied to list the shares of common stock on the New
York Stock Exchange.
Certain of the underwriters and their respective affiliates have
from time to time performed, and may in the future perform,
various financial advisory, commercial banking and investment
banking services for us and for our affiliates in the ordinary
course of business for which they have received and would
receive customary compensation. Bank of America, N.A., an
affiliate of Banc of America Securities LLC, is the
administrative agent, a lender and lead arranger under our
credit agreement and has received customary compensation in such
capacities. JPMorgan Chase Bank, N.A., an affiliate of
J.P. Morgan Securities Inc., is a lender and co-lead
arranger under our credit agreement and has received customary
compensation in such capacities.
Prior to the offering, there has been no market for our common
stock. The initial public offering price will be determined by
negotiation between us and the underwriters and will not
necessarily reflect the market price of the common stock
following the offering. The principal factors that will be
considered in determining the public offering price will include:
|
|
|
the information presented in this prospectus and otherwise
available to the underwriters;
|
|
|
the history of and the prospects for the industry in which we
will compete;
|
|
|
the ability of our management;
|
|
|
the prospects for our future earnings;
|
|
|
the present state of our development and our current financial
condition;
|
|
|
the recent market prices of, and the demand for, publicly traded
common stock of generally comparable companies; and
|
|
|
the general condition of the securities markets at the time of
the offering.
|
134
We offer no assurances that the initial public offering price
will correspond to the price at which the common stock will
trade in the public market subsequent to this offering or that
an active trading market for the common stock will develop and
continue after the offering.
In connection with the offering, the underwriters may engage in
stabilizing transactions, over-allotment transactions, syndicate
covering transactions and penalty bids in accordance with
Regulation M under the Securities Exchange Act of 1934 (the
Exchange Act).
|
|
|
Stabilizing transactions permit bids to purchase the underlying
security so long as the stabilizing bids do not exceed a
specified maximum.
|
|
|
Over-allotment involves sales by the underwriters of shares in
excess of the number of shares the underwriters are obligated to
purchase, which creates a syndicate short position. The short
position may be either a covered short position or a naked short
position. In a covered short position, the number of shares
over-allotted by the underwriters is not greater than the number
of shares that they may purchase in the over-allotment option.
In a naked short position, the number of shares involved is
greater than the number of shares in the over-allotment option.
The underwriters may close out any covered short position by
either exercising their over-allotment option
and/or
purchasing shares in the open market.
|
|
|
Syndicate covering transactions involve purchases of the common
stock in the open market after the distribution has been
completed in order to cover syndicate short positions. In
determining the source of shares to close out the short
position, the underwriters will consider, among other things,
the price of shares available for purchase in the open market as
compared to the price at which they may purchase shares through
the over-allotment option. If the underwriters sell more shares
than could be covered by the over-allotment option, a naked
short position, the position can only be closed out by buying
shares in the open market. A naked short position is more likely
to be created if the underwriters are concerned that there could
be downward pressure on the price of the shares in the open
market after pricing that could adversely affect investors who
purchase in the offering.
|
|
|
Penalty bids permit the representatives to reclaim a selling
concession from a syndicate member when the common stock
originally sold by the syndicate member is purchased in a
stabilizing or syndicate covering transaction to cover syndicate
short positions.
|
These stabilizing transactions, syndicate covering transactions
and penalty bids may have the effect of raising or maintaining
the market price of our common stock or preventing or retarding
a decline in the market price of the common stock. As a result
the price of our common stock may be higher than the price that
might otherwise exist in the open market. These transactions may
be effected on the New York Stock Exchange or otherwise and, if
commenced, may be discontinued at any time.
A prospectus in electronic format may be made available on the
websites maintained by one or more of the underwriters, or
selling group members, if any, participating in this offering
and one or more of the underwriters participating in this
offering may distribute prospectuses electronically. The
representatives may agree to allocate a number of shares to
underwriters and selling group members for sale to their online
brokerage account holders. Internet distributions will be
allocated by the underwriters and selling group members that
will make internet distributions on the same basis as other
allocations.
135
European Economic
Area
In relation to each Member State of the European Economic Area
which has implemented the Prospectus Directive (each, a
Relevant Member State), with effect from and
including the date on which the Prospectus Directive is
implemented in that Relevant Member State (the Relevant
Implementation Date) an offer of the shares of common
stock to the public may not be made in that Relevant Member
State prior to the publication of a prospectus in relation to
the shares of common stock which has been approved by the
competent authority in that Relevant Member State or, where
appropriate, approved in another Relevant Member State and
notified to the competent authority in that Relevant Member
State, all in accordance with the Prospectus Directive, except
that an offer to the public in that Relevant Member State of any
shares of common stock may be made at any time under the
following exemptions under the Prospectus Directive if they have
been implemented in the Relevant Member State:
|
|
|
to legal entities which are authorized or regulated to operate
in the financial markets or, if not so authorized or regulated,
whose corporate purpose is solely to invest in securities;
|
|
|
to any legal entity which has two or more of (1) an average
of at least 250 employees during the last financial year;
(2) a total balance sheet of more than 43,000,000,
and (3) an annual net turnover of more than
50,000,000, as shown in its last annual or consolidated
accounts;
|
|
|
to fewer than 100 natural or legal persons (other than qualified
investors as defined in the Prospectus Directive) subject to
obtaining the prior consent of the manager for any such
offer; or
|
|
|
in any other circumstances which do not require the publication
by the Issuer of a prospectus pursuant to Article 3 of the
Prospectus Directive.
|
For the purposes of this provision, the expression an
offer of Shares to the public in relation to any
shares of the common stock in any Relevant Member State means
the communication in any form and by any means of sufficient
information on the terms of the offer and the shares of common
stock to be offered so as to enable an investor to decide to
purchase or subscribe the shares of common stock, as the same
may be varied in that Member State by any measure implementing
the Prospectus Directive in that Member State, and the
expression Prospectus Directive means
Directive 2003/71/EC and includes any relevant implementing
measure in each Relevant Member State.
Notice to
investors in the United Kingdom
Our shares of common stock may not be offered or sold and will
not be offered or sold to any persons in the United Kingdom
other than persons whose ordinary activities involve them in
acquiring, holding, managing or disposing of investments (as
principal or as agent) for the purposes of their businesses and
in compliance with all applicable provisions of the Financial
Services and Markets Act 2000 (FSMA) with respect to
anything done in relation to our common stock in, from or
otherwise involving the United Kingdom.
In addition:
|
|
|
an invitation or inducement to engage in investment activity
(within the meaning of Section 21 of the Financial Services
and Markets Act 20000) has only been communicated or caused
to be communicated and will only be communicated or caused to be
communicated in connection with the issue or sale of the shares
of common stock in circumstances in which Section 21(1) of
the FSMA does not apply to us; and
|
136
|
|
|
all applicable provisions of the FSMA have been complied with
and will be complied with, with respect to anything done in
relation to the shares of common stock in, from or otherwise
involving the United Kingdom.
|
Notice to
residents of Germany
Each person who is in possession of this prospectus is aware of
the fact that no German sales prospectus (Verkaufsprospekt)
within the meaning of the Securities Sales Prospectus Act
(Wertpapier-Verkaufsprospektgesetz, the Act) of the
Federal Republic of Germany has been or will be published with
respect to our shares of common stock. In particular, each
underwriter has represented that it has not engaged and has
agreed that it will not engage in a public offering
(öffentliches Angebot) within the meaning of the Act with
respect to any of our shares of common stock otherwise than in
accordance with the Act and all other applicable legal and
regulatory requirements.
Notice to
prospective investors in Switzerland
This document as well as any other material relating to the
shares which are the subject of the offering contemplated by
this Prospectus (the Shares) do not constitute an
issue prospectus pursuant to Article 652a of the Swiss Code
of Obligations. The Shares will not be listed on the SWX Swiss
Exchange and, therefore, the documents relating to the Shares,
including, but not limited to, this document, do not claim to
comply with the disclosure standards of the listing rules of SWX
Swiss Exchange and corresponding prospectus schemes annexed to
the listing rules of the SWX Swiss Exchange.
The Shares are being offered in Switzerland by way of a private
placement, i.e., to a small number of selected investors only,
without any public offer and only to investors who do not
purchase the Shares with the intention to distribute them to the
public. The investors will be individually approached by the
Issuer from time to time.
This document as well as any other material relating to the
Shares is personal and confidential and do not constitute an
offer to any other person. This document may only be used by
those investors to whom it has been handed out in connection
with the offering described herein and may neither directly nor
indirectly be distributed or made available to other persons
without express consent of the Issuer. It may not be used in
connection with any other offer and shall in particular not be
copied
and/or
distributed to the public in (or from) Switzerland.
Notice to
prospective investors in the Dubai International Financial
Centre
This document relates to an exempt offer in accordance with the
Offered Securities Rules of the Dubai Financial Services
Authority. This document is intended for distribution only to
persons of a type specified in those rules. It must not be
delivered to, or relied on by, any other person. The Dubai
Financial Services Authority has no responsibility for reviewing
or verifying any documents in connection with exempt offers. The
Dubai Financial Services Authority has not approved this
document nor taken steps to verify the information set out in
it, and has no responsibility for it. The Shares may be illiquid
and/or
subject to restrictions on their resale. Prospective purchasers
of the Shares offered should conduct their own due diligence on
the Shares. If you do not understand the contents of this
document you should consult an authorised financial adviser.
137
Notice to
Canadian residents
The distribution of the shares of common stock in Canada is
being made only on a private placement basis exempt from the
requirement that we and the selling stockholders prepare and
file a prospectus with the securities regulatory authorities in
each province where trades of the shares of common stock are
made. Any resale of the shares of common stock in Canada must be
made under applicable securities laws which will vary depending
on the relevant jurisdiction, and which may require resales to
be made under available statutory exemptions or under a
discretionary exemption granted by the applicable Canadian
securities regulatory authority. Purchasers are advised to seek
legal advice prior to any resale of the shares of common stock.
Representations
of purchasers
By purchasing the shares of common stock in Canada and accepting
a purchase confirmation, a purchaser is representing to us and
the selling stockholders and the dealer from whom the purchase
confirmation is received that:
|
|
|
the purchaser is entitled under applicable provincial securities
laws to purchase the shares of common stock without the benefit
of a prospectus qualified under those securities laws,
|
|
|
where required by law, that the purchaser is purchasing as
principal and not as agent,
|
|
|
the purchaser has reviewed the text above under Resale
Restrictions, and
|
|
|
the purchaser acknowledges and consents to the provision of
specified information concerning its purchase of the shares of
common stock to the regulatory authority that by law is entitled
to collect the information.
|
Further details concerning the legal authority for this
information is available on request.
Rights of
action Ontario purchasers only
Under Ontario securities legislation, certain purchasers who
purchase a security offered by this prospectus during the period
of distribution will have a statutory right of action for
damages, or while still the owner of the shares of common stock,
for rescission against us and the selling stockholders in the
event that this prospectus contains a misrepresentation without
regard to whether the purchaser relied on the misrepresentation.
The right of action for damages is exercisable not later than
the earlier of 180 days from the date the purchaser first
had knowledge of the facts giving rise to the cause of action
and three years from the date on which payment is made for the
shares of common stock. The right of action for rescission is
exercisable not later than 180 days from the date on which
payment is made for the shares of common stock. If a purchaser
elects to exercise the right of action for rescission, the
purchaser will have no right of action for damages against us or
the selling stockholders. In no case will the amount recoverable
in any action exceed the price at which the shares of common
stock were offered to the purchaser and if the purchaser is
shown to have purchased the securities with knowledge of the
misrepresentation, we and the selling stockholders will have no
liability. In the case of an action for damages, we and the
selling stockholders will not be liable for all or any portion
of the damages that are proven to not represent the depreciation
in value of the shares of common stock as a result of the
misrepresentation relied upon. These rights are in addition to,
and without derogation from, any other rights or remedies
available at law to an
138
Ontario purchaser. The foregoing is a summary of the rights
available to an Ontario purchaser. Ontario purchasers should
refer to the complete text of the relevant statutory provisions.
Enforcement of
legal rights
All of our directors and officers as well as the experts named
herein and the selling stockholders may be located outside of
Canada and, as a result, it may not be possible for Canadian
purchasers to effect service of process within Canada upon us or
those persons. All or a substantial portion of our assets and
the assets of those persons may be located outside of Canada
and, as a result, it may not be possible to satisfy a judgment
against us or those persons in Canada or to enforce a judgment
obtained in Canadian courts against us or those persons outside
of Canada.
Taxation and
eligibility for investment
Canadian purchasers of the shares of common stock should consult
their own legal and tax advisors with respect to the tax
consequences of an investment in the shares of common stock in
their particular circumstances and about the eligibility of the
shares of common stock for investment by the purchaser under
relevant Canadian legislation.
139
Legal
matters
The validity of the issuance of the common stock to be sold in
this offering will be passed upon for us by
Fulbright & Jaworski L.L.P., New York, New York. The
underwriters have been represented by Cravath,
Swaine & Moore LLP, New York, New York.
Experts
The audited financial statements as of May 31, 2009 and
2008 and for each of the three years ended May 31, 2009
included in this prospectus have been so included in reliance on
the report of PricewaterhouseCoopers LLP, an independent
registered public accounting firm, given on the authority of
such firm as experts in auditing and accounting.
Where you can
find more information
We have filed with the SEC a registration statement on
Form S-1
under the Securities Act, with respect to the common stock
offered by this prospectus. This prospectus, which is part of
the registration statement, omits certain information, exhibits,
schedules, and undertakings set forth in the registration
statement. For further information pertaining to us and our
common stock, reference is made to the registration statement
and the exhibits and schedules to the registration statement.
Statements contained in this prospectus as to the contents or
provisions of any documents referred to in this prospectus are
not necessarily complete, and in each instance where a copy of
the document has been filed as an exhibit to the registration
statement, reference is made to the exhibit for a more complete
description of the matters involved.
You may read and copy all or any portion of the registration
statement without charge at the public reference room of the SEC
at 100 F Street, N.E., Washington, D.C. 20549.
Copies of the registration statement may be obtained from the
SEC at prescribed rates from the public reference room of the
SEC at such address. You may obtain information regarding the
operation of the public reference room by calling
1-800-SEC-0330.
In addition, registration statements and certain other filings
made with the SEC electronically are publicly available through
the SECs website at www.sec.gov. The registration
statement, including all exhibits and amendments to the
registration statement, has been filed electronically with the
SEC.
Upon completion of this offering, we will become subject to the
information and periodic reporting requirements of the
Securities Exchange Act and, accordingly, will file annual
reports containing financial statements audited by an
independent public accounting firm, quarterly reports containing
unaudited financial data, current reports, proxy statements and
other information with the SEC. You will be able to inspect and
copy such periodic reports, proxy statements, and other
information at the SECs public reference room, and the
website of the SEC referred to above.
140
Report of
Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of
Mistras Group, Inc. and Subsidiaries
In our opinion, the accompanying consolidated balance sheets and
the related consolidated statements of operations,
stockholders equity (deficit) and cash flows present
fairly, in all material respects, the financial position of
Mistras Group, Inc. and subsidiaries (the Company)
at May 31, 2009 and 2008, and the results of their
operations and their cash flows for each of the three years in
the period ended May 31, 2009 in conformity with accounting
principles generally accepted in the United States of America.
These financial statements are the responsibility of the
Companys 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 the
standards of the Public Company Accounting Oversight Board
(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,
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.
As discussed in Note 16 to the consolidated financial
statements, the Company changed the manner in which it accounts
for uncertain tax positions beginning on June 1, 2007.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Florham Park, NJ
August 24, 2009
F-2
Mistras Group,
Inc. and Subsidiaries
as of
May 31, 2009 and 2008
|
|
|
|
|
|
|
|
|
|
|
(in thousands, except for share and per share information)
|
|
2009
|
|
|
2008
|
|
|
|
|
ASSETS
|
Current assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
5,668
|
|
|
$
|
3,555
|
|
Accounts receivable, net
|
|
|
39,153
|
|
|
|
32,772
|
|
Inventories, net
|
|
|
11,509
|
|
|
|
10,644
|
|
Deferred income taxes
|
|
|
1,593
|
|
|
|
936
|
|
Prepaid expenses and other current assets
|
|
|
5,747
|
|
|
|
1,434
|
|
|
|
|
|
|
|
Total current assets
|
|
|
63,670
|
|
|
|
49,341
|
|
Property, plant and equipment, net
|
|
|
33,592
|
|
|
|
26,511
|
|
Intangible assets, net
|
|
|
11,949
|
|
|
|
11,552
|
|
Goodwill
|
|
|
38,642
|
|
|
|
28,627
|
|
Other assets
|
|
|
3,421
|
|
|
|
3,791
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
151,274
|
|
|
$
|
119,822
|
|
|
|
|
|
|
|
|
LIABILITIES, PREFERRED STOCK AND STOCKHOLDERS (DEFICIT)
EQUITY
|
Current liabilities
|
|
|
|
|
|
|
|
|
Current portion of long-term debt
|
|
$
|
14,390
|
|
|
$
|
7,469
|
|
Current portion of capital lease obligations
|
|
|
4,981
|
|
|
|
3,932
|
|
Accounts payable
|
|
|
2,797
|
|
|
|
4,774
|
|
Accrued expenses and other current liabilities
|
|
|
18,340
|
|
|
|
12,413
|
|
Income taxes payable
|
|
|
3,600
|
|
|
|
1,808
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
44,108
|
|
|
|
30,396
|
|
Long-term debt, net of current portion
|
|
|
51,861
|
|
|
|
40,801
|
|
Obligations under capital leases, net of current portion
|
|
|
9,544
|
|
|
|
7,910
|
|
Deferred income taxes
|
|
|
1,199
|
|
|
|
|
|
Other long-term liabilities
|
|
|
1,246
|
|
|
|
1,263
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
107,958
|
|
|
|
80,370
|
|
|
|
|
|
|
|
Commitments and contingencies (Notes 11, 13, 14 and 15)
|
|
|
|
|
|
|
|
|
Minority interest
|
|
|
245
|
|
|
|
58
|
|
|
|
|
|
|
|
Preferred stock, 1,000,000 shares authorized
|
|
|
|
|
|
|
|
|
Class B Convertible Redeemable Preferred Stock,
$0.01 par value, 221,205 shares issued and outstanding
|
|
|
38,710
|
|
|
|
12,810
|
|
Class A Convertible Redeemable Preferred Stock,
$0.01 par value, 298,701 shares, issued and outstanding
|
|
|
52,273
|
|
|
|
51,059
|
|
|
|
|
|
|
|
Total preferred stock
|
|
|
90,983
|
|
|
|
63,869
|
|
|
|
|
|
|
|
Stockholders (deficit) equity
|
|
|
|
|
|
|
|
|
Common stock, $0.01 par value, 2,000,000 shares
authorized, 1,000,000 shares issued and outstanding
|
|
|
10
|
|
|
|
10
|
|
Additional paid-in capital
|
|
|
1,037
|
|
|
|
845
|
|
(Accumulated deficit) retained earnings
|
|
|
(47,376
|
)
|
|
|
(25,728
|
)
|
Accumulated other comprehensive income
|
|
|
(1,583
|
)
|
|
|
398
|
|
|
|
|
|
|
|
Total stockholders (deficit) equity
|
|
|
(47,912
|
)
|
|
|
(24,475
|
)
|
|
|
|
|
|
|
Total liabilities, preferred stock and stockholders
(deficit) equity
|
|
$
|
151,274
|
|
|
$
|
119,822
|
|
|
|
The accompanying notes are an
integral part of these consolidated financial
statements.
F-3
Mistras Group,
Inc. and Subsidiaries
years ended
May 31, 2009, 2008 and 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands, except for share
and per share information)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Services
|
|
$
|
190,637
|
|
|
$
|
134,183
|
|
|
$
|
107,245
|
|
Products
|
|
|
18,496
|
|
|
|
18,085
|
|
|
|
14,996
|
|
|
|
|
|
|
|
Total revenues
|
|
|
209,133
|
|
|
|
152,268
|
|
|
|
122,241
|
|
|
|
|
|
|
|
Cost of revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of services revenues
|
|
|
123,336
|
|
|
|
83,623
|
|
|
|
69,731
|
|
Cost of products revenues
|
|
|
7,831
|
|
|
|
6,967
|
|
|
|
5,971
|
|
Depreciation of services
|
|
|
7,860
|
|
|
|
6,167
|
|
|
|
4,133
|
|
Depreciation of products
|
|
|
840
|
|
|
|
680
|
|
|
|
533
|
|
|
|
|
|
|
|
Total cost of revenues
|
|
|
139,867
|
|
|
|
97,437
|
|
|
|
80,368
|
|
|
|
|
|
|
|
Gross profit
|
|
|
69,266
|
|
|
|
54,831
|
|
|
|
41,873
|
|
Selling, general and administrative expenses
|
|
|
47,150
|
|
|
|
32,943
|
|
|
|
26,408
|
|
Research and engineering
|
|
|
1,255
|
|
|
|
954
|
|
|
|
703
|
|
Depreciation and amortization
|
|
|
3,936
|
|
|
|
4,576
|
|
|
|
4,025
|
|
Legal settlement
|
|
|
2,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
14,825
|
|
|
|
16,358
|
|
|
|
10,737
|
|
Other expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
4,614
|
|
|
|
3,531
|
|
|
|
4,482
|
|
Loss on extinguishment of long-term debt
|
|
|
|
|
|
|
|
|
|
|
460
|
|
|
|
|
|
|
|
Income before provision for income taxes and minority interest
|
|
|
10,211
|
|
|
|
12,827
|
|
|
|
5,795
|
|
Provision for income taxes
|
|
|
4,558
|
|
|
|
5,380
|
|
|
|
208
|
|
|
|
|
|
|
|
Income before minority interest
|
|
|
5,653
|
|
|
|
7,447
|
|
|
|
5,587
|
|
Minority interest, net of taxes
|
|
|
(187
|
)
|
|
|
(8
|
)
|
|
|
(199
|
)
|
|
|
|
|
|
|
Net income
|
|
|
5,466
|
|
|
|
7,439
|
|
|
|
5,388
|
|
Accretion of preferred stock
|
|
|
(27,114
|
)
|
|
|
(32,872
|
)
|
|
|
(3,520
|
)
|
|
|
|
|
|
|
Net (loss) income available to common stockholders
|
|
$
|
(21,648
|
)
|
|
$
|
(25,433
|
)
|
|
$
|
1,868
|
|
|
|
|
|
|
|
(Loss) earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(21.65
|
)
|
|
$
|
(25.43
|
)
|
|
$
|
1.88
|
|
Diluted
|
|
|
(21.65
|
)
|
|
|
(25.43
|
)
|
|
|
1.85
|
|
Weighted average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
1,000,000
|
|
|
|
1,000,000
|
|
|
|
991,348
|
|
Diluted
|
|
|
1,000,000
|
|
|
|
1,000,000
|
|
|
|
1,007,803
|
|
|
|
The accompanying notes are an
integral part of these consolidated financial
statements.
F-4
Mistras Group,
Inc. and Subsidiaries
years ended
May 31, 2009, 2008 and 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
earnings
|
|
|
other
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
paid-in
|
|
|
(accumulated
|
|
|
comprehensive
|
|
|
|
|
|
Comprehensive
|
|
(in thousands, except for share and per share information)
|
|
Shares
|
|
|
Amount
|
|
|
capital
|
|
|
deficit)
|
|
|
income (Loss)
|
|
|
Total
|
|
|
income (loss)
|
|
|
|
|
Balance at May 31, 2006
|
|
|
978,500
|
|
|
$
|
1
|
|
|
$
|
519
|
|
|
$
|
(1,599
|
)
|
|
$
|
(247
|
)
|
|
$
|
(1,326
|
)
|
|
|
|
|
Accretion of preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,520
|
)
|
|
|
|
|
|
|
(3,520
|
)
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,388
|
|
|
|
|
|
|
|
5,388
|
|
|
$
|
5,388
|
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
344
|
|
|
|
344
|
|
|
|
344
|
|
Exercise of stock options
|
|
|
21,500
|
|
|
|
|
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
Balance at May 31, 2007
|
|
|
1,000,000
|
|
|
|
1
|
|
|
|
536
|
|
|
|
269
|
|
|
|
97
|
|
|
|
903
|
|
|
$
|
5,732
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accretion of preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(32,872
|
)
|
|
|
|
|
|
|
(32,872
|
)
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,439
|
|
|
|
|
|
|
|
7,439
|
|
|
$
|
7,439
|
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
301
|
|
|
|
301
|
|
|
|
301
|
|
Stock compensation
|
|
|
|
|
|
|
|
|
|
|
318
|
|
|
|
|
|
|
|
|
|
|
|
318
|
|
|
|
|
|
Adoption of accounting pronouncement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(564
|
)
|
|
|
|
|
|
|
(564
|
)
|
|
|
|
|
Other
|
|
|
|
|
|
|
9
|
|
|
|
(9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at May 31, 2008
|
|
|
1,000,000
|
|
|
|
10
|
|
|
|
845
|
|
|
|
(25,728
|
)
|
|
|
398
|
|
|
|
(24,475
|
)
|
|
$
|
7,740
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accretion of preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(27,114
|
)
|
|
|
|
|
|
|
(27,114
|
)
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,466
|
|
|
|
|
|
|
|
5,466
|
|
|
$
|
5,466
|
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,981
|
)
|
|
|
(1,981
|
)
|
|
|
(1,981
|
)
|
Stock compensation
|
|
|
|
|
|
|
|
|
|
|
192
|
|
|
|
|
|
|
|
|
|
|
|
192
|
|
|
|
|
|
|
|
|
|
|
|
Balance at May 31, 2009
|
|
|
1,000,000
|
|
|
$
|
10
|
|
|
$
|
1,037
|
|
|
$
|
(47,376
|
)
|
|
$
|
(1,583
|
)
|
|
$
|
(47,912
|
)
|
|
$
|
3,485
|
|
|
|
The accompanying notes are an
integral part of these consolidated financial
statements.
F-5
Mistras Group,
Inc. and Subsidiaries
years ended
May 31, 2009, 2008 and 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands, except share data)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
5,466
|
|
|
$
|
7,439
|
|
|
$
|
5,388
|
|
Adjustments to reconcile net income to net cash provided by
operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
12,636
|
|
|
|
11,423
|
|
|
|
8,691
|
|
Deferred income taxes
|
|
|
146
|
|
|
|
329
|
|
|
|
(1,265
|
)
|
Provision for doubtful accounts
|
|
|
2,097
|
|
|
|
376
|
|
|
|
555
|
|
Loss on extinguishment of long-term debt
|
|
|
|
|
|
|
|
|
|
|
460
|
|
Loss (gain) on sale of assets disposed
|
|
|
(34
|
)
|
|
|
(114
|
)
|
|
|
110
|
|
Amortization of deferred financing costs
|
|
|
196
|
|
|
|
105
|
|
|
|
188
|
|
Stock compensation expense
|
|
|
192
|
|
|
|
318
|
|
|
|
|
|
Non cash interest rate swap
|
|
|
161
|
|
|
|
598
|
|
|
|
(43
|
)
|
Minority interest
|
|
|
187
|
|
|
|
8
|
|
|
|
199
|
|
Unrealized foreign currency (gain) loss
|
|
|
(213
|
)
|
|
|
|
|
|
|
|
|
Changes in operating assets and liabilities, net of effect of
acquisitions
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(8,849
|
)
|
|
|
(9,226
|
)
|
|
|
(2,259
|
)
|
Inventories
|
|
|
(887
|
)
|
|
|
(1,802
|
)
|
|
|
(267
|
)
|
Prepaid expenses and other current assets
|
|
|
(1,119
|
)
|
|
|
(1,997
|
)
|
|
|
473
|
|
Other assets
|
|
|
373
|
|
|
|
(990
|
)
|
|
|
(1,034
|
)
|
Accounts payable
|
|
|
(2,225
|
)
|
|
|
2,203
|
|
|
|
53
|
|
Income taxes payable
|
|
|
(1,442
|
)
|
|
|
46
|
|
|
|
1,235
|
|
Accrued expenses and other current liabilities
|
|
|
5,976
|
|
|
|
4,135
|
|
|
|
1,522
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
12,661
|
|
|
|
12,851
|
|
|
|
14,006
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment for purchase of property, plant and equipment
|
|
|
(5,367
|
)
|
|
|
(3,718
|
)
|
|
|
(2,561
|
)
|
Payment for purchase of intangible asset
|
|
|
(346
|
)
|
|
|
(712
|
)
|
|
|
|
|
Acquisition of businesses
|
|
|
(10,464
|
)
|
|
|
(15,535
|
)
|
|
|
(2,031
|
)
|
Proceeds from sale of equipment
|
|
|
289
|
|
|
|
519
|
|
|
|
333
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(15,888
|
)
|
|
|
(19,446
|
)
|
|
|
(4,259
|
)
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayment of capital lease obligations
|
|
|
(4,825
|
)
|
|
|
(3,605
|
)
|
|
|
(2,381
|
)
|
Repayments of long-term debt
|
|
|
(12,332
|
)
|
|
|
(3,219
|
)
|
|
|
(23,374
|
)
|
Net borrowings from (payments) revolver
|
|
|
2,360
|
|
|
|
13,144
|
|
|
|
(8,142
|
)
|
Borrowings from long-term debt
|
|
|
20,000
|
|
|
|
|
|
|
|
26,250
|
|
Debt issuance costs
|
|
|
(291
|
)
|
|
|
|
|
|
|
(492
|
)
|
Proceeds from exercise of stock options
|
|
|
|
|
|
|
|
|
|
|
17
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
4,912
|
|
|
|
6,320
|
|
|
|
(8,122
|
)
|
|
|
|
|
|
|
Effect of exchange rate changes on cash
|
|
|
428
|
|
|
|
63
|
|
|
|
166
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents
|
|
|
2,113
|
|
|
|
(212
|
)
|
|
|
1,791
|
|
Cash and cash equivalents
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of year
|
|
|
3,555
|
|
|
|
3,767
|
|
|
|
1,976
|
|
|
|
|
|
|
|
End of year
|
|
$
|
5,668
|
|
|
$
|
3,555
|
|
|
$
|
3,767
|
|
|
|
|
|
|
|
Supplemental disclosure of cash paid
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
4,031
|
|
|
$
|
2,974
|
|
|
$
|
4,170
|
|
Income taxes
|
|
|
6,510
|
|
|
|
4,814
|
|
|
|
879
|
|
Noncash investing and financing
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment acquired through capital lease obligations
|
|
|
7,485
|
|
|
|
5,021
|
|
|
|
4,557
|
|
Issuance of notes payable and other debt obligations primarily
related to acquisitions
|
|
|
9,289
|
|
|
|
12,463
|
|
|
|
1,360
|
|
Issuance of preferred stock in acquisitions
|
|
|
|
|
|
|
|
|
|
|
900
|
|
|
|
The accompanying notes are an
integral part of these consolidated financial
statements.
F-6
Mistras Group,
Inc. and Subsidiaries
Notes to consolidated financial
statements
years ended May 31, 2009,
2008 and 2007
(in thousands, except per share
data)
1. Description
of business and basis of presentation
Description of
business
Mistras Group, Inc. (formerly Mistras Holdings Corp.) and
subsidiaries (the Company) is a leading global
provider of proprietary, technology-enabled, asset protection
solutions, which combine the skill and experience of certified
technicians, engineers and scientists with non-destructive
testing (NDT), mechanical integrity services, and plant
conditioning monitoring software and systems (PCMS), to evaluate
the structural integrity of critical energy, industrial and
public infrastructure. The Company serves a global customer
base, including companies in the oil and gas, power generation
and transmission, public infrastructure, chemicals, aerospace
and defense, transportation, primary metals and metalworking,
pharmaceuticals and food processing industries.
Principles of
consolidation
The accompanying consolidated financial statements include the
accounts of Mistras Group, Inc. and its wholly or majority-owned
subsidiaries: Quality Service Laboratories, Inc., CONAM
Inspection & Engineering Services, Inc.
(Conam) (merged into Mistras Group, Inc. on
May 31, 2009), Cismis Springfield Corp., Euro Physical
Acoustics, S.A., Nippon Physical Acoustics Ltd., Physical
Acoustics South America, Diapac Company, Mistras Canada, Inc.
and Physical Acoustics Ltd. and its wholly or majority-owned
subsidiaries, Physical Acoustics India Private Ltd., Physical
Acoustics B.V. and Envirocoustics A.B.E.E. (Envac).
Where the Companys ownership interest is less than 100%,
the minority ownership interests are reported in the
accompanying consolidated balance sheets. The minority ownership
interest in net income, net of tax, is classified separately in
the accompanying consolidated statement of operations.
On April 25, 2007, Physical Acoustics Ltd. acquired 99% of
the outstanding shares of Envac. Prior to this acquisition and
for the year ended May 31, 2007, the Company was the
primary beneficiary of Envac, which qualified as an implied
variable interest entity under FIN 46R. Accordingly, the
revenues and expenses of Envac have been included in the
accompanying consolidated statement of operations beginning in
fiscal 2007 and the assets and liabilities are included in the
consolidated balance sheets.
All significant intercompany accounts and transactions have been
eliminated in consolidation. All foreign subsidiaries
reporting year ends are April 30, while Mistras Group and
the domestic subsidiaries year ends are May 31. The effect
of this difference in timing of reporting foreign operations on
the consolidated results of operations and consolidated
financial position is not significant.
F-7
Mistras Group,
Inc. and Subsidiaries
Notes to
consolidated financial statements(continued)
Reclassification
Certain amounts previously reported for prior periods have been
reclassified to conform to the current year presentation in the
accompanying consolidated financial statements. Such
reclassifications had no effect on the results of operations as
previously reported.
2. Summary
of significant accounting policies
Revenue
recognition
Revenue recognition policies for the various sources of revenues
are as follows:
Services
The Company predominantly derives revenues by providing its
services on a time and material basis and recognizes revenues
when services are rendered. At the end of any reporting period,
there may be earned but unbilled revenues that are accrued.
Payments received in advance of revenue recognition are
reflected as deferred revenues.
Software
Revenues from the sale of perpetual licenses are recognized upon
the delivery and acceptance of the software. Revenues from term
licenses are recognized ratably over the period of the license.
Revenues from maintenance, unspecified upgrades and technical
support are recognized ratably over the period such items are
delivered. For multiple-element arrangement software contracts
that include non-software elements, and where the software is
essential to the functionality of the non-software elements
(collectively referred to as software multiple-element
arrangements), the Company applies the rules as noted below.
Products
Revenues from product sales are recognized when risk of loss and
title passes to the customer, which is generally upon product
delivery. The exceptions to this accounting treatment would be
for multiple-element arrangements (defined below) or those
situations where specialized installation or customer acceptance
is required. Payments received in advance of revenue recognition
are reflected as deferred revenues.
Multiple-element
arrangements
The Company occasionally enters into transactions that represent
multiple-element arrangements, which may include any combination
of services, software, hardware and financing. Vendor-specific
objective evidence is utilized to determine whether they can be
separated into more than one unit of accounting. A
multiple-element arrangement is separated into more than one
unit of accounting if: (1) the delivered item has value on
a standalone basis; and (2) there is objective and reliable
evidence of the fair value of the undelivered items if the
delivery or performance of the undelivered items is probable and
in the control of the Company.
F-8
Mistras Group,
Inc. and Subsidiaries
Notes to
consolidated financial statements(continued)
If these criteria are not met, then revenues are deferred until
such criteria are met or until the period(s) over which the last
undelivered element is delivered. If there is objective and
reliable evidence of fair value for all units of accounting in
an arrangement, the arrangement consideration is allocated to
the separate units of accounting based on each units
relative fair value.
Use of
estimates
The preparation of consolidated financial statements in
conformity with accounting principles generally accepted in the
United States of America requires management to make estimates
and assumptions that affect the amounts reported in the
accompanying consolidated financial statements. The more
significant estimates include valuation of goodwill and
intangible assets, useful lives of long-lived assets, allowances
for doubtful accounts, inventory valuation, reserves for
self-insured workers compensation and health benefits and
provision for income taxes. Actual results could differ from
those estimates.
Cash and cash
equivalents
The Company considers all highly liquid debt instruments
purchased with an original maturity of three months or less to
be cash equivalents.
Accounts
receivable
Accounts receivable are stated net of an allowance for doubtful
accounts and sales allowances. Outstanding accounts receivable
balances are reviewed periodically, and allowances are provided
at such time that management believes it is probable that such
balances will not be collected within a reasonable period of
time. The Company extends credit to its customers based upon
credit evaluations in the normal course of business, primarily
with 30-day
terms. Bad debts are provided on the allowance method based on
historical experience and managements evaluation of
outstanding accounts receivable. Accounts are written off when
they are deemed uncollectible.
Inventories
Inventories are stated at the lower of cost, as determined by
using the
first-in,
first-out method, or market. Work in process and finished goods
inventory include material, direct labor, variable costs and
overhead.
Software
costs
Costs that are related to the conceptual formulation and design
of licensed programs are expensed as research and engineering.
For licensed programs, the Company capitalizes costs that are
incurred to produce the finished product after technological
feasibility has been established. The capitalized amounts are
amortized using the straight-line basis over three years, which
is the estimated life of the related software. The Company
performs periodic reviews to
F-9
Mistras Group,
Inc. and Subsidiaries
Notes to
consolidated financial statements(continued)
ensure that unamortized program costs remain recoverable from
future revenues. Costs to support or service licensed programs
are expensed as the costs are incurred.
The Company capitalizes certain costs that are incurred to
purchase or to create and implement internal-use software, which
includes software coding, installation, testing and data
conversion. Capitalized costs are amortized on a straight-line
basis over three years.
Property, plant
and equipment
Property, plant and equipment are recorded at cost. Depreciation
of property, plant and equipment is computed utilizing the
straight-line method over the estimated useful lives of the
assets. Amortization of leasehold improvements is computed
utilizing the straight-line method over the shorter of the
remaining lease term or estimated useful life. The cost and
accumulated depreciation and amortization applicable to assets
retired or otherwise disposed of are removed from the asset
accounts and any gain or loss is included in the consolidated
statement of operations. Repairs and maintenance costs are
expensed as incurred.
Goodwill and
intangible assets
Goodwill represents the excess of the purchase price over the
fair market value of net assets of the acquired business at the
date of acquisition. The Company tests for impairment annually,
in its fiscal fourth quarter, using a two-step process. The
first step identifies potential impairment by comparing the fair
value of the Companys reporting units to its carrying
value. If the fair value is less than the carrying value, the
second step measures the amount of impairment, if any. The
impairment loss is the amount by which the carrying amount of
goodwill exceeds the implied fair value of that goodwill. There
was no impairment of goodwill for the years ended May 31,
2009, 2008 and 2007.
Intangible assets are recorded at cost. Intangible assets with
finite lives are amortized on a straight-line basis over their
estimated useful lives.
Impairment of
long-lived assets
The Company reviews the recoverability of its long-lived assets
on a periodic basis in order to identify business conditions
which may indicate a possible impairment. The assessment for
potential impairment is based primarily on the Companys
ability to recover the carrying value of its long-lived assets
from expected future undiscounted cash flows. If the total
expected future undiscounted cash flows are less than the
carrying amount of the assets, a loss is recognized for the
difference between fair value (computed based upon the expected
future discounted cash flows) and the carrying value of the
assets.
Shipping and
Handling Costs
Shipping and handling costs are included in cost of revenues.
F-10
Mistras Group,
Inc. and Subsidiaries
Notes to
consolidated financial statements(continued)
Taxes collected
from customers
Taxes collected from customers and remitted to governmental
authorities are presented in the consolidated statement of
operations on a net basis.
Research and
engineering
Research and product development costs are expensed as incurred.
Advertising,
promotions and marketing
The costs for advertising, promotion and marketing programs are
expensed as incurred and are included in selling, general and
administrative expenses. Advertising expense was $470, $307 and
$209 and for fiscal 2009, 2008 and 2007, respectively.
Fair value of
financial instruments
SFAS No. 107, Disclosure about Fair Value of
Financial Instruments, requires disclosure of fair value
information about financial instruments, whether or not
recognized in the balance sheet, for which it is practicable to
estimate that fair value. The carrying amounts of cash and cash
equivalents, accounts receivable, accounts payable and other
current assets and liabilities approximate fair value based on
the short-term nature of the accounts. The fair value of the
Companys debt obligations at May 31, 2009 was
approximately $2,200 lower than carrying value. The Company
estimated fair value using a discounted cash flow analysis using
pricing for similar debt arrangements in an active market.
In September 2006, the Financial Accounting Standards Board
(FASB) issued SFAS No. 157, Fair Value
Measurement (SFAS 157). SFAS 157
defines fair value, establishes a framework for measuring fair
value within generally accepted accounting principles and
establishes a hierarchy that categorizes and prioritizes the
inputs to be used to estimate fair value. SFAS 157 also
expands financial statement disclosures about fair value
measurements. In February 2008, the FASB issued FASB Staff
Position (FSP)
157-2,
Effective Date of Statement No. 157, which delays
the effective date of SFAS 157 for one year for all
nonfinancial assets and nonfinancial liabilities, except those
that are recognized or disclosed at fair value in the financial
statements on a recurring basis (at least annually). As of
May 31, 2009, the Company does not have any nonfinancial
asset or nonfinancial liabilities that are recognized or
disclosed at fair value on a recurring basis. SFAS 157 and
FSP 157-2
are effective for financial statements issued for fiscal years
beginning after November 15, 2007. The Company adopted
FAS 157 on June 1, 2008.
SFAS 157 describes the following three levels of inputs
that may be used to measure fair value:
Level 1Quoted prices in active markets for
identical assets or liabilities.
Level 2Inputs other than Level 1 that are
observable for the asset or liability, either directly or
indirectly, such as quoted prices for similar assets and
liabilities in active markets; quoted prices for identical or
similar assets or liabilities in markets that are not active; or
other
F-11
Mistras Group,
Inc. and Subsidiaries
Notes to
consolidated financial statements(continued)
inputs that are observable or can be corroborated by observable
market data by correlation or other means.
Level 3Unobservable inputs that are supported
by little or no market activity and that are significant to the
fair value of the assets or liabilities.
See Note 12 for financial instruments that were accounted
for at fair value on a recurring basis as of May 31, 2009.
Foreign currency
translation
The financial position and results of operations of the
Companys foreign subsidiaries are measured using the local
currency as the functional currency. Assets and liabilities of
the foreign subsidiaries are translated into the
U.S. dollar at the exchange rates in effect at the balance
sheet date. Income and expenses are translated at the average
exchange rate during the year. Translation gains and losses are
not included in earnings and are reported in accumulated other
comprehensive income within stockholders equity. Foreign
currency transaction gains and losses are included in net income
(loss) and were $188 in fiscal 2009 and not significant in
fiscal 2008 and 2007.
Derivative
financial instruments
The Company recognizes its derivatives as either assets or
liabilities, measures those instruments at fair value and
recognizes the changes in fair value of the derivative in net
income or other comprehensive income, as appropriate. The
Company hedges a portion of the variable rate interest payments
on debt using interest rate swap contracts to convert variable
payments into fixed payments. The Company does not apply hedge
accounting to its interest rate swap contracts. Changes in the
fair value of these instruments are reported as a component of
interest expense.
Concentration of
credit risks
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of cash and
accounts receivable. At times, cash deposits may exceed the
limits insured by the Federal Deposit Insurance Corporation. The
Company believes it is not exposed to any significant credit
risk or the nonperformance of the financial institutions.
The Company sells primarily to large companies, extends
reasonably short collection terms, performs credit evaluations
and does not require collateral. The Company maintains reserves
for potential credit losses.
The Company has one major customer with multiple business units
that accounted for 17.1%, 16.8% and 16.5% of revenues for fiscal
2009, 2008 and 2007, respectively. Accounts receivable from this
customer were $7,228 and $3,183 at May 31, 2009 and 2008,
respectively.
F-12
Mistras Group,
Inc. and Subsidiaries
Notes to
consolidated financial statements(continued)
Self
insurance
A wholly-owned subsidiary is self -insured for certain losses
relating to workers compensation and health benefits claims. The
Company maintains third-party excess insurance coverage for all
workers compensation claims in excess of $250 and for its health
benefit claims in excess of $150 to reduce its exposure from
such claims. Self-insured losses are accrued when it is probable
that an uninsured claim has been incurred but not reported and
the amount of the loss can be reasonably estimated at the
balance sheet date. Management monitors and reviews all claims
and their related liabilities on an ongoing basis.
Stock-based
compensation
Effective June 1, 2006, the Company adopted the fair value
recognition provisions of SFAS No. 123, Share Based
Payment (SFAS 123R). SFAS 123R
addresses the accounting for stock-based payment transactions in
which an enterprise receives employee services in exchange for
(a) equity instruments of the enterprise or
(b) liabilities that are based on the fair value of the
enterprises equity instruments or that may be settled by
the issuance of such equity instruments. SFAS 123R
eliminates the ability to account for stock-based compensation
transactions using the intrinsic value method under Accounting
Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees (APB 25), and instead generally
requires that such transactions be accounted for using a
fair-value based method. The Company elected the prospective
transition method as permitted by SFAS 123R and,
accordingly, prior periods were not restated to reflect the
impact of FAS 123R. The prospective transition method
requires that stock-based compensation expense be recorded for
all new restricted stock and restricted stock units that are
ultimately expected to vest as the requisite service is rendered
beginning on June 1, 2006. All unvested options outstanding
as of May 31, 2006 that had been previously measured but
had not yet recognized compensation expense will continue to be
accounted for under the provisions of APB 25 and related
interpretations until they are settled.
Prior to June 1, 2006, employee stock awards under the
Companys compensation plans were accounted for in
accordance with the provisions of APB 25, and related
interpretations. The Company provided the disclosure
requirements of SFAS No. 123, Accounting for
Stock-Based Compensation (FAS 123), and
related interpretations. Stock-based awards to nonemployees were
accounted for under the provisions of SFAS No. 123.
Under SFAS No. 123, the fair value for the stock
options was estimated at the date of grant using the minimum
value method. The Black-Scholes option valuation model was
developed for use in estimating the fair value of traded
options, which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the
input of highly subjective assumptions. The Company used 3% to
41/2%
as the risk-free interest rate, zero dividend yield and an
expected life of four years for the valuation of stock options.
All stock awards issued prior to June 1, 2006 and accounted
for in accordance with APB 25 were fully vested as of
May 31, 2008. The pro forma effect on the net income of the
Company for
F-13
Mistras Group,
Inc. and Subsidiaries
Notes to
consolidated financial statements(continued)
fiscal years 2008 and 2007 had the fair value recognition
principles of SFAS No. 123 been utilized is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended May 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
Net income
|
|
$
|
7,439
|
|
|
$
|
5,388
|
|
Less: Stock-based compensation expense determined under the fair
value method, net of income taxes
|
|
|
239
|
|
|
|
208
|
|
|
|
|
|
|
|
Proforma net income
|
|
$
|
7,200
|
|
|
$
|
5,180
|
|
|
|
Income
taxes
Income taxes are accounted for under the asset and liability
method. Deferred income tax assets and liabilities are
recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases
and tax credit carryforwards. Deferred income tax assets and
liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect
on deferred income tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the
enactment date. A valuation allowance is provided if it is more
likely than not that some or all of the deferred income tax
asset will not be realized.
Effective June 1, 2007, the Company adopted Financial
Accounting Standards Board Interpretation No. 48,
Accounting for Uncertainty in Income Taxesan
interpretation of FASB No. 109
(FIN 48). FIN 48 prescribes a
recognition threshold and measurement attribute for the
financial statement recognition and measurement of a tax
position taken or expected to be taken in a tax return.
FIN 48 requires a determination of whether the uncertain
tax positions are more likely than not of being sustained upon
audit based on the technical merits of the tax position. For tax
positions that are more likely than not of being sustained upon
audit, the largest amount of the benefit that is more likely
than not of being sustained is recognized in the consolidated
financial statements. For tax positions that are not more likely
than not of being sustained upon audit, none of the benefit is
recognized in the consolidated financial statements. The
provisions of FIN 48 also provide guidance on
de-recognition, classification, interest and penalties,
accounting in interim periods, and disclosure.
The cumulative effect of the adoption of the recognition and
measurement provisions of FIN 48 resulted in a $564
reduction to the June 1, 2007 balance of stockholders
equity. The Companys policy for interest and penalties
related to income tax exposures was not impacted as a result of
the adoption of the recognition and measurement provisions of
FIN 48. Therefore, interest and penalties will continue to
be recognized as incurred within provision for income
taxes in the consolidated statements of operations.
The Company files income tax returns in the U.S. with
federal and state jurisdictions as well as various foreign
jurisdictions. With few exceptions, the Company was not subject
to U.S. federal,
F-14
Mistras Group,
Inc. and Subsidiaries
Notes to
consolidated financial statements(continued)
state and local or
non-U.S. income
tax examinations by tax authorities for fiscal years prior to
fiscal year 2005.
Comprehensive
Income
The Company applies the provisions of SFAS No. 130,
Reporting Comprehensive Income. Comprehensive income is
defined to include all changes in equity, except those resulting
from investments by stockholders and distribution to
stockholders, and is reported in the statement of
stockholders equity (deficit). Included in the
Companys comprehensive income are net income and foreign
currency translation adjustments.
Recent accounting
pronouncements
SFAS No. 141R. In December 2007,
the FASB issued SFAS No. 141 (revised 2007),
Business Combinations (SFAS 141R), which
replaces SFAS 141, Business Combinations
(SFAS 141). SFAS 141R applies to all business
combinations, including combinations among mutual entities and
combinations by contract alone. SFAS 141R requires that all
business combinations will be accounted for by applying the
acquisition method. This standard will significantly change the
accounting for business combinations both during the period of
the acquisition and in subsequent periods. Among the more
significant changes in the accounting for acquisitions are the
following:
|
|
|
In-process research and development (IPR&D)
will be accounted for as an asset, with the cost recognized as
research and development is realized or abandoned. IPR&D is
presently expensed at the time of the acquisition.
|
|
|
Assets acquired or liabilities assumed in a business combination
that arise from a contingency will be measured at fair value at
acquisition date if the fair value can be determined during the
measurement period.
|
|
|
Decreases in valuation allowances on acquired deferred tax
assets will be recognized in operations. Such changes were
considered to be subsequent changes in consideration and were
recorded as decreases in goodwill.
|
|
|
Transaction costs will generally be expensed. Such costs are
presently treated as costs of the acquisition.
|
SFAS 141R is effective for business combinations
consummated in periods beginning on or after December 15,
2008. Early application is prohibited. The Company will adopt
SFAS 141R on June 1, 2009 and the effects will depend
on future acquisitions. In the fourth quarter of fiscal year
2009, the Company expensed $150 of transaction costs related to
business combinations that were in process but not completed by
the effective date of SFAS 141R.
SFAS No. 160. In December 2007, the
FASB issued SFAS No. 160, Noncontrolling Interests
in Consolidated Financial Statements
(SFAS 160), an amendment of ARB
No. 51, which will change the accounting and reporting
related to noncontrolling interests. SFAS 160, which is
effective for fiscal years and interim periods beginning on or
after December 15, 2008, requires
F-15
Mistras Group,
Inc. and Subsidiaries
Notes to
consolidated financial statements(continued)
that ownership interests in the subsidiaries held by parties
other than the parent be presented in the consolidated balance
sheet within equity and the amount of consolidated net income
attributable to the parent and to the noncontrolling interest be
clearly identified and presented on the face of the consolidated
income statement. Additionally, the statement requires that
changes in a parents ownership interest in a subsidiary be
accounted for as an equity transaction. The Company will adopt
SFAS 160 on June 1, 2009. Accordingly, minority
interest in the accompanying consolidated balance sheets will be
reclassified to equity. Earnings attributable to minority
interests will be included in net income although such earnings
will continue to be deducted to measure earnings per share. The
presentation and disclosure requirements of SFAS 160 will
be applied retrospectively for all periods presented.
SFAS No. 161. In March 2008, the
FASB issued SFAS No. 161, Disclosures about
Derivative Instruments and Hedging Activities
(SFAS 161). SFAS 161 is intended to
help investors better understand how derivative instruments and
hedging activities affect an entitys financial position,
financial performance and cash flows through enhanced disclosure
requirements. SFAS 161 is effective for financial
statements issued for fiscal years and interim periods beginning
after November 15, 2008, with earlier adoption encouraged.
The Company will adopt SFAS 161 on June 1, 2009.
SFAS No. 165. In May 2009, the FASB
issued SFAS No. 165, Subsequent Events
(SFAS 165). SFAS 165 establishes
general standards of accounting for and disclosures of events
that occur after the balance sheet date but before financial
statements are issued and is effective for interim and annual
periods ending after June 15, 2009. The Company does not
anticipate the adoption of SFAS 165 on June 1, 2009
will have a material effect on its results of operations,
financial position or cash flows.
SFAS No. 167. In June 2009, the
FASB issued SFAS No. 167, Amendment to FASB
Interpretation No. 46(R) (SFAS 167)
which amends Interpretation 46(R) to require an enterprise to
perform an analysis to determine whether the enterprises
variable interest or interests give it a controlling financial
interest in a variable interest entity. SFAS 167 is
effective for interim and annual reporting periods that begin
after November 15, 2009. The Company does not expect
adoption of SFAS 167 in fiscal year 2010 to have a material
effect on its results of operations, financial position or cash
flows as the Company does not have any variable interest
entities.
Basic earnings per share are computed by dividing net income by
the weighted-average number of shares outstanding during the
period. Diluted earnings per share are computed by dividing net
income by the sum of (1) the weighted-average number of
shares of common stock outstanding during the period, and
(2) the dilutive effect of the assumed exercise of stock
options using the treasury stock method. There is no difference,
for any of the periods presented, in the amount of net income
(numerator) used in the computation of basic and diluted
earnings per share. With respect to the number of
weighted-average shares outstanding (denominator), diluted
shares reflects only the exercise of options to acquire common
stock to the extent that the options exercise prices are
less than the average market price of common shares during the
period.
F-16
Mistras Group,
Inc. and Subsidiaries
Notes to
consolidated financial statements(continued)
The following table sets forth the computations of basic and
diluted (loss) earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended May 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
Basic (loss) earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income available to common stockholders
|
|
$
|
(21,648
|
)
|
|
$
|
(25,433
|
)
|
|
$
|
1,868
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
1,000,000
|
|
|
|
1,000,000
|
|
|
|
991,348
|
|
|
|
|
|
|
|
Basic (loss) earnings per share
|
|
$
|
(21.65
|
)
|
|
$
|
(25.43
|
)
|
|
$
|
1.88
|
|
|
|
|
|
|
|
Diluted (loss) earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income available to common stockholders
|
|
$
|
(21,648
|
)
|
|
$
|
(25,433
|
)
|
|
$
|
1,868
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
1,000,000
|
|
|
|
1,000,000
|
|
|
|
991,348
|
|
Common stock equivalents of outstanding stock option
|
|
|
|
|
|
|
|
|
|
|
16,455
|
|
|
|
|
|
|
|
Total shares
|
|
|
1,000,000
|
|
|
|
1,000,000
|
|
|
|
1,007,803
|
|
|
|
|
|
|
|
Diluted (loss) earnings per share
|
|
$
|
(21.65
|
)
|
|
$
|
(25.43
|
)
|
|
$
|
1.85
|
|
|
|
The following weighted-average common shares and equivalents
related to options outstanding under the Companys stock
option plans and the conversion of its outstanding preferred
stock conversion were excluded from the computation of diluted
earnings (loss) per share as the effect would have been
anti-dilutive:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended May 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
Common stock equivalents of outstanding stock options
|
|
|
42,755
|
|
|
|
26,520
|
|
|
|
16,455
|
|
Common stock equivalents of conversion of preferred shares
|
|
|
519,906
|
|
|
|
519,906
|
|
|
|
503,829
|
|
|
|
|
|
|
|
Total shares
|
|
|
562,661
|
|
|
|
546,426
|
|
|
|
520,284
|
|
|
|
F-17
Mistras Group,
Inc. and Subsidiaries
Notes to
consolidated financial statements(continued)
4. Accounts
Receivable and Allowance for Doubtful Accounts
An allowance for doubtful accounts is provided against accounts
receivable for amounts management believes may be uncollectible.
Changes in the allowance for doubtful accounts are represented
by the following at May 31 2009, 2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
Balance, beginning of year
|
|
$
|
1,332
|
|
|
$
|
1,309
|
|
|
$
|
1,242
|
|
Increase due to acquisitions
|
|
|
43
|
|
|
|
|
|
|
|
|
|
Provision for doubtful accounts
|
|
|
2,097
|
|
|
|
376
|
|
|
|
555
|
|
Write-offs, net of recoveries
|
|
|
(81
|
)
|
|
|
(353
|
)
|
|
|
(488
|
)
|
Foreign exchange valuation
|
|
|
(88
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of year
|
|
$
|
3,303
|
|
|
$
|
1,332
|
|
|
$
|
1,309
|
|
|
|
In January 2009, a customer voluntarily filed to reorganize
under Chapter 11 of the U.S Bankruptcy Code. Total
pre-petition accounts receivable from this customer as of
May 31, 2009 were $2,323 all of which are greater than
90 days old. Based on managements estimates, the
Company recorded a 67% or $1,556 reserve on the pre-petition
accounts receivable.
5. Inventories
Inventories consist of the following at May 31, 2009 and
2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
Raw materials
|
|
$
|
2,832
|
|
|
$
|
2,796
|
|
Work in process
|
|
|
1,782
|
|
|
|
1,577
|
|
Finished goods
|
|
|
2,635
|
|
|
|
3,080
|
|
Supplies
|
|
|
4,260
|
|
|
|
3,191
|
|
|
|
|
|
|
|
|
|
$
|
11,509
|
|
|
$
|
10,644
|
|
|
|
Inventories are net of reserves for slow-moving and obsolete
inventory of $584 and $577 at May 31, 2009 and 2008,
respectively.
F-18
Mistras Group,
Inc. and Subsidiaries
Notes to
consolidated financial statements(continued)
6. Property,
plant and equipment, net
Property, plant and equipment consist of the following at
May 31, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Useful life in
|
|
|
|
|
|
|
|
|
|
years
|
|
|
2009
|
|
|
2008
|
|
|
|
|
Land
|
|
|
|
|
|
$
|
1,295
|
|
|
$
|
865
|
|
Buildings and improvement
|
|
|
30-40
|
|
|
|
9,836
|
|
|
|
8,835
|
|
Office furniture and equipment
|
|
|
5-8
|
|
|
|
1,624
|
|
|
|
2,634
|
|
Machinery and equipment
|
|
|
5-7
|
|
|
|
51,943
|
|
|
|
38,493
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
64,698
|
|
|
|
50,827
|
|
Accumulated depreciation and amortization
|
|
|
|
|
|
|
31,106
|
|
|
|
24,316
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
33,592
|
|
|
$
|
26,511
|
|
|
|
Depreciation and amortization expense was $8,823, $7,323 and
$5,066 for the years ended May 31, 2009, 2008 and 2007,
respectively.
In 2007, the Company reduced its estimated useful lives on
certain equipment from seven years to five years, resulting in
an incremental charge to depreciation expense of $1,068. This
change in estimate was based on the Companys evaluation of
the useful lives of its equipment.
The changes in the carrying amount of goodwill, substantially
all of which relates to our Services segment (Note 20), at
May 31, 2009 and 2008 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
Beginning of year
|
|
$
|
28,627
|
|
|
$
|
14,704
|
|
Goodwill acquired during the year
|
|
|
10,830
|
|
|
|
13,735
|
|
Post-acquisition adjustment
|
|
|
(500
|
)
|
|
|
188
|
|
Foreign exchange valuation
|
|
|
(315
|
)
|
|
|
|
|
|
|
|
|
|
|
End of year
|
|
$
|
38,642
|
|
|
$
|
28,627
|
|
|
|
Acquisitions are accounted for in accordance with SFAS 141,
Business Combinations. The total purchase price is
allocated to the assets and liabilities based on their fair
values at the acquisition date. The results of operations for
each of the entities have been included in the consolidated
financial statements from the respective dates of acquisition.
All of the acquisitions were for strategic market expansion,
including the addition of trained technical personnel. No pro
forma information is presented for fiscal 2009, 2008 and 2007
because the pro forma impact of acquisitions, both individually
and in the aggregate, during these periods was immaterial.
F-19
Mistras Group,
Inc. and Subsidiaries
Notes to
consolidated financial statements(continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended May 31
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
Number of entities
|
|
|
5
|
|
|
|
7
|
|
|
|
3
|
|
|
|
|
|
|
|
Total cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid
|
|
$
|
10,464
|
|
|
$
|
15,535
|
|
|
$
|
2,031
|
|
Subordinated notes issued
|
|
|
7,343
|
|
|
|
8,137
|
|
|
|
1,000
|
|
Other consideration, primarily obligations under covenants not
to compete
|
|
|
471
|
|
|
|
3,151
|
|
|
|
|
|
Debt assumed
|
|
|
1,475
|
|
|
|
1,175
|
|
|
|
360
|
|
Preferred stock (18,000 shares) issued
|
|
|
|
|
|
|
|
|
|
|
900
|
|
|
|
|
|
|
|
|
|
$
|
19,753
|
|
|
$
|
27,998
|
|
|
$
|
4,291
|
|
|
|
|
|
|
|
Current assets acquired
|
|
$
|
697
|
|
|
$
|
2,052
|
|
|
$
|
1,310
|
|
Property, plant and equipment
|
|
|
4,244
|
|
|
|
3,369
|
|
|
|
2,142
|
|
Intangibles, primarily customer lists
|
|
|
3,982
|
|
|
|
8,842
|
|
|
|
450
|
|
Goodwill
|
|
|
10,830
|
|
|
|
13,735
|
|
|
|
389
|
|
|
|
|
|
|
|
|
|
$
|
19,753
|
|
|
$
|
27,998
|
|
|
$
|
4,291
|
|
|
|
|
|
|
|
Future conditional consideration at May 31
|
|
$
|
3,991
|
|
|
$
|
600
|
|
|
$
|
|
|
|
|
The conditional consideration is contingent on the acquired
entity achieving certain revenue and profit targets during
calendar and fiscal years ending 2009 thru 2011. If earned, the
earliest the fiscal 2008 earn-out payments will be made is
February 2010 and the earliest the fiscal 2009 earn-out payments
will be made is within 90 days subsequent to May 31,
2010. In addition, the Company entered into certain finite
at-will employment, or consulting agreements with the owners or
managers of these companies.
In addition to the above, the Company acquired a patent in 2008
that will be used in developing new product sales as well as be
used by the Services segment. The purchase price for the patent
and certain related inventory and equipment was $712. In
connection with this patent purchase, the Company is obligated
for royalty payments on sales generated by the technology
developed or licensed for six years until November 2013. No such
payments were made in 2009 or 2008.
F-20
Mistras Group,
Inc. and Subsidiaries
Notes to
consolidated financial statements(continued)
9. Intangible
assets
The gross carrying amount and accumulated amortization of
intangible assets at May 31, 2009 and 2008 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
Useful
|
|
|
|
|
|
|
|
|
Net
|
|
|
|
|
|
|
|
|
Net
|
|
|
|
life in
|
|
|
Gross
|
|
|
Accumulated
|
|
|
carrying
|
|
|
Gross
|
|
|
Accumulated
|
|
|
carrying
|
|
|
|
years
|
|
|
amount
|
|
|
amortization
|
|
|
amount
|
|
|
amount
|
|
|
amortization
|
|
|
amount
|
|
|
|
|
Software
|
|
|
3
|
|
|
$
|
5,230
|
|
|
$
|
4,334
|
|
|
$
|
896
|
|
|
$
|
4,874
|
|
|
$
|
3,661
|
|
|
$
|
1,213
|
|
Customers lists
|
|
|
5-7
|
|
|
|
19,541
|
|
|
|
11,869
|
|
|
|
7,672
|
|
|
|
16,225
|
|
|
|
10,232
|
|
|
|
5,993
|
|
Covenants not to compete
|
|
|
2-5
|
|
|
|
6,471
|
|
|
|
4,425
|
|
|
|
2,046
|
|
|
|
6,147
|
|
|
|
3,181
|
|
|
|
2,966
|
|
Other
|
|
|
2-5
|
|
|
|
3,312
|
|
|
|
1,977
|
|
|
|
1,335
|
|
|
|
2,828
|
|
|
|
1,448
|
|
|
|
1,380
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
34,554
|
|
|
$
|
22,605
|
|
|
$
|
11,949
|
|
|
$
|
30,074
|
|
|
$
|
18,522
|
|
|
$
|
11,552
|
|
|
|
Amortization expense for the years ended May 31, 2009, 2008
and 2007 was $3,813, $4,100 and $3,625, respectively, including
amortization of software for the years ended May 31, 2009,
2008 and 2007 of $672, $660, and $614, respectively.
The following is the approximate amount of amortization expense
in each of the years ending subsequent to May 31, 2009:
|
|
|
|
|
|
|
Years ending
|
|
|
|
|
|
|
2010
|
|
$
|
3,393
|
|
2011
|
|
|
2,650
|
|
2012
|
|
|
1,663
|
|
2013
|
|
|
1,400
|
|
2014
|
|
|
1,221
|
|
Thereafter
|
|
|
1,622
|
|
|
|
|
|
|
Total
|
|
$
|
11,949
|
|
|
|
F-21
Mistras Group,
Inc. and Subsidiaries
Notes to
consolidated financial statements(continued)
10. Accrued
expenses and other current liabilities
Accrued expenses and other current liabilities consist of the
following at May 31, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
Accrued salaries, wages and related employee benefits
|
|
$
|
5,992
|
|
|
$
|
4,885
|
|
Other accrued expenses
|
|
|
6,111
|
|
|
|
4,820
|
|
Accrued worker compensation and health benefits
|
|
|
4,823
|
|
|
|
1,424
|
|
Deferred revenues
|
|
|
1,414
|
|
|
|
1,284
|
|
|
|
|
|
|
|
Total
|
|
$
|
18,340
|
|
|
$
|
12,413
|
|
|
|
11. Long-term
debt
Long-term debt consists of the following at May 31, 2009
and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
Senior credit facility
|
|
|
|
|
|
|
|
|
Revolver
|
|
$
|
15,505
|
|
|
$
|
13,145
|
|
Term loans
|
|
|
36,319
|
|
|
|
22,500
|
|
Notes payable
|
|
|
12,113
|
|
|
|
9,138
|
|
Other
|
|
|
2,314
|
|
|
|
3,487
|
|
|
|
|
|
|
|
|
|
|
66,251
|
|
|
|
48,270
|
|
Less: Current maturities
|
|
|
14,390
|
|
|
|
7,469
|
|
|
|
|
|
|
|
Long-term debt, net of current maturities
|
|
$
|
51,861
|
|
|
$
|
40,801
|
|
|
|
Senior credit
facility
On October 31, 2006, as subsequently amended April 23,
2007, December 14, 2007, May 30, 2008, July 1,
2008, January 7, 2009 and July 22, 2009, the Company
entered into a $40,000 Credit Agreement (Credit
Agreement) with Bank of America, N.A. and JPMorgan Chase
Bank, N.A. (the Lenders). The Credit Agreement
provides for a $15,000 revolver (Revolver) maturing
on October 31, 2012 and a $25,000 term loan (2007
Term Loan). On July 1, 2008, the Company amended its
credit agreement and entered into an additional term loan in the
amount of $20,000 (2008 Term Loan) to fund, among
other things, the fiscal year 2009 acquisitions described in the
acquisitions footnote. The 2007 Term Loan has quarterly
principal payments of $938 increasing to $1,250 and $1,875 in
January 2010 and January 2012, respectively, with final payment
on October 31, 2012. The 2008 Term Loan has equal monthly
principal payments of $278 with final payment on June 27,
2014. The maximum revolver was increased from $15,000 to $20,000
on January 7, 2009. At May 31, 2009, the available
additional borrowing capacity was $4,495. There is a provision
in the Credit Agreement that requires the Company to repay 25%
of
F-22
Mistras Group,
Inc. and Subsidiaries
Notes to
consolidated financial statements(continued)
the immediately preceding fiscal years free cash
flow if its ratio of funded debt to EBITDA is
less than a fixed amount on or before October 1 each year.
Free cash flow means the sum of EBITDA minus all
taxes paid or payable in cash, minus cash interest paid, minus
all capital expenditures made in cash, minus all scheduled and
nonscheduled principal payments on funded debt made in the
period, minus acquisition costs and plus or minus changes in
working capital. Funded debt means all outstanding
liabilities for borrowed money and other interest-bearing
liabilities. The Company does not expect to be required to make
payments under this provision. Interest rates under the facility
are based on either the prime rate (3.25% and 5.0% at
May 31, 2009 and 2008, respectively) or 30 day LIBOR
rate (0.32% and 2.46% at May 31, 2009 and 2008,
respectively) plus an applicable margin of 1.5% to 2.3% as
defined in the Credit Agreement. All loans under the Credit
Agreement are collateralized by a security interest in all of
the assets of the Company.
The proceeds from the Senior Credit Facility were used to repay
the outstanding indebtedness under the Companys
(i) amended and restated revolving credit, term loan and
security agreement dated August 8, 2003, and (ii) Term
Loan Agreements with Gladstone Bank dated August 8, 2003.
The transaction resulted in a loss of $460 recognized in fiscal
2007.
The Credit Agreement contains financial and other covenants
limiting the Companys ability to, among other things,
create liens, make investments and certain capital expenditures,
incur more indebtedness, merge or consolidate, acquire other
companies, make dispositions of property, pay dividends and make
distributions to stockholders, enter into a new line of
business, enter into transactions with affiliates and enter into
burdensome agreements.
The Credit Agreement also contains financial covenants that
require the Company to maintain compliance with specified
financial ratios. In addition, the Company is required to
furnish the agent for the Lenders, within specified time
periods, (i) after the end of each fiscal year, a
consolidated balance sheet as at the end of such fiscal year and
the related consolidated statements of income or operations,
shareholders equity and cash flows for such fiscal year,
to be audited and accompanied by a report and opinion of the
Companys independent registered public accounting firm,
(ii) after the end of each fiscal quarter, a consolidated
balance sheet as at the end of such fiscal quarter and the
related consolidated statements of income or operations,
shareholders equity and cash flows for such fiscal
quarter, and (iii) before the end of each fiscal year, a
forecast prepared by management of the consolidated balance
sheets and statements of income or operations for the next
fiscal year.
As of May 31, 2009 the Company was not in compliance with
the following two covenants in the Credit Agreement: (1) the
requirement that the Company maintain a minimum debt service
coverage ratio, as defined, of at least 1.10 to 1.00, and (2)
the requirement that the Company not create, incur, assume or
allow to exist more than a total of $10 million of any
indebtedness in respect of capital leases, synthetic lease
obligations (as defined) and purchase money obligations for
certain fixed or capital assets (limited
indebtedness). On July 22, 2009 the Credit Agreement
was amended, effective as of May 31, 2009, to decrease the
minimum debt service coverage ratio to 1.05 to 1.00, and
effective as of August 31, 2007, to increase the maximum
limited indebtedness to $22 million, so that the Company
was treated as being in compliance with these two covenants
during all reporting periods after August 31, 2007.
F-23
Mistras Group,
Inc. and Subsidiaries
Notes to
consolidated financial statements(continued)
Notes payable
and other
In connection with its acquisitions from 2007 to 2009, the
Company issued subordinated notes payable to the sellers and
assumed certain other notes payable. These notes generally
mature three years from the date of acquisition with interest
rates ranging from 3% to 7%. The Company has discounted these
obligations to reflect a 5.5% imputed interest. Unamortized
discount on the notes is $175 as of May 31, 2009.
Amortization is recorded as interest expense in the consolidated
statement of operations. Payments under these various
acquisition obligations are made either monthly or quarterly.
Scheduled principal payments due under all borrowing agreements
in each of the five years and thereafter subsequent to
May 31, 2009 are as follows (See Note 21, Subsequent
events, for a description of the fiscal 2010 refinancing and new
payment schedule):
|
|
|
|
|
|
|
Years ending
|
|
|
|
|
|
|
2010
|
|
$
|
14,390
|
|
2011
|
|
|
13,122
|
|
2012
|
|
|
10,834
|
|
2013
|
|
|
23,438
|
|
2014
|
|
|
3,518
|
|
Thereafter
|
|
|
949
|
|
|
|
|
|
|
Total
|
|
$
|
66,251
|
|
|
|
12. Financial
Instruments
The Company uses interest rate swaps to manage interest rate
exposure. In 2007, the Company entered into two interest rate
swap contracts whereby the Company would receive or pay an
amount equal to the difference between a fixed rate and the
quoted
90-day LIBOR
rate on a quarterly basis. Amounts related to the derivatives
are recognized as quarterly payments become due. Credit loss
from counterparty nonperformance is not anticipated. All gains
and losses are recognized as an adjustment to interest expense
in the consolidated statement of operations and the combined
fair values are recorded in other liabilities on the
consolidated balance sheets. The following outlines the
significant terms of the contracts at May 31, 2009 and
2008, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable
|
|
|
Fixed
|
|
|
Fair Value
|
|
|
|
|
|
|
Notional
|
|
|
interest
|
|
|
interest
|
|
|
At May 31,
|
|
Contract date
|
|
Term
|
|
|
amount
|
|
|
rate
|
|
|
rate
|
|
|
2009
|
|
|
2008
|
|
|
|
|
November 20, 2006
|
|
|
4 years
|
|
|
$
|
8,000
|
|
|
|
LIBOR
|
|
|
|
5.17%
|
|
|
$
|
(517
|
)
|
|
$
|
(321
|
)
|
November 30, 2006
|
|
|
3 years
|
|
|
|
8,000
|
|
|
|
LIBOR
|
|
|
|
5.05%
|
|
|
|
(199
|
)
|
|
|
(234
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
16,000
|
|
|
|
|
|
|
|
|
|
|
$
|
(716
|
)
|
|
$
|
(555
|
)
|
|
|
F-24
Mistras Group,
Inc. and Subsidiaries
Notes to
consolidated financial statements(continued)
As noted above, the interest rate swaps are accounted for at
fair value on a recurring basis. The following table outlines
the fair value of the interest rate swaps within the fair value
hierarchy in accordance with SFAS 157:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value measurements at May 31,
|
|
|
|
|
|
|
2009 using
|
|
|
|
|
|
|
Quoted prices in
|
|
|
|
|
|
|
|
|
|
|
|
|
active markets for
|
|
|
Significant other
|
|
|
Significant
|
|
|
|
May 31,
|
|
|
identical assets
|
|
|
observable inputs
|
|
|
unobservable inputs
|
|
Description
|
|
2009
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
|
|
Liability:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate Swaps
|
|
$
|
716
|
|
|
$
|
716
|
|
|
$
|
|
|
|
$
|
|
|
|
|
13. Obligations
under capital leases
The Company leases certain office space, including its
headquarters, and service equipment under capital leases,
requiring monthly payments ranging from $1 to $62, including
effective interest rates that range from 0.3% to 22.5% expiring
through October 2014. The net book value of assets under capital
lease obligations is $15,577 and $10,720 at May 31, 2009
and 2008, respectively.
Scheduled future minimum lease payments subsequent to
May 31, 2009 are as follows:
|
|
|
|
|
|
|
Years ending
|
|
|
|
|
|
|
2010
|
|
$
|
5,773
|
|
2011
|
|
|
4,661
|
|
2012
|
|
|
3,078
|
|
2013
|
|
|
1,495
|
|
2014
|
|
|
963
|
|
Thereafter
|
|
|
299
|
|
|
|
|
|
|
Total minimum lease payments
|
|
|
16,269
|
|
Less: Amount representing interest
|
|
|
(1,744
|
)
|
|
|
|
|
|
Present value of minimum lease payments
|
|
|
14,525
|
|
Less: Current portion of obligations under capital leases
|
|
|
(4,981
|
)
|
|
|
|
|
|
Obligations under capital leases, net of current portion
|
|
$
|
9,544
|
|
|
|
F-25
Mistras Group,
Inc. and Subsidiaries
Notes to
consolidated financial statements(continued)
|
|
14.
|
Commitments and
contingencies
|
Operating
leases
The Company is party to various noncancelable lease agreements,
primarily for its international and domestic office and lab
space. Minimum future lease payments under noncancelable
operating leases in each of the five years subsequent to
May 31, 2009 are as follows:
|
|
|
|
|
|
|
Years ending
|
|
|
|
|
|
|
2010
|
|
$
|
2,113
|
|
2011
|
|
|
1,605
|
|
2012
|
|
|
1,153
|
|
2013
|
|
|
958
|
|
2014
|
|
|
637
|
|
Thereafter
|
|
|
270
|
|
|
|
|
|
|
Total
|
|
$
|
6,736
|
|
|
|
Total rent expense for the Company was $3,103, $2,408 and $1,453
for the years ended May 31, 2009, 2008 and 2007,
respectively.
Litigation
The Company is subject to periodic lawsuits, investigations and
claims that arise in the ordinary course of business. Although
the Company cannot predict with certainty the ultimate
resolution of lawsuits, investigations and claims asserted
against it, the Company does not believe that any currently
pending legal proceeding to which the Company is a party will
have a material adverse effect on its business, results of
operations, cash flows or financial condition. The costs of
defense and amounts that may be recovered in such matters may be
covered by insurance. The Company records any liability in
accordance with SFAS No. 5, Accounting for
Contingencies.
On September 25, 2007, two former employees, individually
and on behalf of a purported class consisting of all current and
former employees who work or worked as
on-site
construction workers, testing technicians and inspectors for
Conam in the State of California at any time from September 2003
through the date of judgment in this action, filed an action
against Conam in the United States District Court, Northern
District of California. The Complaint alleged, among other
things, that Conam violated the California Labor Code. The case
was mediated on October 13, 2008 and a settlement was
reached on all class claims. The class settlement is in the
process of being administered. As a result, the Company accrued
$2,100 in fiscal year 2009 which represents the settlement and
legal and administrative fees, net of insurance reimbursements
received and accrued. Approximately $1,750 has been paid in the
first quarter of fiscal 2010.
Acquisition
related
The Company is liable for contingent consideration in connection
with its acquisitions (See Note 8).
F-26
Mistras Group,
Inc. and Subsidiaries
Notes to
consolidated financial statements(continued)
|
|
15.
|
Employee benefit
plans
|
The Company provides a 401(k) salary savings plan for eligible
U.S. based employees. Employee contributions are
discretionary up to the IRS limits each year and catch up is
allowed. Under the 401(k) plan, employees become eligible to
participate on the 1st of the month after six months of
continuous service. Under this plan, the Company matches 50% of
the employees contributions up to the first 6% of the
employees contributions. There is a five-year vesting
schedule for the Company match. The Companys contribution
to the plan aggregated $1,040, $758 and $569 for the years ended
May 31, 2009, 2008 and 2007, respectively.
The Company participates with other employers in contributing to
a union plan, which covers certain U.S. based union
employees. The plan is not administered by the Company and
contributions are determined in accordance with provisions of a
collective bargaining agreement. The Companys
contributions to the plan aggregated $283, $71 and $75 for the
years ended May 31, 2009, 2008 and 2007, respectively. The
Company has benefit plans covering certain employees in selected
foreign countries. Amounts charged to expense under these plans
were not significant in any year.
Income before provision for income taxes is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended May 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
Income (loss) before provision for income taxes from:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. operations
|
|
$
|
6,426
|
|
|
$
|
11,399
|
|
|
$
|
4,809
|
|
Foreign operations
|
|
|
3,785
|
|
|
|
1,428
|
|
|
|
986
|
|
|
|
|
|
|
|
Earnings before income taxes
|
|
$
|
10,211
|
|
|
$
|
12,827
|
|
|
$
|
5,795
|
|
|
|
F-27
Mistras Group,
Inc. and Subsidiaries
Notes to
consolidated financial statements(continued)
The provision for income taxes consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended May 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
Current
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
2,079
|
|
|
$
|
4,088
|
|
|
$
|
1,123
|
|
States and local
|
|
|
860
|
|
|
|
472
|
|
|
|
44
|
|
Foreign
|
|
|
1,379
|
|
|
|
416
|
|
|
|
306
|
|
Reserve for uncertain tax positions
|
|
|
94
|
|
|
|
75
|
|
|
|
|
|
|
|
|
|
|
|
Total current
|
|
|
4,412
|
|
|
|
5,051
|
|
|
|
1,473
|
|
|
|
|
|
|
|
Deferred
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
275
|
|
|
|
(71
|
)
|
|
|
532
|
|
States and local
|
|
|
(12
|
)
|
|
|
248
|
|
|
|
328
|
|
Foreign
|
|
|
(142
|
)
|
|
|
(33
|
)
|
|
|
(94
|
)
|
|
|
|
|
|
|
Total deferred
|
|
|
121
|
|
|
|
144
|
|
|
|
766
|
|
Net change in valuation allowance
|
|
|
25
|
|
|
|
185
|
|
|
|
(2,031
|
)
|
|
|
|
|
|
|
Net deferred
|
|
|
146
|
|
|
|
329
|
|
|
|
(1,265
|
)
|
|
|
|
|
|
|
Provision for income taxes
|
|
$
|
4,558
|
|
|
$
|
5,380
|
|
|
$
|
208
|
|
|
|
The provision for income taxes differs from the amount computed
by applying the statutory federal tax rate to income tax as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended May 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
Federal tax at statutory rate
|
|
$
|
3,472
|
|
|
|
34.0%
|
|
|
$
|
4,489
|
|
|
|
35.0%
|
|
|
$
|
1,970
|
|
|
|
34.0%
|
|
State taxes, net of federal benefit
|
|
|
560
|
|
|
|
5.5%
|
|
|
|
468
|
|
|
|
3.7%
|
|
|
|
246
|
|
|
|
4.2%
|
|
Foreign tax at lower rates
|
|
|
(37
|
)
|
|
|
(0.4%
|
)
|
|
|
(117
|
)
|
|
|
(0.9%
|
)
|
|
|
(123
|
)
|
|
|
(2.1%
|
)
|
Permanent differences
|
|
|
414
|
|
|
|
4.1%
|
|
|
|
76
|
|
|
|
0.6%
|
|
|
|
62
|
|
|
|
1.1
|
|
Other
|
|
|
124
|
|
|
|
1.2%
|
|
|
|
279
|
|
|
|
2.1%
|
|
|
|
84
|
|
|
|
1.4
|
|
Change in valuation allowance
|
|
|
25
|
|
|
|
0.2%
|
|
|
|
185
|
|
|
|
1.4%
|
|
|
|
(2,031
|
)
|
|
|
(35.0%
|
)
|
|
|
|
|
|
|
Total provision for income taxes
|
|
$
|
4,558
|
|
|
|
44.6%
|
|
|
$
|
5,380
|
|
|
|
41.9%
|
|
|
$
|
208
|
|
|
|
3.6%
|
|
|
|
F-28
Mistras Group,
Inc. and Subsidiaries
Notes to
consolidated financial statements(continued)
Deferred income tax attributes resulting from differences
between financial accounting amounts and income tax basis of
assets and liabilities at May 31 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
Deferred income tax assets
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
1,074
|
|
|
$
|
386
|
|
Inventory
|
|
|
236
|
|
|
|
261
|
|
Intangible assets
|
|
|
3,607
|
|
|
|
3,064
|
|
Accrued expenses
|
|
|
451
|
|
|
|
536
|
|
Net operating loss carryforward
|
|
|
442
|
|
|
|
285
|
|
Capital lease obligation
|
|
|
1,187
|
|
|
|
1,372
|
|
Other
|
|
|
472
|
|
|
|
413
|
|
|
|
|
|
|
|
Deferred income tax assets
|
|
|
7,469
|
|
|
|
6,317
|
|
Valuation allowance
|
|
|
(210
|
)
|
|
|
(185
|
)
|
|
|
|
|
|
|
Net deferred income tax assets
|
|
|
7,259
|
|
|
|
6,132
|
|
|
|
|
|
|
|
Deferred income tax liabilities
|
|
|
|
|
|
|
|
|
Property and equipment
|
|
|
(3,419
|
)
|
|
|
(2,629
|
)
|
Goodwill
|
|
|
(2,658
|
)
|
|
|
(2,003
|
)
|
Other
|
|
|
(788
|
)
|
|
|
(564
|
)
|
|
|
|
|
|
|
Deferred income tax liabilities
|
|
|
(6,865
|
)
|
|
|
(5,196
|
)
|
|
|
|
|
|
|
Net deferred income taxes
|
|
$
|
394
|
|
|
|
936
|
|
|
|
At May 31, 2009, the Company has recorded a valuation
allowance against certain state deferred income tax assets based
on its assessment that the respective state deferred income tax
assets would not be realized as a result of losses incurred in
2009 and certain prior years. As of May 31, 2009, the
Company has available state net operating losses of $2,646
expiring starting in 2011.
F-29
Mistras Group,
Inc. and Subsidiaries
Notes to
consolidated financial statements(continued)
Effective June 1, 2007, the Company adopted FIN 48. A
reconciliation of the beginning and ending amounts of
unrecognized tax benefits since adoption is as follows:
|
|
|
|
|
Balance at June 1, 2007
|
|
$
|
564
|
|
Additions for tax positions related to fiscal 2008
|
|
|
90
|
|
Additions for tax positions related to prior years
|
|
|
|
|
Settlements
|
|
|
|
|
Reductions related to the expiration of statutes of limitations
|
|
|
(15
|
)
|
|
|
|
|
|
Balance at May 31, 2008
|
|
|
639
|
|
Additions for tax positions related to fiscal 2009
|
|
|
276
|
|
Additions for tax positions related to prior years
|
|
|
|
|
Settlements
|
|
|
|
|
Reductions related to the expiration of statutes of limitations
|
|
|
(182
|
)
|
|
|
|
|
|
Balance at May 31, 2009
|
|
$
|
733
|
|
|
|
The Company has recorded the unrecognized tax benefits in Other
Long-Term Liabilities in the consolidated balance sheets as of
May 31, 2009 and 2008. All of the Companys
unrecognized tax benefits at May 31, 2009, if recognized,
would favorably affect the effective tax rate. Interest and
penalties related to unrecognized tax benefits are recorded in
income tax expense and not significant for the years ended
May 31, 2009 and 2008.
The Company has not recognized U.S. tax expense on its
undistributed international earnings of $2,534 and $1,044 for
fiscal 2009 and 2008, respectively, since it intends to reinvest
the earnings outside the United States for the foreseeable
future. Any additional U.S. income taxes incurred would be
reduced by available foreign tax credits. If the earnings of
such foreign subsidiaries were not indefinitely reinvested, a
deferred tax liability would have been required.
The Company has authorized 3,000,000 shares of capital
stock, comprised of 2,000,000 shares of common stock
(Common) and 1,000,000 shares of Preferred
Stock (Preferred Stock), of which
298,701 shares have been designated as Class A
Convertible Redeemable Preferred Stock
(Class A) and 221,205 shares have been
designated as Class B Convertible Redeemable Preferred
Stock (Class B). All authorized shares of
Common and Preferred stock have a par value of $0.01 per share.
Dividends
Should the Company declare or pay dividends to the holders of
its capital stock, no dividends shall be declared or paid to the
holders of the Common shares or other securities ranking junior
to the Preferred shares unless equivalent dividends, on an
as-converted basis, are declared and paid concurrently to the
Preferred shareholders.
F-30
Mistras Group,
Inc. and Subsidiaries
Notes to
consolidated financial statements(continued)
Voting
rights
The Common and Preferred shareholders are entitled to one vote
per share for all matters subject to vote. The Preferred
shareholders are entitled to the number of votes equal to the
number of whole shares of Common into which the shares of
Preferred are convertible to at the time of the vote.
Conversion of
preferred stock
Holders of shares of preferred stock have the right to convert
their shares, at any time, into shares of common stock. The
current conversion rate for each series of preferred stock is
one for one. The conversion rate for each series of preferred
stock is subject (i) to proportional adjustments for stock
splits and dividends, combinations, recapitalizations, etc. and
(ii) to formula-weighted-average adjustments in the event
that the Company issues additional shares of common stock or
securities convertible into or exercisable for common stock at a
purchase price less than the applicable conversion price for
such series of preferred series of preferred stock then in
effect, subject to certain customary exceptions. All shares of
preferred stock will automatically be converted into shares of
common stock upon the closing of the sale of shares of our
common stock in a firm commitment underwritten public offering,
pursuant to an effective registration statement under the
Securities Act of 1933, in which the gross proceeds to the
Company and the valuation of the Company immediately prior to
the offering based on the offering price exceed certain minimum
amounts. Each series of preferred stock also converts to common
stock at the election of the holders of a majority of the then
outstanding shares of such series of preferred stock.
Class B
redemption rights
The majority holders of Class B preferred shares have the
right, but not the obligation, to require redemption of the
Class B shares upon the earlier occurrence of (i) an
Event of Noncompliance, as defined below, (ii) redemption
of the Class A shares or (iii) at their option. The
Company has the right to redeem all the Class B shares at
any time after the fifth anniversary of the Class B closing
date (October 26, 2010).
The redemption price of the Class B shares shall be equal
to (i) prior to the third anniversary, the original
issuance price plus 15% per annum from the original issue date
to the redemption date (referred to as the Class B
IRR Amount), and (ii) on or after October 26,
2008, the greater of (a) the Class B IRR Amount or
(b) the fair market value of Class B shares. Accretion
has been based on the fair market value from October 27,
2008 through May 31, 2009. In connection with the closing
of an initial public offering of the Companys common
stock, the Class B shares will convert into common stock at
a ratio of 1-to-1 (subject to (i) proportional adjustments
for stock splits and dividends, combinations, recapitalizations
and similar events and (ii) formula-weighted-average
adjustments in the event that the Company issues additional
shares of common stock or securities convertible into or
exercisable for common stock at a purchase price less than the
price at which such series of preferred stock was originally
issued and sold, subject to certain customary exceptions) and
all accretion recorded through this redemption price formula
will be credited to the Companys retained earnings.
F-31
Mistras Group,
Inc. and Subsidiaries
Notes to
consolidated financial statements(continued)
Class A
redemption rights
The majority holders of Class A preferred shares have the
right, but not the obligation, to require redemption of the
Class A shares upon the earlier occurrence of (i) an
Event of Noncompliance, (ii) redemption of the Class B
shares or (iii) at their option. The Company has the right
to redeem all the Class A shares at any time after
August 1, 2008.
The redemption price of the Class A shares shall be equal
to (i) prior to August 11, 2007, the original issuance
price plus 15% per annum from the original issue date to the
redemption date (referred to as the Class A IRR
Amount), and (ii) on or after August 11, 2007,
the greater of (a) the Class A IRR Amount or
(b) the fair market value of Class A shares. Accretion
has been based on the Class A IRR Amount through
August 11, 2007 and the fair market value of Class A
shares thereafter. The fair market value of the Class A
shares was determined by the Board of Directors by reference to
the valuation of comparable companies using several methods. In
connection with the closing of an initial public offering of the
Companys common stock, the Class A shares will
convert into common stock at a ratio of 1-to-1 (subject to
(i) proportional adjustments for stock splits and
dividends, combinations, recapitalizations and similar events
and (ii) formula-weighted-average adjustments in the event
that the Company issues additional shares of common stock or
securities convertible into or exercisable for common stock at a
purchase price less than the price at which such series of
preferred stock was originally issued and sold, subject to
certain customary exceptions) and all accretion recorded through
this redemption price formula will be credited to the
Companys retained earnings.
Preferred
stock accretion
The accretion for the preferred stock was determined in
accordance with the Companys amended and restated
certificate of incorporation, which provides as follows:
Class A. 15% through August 11, 2007 and the higher of
15% or fair market value thereafter. Because the accretion based
on fair market value was greater than 15%, accretion was based
on fair market value for periods beginning on August 12,
2007 and later periods.
Class B. 15% through October 26, 2008 and the higher
of 15% or fair market value thereafter. Because the accretion
based on fair market value was greater than 15%, accretion was
based on fair market value for periods beginning on
October 27, 2008 and later periods.
The fair market value of the common stock was determined using
market comparables and multiple averages of various peer groups
adjusted for the impacts of acquisitions, trailing and forward
twelve month actual and projected performance. These collective
factors were analyzed to determine a value of each share of our
common stock assuming free marketability. In order to establish
fair value of common stock as a privately held company a
discount factor was applied to account for the lack of liquidity
of our stock. The discount factor was determined through an
analysis of (i) the restrictions on the transferability of
the shares of our stock, (ii) comparable discount factors
for privately held companies considering an initial public
offering, (iii) our progress toward completing our initial
public offering and (iv) the inherent risk that our
offering would not be consummated.
F-32
Mistras Group,
Inc. and Subsidiaries
Notes to
consolidated financial statements(continued)
Event of
noncompliance
An Event of Noncompliance is defined as:
|
|
|
a sale of the Company or any of its material subsidiaries or any
other change of control of the Company (including without
limitation (i) the merger, reorganization or consolidation
of the Company into or with another corporation or other similar
transaction or series of related transactions in which 50% or
more of the voting power of the Company is disposed of or in
which the stockholders of the Company immediately prior to such
merger, reorganization or consolidation own less than 50% of the
Companys or its successors voting power immediately
after; or (ii) the sale of all or substantially all the
assets of the Company in one or a series of transactions),
|
|
|
a bankruptcy, insolvency or similar event affecting the Company
or any of its material subsidiaries,
|
|
|
a departure from the Company of Dr. Sotirios Vahaviolos,
the Companys Chairman, President, Chief Executive Officer
and a member of the Board of Directors,
|
|
|
a reduction in the role of Dr. Sotirios Vahaviolos with the
Company to less than full-time employment for a period of 90
consecutive days or more than 120 days during any
twelve-month period,
|
|
|
a default under any loan, credit or financing agreement of the
Company that is not cured within the applicable cure period
provided for in said agreement;
|
|
|
the removal, hiring or promoting of any person for or to the job
or duties of Chief Executive Officer, President, Chief Operating
Officer or Chief Financial Officer of the Company without the
consent of the holders of at least a majority of the then
outstanding shares of preferred stock of the Company, consenting
or voting, as the case may be, separately by series, or
|
|
|
a violation of any material right of any holder of shares of
preferred stock contained in the amended and restated
certificate of incorporation of the Company or in any agreement
among the Company and any holder of shares of preferred stock
(which violation, if reasonably curable within 30 days
after the Company knew or should have known of such occurrence,
is not so cured within 30 days after the Company knew or
should have known of such occurrence) or the taking of, or
agreement to take, any action which requires the approval of the
holders of shares of a series of or all preferred stock under
the amended and restated certificate of incorporation of the
Company or such agreements without such written consent.
|
Liquidation
preferences
In the event of liquidation, all Common and Class A
shareholders shall rank junior to the Class B shareholders.
The payment of the liquidation preferences is as follows:
(i) the Class B shareholders are entitled to receive
an amount per share equal to the original purchase price,
provided remaining assets are available; (ii) the
Class A shareholders are entitled to receive an amount per
share equal to the sum of the original purchase price plus an
annual rate of return equal to
F-33
Mistras Group,
Inc. and Subsidiaries
Notes to
consolidated financial statements(continued)
fifteen percent 15% per annum (15% IRR) from
the original issue date through the date of the first sale of
the Class B shares; provided remaining assets are
available; (iii) the Class A holders are entitled to
receive an amount per share equal to the greater of (a) 15%
IRR for the period between the Class B closing date and the
date of liquidation or (b) the Class A net fair market
value as of the date of liquidation; provided remaining assets
are available; (iv) the Class B holders are entitled
to receive amount per share equal to the greater of (a) 15%
IRR from the original purchase date through the date of
liquidation or (b) the Class B net fair value as of
the date of liquidation; and (v) provided assets are
remaining, the remainder shall be distributed to all the Common
and other Preferred shareholders on an as-if
converted basis.
Since both Class A and B preferred shareholders have the
right but not the obligation to require redemption, the Company
has classified Class A and B preferred stock to temporary
equity.
In April 2007, the Companys Board of Directors approved
the Mistras Group, Inc. 2007 Stock Option Plan (the
Plan) terminating the further use of the 1995
Incentive Stock Plan except for the 19,000 options outstanding
at May 31, 2007. The Companys Chairman and majority
shareholder was also delegated the discretion to grant and
execute new options for up to 56,974 shares pursuant to the
2007 Plan, with an option exercise price equal to the fair
market value of the underlying shares at the date of grant.
Under the 2007 Plan, options were granted for periods not
exceeding 10 years and exercisable four years after the
date of grant at an exercise price of not less than 100% of the
fair market value of the common stock on the date of grant. The
fair market value of the common stock was determined by the
Companys board of directors. The methodology used to
determine the fair market value of the common stock for stock
options is the same as that used for determining the accretion
on the Companys preferred stock See Note 17.
(The prior plans options granted had five-year terms and
vest and become fully exercisable over a four-year period.)
The Companys stock option compensation expense consists of
options granted during fiscal 2008 and 2009 that are still
outstanding and are currently vesting. For stock options, the
Company determines the fair value of each option at the grant
date using a Black-Scholes model, with the following average
assumptions used for grants made:
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
Risk free interest rate
|
|
|
3.3%
|
|
|
|
5.0%
|
|
Volatility factor of the expected market price of the
Companys common stock
|
|
|
41.0%
|
|
|
|
38.0%
|
|
Expected dividend yield percentage
|
|
|
0%
|
|
|
|
0%
|
|
Weighted average expected life
|
|
|
7 years
|
|
|
|
7 years
|
|
Forfeiture rate
|
|
|
5.0%
|
|
|
|
5.0%
|
|
Average vesting period
|
|
|
4 years
|
|
|
|
4 years
|
|
|
|
F-34
Mistras Group,
Inc. and Subsidiaries
Notes to
consolidated financial statements(continued)
The Company recognized share-based compensation expense for
options granted of $192 and $318 for the years ended
May 31, 2009 and 2008, respectively. Unamortized
share-based compensation with respect to unvested stock options
at May 31, 2009 that vest over a four-year period from the
date of grant amounted to $1,935.
A summary of the Companys common stock option activity,
and related information for the years ended May 31, 2009,
2008 and 2007 follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
average
|
|
|
|
|
|
|
|
|
|
exercise
|
|
|
|
Options
|
|
|
Options exercisable
|
|
|
price
|
|
|
|
|
Outstanding, May 31, 2006
|
|
|
40,500
|
|
|
|
21,150
|
|
|
$
|
2.76
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(21,500
|
)
|
|
|
|
|
|
|
2.76
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, May 31, 2007 (prior plan)
|
|
|
19,000
|
|
|
|
7,600
|
|
|
|
5.00
|
|
Granted
|
|
|
20,500
|
|
|
|
|
|
|
|
84.88
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(2,000
|
)
|
|
|
|
|
|
|
80.00
|
|
|
|
|
|
|
|
Outstanding, May 31, 2008
|
|
|
37,500
|
|
|
|
16,313
|
|
|
|
44.67
|
|
Granted
|
|
|
34,800
|
|
|
|
|
|
|
|
135.92
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, May 31, 2009
|
|
|
72,300
|
|
|
|
25,688
|
|
|
|
88.59
|
|
|
|
The weighted average remaining contractual life of the options
outstanding at May 31, 2009 was approximately nine years.
The intrinsic weighted-average value of the options granted
during the year ended May 31, 2009 was $39.97 per share.
|
|
19.
|
Related party
transactions
|
The Company leases its headquarters under a capital lease
(Note 13) from a shareholder and officer of the
Company requiring monthly payments through October 2014. The
current payment is $62 which increases annually to a maximum of
$72.
The Company leases office space located in France, which is
partly owned by a shareholder and officer. The lease provides
for monthly payments of $16 and terminates January 12, 2016.
F-35
Mistras Group,
Inc. and Subsidiaries
Notes to
consolidated financial statements(continued)
The Companys three segments are:
|
|
|
Services. This segment provides asset protection
solutions in North and Central America with the largest
concentration in the United States.
|
|
|
Products and Systems. This segment designs,
manufactures, sells, installs and services the Companys
asset protection products and systems, including equipment and
instrumentation, predominantly in the United States.
|
|
|
International. This segment offers services,
products and systems similar to those of our other segments to
global markets, principally in Europe, the Middle East, Africa,
Asia and South America, but not to customers in China and South
Korea, which are served by our Products and Systems segment.
|
General corporate services, including accounting, audit, and
contract management, are provided to the segments which are
reported as intersegment transactions within corporate and
eliminations. Sales to the International segment from the
Products and Systems segment and subsequent sales by the
International segment of the same items are recorded and
reflected in the operating performance of both segments.
Additionally, engineering charges and royalty fees charged to
the Services and International segments by the Products and
Systems segment are reflected in the operating performance of
each segment. All such intersegment transactions are eliminated
in corporate and eliminations.
The accounting policies of the reportable segments are the same
as those described in the summary of significant accounting
policies in Note 2. Segment income from operations is
determined based on internal performance measures used by the
Chief Executive Officer, the chief operating decision maker, to
assess the performance of each business in a given period and to
make decisions as to resource allocations. In connection with
that assessment, the Chief Executive Officer may exclude items
such as charges for stock-based compensation and certain other
acquisition-related charges and balances, technology and product
development costs, certain gains and losses from dispositions,
and litigation settlements or other charges. Certain general and
administrative costs such as human resources, information
technology and training are allocated to the segments. Segment
income from operations also excludes interest and other
financial charges and income taxes. Corporate and other assets
are comprised principally of cash, deposits, property, plant and
equipment, domestic deferred taxes, deferred charges and other
assets. Corporate loss from operations consists of depreciation
on the corporate office facilities and equipment, administrative
charges related to corporate personnel and other charges that
cannot be readily identified for allocation to a particular
segment.
F-36
Mistras Group,
Inc. and Subsidiaries
Notes to
consolidated financial statements(continued)
Selected consolidated financial information by segment for the
periods shown was as follows:
Revenues by operating segment includes intercompany
transactions, which are eliminated in corporate and eliminations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended May 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Services
|
|
$
|
167,543
|
|
|
$
|
116,027
|
|
|
$
|
90,867
|
|
Products and Systems
|
|
|
17,310
|
|
|
|
16,675
|
|
|
|
14,916
|
|
International
|
|
|
29,165
|
|
|
|
23,727
|
|
|
|
20,935
|
|
Corporate and eliminations
|
|
|
(4,885
|
)
|
|
|
(4,161
|
)
|
|
|
(4,477
|
)
|
|
|
|
|
|
|
|
|
$
|
209,133
|
|
|
$
|
152,268
|
|
|
$
|
122,241
|
|
|
|
Operating income by operating segment includes intercompany
transactions, which are eliminated in corporate and eliminations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended May 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
Income from operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Services
|
|
$
|
13,681
|
|
|
$
|
14,649
|
|
|
$
|
8,299
|
|
Products and Systems
|
|
|
1,664
|
|
|
|
2,723
|
|
|
|
2,640
|
|
International
|
|
|
4,091
|
|
|
|
2,408
|
|
|
|
2,146
|
|
Corporate and eliminations
|
|
|
(4,611
|
)
|
|
|
(3,422
|
)
|
|
|
(2,348
|
)
|
|
|
|
|
|
|
|
|
$
|
14,825
|
|
|
$
|
16,358
|
|
|
$
|
10,737
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended May 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
Depreciation and amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
Services
|
|
$
|
10,603
|
|
|
$
|
9,529
|
|
|
$
|
7,101
|
|
Products and Systems
|
|
|
1,038
|
|
|
|
1,017
|
|
|
|
926
|
|
International
|
|
|
900
|
|
|
|
861
|
|
|
|
760
|
|
Corporate and eliminations
|
|
|
95
|
|
|
|
16
|
|
|
|
(96
|
)
|
|
|
|
|
|
|
|
|
$
|
12,636
|
|
|
$
|
11,423
|
|
|
$
|
8,691
|
|
|
|
F-37
Mistras Group,
Inc. and Subsidiaries
Notes to
consolidated financial statements(continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
May 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
Intangible assets, net
|
|
|
|
|
|
|
|
|
Services
|
|
$
|
9,686
|
|
|
$
|
9,841
|
|
Products and Systems
|
|
|
1,127
|
|
|
|
1,220
|
|
International
|
|
|
710
|
|
|
|
160
|
|
Corporate and eliminations
|
|
|
426
|
|
|
|
331
|
|
|
|
|
|
|
|
|
|
$
|
11,949
|
|
|
$
|
11,552
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
Goodwill
|
|
|
|
|
|
|
|
|
Services
|
|
$
|
37,355
|
|
|
$
|
28,841
|
|
Products and Systems
|
|
|
|
|
|
|
|
|
International
|
|
|
1,501
|
|
|
|
|
|
Corporate and eliminations
|
|
|
(214
|
)
|
|
|
(214
|
)
|
|
|
|
|
|
|
|
|
$
|
38,642
|
|
|
$
|
28,627
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
Long-lived assets
|
|
|
|
|
|
|
|
|
Services
|
|
$
|
75,197
|
|
|
$
|
60,785
|
|
Products and Systems
|
|
|
4,553
|
|
|
|
4,800
|
|
International
|
|
|
5,137
|
|
|
|
3,016
|
|
Corporate and eliminations
|
|
|
2,717
|
|
|
|
1,880
|
|
|
|
|
|
|
|
|
|
$
|
87,604
|
|
|
$
|
70,481
|
|
|
|
F-38
Mistras Group,
Inc. and Subsidiaries
Notes to
consolidated financial statements(continued)
Results by
geographic area
Net revenues by geographic area for the fiscal years ended
May 31, 2009, 2008 and 2007 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended May 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
162,815
|
|
|
$
|
118,316
|
|
|
$
|
92,229
|
|
Other Americas
|
|
|
16,293
|
|
|
|
6,641
|
|
|
|
5,434
|
|
Europe
|
|
|
20,692
|
|
|
|
16,914
|
|
|
|
15,380
|
|
Asia-Pacific
|
|
|
9,333
|
|
|
|
10,397
|
|
|
|
9,198
|
|
|
|
|
|
|
|
|
|
$
|
209,133
|
|
|
$
|
152,268
|
|
|
$
|
122,241
|
|
|
|
No individual foreign countrys revenues or long-lived
assets were material for disclosure purposes.
Credit
agreement
On July 22, 2009, the Company refinanced its existing term
loan and revolver with a new credit facility comprised of a
$25,000 term loan and $55,000 revolver, a portion of which
($2,000 U.S. dollar equivalent) will be available to be
borrowed in Canadian dollars. The interest rate is LIBOR or Base
Rate, at the Companys option, plus a margin ranging from
0% to 3.25%, dependent upon the Companys Funded Debt
Ratio, as defined. Quarterly principal payments of $1,500 will
begin October 31, 2009 and increase to $2,000 and $2,750 on
October 31, 2010 and October 31, 2011, respectively.
The new facility contains certain financial and nonfinancial
covenants that are consistent with the Companys existing
loans. Proceeds will be used to pay down the Companys
current term loan and revolver and to fund acquisitions and
working capital.
F-39
Mistras Group,
Inc. and Subsidiaries
Notes to
consolidated financial statements(continued)
Scheduled principal payments under all of the Companys
borrowings after giving effect to the revised term loan payments
in each of the five years and thereafter subsequent to
May 31, 2009 are as follows:
|
|
|
|
|
|
|
Years ending
|
|
|
|
|
|
2010
|
|
$
|
11,181
|
|
2011
|
|
|
12,288
|
|
2012
|
|
|
11,501
|
|
2013
|
|
|
30,425
|
|
2014
|
|
|
184
|
|
Thereafter
|
|
|
672
|
|
|
|
|
|
|
Total
|
|
$
|
66,251
|
|
|
|
Acquisitions
Concurrent with the refinancing, the Company acquired two
unrelated entities to continue its strategic efforts in market
expansion. The total cost of the acquisitions was $19,500 of
which $14,000 was paid in cash and the balance by the issuance
of subordinated seller notes of $3,000 and other liabilities of
$2,500. The notes are payable over four years and bear interest
at 4.0%. In addition, one acquisition has an additional
contingent purchase price of $650 to $1,350 based on the
acquired entity achieving certain revenue and profitability
thresholds. The Company is in the process of completing the
preliminary purchase price allocation. In connection with the
acquisitions, the Company has also entered into finite
at-will
consulting and employment agreements with certain sellers. In
the fourth quarter of fiscal year 2009, the Company expensed
$150 of direct costs related to the acquisitions as they were in
process but not completed by the effective date of
SFAS 141R.
These acquisitions were not, individually or in the aggregate,
significant.
F-40
Examples of
customer solutions that use asset protection services, products
and systems
|
|
|
|
|
|
|
|
Industry
|
|
Technologies used
|
|
Situation or what we
did
|
|
Customer benefit
|
|
|
Fossil Power Utility
|
|
Ultrasonic Phased Array and Digital Radiography
|
|
New concept endorsed by an insurance
company and the Electric Power Research Institute
Minimized radiation exclusion zones,
allowing for increased construction activity
Examined 150 boiler header welds and
14,000 boiler tube welds
|
|
Shortened their normal maintenance period by 15 full days at a
total cost savings of nearly $15 million.
|
Oil and Gas
|
|
Guided Wave Ultrasonic Long Range Inspection
|
|
Used advanced technology that:
rapidly inspects 100% of large sections
of piping with minimal insulation removal
identifies localized damage
inspects previously inaccessible areas
where consequences and likelihood of failure are high
|
|
Obtained reliability correlation factor of 99% and customer can
accelerate its testing of miles of pipeline.
|
Refineries and Petrochemical
|
|
Touch Point Corrosion Inspection
|
|
Our Services segment together with our Products and Systems
segment developed an inspection methodology that quickly
determines the integrity of a piping system by paying special
attention to concerns when a pipe rests on a metal or wooden
object resulting in the potential creation of a corrosion cell.
|
|
Customers now have a way to test these inaccessible areas
without lifting the pipe and can avoid other problems such as
dislodging environmentally sensitive materials or potentially
causing additional damage to the piping system.
|
Ammonia Processing Tank
|
|
AE Sensors
|
|
96 sensors were placed under the insulation and cabled to a
connection box. The vessel was filled and we evaluated the data.
|
|
Customer removed the vessel from service and repaired over
2,000 feet of weld that was defective from the original
manufacture.
|
|
|
A-1
Part II
Information not
required in prospectus
|
|
Item 13.
|
Other expenses
of issuance and distribution.
|
The following table sets forth the various expenses, other than
underwriting discounts and commissions, payable by the
registrant in connection with the sale of common stock being
registered. All of the amounts shown are estimated except the
SEC registration fee, the Financial Industry Regulatory
Authority (FINRA) filing fee and the New York Stock Exchange
listing fee.
|
|
|
|
|
|
|
|
|
Amount to
|
|
|
|
be paid
|
|
|
|
|
SEC registration fee
|
|
$
|
9,625.50
|
|
FINRA filing fee
|
|
|
17,750
|
|
New York Stock Exchange listing fee*
|
|
|
|
|
Printing and engraving expenses*
|
|
|
|
|
Legal fees and expenses*
|
|
|
|
|
Accounting fees and expenses*
|
|
|
|
|
Transfer agent and registrar fees*
|
|
|
|
|
Miscellaneous fees and expenses*
|
|
|
|
|
|
|
|
|
|
Total*
|
|
$
|
|
|
|
|
|
|
|
*
|
|
To be completed by amendment.
|
|
|
Item 14.
|
Indemnification
of directors and officers.
|
Section 145(a) of the Delaware General Corporation Law
(DGCL) provides that a Delaware corporation may indemnify any
person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the
corporation) by reason of the fact that the person is or was a
director, officer, employee or agent of the corporation, or is
or was serving at the request of the corporation as a director,
officer, employee or agent of another corporation or enterprise,
against expenses (including attorneys fees), judgments,
fines and amounts paid in settlement actually and reasonably
incurred by the person in connection with such action, suit or
proceeding if the person acted in good faith and in a manner the
person reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal
action or proceeding, had no reasonable cause to believe the
persons conduct was unlawful.
Section 145(b) of the DGCL provides that a Delaware
corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation
to procure a judgment in its favor by reason of the fact that
such person acted in any of the capacities set forth above,
against expenses (including attorneys fees) actually and
reasonably incurred by the person in connection with the defense
or settlement of such action or suit if the person acted under
standards similar to those discussed above, except that no
indemnification may be made in respect of any
II-1
claim, issue or matter as to which such person shall have been
adjudged to be liable to the corporation unless and only to the
extent that the court in which such action or suit was brought
shall determine that despite the adjudication of liability, such
person is fairly and reasonably entitled to be indemnified for
such expenses which the court shall deem proper.
Section 145 further provides that to the extent a director
or officer of a corporation has been successful in the defense
of any action, suit or proceeding referred to in
subsections (a) and (b) or in the defense of any claim,
issue or matter therein, such person shall be indemnified
against expenses (including attorneys fees) actually and
reasonably incurred by such person in connection therewith; that
indemnification provided for by Section 145 shall not be
deemed exclusive of any other rights to which the indemnified
party may be entitled; and that the corporation may purchase and
maintain insurance on behalf of a director or officer of the
corporation against any liability asserted against such person
or incurred by such person in any such capacity or arising out
of such persons status as such whether or not the
corporation would have the power to indemnify such person
against such liabilities under Section 145.
The registrants amended and restated bylaws provide that
the registrant shall indemnify any director or officer of the
corporation, and may indemnify any other person, who
(a) was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the
corporation) by reason of the fact that he is or was a director,
officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director,
officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against expenses
(including attorneys fees), judgments, fines, and amounts
paid in settlement actually and reasonably incurred by him in
connection with such action, suit or proceeding if he acted in
good faith and in a manner he reasonably believed to be in or
not opposed to the best interests of the corporation, and, with
respect to any criminal action or proceeding, had no reasonable
cause to believe his conduct was unlawful, and (b) was or
is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the
right of the corporation to procure a judgment in its favor by
reason of the fact that he is or was a director, officer,
employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture,
trust or other enterprise against expenses (including
attorneys fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit
if he acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interests of the corporation
and except that no indemnification shall be made in respect of
any claim, issue or matter as to which such person shall have
been adjudged to be liable to the corporation unless and only to
the extent that the Delaware Court of Chancery or the court in
which such action or suit was brought shall determine upon
application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly
and reasonably entitled to indemnity for such expenses which the
Delaware Court of Chancery or such other court shall deem proper.
Section 102(b)(7) of the DGCL provides that a certificate
of incorporation may contain a provision eliminating or limiting
the personal liability of a director to the corporation or its
stockholders for monetary damages for breach of fiduciary duty
as a director, provided that such provision shall not eliminate
or limit the liability of a director: (i) for any breach of
the directors duty of loyalty to the corporation or its
stockholders; (ii) for acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation
of law; (iii) under Section 174 of
II-2
the DGCL; or (iv) for any transaction from which the
director derived an improper personal benefit.
The registrants second amended and restated certificate of
incorporation provides that, to the fullest extent permitted by
the DGCL, as the same exists or hereafter may be amended, a
director of the corporation shall not be personally liable to
the corporation or its stockholders for monetary damages for the
breach of any fiduciary duty as a director, except for liability
(i) for any breach of the directors duty of loyalty
to the corporation or its stockholders, (ii) for acts or
omissions not in good faith or that involve intentional
misconduct or a knowing violation of law, (iii) under
Section 174 of the DGCL, as the same exists or hereafter
may be amended, or (iv) for any transaction from which the
director derived an improper personal benefit.
In addition, the registrant will enter into indemnification
agreements, in the forms attached as Exhibit 10.1 hereto,
with its directors and executive officers in connection with
this offering. These indemnification agreements will require the
registrant, among other things, to indemnify them against
certain liabilities which may arise by reason of their status.
The registrant maintains directors and officers
liability insurance for its officers and directors.
The underwriting agreement filed as Exhibit 1.1 to this
Registration Statement contains provisions indemnifying officers
and directors of the registrant against liabilities arising
under the Securities Act or otherwise.
|
|
Item 15.
|
Recent sales
of unregistered securities.
|
In the three years preceding the filing of this registration
statement, the registrant has issued the following securities
that were not registered under the Securities Act:
Between August 15, 2006 and August 15, 2009, the
registrant issued and sold an aggregate of 21,500 shares of
common stock upon the exercise of options issued to certain
employees, directors and officers under the registrants
1995 Stock Plan at exercise prices ranging from $0.50 to $1.50
per share, for an aggregate consideration of $16,750.
On April 25, 2007, the registrant issued 18,000 shares
of its Class B Convertible Redeemable Preferred Stock to
Dr. Vahaviolos in connection with the purchase from him of
substantially all of the capital stock of Envirocoustics ABEE, a
Metamorhosi, Attica Greece corporation by one of our
subsidiaries, Physical Acoustics Limited, an English limited
company. This transaction did not involve any underwriter or a
public offering.
The issuance of securities described above were deemed to be
exempt from registration under the Securities Act of 1933 in
reliance on Section 4(2) of the Securities Act of 1933 and
Regulation D promulgated thereunder as transactions by an
issuer not involving any public offering. The recipients of
securities in each such transaction represented their intention
to acquire the securities for investment only and not with a
view to or for sale in connection with any distribution thereof
and appropriate legends were affixed to the share certificates
and other instruments issued in such transactions. The sales of
these securities were made without general solicitation or
advertising.
II-3
|
|
Item 16.
|
Exhibits and
financial statement schedules.
|
(a) Exhibits.
The information required by this item is set forth on the
exhibit index that follows the signature page of this
Registration Statement.
(b) Financial statement schedules.
All financial statement schedules are omitted because they are
inapplicable, not required or the information is indicated
elsewhere in the consolidated financial statements or the notes
thereto.
A. Insofar as indemnification for liabilities arising under
the Securities Act of 1933 may be permitted to directors,
officers, and controlling persons of the registrant pursuant to
the provisions described above in Item 14, or otherwise,
the registrant has been advised that in the opinion of the SEC
such indemnification is against public policy as expressed in
the Securities Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities
(other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or
proceeding) is asserted against the registrant by such director,
officer or controlling person in connection with the securities
being registered, the registrant will, unless in the opinion of
its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the
question of whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
B. The undersigned registrant hereby undertakes to provide
to the underwriter at the closing specified in the underwriting
agreement, certificates in such denominations and registered in
such names as required by the underwriter to permit prompt
delivery to each purchaser.
C. The undersigned registrant hereby undertakes that:
1. For purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of
prospectus filed as part of this Registration Statement in
reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities Act
shall be deemed to be part of this registration statement as of
the time it was declared effective.
2. For the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that
contains a form of prospectus shall be deemed to be a new
registration statement relating to the securities offered
therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
II-4
Signatures
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Amendment No. 4 to the
Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Princeton Junction,
New Jersey, on September 21, 2009.
MISTRAS GROUP, INC.
(Registrant)
|
|
|
|
By:
|
/s/ Sotirios
J. Vahaviolos
|
Sotirios J. Vahaviolos
Chairman, President and Chief Executive Officer
II-5
Signatures
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 4 to the Registration Statement has been
signed by the following persons in the capacities and on the
date indicated.
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ Sotirios
J. Vahaviolos
Sotirios
J. Vahaviolos
|
|
Chairman, President, Chief Executive Officer (Principal
Executive Officer) and Director
|
|
September 21,
2009
|
|
|
|
|
|
/s/ Paul
Peterik
Paul
Peterik
|
|
Chief Financial Officer (Principal Financial and Accounting
Officer) and Secretary
|
|
September 21,
2009
|
|
|
|
|
|
|
|
Director
|
|
September 21,
2009
|
|
|
|
|
|
|
|
Director
|
|
September 21,
2009
|
|
|
|
|
|
|
|
Director
|
|
September 21,
2009
|
|
|
|
|
|
|
|
Director
|
|
September 21,
2009
|
|
|
|
|
|
|
|
Director
|
|
September 21,
2009
|
|
|
|
|
|
|
|
*By:
|
|
/s/ Sotirios
J. Vahaviolos
Sotirios
J. Vahaviolos
As Attorney-in-Fact
|
|
|
|
|
II-6
Exhibit index
|
|
|
|
|
|
Exhibit
|
|
|
no.
|
|
Description
|
|
|
|
1
|
.1
|
|
Form of Underwriting Agreement.
|
|
3
|
.1
|
|
Second Amended and Restated Certificate of Incorporation.
|
|
3
|
.2
|
|
Amended and Restated Bylaws.
|
|
4
|
.1*
|
|
Specimen common stock certificate.
|
|
5
|
.1*
|
|
Opinion of Fulbright & Jaworski L.L.P.
|
|
10
|
.1
|
|
Form of Indemnification Agreement for directors and officers.
|
|
10
|
.2
|
|
Amended and Restated Credit Agreement, as amended.
|
|
10
|
.3*
|
|
Second Amended and Restated Credit Agreement dated as of
July 22, 2009.
|
|
10
|
.4
|
|
Employment Agreement by and between the registrant and Dr.
Vahaviolos.
|
|
10
|
.5
|
|
2007 Stock Option Plan and form of Stock Option Agreement.
|
|
10
|
.6
|
|
2009 Long-Term Incentive Plan.
|
|
10
|
.7
|
|
Form of 2009 Long-Term Incentive Plan Stock Option Agreement.
|
|
10
|
.8
|
|
Form of 2009 Long-Term Incentive Plan Restricted Stock Agreement
|
|
21
|
.1**
|
|
Subsidiaries of the Registrant.
|
|
23
|
.1*
|
|
Consent of Fulbright & Jaworski L.L.P. (included in
Exhibit 5.1).
|
|
23
|
.2
|
|
Consent of PricewaterhouseCoopers LLP.
|
|
24
|
.1**
|
|
Power of Attorney (on signature page).
|
|
99
|
.1**
|
|
Consent of Richard H. Glanton.
|
|
|
|
|
|
*
|
|
To be filed by amendment.
|
|
**
|
|
Previously filed.
|
II-7
exv1w1
Exhibit 1.1
Mistras Group, Inc.
Common Stock
FORM OF UNDERWRITING AGREEMENT
, 2009
J.P. Morgan Securities Inc.,
383 Madison Avenue,
New York, N.Y. 10179
Credit Suisse Securities (USA) LLC,
Eleven Madison Avenue,
New York, N.Y. 10010
Merrill Lynch, Pierce, Fenner & Smith
Incorporated,
4 World Financial Center,
New York, N.Y. 10080
As Representatives (the Representatives) of the Several Underwriters,
Dear Sirs:
1. Introductory. Mistras Group, Inc., a Delaware corporation (Company), agrees with the
several Underwriters named in Schedule A hereto (Underwriters) to issue and sell to the several
Underwriters shares of its common stock, par value $0.01 per share (Securities),
and the stockholders listed in Schedule B hereto (Selling Stockholders) agree severally with the
Underwriters to sell to the several Underwriters an aggregate of outstanding shares of
the Securities (such shares of Securities being hereinafter referred to as the Firm Securities). The Company also
agrees to sell to the Underwriters, at the option of the Underwriters, an aggregate of not more
than additional shares of its Securities and the Selling Stockholders also agree to sell
to the Underwriters, at the option of the Underwriters, an aggregate of not more than
additional outstanding shares (such shares of Securities being hereinafter referred to as the Optional Securities) of the
Companys Securities, as set forth below. The Firm Securities and the Optional Securities are
herein collectively called the Offered Securities. As part of the offering contemplated by this
Agreement, (the Designated Underwriter) has agreed to reserve out of the Firm
Securities purchased by it under this Agreement, up to shares, for sale to the
Companys directors, officers, employees and other parties associated with the Company
(collectively, Participants), as set forth in the Final Prospectus (as defined herein) under the
heading Underwriting (the Directed Share Program). The Firm Securities to be sold by the
Designated Underwriter pursuant to the Directed Share Program (the Directed Shares) will be sold
by the Designated Underwriter pursuant to this Agreement at the public offering price. Any Directed
Shares not subscribed for by the end of the business day on which this Agreement is executed will
be offered to the public by the Underwriters as set forth in the Final Prospectus.
2. Representations and Warranties of the Company and the Selling Stockholders. (a) The
Company represents and warrants to, and agrees with, the several Underwriters that:
(i) Filing and Effectiveness of Registration Statement; Certain Defined Terms. The
Company has filed with the Commission a registration statement on Form S-1 (No. 333-151559)
covering the registration of the Offered Securities under the Act, including a related
preliminary prospectus or prospectuses. At any particular time, this initial registration
statement, in the form then on file with the Commission, including all information
contained in the registration statement (if any) pursuant to Rule 462(b) and then deemed to
be a part of the initial registration statement, and all 430A Information and all 430C
Information, that in any case has not then been superseded or modified, shall be referred
to as the Initial Registration Statement. The Company may also have filed, or may file
with the Commission, a Rule 462(b) registration statement covering the registration of
Offered Securities. At any particular time, this Rule 462(b) registration statement, in
the form then on file with the Commission, including the contents of the Initial
Registration Statement incorporated by reference therein and including all 430A Information
and all 430C Information, that in any case has not then been superseded or modified, shall
be referred to as the Additional Registration Statement.
As of the time of execution and delivery of this Agreement, the Initial Registration
Statement has been declared effective under the Act and is not proposed to be amended.
Any Additional Registration Statement has or will become effective upon filing with
the Commission pursuant to Rule 462(b) and is not proposed to be amended. The Offered
Securities all have been or will be duly registered under the Act pursuant to the Initial
Registration Statement and, if applicable, the Additional Registration Statement.
For purposes of this Agreement:
430A Information, with respect to any registration statement, means information
included in a prospectus and retroactively deemed to be a part of such registration
statement pursuant to Rule 430A(b).
430C Information, with respect to any registration statement, means information
included in a prospectus then deemed to be a part of such registration statement pursuant
to Rule 430C.
Act means the Securities Act of 1933, as amended.
Applicable
Time means :00 [a/p]m (Eastern time) on the date of this
Agreement.
Closing Datehas the meaning defined in Section 3 hereof.
Commission means the United States Securities and Exchange Commission.
Effective Time with respect to the Initial Registration Statement or, if filed prior
to the execution and delivery of this Agreement, the Additional Registration Statement
means the date and time as of which such Registration Statement was declared effective by
the Commission or has become effective upon filing pursuant to Rule 462(c). If an
Additional Registration Statement has not been filed prior to the execution and delivery of
this Agreement but the Company has advised the Representatives that it proposes to file
one, Effective Time with respect to such Additional Registration Statement means the date
and time as of which such Registration Statement is filed and becomes effective pursuant to
Rule 462(b).
Exchange Act means the Securities Exchange Act of 1934, as amended.
Final Prospectus means the Statutory Prospectus that discloses the public offering
price, other 430A Information and other final terms of the Offered Securities and otherwise
satisfies Section 10(a) of the Act.
General Use Issuer Free Writing Prospectus means any Issuer Free Writing Prospectus
that is intended for general distribution to prospective investors, as evidenced by its
being so specified in Schedule C to this Agreement.
2
Issuer Free Writing Prospectus means any issuer free writing prospectus, as
defined in Rule 433, relating to the Offered Securities in the form filed or required to be
filed with the Commission or, if not required to be filed, in the form retained in the
Companys records pursuant to Rule 433(g).
Limited Use Issuer Free Writing Prospectus means any Issuer Free Writing Prospectus
that is not a General Use Issuer Free Writing Prospectus.
The Initial Registration Statement and the Additional Registration Statement are
referred to collectively as the Registration Statements and individually as a
Registration Statement. A Registration Statement with reference to a particular time
means the Initial Registration Statement and any Additional Registration Statement as of
such time. A Registration Statement without reference to a time means such Registration
Statement as of its Effective Time. For purposes of the foregoing definitions, 430A
Information with respect to a Registration Statement shall be considered to be included in
such Registration Statement as of the time specified in Rule 430A.
Rules and Regulations means the rules and regulations of the Commission.
Securities Laws means, collectively, the Sarbanes-Oxley Act of 2002
(Sarbanes-Oxley), the Act, the Exchange Act, the Rules and Regulations, the auditing
principles, rules, standards and practices applicable to auditors of issuers (as defined
in Sarbanes-Oxley) promulgated or approved by the Public Company Accounting Oversight Board
and, as applicable, the rules of the New York Stock Exchange and the NASDAQ Stock Market
(Exchange Rules).
Statutory Prospectus with reference to a particular time means the prospectus
included in a Registration Statement immediately prior to that time, including any 430A
Information or 430C Information with respect to such Registration Statement. For purposes
of the foregoing definition, 430A Information shall be considered to be included in the
Statutory Prospectus as of the actual time that form of prospectus is filed with the
Commission pursuant to Rule 424(b) or Rule 462(c) and not retroactively.
Unless otherwise specified, a reference to a rule is to the indicated rule under the
Act.
(ii) Compliance with Securities Act Requirements. (i) (A) At their respective
Effective Times, (B) on the date of this Agreement and (C) on each Closing Date, each of
the Initial Registration Statement and the Additional Registration Statement (if any)
conformed and will conform in all material respects to the requirements of the Act, (ii) on
its date, at the time of filing of the Final Prospectus pursuant to Rule 424(b) or (if no
such filing is required) at the Effective Time of the Additional Registration Statement in
which the Final Prospectus is included, and on each Closing Date, the Final Prospectus will
conform in all material respects to the requirements of the Act and the Rules and
Regulations and will not include any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not misleading and (iii)
on the date of this Agreement, at their respective Effective Times or issue dates and on
each Closing Date, each Registration Statement, the Final Prospectus, any Statutory
Prospectus, any prospectus wrapper and any Issuer Free Writing Prospectus complied or
comply, and such documents and any further amendments or supplements thereto will comply,
in all material respects, with any applicable laws or regulations of foreign jurisdictions
in which the Final Prospectus, any Statutory Prospectus, any prospectus wrapper or any
Issuer Free Writing Prospectus, as amended or supplemented, if applicable, are distributed
in connection with the Directed Share Program. The preceding sentence does not apply to
statements in or omissions from any such document based upon written information furnished
to the Company by (a) any Underwriter through the Representatives specifically for use
therein, it being understood and agreed that the only such information is that described as
such in Section 8(c) hereof or (b) any Selling Stockholder specifically for use therein, it
being understood and agreed that the only such
3
information furnished by such Selling Stockholder (the Selling Stockholder
Information of such Selling Stockholder) consists of the information with respect to such
Selling Stockholder that appears in the table and the corresponding footnotes thereto,
excluding any percentages, under the caption Principal and Selling Stockholders in the
Final Prospectus and the General Disclosure Package.
(iii) Ineligible Issuer Status. (i) At the time of the initial filing of the Initial
Registration Statement and (ii) at the date of this Agreement, the Company was not and is
not an ineligible issuer, as defined in Rule 405, including (x) the Company or any
subsidiary of the Company in the preceding three years not having been convicted of a
felony or misdemeanor or having been made the subject of a judicial or administrative
decree or order as described in Rule 405 and (y) the Company in the preceding three years
not having been the subject of a bankruptcy petition or insolvency or similar proceeding,
not having had a registration statement be the subject of a proceeding under Section 8 of
the Act and not being the subject of a proceeding under Section 8A of the Act in connection
with the offering of the Offered Securities, all as described in Rule 405.
(iv) General Disclosure Package. As of the Applicable Time, neither (i) the General
Use Issuer Free Writing Prospectus(es) issued at or prior to the Applicable Time, the
preliminary prospectus, dated , 2009 (which is the most recent Statutory
Prospectus distributed to investors generally) and the other information, if any, stated in
Schedule C to this Agreement to be included in the general disclosure package, all
considered together (collectively, the General Disclosure Package), nor (ii) any
individual Limited Use Issuer Free Writing Prospectus, when considered together with the
General Disclosure Package, included any untrue statement of a material fact or omitted to
state any material fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading. The preceding sentence does
not apply to statements in or omissions from any Statutory Prospectus or any Issuer Free
Writing Prospectus in reliance upon and in conformity with written information furnished to
the Company by (a) any Underwriter through the Representatives specifically for use
therein, it being understood and agreed that the only such information furnished by any
Underwriter consists of the information described as such in Section 8(c) hereof or (b) any
Selling Stockholder specifically for use therein, it being understood and agreed that the
only such information furnished by such Selling Stockholder is the Selling Stockholder
Information.
(v) Issuer Free Writing Prospectuses. Each Issuer Free Writing Prospectus, as of its
issue date and at all subsequent times through the completion of the public offer and sale
of the Offered Securities or until any earlier date that the Company notified or notifies
the Representatives as described in the next sentence, did not, does not and will not
include any information that conflicted, conflicts or will conflict with the information
then contained in the Registration Statement. If at any time following issuance of an
Issuer Free Writing Prospectus there occurred or occurs an event or development as a result
of which such Issuer Free Writing Prospectus conflicted or would conflict with the
information then contained in the Registration Statement or as a result of which such
Issuer Free Writing Prospectus, if republished immediately following such event or
development, would include an untrue statement of a material fact or omitted or would omit
to state a material fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading, (i) the Company has promptly
notified or will promptly notify the Representatives and (ii) the Company has promptly
amended or will promptly amend or supplement such Issuer Free Writing Prospectus to
eliminate or correct such conflict, untrue statement or omission. The foregoing two
sentences do not apply to statements in or omissions from any Issuer Free Writing
Prospectus in reliance upon and in conformity with written information furnished to the
Company by any Underwriter through the Representatives specifically for use therein, it
being understood and agreed that the only such information furnished by (a) any Underwriter
consists of the information described as such in Section 8(c) hereof or (b) any Selling
Stockholder specifically for use therein, it being understood and agreed that the only such
information furnished by such Selling Stockholder is the Selling Stockholder Information.
4
(vi) Good Standing of the Company. The Company has been duly incorporated and is
existing and in good standing under the laws of the State of Delaware, with power and
authority (corporate and other) to own its properties and conduct its business as described
in the General Disclosure Package; and the Company is duly qualified to do business as a
foreign corporation in good standing in all other jurisdictions in which its ownership or
lease of property or the conduct of its business requires such qualification, except where
the failure to be so qualified or be in good standing would not, individually or in the
aggregate, have a material adverse effect on the condition (financial or otherwise),
results of operations, business or properties of the Company and its subsidiaries taken as
whole (Material Adverse Effect).
(vii) Subsidiaries. Each subsidiary of the Company that meets the definition in Rule
1-02(w) of Regulation S-X (each a Significant
Subsidiary and collectively, the
Significant Subsidiaries) is listed in Schedule D to this Agreement. Each of the
Significant Subsidiaries has been duly incorporated, formed or organized and is existing
and in good standing under the laws of the jurisdiction of its incorporation, formation or
organization with power and authority (corporate and other) to own its properties and
conduct its business as described in the General Disclosure Package; and each Significant
Subsidiary is duly qualified to do business as a foreign entity in good standing in all
other jurisdictions in which its ownership or lease of property or the conduct of its
business requires such qualification, except where the failure to be so qualified or be in
good standing would not reasonably be expected to, individually or in the aggregate, have a
Material Adverse Effect; all of the issued and outstanding equity interests or capital
stock of each subsidiary of the Company have been duly authorized and validly issued and
are fully paid and nonassessable; and the equity interests or capital stock of each
Significant Subsidiary owned by the Company, directly or through subsidiaries, are owned
free from liens, encumbrances and defects, except for such liens and encumbrances (A)
imposed under the Companys second amended and restated credit agreement, dated as of July
22, 2009, with Bank of America, N.A., JPMorgan Chase Bank, N.A., TD Bank, N.A. and Capital
One, N.A., (B) as would not reasonably be expected to, individually or in the aggregate,
have a Material Adverse Effect and (C) as disclosed in the General Disclosure Package or
the Final Prospectus.
(viii) Offered Securities; Capitalization. The Offered Securities and all other
outstanding shares of capital stock of the Company have been duly authorized; the
authorized equity capitalization of the Company is as set forth in the General Disclosure
Package; all outstanding shares of capital stock of the Company are, and, when the Offered
Securities have been delivered and paid for in accordance with this Agreement on each
Closing Date, such Offered Securities will have been, validly issued, fully paid and
nonassessable, and will conform to the information in the General Disclosure Package and to
the description of such Offered Securities contained in the Final Prospectus; the
stockholders of the Company have no preemptive rights with respect to the Securities; and
none of the outstanding shares of capital stock of the Company have been issued in
violation of any preemptive or similar rights of any security holder.
(ix) No Finders Fee. Except as disclosed in the General Disclosure Package and as
contemplated by this Agreement, there are no contracts, agreements or understandings
between the Company and any person that would give rise to a valid claim against the
Company or any Underwriter for a brokerage commission, finders fee or other like payment
in connection with this offering.
(x) Registration Rights. Except as disclosed in the General Disclosure Package,
there are no contracts, agreements or understandings between the Company and any person
granting such person the right to require the Company to file a registration statement
under the Act with respect to any securities of the Company owned or to be owned by such
person or to require the Company to include such securities in the securities registered
pursuant to a Registration Statement or in any securities being registered pursuant to any
other registration statement filed by the Company under the Act (collectively,
registration rights), and any person to whom the Company has granted registration rights
has agreed not to exercise such rights until after the expiration of the Lock-Up Period
referred to in Section 5(k) hereof.
5
(xi) Listing. The Offered Securities have been approved for listing on the New York
Stock Exchange, subject to notice of issuance.
(xii) Absence of Further Requirements. No consent, approval, authorization, or order
of, or filing or registration with, any person (including any governmental agency or body
or any court) is required to be obtained or made by the Company for the consummation of the
transactions contemplated by this Agreement in connection with the sale of the Offered
Securities, except (A) for such consents, approvals, authorizations, orders or filings
obtained or made prior to the date hereof or that will have been obtained prior to the
First Closing Date, (B) for the filing of the Registration Statements, as applicable, and
the order of the Commission declaring the Registration Statements effective, (C) such as
may be required under United States federal or state securities laws and (D) for those as
to which the failure to obtain or make would not reasonably be expected to, individually or
in the aggregate, have a material adverse effect on the ability of the Company to execute,
deliver and perform the transactions contemplated by this Agreement. No authorization,
consent, approval, license, qualification or order of, or filing or registration with any
person (including any governmental agency or body or any court) in any foreign jurisdiction
is required to be obtained or made by the Company for the consummation of the transactions
contemplated by this Agreement in connection with the offering, issuance and sale of the
Directed Shares under the laws and regulations of such jurisdiction except such as have
been obtained or made and the matters set forth in sub clauses (A) through (D) in this
Section 2(xii).
(xiii) Title to Property. Except as disclosed in the General Disclosure Package, the
Company and the Significant Subsidiaries have good and marketable title to all real
properties and all other properties and assets owned by them, in each case free from liens,
charges, encumbrances and defects, except such liens, charges, encumbrances and defects,
that would, individually or in the aggregate, have a Material Adverse Effect, and, except
as disclosed in the General Disclosure Package, the Company and the Significant
Subsidiaries hold all leased real or personal property under valid and enforceable leases
with no terms or provisions that would materially interfere with the use made or to be made
thereof by them, other than those exceptions that would not, individually or in the
aggregate, have a Material Adverse Effect.
(xiv) Absence of Defaults and Conflicts Resulting from Transaction. The execution,
delivery and performance of this Agreement, and the issuance and sale of the Offered
Securities will not result in a breach or violation of (A) any of the terms and provisions
of, or constitute a default or a Debt Repayment Triggering Event (as defined below) under,
or result in the imposition of any lien, charge or encumbrance upon any property or assets
of the Company or any of the Significant Subsidiaries pursuant to, the charter or by-laws
(or similar organizational documents) of the Company or any of the Significant
Subsidiaries, (B) any statute, rule, regulation or order of any governmental agency or body
or any court, domestic or foreign, having jurisdiction over the Company or any of its
subsidiaries or any of their properties, or (C) any agreement or instrument to which the
Company or any of its subsidiaries is a party or by which the Company or any of its
subsidiaries is bound or to which any of the properties of the Company or any of its
subsidiaries is subject, except with respect to (B) and (C) only, for such breaches,
violations or defaults that would not reasonably be expected to, individually or in the
aggregate, result in a Material Adverse Effect; a Debt Repayment Triggering Event means
any event or condition that gives, or with the giving of notice or lapse of time would
give, the holder of any note, debenture, or other evidence of indebtedness (or any person
acting on such holders behalf) the right to require the repurchase, redemption or
repayment of all or a portion of such indebtedness by the Company or any of its
subsidiaries.
(xv) Absence of Existing Defaults and Conflicts. Neither the Company nor any of its
subsidiaries is in violation of its respective charter or by-laws (or similar
organizational documents) or in default (or with the giving of notice or lapse of time
would be in default) under any existing obligation, agreement, covenant or condition
contained in any indenture, loan agreement, mortgage, lease or other agreement or
instrument to which any of them is a party or by which any of them is bound or to which any
of the properties of any of them is subject, except
6
such defaults that would not reasonably be expected to, individually or in the
aggregate, result in a Material Adverse Effect.
(xvi) Authorization of Agreement. This Agreement has been duly authorized, executed
and delivered by the Company.
(xvii) Possession of Licenses and Permits. (A) The Company and the Significant
Subsidiaries possess, and are in compliance with the terms of, all adequate certificates,
authorizations, franchises, licenses and permits (Licenses) necessary or material to the
conduct of the business that the Company currently conducts and neither the Company nor any
of the Significant Subsidiaries has received any written notice of proceedings relating to
the revocation or modification of any such Licenses that, if determined adversely to the
Company or any of its subsidiaries, would reasonably be expected to, individually or in the
aggregate, have a Material Adverse Effect and (B) with respect to business that the Company
proposes to conduct in the General Disclosure Package, such Licenses can be obtained on
customary terms and conditions, and neither the Company nor the Significant Subsidiaries
has received any notice of proceedings relating to the revocation or modification of any
such Licenses that, if determined adversely to the Company or any of its subsidiaries
would, individually or in the aggregate, have a Material Adverse Effect.
(xviii) Absence of Labor Dispute. No labor dispute with the employees of the Company
or any of its subsidiaries exists or, to the knowledge of the Company, is imminent that
could have a Material Adverse Effect.
(xix) Possession of Intellectual Property. The Company and its subsidiaries own,
possess or can acquire on reasonable terms sufficient trademarks, trade names, patent
rights, copyrights, domain names, licenses, approvals, trade secrets, inventions,
technology, know-how and other intellectual property and similar rights, including
registrations and applications for registration thereof (collectively, Intellectual
Property Rights) necessary or material to the conduct of the business now conducted or
proposed in the General Disclosure Package to be conducted by them, have not received any
notice of infringement of or conflict with asserted rights of others with respect to any
Intellectual Property Rights that if determined adversely to the Company or any of its
subsidiaries, would individually or in the aggregate, have a Material Adverse Effect, and
the expected expiration of any such Intellectual Property Rights would not, individually or
in the aggregate, have a Material Adverse Effect. Except as disclosed in the General
Disclosure Package, there is no pending or, to the Companys knowledge, threatened action,
suit, proceeding or claim by others that the Company or any subsidiary infringes,
misappropriates or otherwise violates or conflicts with any Intellectual Property Rights or
other proprietary rights of others and the Company is unaware of any fact which would form
a reasonable basis for any such claim.
(xx) Environmental Laws. Except as disclosed in the General Disclosure Package,
neither the Company nor any of its subsidiaries is in violation of any statute, any rule,
regulation, decision or order of any governmental agency or body or any court, domestic or
foreign, relating to the use, disposal or release of hazardous or toxic substances or
relating to the protection or restoration of the environment or human exposure to hazardous
or toxic substances (collectively, environmental laws), owns or operates any real
property contaminated with any substance that is subject to any environmental laws, is
liable for any off-site disposal or contamination pursuant to any environmental laws, or is
subject to any claim relating to any environmental laws, which violation, contamination,
liability or claim would individually or in the aggregate have a Material Adverse Effect;
and the Company is not aware of any pending investigation which might lead to such a claim.
(xxi) Accurate Disclosure. The statements in the General Disclosure Package and the
Final Prospectus under the headings Certain Material U.S. Federal Tax Consequences for
Non-U.S. Holders of Common Stock, Description of Capital Stock, BusinessLegal
Proceedings and Certain Relationships and Related Transactions, insofar as such
statements summarize legal matters, agreements, documents or proceedings discussed therein,
are, in all material respects,
7
accurate and fair summaries of such legal matters, agreements, documents or
proceedings and present the information required to be shown.
(xxii) Absence of Manipulation. The Company has not taken, directly or indirectly,
any action that is designed to or that has constituted or that would reasonably be expected
to cause or result in the stabilization or manipulation of the price of any security of the
Company to facilitate the sale or resale of the Offered Securities, except as disclosed in
the General Disclosure Package and Final Prospectus.
(xxiii) Statistical and Market-Related Data. Any third-party statistical and
market-related data included in a Registration Statement, a Statutory Prospectus or the
General Disclosure Package are based on or derived from sources that the Company believes
to be reliable and accurate.
(xxiv) Internal Controls. Except as set forth in the General Disclosure Package, the
Company maintains a system of internal controls, including, but not limited to, disclosure
controls and procedures, internal controls over accounting matters and financial reporting,
an internal audit function and legal and regulatory compliance controls (collectively,
Internal Controls) that comply with the Securities Laws and are sufficient to provide
reasonable assurances that (i) transactions are executed in accordance with managements
general or specific authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with U.S. Generally Accepted Accounting
Principles and to maintain accountability for assets, (iii) access to assets is permitted
only in accordance with managements general or specific authorization, and (iv) the
recorded accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences. The Internal
Controls are, or upon consummation of the offering of the Offered Securities will be,
overseen by the Audit Committee (the Audit Committee) of the Companys Board of Directors
(the Board) in accordance with Exchange Rules. Except as disclosed in the General
Disclosure Package, the Company has not publicly disclosed or reported to the Audit
Committee or the Board, since the date of the Companys most recently audited fiscal year,
and the Company does not reasonably expect to publicly disclose or report to the Audit
Committee or the Board within the next 90 days from the date of this Agreement, a
significant deficiency, material weakness, change in Internal Controls or fraud involving
management or other employees who have a significant role in Internal Controls (each, an
Internal Control Event), any violation of, or failure to comply with, the Securities
Laws, or any matter involving internal controls, which in all instances, if determined
adversely, would have a Material Adverse Effect.
(xxv) Absence of Accounting Issues. The Board of Directors of the Company has
confirmed to the Chief Executive Officer or Chief Financial Officer that, except as set
forth in the General Disclosure Package, the Board is not reviewing or investigating, and
neither the Companys independent auditors nor its internal auditors have recommended that
the Board review or investigate, (i) adding to, deleting, changing the application of, or
changing the Companys disclosure with respect to, any of the Companys material accounting
policies; (ii) any matter which could result in a restatement of the Companys financial
statements for any annual or interim period during the current or prior three fiscal years;
or (iii) any Internal Control Event.
(xxvi) Litigation. Except as disclosed in the General Disclosure Package, there are
no pending actions, suits or proceedings (including any inquiries or investigations by any
court or governmental agency or body, domestic or foreign) against or affecting the
Company, any of the Significant Subsidiaries or any of their respective properties that, if
determined adversely to the Company or any of the Significant Subsidiaries, would
reasonably be expected to, individually or in the aggregate, have a Material Adverse
Effect, or would materially and adversely affect the ability of the Company to perform its
obligations under this Agreement, or which are otherwise material in the context of the
sale of the Offered Securities; and no such actions, suits or proceedings (including any
inquiries or investigations by any court or governmental agency or body, domestic or
foreign) are pending or, to the Companys knowledge, threatened.
8
(xxvii) Financial Statements. The financial statements included in each Registration
Statement and the General Disclosure Package present fairly, in all material respects, the
financial position of the Company and its consolidated subsidiaries as of the dates shown
and their results of operations and cash flows for the periods shown, and such financial
statements have been prepared in conformity with United States generally accepted
accounting principles applied on a consistent basis; the schedules included in each
Registration Statement present fairly the information required to be stated therein; and
the assumptions used in preparing the pro forma financial statements included in each
Registration Statement and the General Disclosure Package provide a reasonable basis for
presenting the significant effects directly attributable to the transactions or events
described therein; the related pro forma adjustments give appropriate effect to those
assumptions, and the pro forma columns therein reflect the proper application of those
adjustments to the corresponding historical financial statement amounts.
(xxviii) No Material Adverse Change in Business. Except as disclosed in the General
Disclosure Package, since the end of the period covered by the latest audited financial
statements included in the General Disclosure Package (i) there has been no change, nor any
development or event involving a prospective change, in the condition (financial or
otherwise), results of operations, business, or properties of the Company and its
subsidiaries, taken as a whole, that is material and adverse, (ii) except as disclosed in
or contemplated by the General Disclosure Package, there has been no dividend or
distribution of any kind declared, paid or made by the Company on any class of its capital
stock and (iii) except as disclosed in or contemplated by the General Disclosure Package,
there has been no material adverse change in the capital stock, short-term indebtedness,
long-term indebtedness, net current assets or net assets of the Company and the Significant
Subsidiaries.
(xxix) Investment Company Act. The Company is not and, after giving effect to the
offering and sale of the Offered Securities and the application of the proceeds thereof as
described in the General Disclosure Package, will not be an investment company as defined
in the Investment Company Act of 1940 (the Investment Company Act).
(xxx) Ratings. No nationally recognized statistical rating organization as such
term is defined for purposes of Rule 436(g)(2) (i) has imposed (or has informed the Company
that it is considering imposing) any condition (financial or otherwise) on the Companys
retaining any rating assigned to the Company or any securities of the Company or (ii) has
indicated to the Company that it is considering any of the actions described in Section
7(c)(ii) hereof.
(xxxi) PFIC Status. No subsidiary of the Company created or organized outside of the
United States was a passive foreign investment company (PFIC) as defined in Section
1297 of the United States Internal Revenue Code of 1986, as amended (the Code), for its
most recently completed taxable year and, based on the relevant subsidiarys current
projected income, assets and activities, it does not expect to be classified as a PFIC for
any subsequent taxable year.
(xxxii) Absence of Unlawful Influence. The Company has not offered or sold, or
caused the Underwriters to offer or sell, any Offered Securities to any person pursuant to
the Directed Share Program with the specific intent to unlawfully influence (i) a customer
or supplier of the Company to alter the customers or suppliers level or type of business
with the Company or (ii) a trade journalist or publication to write or publish favorable
information about the Company or its products.
(xxxiii) Compliance with Various Laws and Regulations. Each of the Company, the
Significant Subsidiaries, their affiliates and, to the Companys knowledge, any of their
respective officers, directors, supervisors, managers, agents, or employees, has not
violated, and its participation in the offering will not violate, each of the following
laws: (a) anti-bribery laws, including but not limited to, any applicable law, rule, or
regulation of any locality, including but not limited to any law, rule, or regulation
promulgated to implement the OECD Convention on Combating Bribery of Foreign Public
Officials in International Business Transactions, signed December 17, 1997, including the
U.S. Foreign Corrupt Practices Act of 1977 or any other law, rule or regulation of
9
similar purpose and scope, (b) anti-money laundering laws, including but not limited
to, applicable Federal, state, international, foreign or other laws, regulations or
government guidance regarding anti-money laundering, including, without limitation, Title
18 U.S. Code Sections 1956 and 1957, the Patriot Act, the Bank Secrecy Act, and
international anti-money laundering principals or procedures by an intergovernmental group
or organization, such as the Financial Action Task Force on Money Laundering, of which the
United States is a member and with which designation the United States representative to
the group or organization continues to concur, all as amended, and any Executive order,
directive, or regulation pursuant to the authority of any of the foregoing, or any orders
or licenses issued thereunder or (c) laws and regulations imposing U.S. economic sanctions
measures, including, but not limited to, the International Emergency Economic Powers Act,
the Trading with the Enemy Act, the United Nations Participation Act and the Syria
Accountability and Lebanese Sovereignty Act, all as amended, and any Executive Order,
directive, or regulation pursuant to the authority of any of the foregoing, including the
regulations of the United States Treasury Department set forth under 31 CFR, Subtitle B,
Chapter V, as amended, or any orders or licenses issued thereunder.
(xxxiv) Tax Filings. The Company and its subsidiaries have filed all federal, state,
local and non-U.S. tax returns that are required to be filed or have requested extensions
thereof (except in any case in which the failure so to file would not have a Material
Adverse Effect); and, except as set forth in the General Disclosure Package, the Company
and its subsidiaries have paid all taxes (including any assessments, fines or penalties)
required to be paid by them, except for any such taxes, assessments, fines or penalties
currently being contested in good faith or as would not, individually or in the aggregate,
have a Material Adverse Effect.
(xxxv) Insurance. The Company and its subsidiaries are insured by insurers with
appropriately rated claims paying abilities against such losses and risks and in such
amounts as are customary for the businesses in which they are engaged; all policies of
insurance insuring the Company or any of its subsidiaries or their respective businesses,
assets, employees, officers and directors are in full force and effect; the Company and its
subsidiaries are in compliance with the terms of such policies and instruments in all
material respects; and there are no claims by the Company or any of its subsidiaries under
any such policy or instrument as to which any insurance company is denying liability or
defending under a reservation of rights clause; the Company has not been refused any
insurance coverage sought or applied for; neither the Company nor any such subsidiary has
any reason to believe that it will not be able to renew its existing insurance coverage as
and when such coverage expires or to obtain similar coverage from similar insurers as may
be necessary to continue its business at a cost that would not have a Material Adverse
Effect, except as set forth in or contemplated in the General Disclosure Package.
(b) Each Selling Stockholder severally represents and warrants to, and agrees with, the
several Underwriters that:
(i) Title to Securities. Such Selling Stockholder has and on each Closing Date
hereinafter mentioned will have valid and unencumbered title to the Offered Securities to
be delivered by such Selling Stockholder on such Closing Date and full right, power and
authority to enter into this Agreement and to sell, assign, transfer and deliver the
Offered Securities to be delivered by such Selling Stockholder on such Closing Date
hereunder; and upon the delivery of and payment for the Offered Securities on each Closing
Date hereunder the several Underwriters will acquire valid and unencumbered title to the
Offered Securities to be delivered by such Selling Stockholder on such Closing Date.
(ii) Absence of Further Requirements. No consent, approval, authorization or order
of, or filing with, any person (including any governmental agency or body or any court) is
required to be obtained or made by such Selling Stockholder for the consummation of the
transactions contemplated by the Custody Agreement or this Agreement in connection with the
offering and sale of the Offered Securities sold by the Selling Stockholders, except (A)
for such consents, approvals, authorizations, orders or filings obtained or made prior to
the date hereof or that will have been obtained prior to the First Closing Date, (B) for
the filing of the Registration
10
Statements, as applicable, and the order of the Commission declaring the Registration
Statements effective, (C) such as have been obtained and made under the Act and such as may
be required under federal and state securities laws; and (D) for those as to which the
failure to obtain or make would not reasonably be expected to, individually or in the
aggregate, have an adverse effect on the ability of the Selling Stockholder to execute,
deliver and perform the transactions contemplated by this Agreement;
(iii) Absence of Defaults and Conflicts Resulting from Transaction. The execution,
delivery and performance of the Custody Agreement and this Agreement and the consummation
of the transactions therein and herein contemplated will not result in a breach or
violation of any of the terms and provisions of, or constitute a default under, or result
in the imposition of any lien, charge or encumbrance upon any property or assets of such
Selling Stockholders pursuant to, (A) any statute, any rule, regulation or order of any
governmental agency or body or any court having jurisdiction over such Selling Stockholder
or any of its properties, (B) any agreement or instrument to which such Selling Stockholder
is a party or by which such Selling Stockholder is bound or to which any of the properties
of any Selling Stockholder is subject, or (C) if such Selling Stockholder is an entity, the
charter or by-laws or other organizational documents of such Selling Stockholder; except in
the case of (A) and (B) only, for such breach, violation, or default that would not
reasonably be expected to, individually or in the aggregate, have a material adverse effect
on the ability of such Selling Stockholder to consummate the transactions contemplated by
this Agreement.
(iv) Custody Agreement. The Power of Attorney and related Custody Agreement with
respect to the such Selling Stockholder has been duly authorized, executed and delivered by
such Selling Stockholder and constitute valid and legally binding obligations of such
Selling Stockholder enforceable in accordance with their terms, subject to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general
applicability relating to or affecting creditors rights and to general equity principles.
(v) Compliance with Securities Act Requirements. (i) (A) At their respective
Effective Times, (B) on the date of this Agreement and (C) on each Closing Date, each of
the Initial Registration Statement and the Additional Registration Statement (if any)
conformed and will conform in all respects to the requirements of the Act, (ii) on its
date, at the time of filing of the Final Prospectus pursuant to Rule 424(b) or (if no such
filing is required) at the Effective Time of the Additional Registration Statement in which
the Final Prospectus is included, and on each Closing Date, the Final Prospectus will not
include any untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading and (iii) on the date of this
Agreement, at their respective Effective Times or issue dates and on each Closing Date,
each Registration Statement, the Final Prospectus, any Statutory Prospectus and any
prospectus wrapper complied or comply, and such documents and any further amendments or
supplements thereto will comply, with any applicable laws or regulations of foreign
jurisdictions in which the Final Prospectus, any Statutory Prospectus or any prospectus
wrapper, as amended or supplemented, if applicable, are distributed in connection with the
Directed Share Program. The preceding sentence applies only to the extent that any such
statement in or omissions from any such document is made in reliance upon and in conformity
with written information furnished to the Company by such Selling Stockholder specifically
for use therein, it being understood and agreed that the only such information furnished by
such Selling Stockholder is the Selling Stockholder Information.
(vi) No Undisclosed Material Information. The sale of the Offered Securities by such
Selling Stockholder pursuant to this Agreement is not prompted by any material information
concerning the Company or any of the Significant Subsidiaries that is not set forth the
General Disclosure Package.
(vii) Authorization of Agreement. This Agreement has been duly authorized, executed
and delivered by such Selling Stockholder.
11
(viii) No Finders Fee. Except as disclosed in the General Disclosure Package or as
contemplated by this Agreement, there are no contracts, agreements or understandings
between such Selling Stockholder and any person that would give rise to a valid claim
against such Selling Stockholder or any Underwriter for a brokerage commission, finders
fee or other like payment in connection with the issuance or sale of Offered Securities.
(ix) Absence of Manipulation. Such Selling Stockholder has not taken, directly or
indirectly, any action that is designed to or that has constituted or that would reasonably
be expected to cause or result in the stabilization or manipulation of the price of any
security of the Company to facilitate the sale or resale of the Offered Securities.
3. Purchase, Sale and Delivery of Offered Securities. On the basis of the representations,
warranties and agreements and subject to the terms and conditions set forth herein, the Company and
each Selling Stockholder agree, severally and not jointly, to sell to each Underwriter, and each
Underwriter agrees, severally and not jointly, to purchase from the Company and each Selling
Stockholder, at a purchase price of $ per share, that number of Firm Securities
(rounded up or down, as determined by the Representatives in their discretion, in order to avoid
fractions) obtained by multiplying Firm Securities in the case of the Company and the
number of Firm Securities set forth opposite the name of such Selling Stockholder in Schedule B
hereto, in the case of a Selling Stockholder, in each case by a fraction the numerator of which is
the number of Firm Securities set forth opposite the name of such Underwriter in Schedule A hereto
and the denominator of which is the total number of Firm Securities.
Certificates in negotiable form for the Offered Securities to be sold by the Selling
Stockholders hereunder have been placed in custody, for delivery under this Agreement, under
Custody Agreements made with the Company, as custodian (Custodian). Each Selling Stockholder
agrees that the shares represented by the certificates held in custody for the Selling Stockholders
under such Custody Agreements are subject to the interests of the Underwriters hereunder, that the
arrangements made by the Selling Stockholders for such custody are to that extent irrevocable, and
that the obligations of the Selling Stockholders hereunder shall not be terminated by operation of
law, whether by the death of any individual Selling Stockholder or the occurrence of any other
event, or in the case of a trust, by the death of any trustee or trustees or the termination of
such trust. If any individual Selling Stockholder or any such trustee or trustees should die, or
if any other such event should occur, or if any of such trusts should terminate, before the
delivery of the Offered Securities hereunder, certificates for such Offered Securities shall be
delivered by the Custodian in accordance with the terms and conditions of this Agreement as if such
death or other event or termination had not occurred, regardless of whether or not the Custodian
shall have received notice of such death or other event or termination.
The Company and the Custodian (on behalf of the Selling Stockholders) will deliver the Firm
Securities to or as instructed by the Representatives for the accounts of the several Underwriters
in a form reasonably acceptable to the Representatives against payment of the purchase price by the
Underwriters in Federal (same day) funds by official bank check or checks or wire transfer to an
account at a bank acceptable to the Representatives drawn to the order of the Company in the case
of shares of the Firm Securities sold by the Company, and the Company, as Custodian for the Selling
Stockholders, in the case of the Firm Securities sold by the Selling Stockholders, at the office of
Cravath, Swaine & Moore LLP, at 10:00 A.M., New York time, on , 2009, or at such other
time not later than seven full business days thereafter as the Representatives and the Company
determine, such time being herein referred to as the First Closing Date. For purposes of Rule
15c6-1 under the Securities Exchange Act of 1934, the First Closing Date (if later than the
otherwise applicable settlement date) shall be the settlement date for payment of funds and
delivery of securities for all the Offered Securities sold pursuant to the offering. The Firm
Securities so to be delivered or evidence of their issuance will be made available for checking at
the above office of Cravath, Swaine & Moore LLP at least 24 hours prior to the First Closing Date.
In addition, upon written notice from the Representatives given to the Company and the Selling
Stockholders from time to time not more than 30 days subsequent to the date of the Final
Prospectus, the Underwriters may purchase all or less than all of the Optional Securities at the
purchase price per Security to be paid for the Firm Securities. The Company and the Selling
Stockholders agree, severally and not
12
jointly, to sell to the Underwriters the respective numbers of Optional Securities obtained by
multiplying the number of Optional Securities specified in such notice by a fraction the numerator
of which is in the case of the Company and the number of shares set forth opposite the
names of such Selling Stockholders in Schedule B hereto under the caption Number of Optional
Securities to be Sold in the case of the Selling Stockholders and the denominator of which is the
total number of Optional Securities (subject to adjustment by the Representatives to eliminate
fractions). Such Optional Securities shall be purchased from the Company and each Selling
Stockholder for the account of each Underwriter in the same proportion as the number of Firm
Securities set forth opposite such Underwriters name bears to the total number of Firm Securities
(subject to adjustment by the Representatives to eliminate fractions) and may be purchased by the
Underwriters only for the purpose of covering over-allotments made in connection with the sale of
the Firm Securities. No Optional Securities shall be sold or delivered unless the Firm Securities
previously have been, or simultaneously are, sold and delivered. The right to purchase the Optional
Securities or any portion thereof may be exercised from time to time and to the extent not
previously exercised may be surrendered and terminated at any time upon notice by the
Representatives to the Company and the Selling Stockholders.
Each time for the delivery of and payment for the Optional Securities, being herein referred
to as an Optional Closing Date, which may be the First Closing Date (the First Closing Date and
each Optional Closing Date, if any, being sometimes referred to as a Closing Date), shall be
determined by the Representatives but shall be not earlier than two business days and not later
than five full business days after written notice of election to purchase Optional Securities is
given. The Company and the Custodian will deliver the Optional Securities being purchased on each
Optional Closing Date to or as instructed by the Representatives for the accounts of the several
Underwriters in a form reasonably acceptable to the Representatives, against payment by the
Underwriters of the purchase price therefore in Federal (same day) funds by official bank check or
checks or wire transfer to an account at a bank acceptable to the Representatives drawn to the
order of the Company in the case of Optional Securities sold by the Company and to the Company, as
Custodian for the Selling Stockholders, in the case of the Optional Securities sold by the Selling
Stockholders, at the office of Cravath, Swaine & Moore LLP. The Optional Securities being purchased
on each Optional Closing Date or evidence of their issuance will be made available for checking at
the above office of Cravath, Swaine & Moore LLP at a reasonable time in advance of such Optional
Closing Date.
4. Offering by Underwriters. It is understood that the several Underwriters propose to offer
the Offered Securities for sale to the public as set forth in the Final Prospectus.
5. Certain Agreements of the Company and the Selling Stockholders. The Company agrees with
the several Underwriters and the Selling Stockholders that:
(a) Additional Filings. Unless filed pursuant to Rule 462(c) as part of the
Additional Registration Statement in accordance with the next sentence, the Company will
file the Final Prospectus, in a form approved by the Representatives with the Commission
pursuant to and in accordance with subparagraph (1) (or, if applicable and if consented to
by the Representatives, which consent shall not be unreasonably withheld, subparagraph
(4)) of Rule 424(b) not later than the earlier of (A) the second business day following the
execution and delivery of this Agreement or (B) the fifteenth business day after the
Effective Time of the Initial Registration Statement. The Company will advise the
Representatives promptly of any such filing pursuant to Rule 424(b) and provide
satisfactory evidence to the Representatives of such timely filing. If an Additional
Registration Statement is necessary to register a portion of the Offered Securities under
the Act but the Effective Time thereof has not occurred as of the execution and delivery of
this Agreement, the Company will file the additional registration statement or, if filed,
will file a post-effective amendment thereto with the Commission pursuant to and in
accordance with Rule 462(b) on or prior to 10:00 P.M., New York time, on the date of this
Agreement or, if earlier, on or prior to the time the Final Prospectus is finalized and
distributed to any Underwriter, or will make such filing at such later date as shall have
been consented to by the Representatives.
13
(b) Filing of Amendments: Response to Commission Requests. The Company will promptly
advise the Representatives of any proposal to amend or supplement at any time the Initial
Registration Statement, any Additional Registration Statement or any Statutory Prospectus
and will not effect such amendment or supplementation without the Representatives consent,
which consent shall not be unreasonably withheld; and the Company will also advise the
Representatives promptly of (i) the effectiveness of any Additional Registration Statement
(if its Effective Time is subsequent to the execution and delivery of this Agreement), (ii)
any amendment or supplementation of a Registration Statement or any Statutory Prospectus,
(iii) any request by the Commission or its staff for any amendment to any Registration
Statement, for any supplement to any Statutory Prospectus or for any additional
information, (iv) the institution by the Commission of any stop order proceedings in
respect of a Registration Statement or the threatening of any proceeding for that purpose,
and (v) the receipt by the Company of any notification with respect to the suspension of
the qualification of the Offered Securities in any jurisdiction or the institution or
threatening of any proceedings for such purpose. The Company will use its commercially
reasonable efforts to prevent the issuance of any such stop order or the suspension of any
such qualification and, if issued, to obtain as soon as possible the withdrawal thereof.
(c) Continued Compliance with Securities Laws. If, at any time when a prospectus
relating to the Offered Securities is (or but for the exemption in Rule 172 would be)
required to be delivered under the Act by any Underwriter or dealer, any event occurs as a
result of which the Final Prospectus as then amended or supplemented would include an
untrue statement of a material fact or omit to state any material fact necessary to make
the statements therein, in the light of the circumstances under which they were made, not
misleading, or if it is necessary at any time to amend the Registration Statement or
supplement the Final Prospectus to comply with the Act, the Company will promptly notify
the Representatives of such event and will promptly prepare and file with the Commission
and furnish, at its own expense, to the Underwriters and the dealers and any other dealers
upon request of the Representatives, an amendment or supplement which will correct such
statement or omission or an amendment which will effect such compliance. Neither the
Representatives consent to, nor the Underwriters delivery of, any such amendment or
supplement shall constitute a waiver of any of the conditions set forth in Section 7
hereof.
(d) Rule 158. As soon as practicable, but not later than the Availability Date (as
defined below), the Company will make generally available to its security holders an
earnings statement covering a period of at least 12 months beginning after the Effective
Date of the Initial Registration Statement (or, if later, the Effective Time of the
Additional Registration Statement) which will satisfy the provisions of Section 11(a) of
the Act and Rule 158 under the Act. For the purpose of the preceding sentence,
Availability Date means the day after the date the Company is required to file its Form
10-Q for the fourth fiscal quarter following the fiscal quarter that includes such
Effective Time on which the Company is required to file its Form 10-Q for such fiscal
quarter except that, if such fourth fiscal quarter is the last quarter of the Companys
fiscal year, Availability Date means the day after the end of such fourth fiscal quarter
on which the Company is required to file its Form 10-K.
(e) Furnishing of Prospectuses. The Company will furnish to the Representatives
copies of each Registration Statement (3 of which will be signed and will include all
exhibits), each related Statutory Prospectus, and, so long as a prospectus relating to the
Offered Securities is (or but for the exemption in Rule 172 would be) required to be
delivered under the Act, the Final Prospectus and all amendments and supplements to such
documents, in each case in such quantities as the Representatives request. The Final
Prospectus shall be so furnished on or prior to 3:00 P.M., New York time, on the business
day following the execution and delivery of this Agreement. All other such documents shall
be so furnished as soon as available. The Company will pay the expenses of printing and
distributing to the Underwriters all such documents.
(f) Blue Sky Qualifications. The Company will arrange for the qualification of the
Offered Securities for sale under the laws of such jurisdictions as the Representatives
designate and will
14
continue such qualifications in effect so long as required for the distribution of the
Offered Securities by the Underwriters; provided that the Company will not be required to
(i) qualify as a foreign corporation or other entity as a dealer in securities in such
jurisdiction, (ii) file any general consent to service of process in any such jurisdiction,
or (iii) subject itself to taxation in any such jurisdiction if it is not otherwise so
subject.
(g) Reporting Requirements. For five years, the Company will furnish to the
Representatives and, upon request, to each of the other Underwriters, as soon as
practicable after the end of each fiscal year, a copy of its annual report to stockholders
for such year; and the Company will furnish to the Representatives (i) as soon as
available, a copy of each report and any definitive proxy statement of the Company filed
with the Commission under the Exchange Act or mailed to stockholders, and (ii) from time to
time, such other information concerning the Company as the Representatives may reasonably
request. However, so long as the Company is subject to the reporting requirements of
either Section 13 or Section 15(d) of the Exchange Act and is timely filing reports with
the Commission on its Electronic Data Gathering, Analysis and Retrieval system (EDGAR),
it is not required to furnish such reports or statements to the Underwriters.
(h) Payment of Expenses. The Company agrees with the several Underwriters that the
Company will pay all expenses incident to the performance of the obligations of the Company
and the Selling Stockholders under this Agreement, including but not limited to any filing
fees and other expenses (including fees and disbursements of counsel to the Underwriters)
incurred in connection with qualification of the Offered Securities for sale under the laws
of such jurisdictions as the Representatives designate and the preparation and printing of
memoranda relating thereto costs and expenses related to the review by the National
Association of Securities Dealers, Inc. of the Offered Securities (including filing fees
and the fees and expenses of counsel for the Underwriters relating to such review) costs
and expenses relating to investor presentations or any road show in connection with the
offering and sale of the Offered Securities including, without limitation, any travel
expenses of the Companys officers and employees and any other expenses of the Company
including the chartering of airplanes, fees and expenses incident to listing the Offered
Securities on the New York Stock Exchange, American Stock Exchange, NASDAQ Global Stock
Market and other national and foreign exchanges, fees and expenses in connection with the
registration of the Offered Securities under the Exchange Act and expenses incurred in
distributing preliminary prospectuses and the Final Prospectus (including any amendments
and supplements thereto) to the Underwriters and for expenses incurred for preparing,
printing and distributing any Issuer Free Writing Prospectuses to investors or prospective
investors. Each Selling Stockholder agrees with the several Underwriters that such Selling
Stockholder will pay any transfer taxes on the sale by such Selling Stockholder of his, her
or its Offered Securities to the Underwriters.
(i) Use of Proceeds. The Company will use the net proceeds received by it in
connection with this offering in the manner described in the Use of Proceeds section of
the General Disclosure Package and, except as disclosed in the General Disclosure Package,
the Company does not intend to use any of the proceeds from the sale of the Offered
Securities hereunder to repay any outstanding debt owed to any affiliate of any
Underwriter.
(j) Absence of Manipulation. The Company and the Selling Stockholders will not take,
directly or indirectly, any action designed to or that would constitute or that might
reasonably be expected to cause or result in, stabilization or manipulation of the price of
any securities of the Company to facilitate the sale or resale of the Offered Securities.
(k) Restriction on Sale of Securities by Company. For the period specified below
(the Lock-Up Period), the Company will not, directly or indirectly, take any of the
following actions with respect to its Securities, the Underlying Shares or any securities
convertible into or exchangeable or exercisable for any of its Securities or Underlying
Shares (Lock-Up Securities): (i) offer, sell, issue, contract to sell, pledge or
otherwise dispose of Lock-Up Securities, (ii) offer, sell, issue, contract to sell,
contract to purchase or grant any option, right or
15
warrant to purchase Lock-Up Securities, (iii) enter into any swap, hedge or any other
agreement that transfers, in whole or in part, the economic consequences of ownership of
Lock-Up Securities, (iv) establish or increase a put equivalent position or liquidate or
decrease a call equivalent position in Lock-Up Securities within the meaning of Section 16
of the Exchange Act or (v) file with the Commission a registration statement under the Act
relating to Lock-Up Securities, or publicly disclose the intention to take any such action,
without the prior written consent of the Representatives, except (i) issuances of Lock-Up
Securities upon the exercise of options disclosed as outstanding in the General Disclosure
Package or described in subsection (ii) below, (ii) the grant by the Company of stock
options, stock appreciation rights, restricted stock, restricted stock units or other
stock-based awards pursuant to the Companys 2009 Long-Term Incentive Plan as described in
the General Disclosure Package, (iii) the issuance by the Company of Securities in an
amount not to exceed 10% of the total number of shares of Offered Securities as
consideration or partial consideration for the acquisition of another corporation or entity
or the acquisition of assets or properties of any such corporation or entity, or in
connection with a licensing, lending or similar transaction, (iv) issuances of Securities
upon the conversion of all of the Class A Convertible Redeemable Preferred Stock and Class
B Convertible Redeemable Preferred Stock as described in the General Disclosure Package
upon the closing of the transactions contemplated by this Agreement or (v) the filing of
any registration statement on Form S-8 with respect to any stock incentive plan or stock
ownership plan relating to securities described in clause (i) or (ii) above; provided,
however, that in each case described in clause (iii) above, each of the recipients of the
Securities agrees in writing to the Representatives to be bound by the restrictions
described in this paragraph for the remainder of such Lock-Up Period. The initial Lock-Up
Period will commence on the date hereof and continue for 180 days after the date hereof or
such earlier date that the Representatives consent to in writing; provided, however, that
if (1) during the last 17 days of the initial Lock-Up Period, the Company releases earnings
results or material news or a material event relating to the Company occurs or (2) prior to
the expiration of the initial Lock-Up Period, the Company announces that it will release
earnings results during the 16-day period beginning on the last day of the initial Lock-Up
Period, then in each case the Lock-Up Period will be extended until the expiration of the
18-day period beginning on the date of release of the earnings results or the occurrence of
the materials news or material event, as applicable, unless the Representatives waive, in
writing, such extension. The Company will provide the Representatives with notice of any
announcement described in clause (2) of the preceding sentence that gives rise to an
extension of the Lock-Up Period.
(l) Transfer Restriction. In connection with the Directed Share Program, the Company
will ensure that the Directed Shares will be restricted to the extent required by the
Financial Industry Regulatory Authority (FINRA) or the FINRA rules from sale, transfer,
assignment, pledge or hypothecation for a period of three months following the date of the
effectiveness of the Registration Statement. The Designated Underwriter will notify the
Company as to which Participants will need to be so restricted. The Company will direct the
transfer agent to place stop transfer restrictions upon such securities for such period of
time.
(m) Payment of Expenses Related to Directed Share Program. The Company will pay all
fees and disbursements of counsel (including non-U.S. counsel) incurred by the Underwriters
in connection with the Directed Share Program and stamp duties, similar taxes or duties or
other taxes, if any, incurred by the Underwriters in connection with the Directed Share
Program.
(n) Compliance with Foreign Laws. The Company will comply with all applicable
securities and other applicable laws, rules and regulations in each foreign jurisdiction in
which the Directed Shares are offered in connection with the Directed Share Program;
provided that the Company will not be required to qualify as a foreign corporation or to
file a general consent to service of process in any such jurisdiction.
6. Free Writing Prospectuses. (a) Issuer Free Writing Prospectuses. The Company and Selling
Stockholders represent and agree that, unless they obtain the prior consent of the Representatives,
and each Underwriter represents and agrees that, unless it obtains the prior consent of the Company
and the
16
Representatives, it has not made and will not make any offer relating to the Offered
Securities that would constitute an Issuer Free Writing Prospectus, or that would otherwise
constitute a free writing prospectus, as defined in Rule 405, required to be filed
with the Commission. Any such free writing prospectus consented to by the Company and the
Representatives is hereinafter referred to as a Permitted Free Writing Prospectus. The Company
represents that it has treated and agrees that it will treat each Permitted Free Writing Prospectus
as an issuer free writing prospectus, as defined in Rule 433, and has complied and will comply
with the requirements of Rules 164 and 433 applicable to any Permitted Free Writing Prospectus,
including timely Commission filing where required, legending and record keeping. The Company
represents that is has satisfied and agrees that it will satisfy the conditions in Rule 433 to
avoid a requirement to file with the Commission any electronic road show.
7. Conditions of the Obligations of the Underwriters. The obligations of the several
Underwriters to purchase and pay for the Firm Securities on the First Closing Date and the Optional
Securities to be purchased on each Optional Closing Date will be subject to the accuracy of the
representations and warranties of the Company and the Selling Stockholders herein on the date
hereof (and as though made on such Closing Date), to the accuracy of the statements of Company
officers made pursuant to the provisions hereof, to the performance by the Company and the Selling
Stockholders of their obligations hereunder and to the following additional conditions precedent:
(a) Accountants Comfort Letter. The Representatives shall have received letters,
dated, respectively, the date hereof and each Closing Date, of each of
PricewaterhouseCoopers LLP and Amper, Politziner & Mattia LLP confirming that they are each
a registered public accounting firm and independent public accountants within the meaning
of the Securities Laws and in form and substance reasonably satisfactory to the
Representatives (except that, in any letter dated a Closing Date, the specified date
referred to shall be a date no more than three days prior to such Closing Date).
(b) Effectiveness of Registration Statement. If the Effective Time of the Additional
Registration Statement (if any) is not prior to the execution and delivery of this
Agreement, such Effective Time shall have occurred not later than 10:00 P.M., New York
time, on the date of this Agreement or, if earlier, the time the Final Prospectus is
finalized and distributed to any Underwriter, or shall have occurred at such later time as
shall have been consented to by the Representatives. The Final Prospectus shall have been
filed with the Commission in accordance with the Rules and Regulations and Section 5(a)
hereof. Prior to such Closing Date, no stop order suspending the effectiveness of a
Registration Statement shall have been issued and no proceedings for that purpose shall
have been instituted or, to the knowledge of any Selling Stockholder, the Company or the
Representatives, shall be contemplated by the Commission.
(c) No Material Adverse Change. Subsequent to the execution and delivery of this
Agreement, there shall not have occurred (i) any change, nor any development or event
involving a prospective change, in the condition (financial or otherwise), results of
operations, business or properties of the Company and its subsidiaries taken as a whole
which, in the judgment of the Representatives, is material and adverse and makes it
impractical or inadvisable to market the Offered Securities; (ii) any downgrading in the
rating of any debt securities or preferred stock of the Company by any nationally
recognized statistical rating organization (as defined for purposes of Rule 436(g)), or
any public announcement that any such organization has under surveillance or review its
rating of any debt securities or preferred stock of the Company (other than an announcement
with positive implications of a possible upgrading, and no implication of a possible
downgrading, of such rating); (iii) any change in U.S. or international financial,
political or economic conditions or currency exchange rates or exchange controls the effect
of which is such as to make it, in the judgment of the Representatives, impractical to
market or to enforce contracts for the sale of the Offered Securities, whether in the
primary market or in respect of dealings in the secondary market; (iv) any suspension or
material limitation of trading in securities generally on the New York Stock Exchange or
any setting of minimum or maximum prices for trading on such exchange; (v) any suspension
of trading of any securities of the Company on any exchange or in the over-the-counter
market; (vi) any banking moratorium declared by any U.S.
17
Federal or New York authorities; (vii) any major disruption of settlements of
securities, payment or clearance services in the United States or any other country where
such securities are listed or (viii) any attack on, outbreak or escalation of hostilities
or act of terrorism involving the United States, any declaration of war by Congress or any
other national or international calamity or emergency if, in the judgment of the
Representatives, the effect of any such attack, outbreak, escalation, act, declaration,
calamity or emergency is such as to make it impractical or inadvisable to market the
Offered Securities or to enforce contracts for the sale of the Offered Securities.
(d) Opinion of Counsel for the Company. The Representatives shall have received an
opinion, dated such Closing Date, of Fulbright & Jaworski L.L.P., counsel for the Company,
in form and substance reasonably satisfactory to the Representatives.
(e) Opinion of Counsel for Selling Stockholders. The Representatives shall have
received an opinion, dated such Closing Date, of Fulbright & Jaworski L.L.P., counsel for
the Selling Stockholders, in form and substance reasonably satisfactory to the
Representatives.
(f) Opinion of Counsel for Underwriters. The Representatives shall have received
from Cravath, Swaine & Moore LLP, counsel for the Underwriters, such opinion or opinions,
dated such Closing Date, with respect to such matters as the Representatives may require,
and the Selling Stockholders and the Company shall have furnished to such counsel such
documents as they request for the purpose of enabling them to pass upon such matters.
(g) Officers Certificate. The Representatives shall have received a certificate,
dated such Closing Date, of an executive officer of the Company and a principal financial
or accounting officer of the Company in which such officers shall state that: the
representations and warranties of the Company in this Agreement are true and correct; the
Company has complied with all agreements and satisfied all conditions on its part to be
performed or satisfied hereunder at or prior to such Closing Date; no stop order suspending
the effectiveness of any Registration Statement has been issued and no proceedings for that
purpose have been instituted or, to the best of their knowledge and after reasonable
investigation, are contemplated by the Commission; the Additional Registration Statement
(if any) satisfying the requirements of subparagraphs (1) and (3) of Rule 462(b) was timely
filed pursuant to Rule 462(b), including payment of the applicable filing fee in accordance
with Rule 111(a) or (b) of Regulation S-T of the Commission; and, subsequent to the date of
the most recent financial statements in the General Disclosure Package, there has been no
material adverse change in the condition (financial or otherwise), results of operations,
business, properties or prospects of the Company and its subsidiaries taken as a whole
except as set forth in the General Disclosure Package or as described in such certificate.
(h) Lock-Up Agreements. On or prior to the date hereof, the Representatives shall
have received lockup letters from (i) each of the executive officers and directors of the
Company and (ii) all stockholders of the Company.
(i) Form 1099. The Custodian shall have delivered to the Representatives a letter
stating that they will deliver to each Selling Stockholder a United States Treasury
Department Form 1099 (or other applicable form or statement specified by the United States
Treasury Department regulations in lieu thereof) on or before January 31 of the year
following the date of this Agreement.
(j) Chief Financial Officers Certificate. The Representatives shall have received a
certificate, dated the date hereof, of the Chief Financial Officer of the Company in form
and substance reasonably satisfactory to the Representatives.
The Selling Stockholders and the Company will furnish the Representatives with such conformed
copies of such opinions, certificates, letters and documents as the Representatives reasonably
request. The Representatives may waive on behalf of the Underwriters compliance with any
conditions to the obligations of the Underwriters hereunder, whether in respect of an Optional
Closing Date or otherwise.
18
8. Indemnification and Contribution. (a) Indemnification of Underwriters by Company. The
Company will indemnify and hold harmless each Underwriter, its partners, members, directors,
officers, employees, agents, affiliates and each person, if any, who controls such Underwriter
within the meaning of Section 15 of the Act or Section 20 of the Exchange Act (each an Indemnified
Party), against any and all losses, claims, damages or liabilities, joint or several, to which
such Indemnified Party may become subject, under the Act, the Exchange Act, other Federal or state
statutory law or regulation or otherwise, insofar as such losses, claims, damages or liabilities
(or actions in respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any part of any Registration Statement at any
time, any Statutory Prospectus as of any time, the Final Prospectus or any Issuer Free Writing
Prospectus, or arise out of or are based upon the omission or alleged omission of a material fact
required to be stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, and will reimburse each Indemnified Party
for any legal or other expenses reasonably incurred by such Indemnified Party in connection with
investigating or defending against any loss, claim, damage, liability, action, litigation,
investigation or proceeding whatsoever (whether or not such Indemnified Party is a party thereto),
whether threatened or commenced, and in connection with the enforcement of this provision with
respect to any of the above as such expenses are incurred; provided, however, that the Company will
not be liable in any such case to the extent that any such loss, claim, damage or liability arises
out of or is based upon an untrue statement or alleged untrue statement in or omission or alleged
omission from any of such documents in reliance upon and in conformity with written information
furnished to the Company by any Underwriter through the Representatives specifically for use
therein, it being understood and agreed that the only such information furnished by any Underwriter
consists of the information described as such in subsection (c) below.
The Company agrees to indemnify and hold harmless the Designated Underwriter and its
affiliates and each person, if any, who controls the Designated Underwriter within the meaning of
either Section 15 of the Act or Section 20 of the Exchange Act (the Designated Entities), from
and against any and all losses, claims, damages and liabilities (including, without limitation, any
legal or other expenses reasonably incurred in connection with defending or investigating any such
action or claim) (i) arising out of or based upon any untrue statement or alleged untrue statement
of a material fact contained in any material prepared by or with the consent of the Company for
distribution to Participants in connection with the Directed Share Program or arising out of or
based upon any omission or alleged omission of a material fact required to be stated therein or
necessary to make the statements therein not misleading; (ii) arising out of or based upon the
failure of any Participant to pay for and accept delivery of Directed Shares that the Participant
agreed to purchase; or (iii) arising out of, related to, or in connection with the Directed Share
Program, other than losses, claims, damages or liabilities (or expenses relating thereto) that are
finally judicially determined to have resulted from the willful misconduct or gross negligence of
the Designated Entities.
(b) Indemnification of Underwriters by the Selling Stockholders. Each Selling Stockholder,
severally and not jointly, will indemnify and hold harmless each Indemnified Party against any and
all losses, claims, damages or liabilities, joint or several, to which such Indemnified Party may
become subject, under the Act, the Exchange Act, other Federal or state statutory law or regulation
or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any
material fact contained in any part of any Registration Statement at any time, any Statutory
Prospectus as of any time, the Final Prospectus or any Issuer Free Writing Prospectus, or arise out
of or are based upon the omission or alleged omission of a material fact required to be stated
therein or necessary to make the statements therein, in light of the circumstances under which they
were made, not misleading, in each case only to the extent that such untrue statements or alleged
untrue statements in or omissions or alleged omissions from a Registration Statement or the Final
Prospectus were made in reliance upon and in conformity with written information furnished to the
Company by such Selling Stockholder specifically for use therein, it being understood and agreed
that the only such information furnished by such Selling Stockholder is the Selling Stockholder
Information and will reimburse each Indemnified Party for any legal or other expenses reasonably
incurred by such Indemnified Party in connection with investigating or defending against any loss,
claim, damage, liability, action, litigation, investigation or proceeding whatsoever (whether or
not such Indemnified Party is a party thereto), whether threatened or commenced, in connection with
the enforcement of this provision with respect to the above as such expenses are incurred;
provided, however, that such Selling Stockholder will
19
not be liable in any such case to the extent that any such loss, claim, damage or liability
arises out of or is based upon an untrue statement or alleged untrue statement in or omission or
alleged omission from any of such documents in reliance upon and in conformity with written
information furnished to the Company by any Underwriter through the Representatives specifically
for use therein, it being understood and agreed that the only such information furnished by any
Underwriter consists of the information described as such in subsection (c) below; provided
further, however, that the liability under this subsection of each Selling Stockholder shall be
limited to an amount equal to the aggregate gross proceeds after deducting underwriting commissions
and discounts, but before deducting expenses, to such Selling Stockholder from the sale of the Firm
Securities sold by such Selling Stockholder hereunder.
(c) Indemnification of Company and Selling Stockholders. Each Underwriter will severally and
not jointly indemnify and hold harmless the Company, each of its directors and each of its officers
who signs a Registration Statement and each person, if any, who controls the Company within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act, and each Selling Stockholder
(each, an Underwriter Indemnified Party) against any losses, claims, damages or liabilities to
which such Underwriter Indemnified Party may become subject, under the Act, the Exchange Act, or
other Federal or state statutory law or regulation or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in any Registration Statement
at any time, any Statutory Prospectus at any time, the Final Prospectus or any Issuer Free Writing
Prospectus or arise out of or are based upon the omission or the alleged omission of a material
fact required to be stated therein or necessary to make the statements therein not misleading, in
each case to the extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in reliance upon and in conformity with written
information furnished to the Company by such Underwriter through the Representatives specifically
for use therein, and will reimburse any legal or other expenses reasonably incurred by such
Underwriter Indemnified Party in connection with investigating or defending against any such loss,
claim, damage, liability, action, litigation, investigation or proceeding whatsoever (whether or
not such Underwriter Indemnified Party is a party thereto), whether threatened or commenced, based
upon any such untrue statement or omission, or any such alleged untrue statement or omission as
such expenses are incurred, it being understood and agreed that the only such information furnished
by any Underwriter consists of the following information in the Final Prospectus appearing under
the caption Underwriting: the concession and reallowance figures appearing in the fourth
paragraph.
(d) Actions against Parties; Notification. Promptly after receipt by an indemnified party
under this Section of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against an indemnifying party under subsection (a), (b) or
(c) above, notify the indemnifying party of the commencement thereof; but the failure to notify the
indemnifying party shall not relieve it from any liability that it may have under subsection (a),
(b) or (c) above except to the extent that it has been materially prejudiced (through the
forfeiture of substantive rights or defenses) by such failure; and provided further that the
failure to notify the indemnifying party shall not relieve it from any liability that it may have
to an indemnified party otherwise than under subsection (a), (b) or (c) above. In case any such
action is brought against any indemnified party and it notifies an indemnifying party of the
commencement thereof, the indemnifying party will be entitled to participate therein and, to the
extent that it may wish, jointly with any other indemnifying party similarly notified, to assume
the defense thereof, with counsel satisfactory to such indemnified party (who shall not, except
with the consent of the indemnified party, be counsel to the indemnifying party), and after notice
from the indemnifying party to such indemnified party of its election so to assume the defense
thereof, the indemnifying party will not be liable to such indemnified party under this Section for
any legal or other expenses subsequently incurred by such indemnified party in connection with the
defense thereof other than reasonable costs of investigation. Notwithstanding anything contained
herein to the contrary, if indemnity may be sought pursuant to the last paragraph in Section 8 (a)
hereof in respect of such action or proceeding, then in addition to such separate firm for the
indemnified parties, the indemnifying party shall be liable for the reasonable fees and expenses of
not more than one separate firm (in addition to any local counsel) for the Designated Underwriter
for the defense of any losses, claims, damages and liabilities arising out of the Directed Share
Program, and all persons, if any, who control the Designated Underwriter within the meaning of
either Section 15 of the Act of Section 20 of the Exchange Act. No indemnifying party shall,
without the prior written consent of the
20
indemnified party, effect any settlement of any pending or threatened action in respect of
which any indemnified party is or could have been a party and indemnity could have been sought
hereunder by such indemnified party unless such settlement (i) includes an unconditional release of
such indemnified party from all liability on any claims that are the subject matter of such action
and (ii) does not include a statement as to, or an admission of, fault, culpability or a failure to
act by or on behalf of an indemnified party.
(e) Contribution. If the indemnification provided for in this Section is unavailable or
insufficient to hold harmless an indemnified party under subsection (a), (b) or (c) above, then
each indemnifying party shall contribute to the amount paid or payable by such indemnified party as
a result of the losses, claims, damages or liabilities referred to in subsection (a), (b) or (c)
above (i) in such proportion as is appropriate to reflect the relative benefits received by the
Company and the Selling Stockholders on the one hand and the Underwriters on the other from the
offering of the Securities or (ii) if the allocation provided by clause (i) above is not permitted
by applicable law, in such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of the Company and the Selling
Stockholders on the one hand and the Underwriters on the other in connection with the statements or
omissions which resulted in such losses, claims, damages or liabilities as well as any other
relevant equitable considerations. The relative benefits received by the Company and the Selling
Stockholders on the one hand and the Underwriters on the other shall be deemed to be in the same
proportion as the total net proceeds from the offering (before deducting expenses) received by the
Company and the Selling Stockholders bear to the total underwriting discounts and commissions
received by the Underwriters. The relative fault shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by the Company, the
Selling Stockholders or the Underwriters and the parties relative intent, knowledge, access to
information and opportunity to correct or prevent such untrue statement or omission. The amount
paid by an indemnified party as a result of the losses, claims, damages or liabilities referred to
in the first sentence of this subsection (e) shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating or defending any
action or claim which is the subject of this subsection (e). Notwithstanding the provisions of this
subsection (e), (i) no Underwriter shall be required to contribute any amount in excess of the
amount by which the total price at which the Securities underwritten by it and distributed to the
public were offered to the public exceeds the amount of any damages which such Underwriter has
otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or
alleged omission and (ii) the liability under this subsection of each Selling Stockholder shall be
limited to an amount equal to the aggregate gross proceeds after underwriting commissions and
discounts, but before expenses, to such Selling Stockholder from the sale of Firm Securities sold
by such Selling Stockholder hereunder. No person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation. The Underwriters obligations in this subsection
(e) to contribute are several in proportion to their respective underwriting obligations and not
joint. The Selling Stockholders obligations in this subsection (e) to contribute are several in
proportion to their respective negative obligations and not joint The Company, the Selling
Stockholders and the Underwriters agree that it would not be just and equitable if contribution
pursuant to this Section 8(e) were determined by pro rata allocation (even if the Underwriters were
treated as one entity for such purpose) or by any other method of allocation which does not take
account of the equitable considerations referred to in this Section 8(e).
9. Default of Underwriters. If any Underwriter or Underwriters default in their obligations
to purchase Offered Securities hereunder on either the First or any Optional Closing Date and the
aggregate number of shares of Offered Securities that such defaulting Underwriter or Underwriters
agreed but failed to purchase does not exceed 10% of the total number of shares of Offered
Securities that the Underwriters are obligated to purchase on such Closing Date, the
Representatives may make arrangements satisfactory to the Company and the Selling Stockholders for
the purchase of such Offered Securities by other persons, including any of the Underwriters, but if
no such arrangements are made by such Closing Date, the non-defaulting Underwriters shall be
obligated severally, in proportion to their respective commitments hereunder, to purchase the
Offered Securities that such defaulting Underwriters agreed but failed to purchase on such Closing
Date. If any Underwriter or Underwriters so default and the aggregate number of
21
shares of Offered Securities with respect to which such default or defaults occur exceeds 10%
of the total number of shares of Offered Securities that the Underwriters are obligated to purchase
on such Closing Date and arrangements satisfactory to the Representatives, the Company and the
Selling Stockholders for the purchase of such Offered Securities by other persons are not made
within 36 hours after such default, this Agreement will terminate without liability on the part of
any non-defaulting Underwriter, the Company or the Selling Stockholders, except as provided in
Section 10 (provided that if such default occurs with respect to Optional Securities after the
First Closing Date, this Agreement will not terminate as to the Firm Securities or any Optional
Securities purchased prior to such termination). As used in this Agreement, the term Underwriter
includes any person substituted for an Underwriter under this Section. Nothing herein will relieve
a defaulting Underwriter from liability for its default.
10. Survival of Certain Representations and Obligations. The respective indemnities,
agreements, representations, warranties and other statements of the Selling Stockholders, of the
Company or its officers and of the several Underwriters set forth in or made pursuant to this
Agreement will remain in full force and effect, regardless of any investigation, or statement as to
the results thereof, made by or on behalf of any Underwriter, any Selling Stockholder, the Company
or any of their respective representatives, officers or directors or any controlling person, and
will survive delivery of and payment for the Offered Securities. If the purchase of the Offered
Securities by the Underwriters is not consummated for any reason other than solely because of the
termination of this Agreement pursuant to Section 9 hereof, the Company will reimburse the
Underwriters for all out-of-pocket expenses (including fees and disbursements of counsel)
reasonably incurred by them in connection with the offering of the Offered Securities, and the
respective obligations of the Company, the Selling Stockholders and the Underwriters pursuant to
Section 8 hereof shall remain in effect. In addition, if any Offered Securities have been purchased
hereunder, the representations and warranties in Section 2 and all obligations under Section 5
shall also remain in effect.
11. Notices. All communications hereunder will be in writing and, if sent to the
Underwriters, will be mailed, delivered or telegraphed and confirmed to the Representatives c/o
J.P. Morgan Securities Inc., 383 Madison Avenue, New York, N.Y. 10179 (fax: (212) 622-8358),
Attention: Equity Syndicate Desk; Credit Suisse Securities (USA) LLC, Eleven Madison Avenue, New
York, N.Y. 10010-3629, Attention: LCD-IBD; and Merrill Lynch, Pierce, Fenner & Smith
Incorporated, One Bryant Park, New York, N.Y. 10036 (fax: (646) 855-3073), Attention:
Syndicate Department, with a copy to Merrill Lynch, Pierce, Fenner & Smith Incorporated,
One Bryant Park, New York, N.Y. 10036 (fax: (212) 230-8730), Attention: ECM Legal; or, if sent
to the Company, will be mailed, delivered or telegraphed and confirmed to it at 195 Clarksville
Road, Princeton Junction, New Jersey 08550, Attention: Chief Executive Officer, with a copy to
Fulbright & Jaworski L.L.P, 666 Fifth Avenue, New York, N.Y. 10103, Attention: Sheldon Nussbaum and
Joseph Daniels; or, if sent to the Selling Stockholders or any of them, will be mailed, delivered
or telegraphed and confirmed to Sotirios J. Vahaviolos at Mistras Group, Inc., 195 Clarksville
Road, Princeton Junction, New Jersey 08550 or Daniel M. Dickinson at TC NDT Holdings, LLC, 1445
Pennsylvania Avenue, NW, Washington, DC 2004; provided, however, that any notice to an Underwriter
pursuant to Section 8 will be mailed, delivered or telegraphed and confirmed to such Underwriter.
12. Successors. This Agreement will inure to the benefit of and be binding upon the parties
hereto and their respective personal representatives and successors and the officers and directors
and controlling persons referred to in Section 8, and no other person will have any right or
obligation hereunder.
13. Representation. The Representatives will act for the several Underwriters in connection
with the transactions contemplated by this Agreement, and any action under this Agreement taken by
the Representatives jointly will be binding upon all the Underwriters. Sotirios J. Vahaviolos and
Daniel M. Dickinson will act for the Selling Stockholders in connection with such transactions, and
any action under or in respect of this Agreement taken by Sotirios J. Vahaviolos or Daniel M.
Dickinson will be binding upon all the Selling Stockholders.
14. Counterparts. This Agreement may be executed in any number of counterparts, each of
which shall be deemed to be an original, but all such counterparts shall together constitute one
and the same Agreement.
22
15. Absence of Fiduciary Relationship. The Company and the Selling Stockholders severally
acknowledge and agree that:
(a) No Other Relationship. The Representatives have been retained solely to act as
underwriters in connection with the sale of the Offered Securities and that no fiduciary, advisory
or agency relationship between the Company or the Selling Stockholders, on the one hand, and the
Representatives, on the other, has been created in respect of any of the transactions contemplated
by this Agreement or the Final Prospectus, irrespective of whether the Representatives have advised
or are advising the Company or the Selling Stockholders on other matters;
(b) Arms Length Negotiations. The price of the Offered Securities set forth in this
Agreement was established by Company and the Selling Stockholders following discussions and
arms-length negotiations with the Representatives and the Company and the Selling Stockholders are
capable of evaluating and understanding and understand and accept the terms, risks and conditions
of the transactions contemplated by this Agreement;
(c) Absence of Obligation to Disclose. The Company and the Selling Stockholders have been
advised that the Representatives and their affiliates are engaged in a broad range of transactions
which may involve interests that differ from those of the Company or the Selling Stockholders and
that the Representatives have no obligation to disclose such interests and transactions to the
Company or the Selling Stockholders by virtue of any fiduciary, advisory or agency relationship;
and
(d) Waiver. The Company and the Selling Stockholders waive, to the fullest extent permitted
by law, any claims they may have against the Representatives for breach of fiduciary duty or
alleged breach of fiduciary duty and agree that the Representatives shall have no liability
(whether direct or indirect) to the Company or the Selling Stockholders in respect of such a
fiduciary duty claim or to any person asserting a fiduciary duty claim on behalf of or in right of
the Company, including stockholders, employees or creditors of the Company.
16. Applicable Law. This Agreement shall be governed by, and construed in accordance with,
the laws of the State of New York.
The Company hereby submits to the non-exclusive jurisdiction of the Federal and state courts
in the Borough of Manhattan in The City of New York in any suit or proceeding arising out of or
relating to this Agreement or the transactions contemplated hereby. The Company irrevocably and
unconditionally waives any objection to the laying of venue of any suit or proceeding arising out
of or relating to this Agreement or the transactions contemplated hereby in Federal and state
courts in the Borough of Manhattan in the City of New York and irrevocably and unconditionally
waives and agrees not to plead or claim in any such court that any such suit or proceeding in any
such court has been brought in an inconvenient forum.
23
If the foregoing is in accordance with the Representatives understanding of our agreement,
kindly sign and return to the Company one of the counterparts hereof, whereupon it will become a
binding agreement among the Selling Stockholders, the Company and the several Underwriters in
accordance with its terms.
|
|
|
|
|
|
Mistras Group, Inc.
|
|
|
By: |
|
|
|
|
Name: |
|
|
|
|
Title: |
|
|
|
|
On behalf of the Selling Stockholders set forth in Schedule B,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By: |
|
|
|
|
Name: |
|
|
|
|
Title: |
|
|
|
|
|
|
|
By: |
|
|
|
|
Name: |
|
|
|
|
Title: |
|
|
|
[Underwriting Agreement]
|
|
|
|
|
|
|
|
|
The foregoing Underwriting Agreement is hereby
confirmed and accepted as of the date first above
written. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
J.P. Morgan Securities Inc. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name:
Title: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit Suisse Securities (USA) LLC |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name:
Title: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Merrill Lynch, Pierce, Fenner & Smith |
|
|
|
|
|
|
Incorporated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name:
Title: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acting on behalf of themselves and as the Representatives of the several Underwriters. |
|
|
[Underwriting Agreement]
exv3w1
Exhibit 3.1
SECOND AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
MISTRAS GROUP, INC.
a Delaware corporation
MISTRAS GROUP, INC. (the Corporation), a corporation organized and existing under
the laws of the State of Delaware, does hereby certify that:
A. The name of the Corporation is Mistras Group, Inc. The date of the filing of the original
Certificate of Incorporation of the Corporation with the Secretary of State of the State of
Delaware was October 12, 1994 (the Original Certificate). The name under which the
Corporation filed the Original Certificate was Mistras Holdings Corp.
B. This Second Amended and Restated Certificate of Incorporation (this Certificate)
amends, restates and integrates the provisions of the Amended and Restated Certificate of
Incorporation that was filed with the Secretary of State of the State of Delaware on October 27,
2005, as amended on March 19, 2007, July 30, 2007, August 31, 2009 [and September 21, 2009] (the
Amended and Restated Certificate), and was duly adopted in accordance with the provisions
of Sections 242 and 245 of the General Corporation Law of the State of Delaware (DGCL)
and by the written consent of its stockholders in accordance with Section 228 of the DGCL.
C. The text of the Amended and Restated Certificate is hereby amended and restated in its
entirety to provide as herein set forth in full.
ARTICLE I
The name of this corporation is Mistras Group, Inc.
ARTICLE II
The address of the Corporations registered office in the State of Delaware is c/o Corporation
Service Company, 2711 Centerville Road, Suite 400, Wilmington, New Castle County, Delaware, 19808.
The Corporations registered agent at that address is Corporation Service Company.
ARTICLE III
The purpose of the Corporation is to engage in any lawful act or activity for which
corporations may be organized under the DGCL.
ARTICLE IV
This Corporation is authorized to issue two classes of stock to be designated, respectively,
Common Stock and Preferred Stock. The total number of shares of stock which the Corporation
shall have the authority to issue is 210,000,000. The total number of shares of Common Stock that
the Corporation is authorized to issue is 200,000,000, with a par value of $0.01 per share. Each
share of Common Stock shall entitle the holder thereof to one (1) vote on each matter submitted to
a vote at any meeting of stockholders. The total number of shares of Preferred Stock that the
Corporation is authorized to issue is 10,000,000, with a par value of $0.01 per share.
The Board of Directors of the Corporation (the Board of Directors) is further authorized,
subject to the limitations prescribed by law, to fix by resolution or resolutions the designations,
powers, preferences and rights, and the qualifications, limitations or restrictions thereof, of any
wholly unissued series of Preferred Stock, including without limitation, authority to fix by
resolution or resolutions the dividend rights, dividend rate, conversion rights, voting rights,
rights and terms of redemption (including sinking fund provisions), redemption price or prices, and
liquidation preferences of any such series, and the number of shares constituting any such series
and the designation thereof, or any of the foregoing.
The Board of Directors is further authorized to increase (but not above the total number of
authorized shares of the class) or decrease (but not below the number of shares of any such series
then outstanding) the number of shares of any series of Preferred Stock, the number of which is
fixed by it, subsequent to the issuance of shares then outstanding, subject to the powers,
preferences and rights, and the qualifications, limitations and restrictions thereof stated in this
Certificate or the resolution of the Board of Directors originally fixing the number of shares of
such series. If the number of shares of any series is so decreased, then the shares constituting
such decrease shall resume the status which they had prior to the adoption of the resolution
originally fixing the number of shares of such series.
ARTICLE V
The Corporation is to have perpetual existence.
ARTICLE VI
1. The business and affairs of the Corporation shall be managed by or under the direction of
the Board of Directors. In addition to the powers and authority expressly conferred upon them by
statute or by this Certificate or the Bylaws of the Corporation, the directors are hereby empowered
to exercise all such powers and do all such acts and things as may be exercised or done by the
Corporation.
2. In furtherance and not in limitation of the powers conferred by statute, the Board of
Directors is expressly authorized to adopt, amend, alter or repeal the Bylaws of the Corporation.
The affirmative vote of at least a majority of the Board of Directors then in office shall be
required in order for the Board of Directors to adopt, amend, alter or repeal the Corporations
Bylaws. The Corporations Bylaws may also be adopted, amended, altered or repealed by the
stockholders of the Corporation in accordance with the Bylaws. No Bylaw hereafter legally amended,
altered or repealed shall invalidate any prior act of the directors or
2
officers of the Corporation that would have been valid if such Bylaw had not been amended,
altered or repealed.
3. Elections of directors need not be by written ballot unless the Bylaws of the Corporation
shall so provide.
4. No stockholder shall be permitted to cumulate votes at any election of directors.
5. Any action required or permitted to be taken by the stockholders of the Corporation must be
effected at a duly called annual or special meeting of stockholders of the Corporation and may not
be effected by any action by written consent by such stockholders.
6. Subject to the rights of holders of any series of Preferred Stock then outstanding to elect
additional directors under specified circumstances, the number of directors that constitute the
whole Board of Directors shall be fixed exclusively in the manner designated in the Bylaws of the
Corporation.
ARTICLE VII
1. To the fullest extent permitted by the DGCL as the same exists or as may hereafter be
amended, a director of the Corporation shall not be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director. If the DGCL is
amended to authorize corporate action further eliminating or limiting the personal liability of
directors, then the liability of a director of the Corporation shall be eliminated to the fullest
extent permitted by the DGCL, as so amended.
2. The Corporation shall have the power to indemnify, to the extent permitted by the DGCL, as
it presently exists or may hereafter be amended from time to time, any employee or agent of the
Corporation who was or is a party or is threatened to be made a party to any action, suit or
proceeding, whether civil, criminal, administrative or investigative (a Proceeding), by reason of
the fact that he or she is or was a director, officer, employee or agent of the Corporation or is
or was serving at the request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise, including service with
respect to employee benefit plans, against expenses (including attorneys fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by such person in connection with
any such Proceeding.
3. Neither any amendment or repeal of any Section of this Article VII, nor the adoption of any
provision of this Certificate inconsistent with this Article VII, shall eliminate or reduce the
effect of this Article VII, in respect of any matter occurring, or any Proceeding accruing or
arising or that, but for this Article VII, would accrue or arise, prior to such amendment, repeal
or adoption of an inconsistent provision.
ARTICLE VIII
Any director may be removed from the Board of Directors by the stockholders of the corporation
only for cause, and in such case only by the affirmative vote of the holders of at least a majority
of the voting power of the issued and outstanding shares of capital stock of the
3
corporation then entitled to vote in the election of directors. Vacancies occurring on the
Board of Directors for any reason and newly created directorships resulting from an increase in the
authorized number of directors may be filled only by a vote of a majority of the remaining members
of the Board of Directors, although less than a quorum, or by a sole remaining director, at any
meeting of the Board of Directors. A person so elected by the Board of Directors to fill a vacancy
or newly created directorship shall hold office until the next annual meeting of stockholders and
until his or her successor shall be duly elected and qualified. No decrease in the number of
directors constituting the Board of Directors shall shorten the term of any incumbent director.
ARTICLE IX
The Corporation reserves the right to amend or repeal any provision contained in this
Certificate in the manner prescribed by the laws of Delaware and all rights conferred upon
stockholders are granted subject to this reservation.
*****
4
IN WITNESS WHEREOF, the Corporation has caused this Amended and Restated Certificate of
Incorporation to be signed by the undersigned officer a duly authorized officer of the Corporation,
on , 2009.
|
|
|
|
|
|
|
|
|
By: |
|
|
|
|
Sotirios J. Vahaviolos |
|
|
|
President and Chief Executive Officer |
|
|
5
exv3w2
Exhibit 3.2
AMENDED AND RESTATED BYLAWS
OF
MISTRAS GROUP, INC.
TABLE OF CONTENTS
|
|
|
|
|
|
|
|
|
|
|
Page |
ARTICLE I
|
|
CORPORATE OFFICES
|
|
|
1 |
|
1.1
|
|
REGISTERED OFFICE
|
|
|
1 |
|
1.2
|
|
OTHER OFFICES
|
|
|
1 |
|
ARTICLE II
|
|
MEETINGS OF STOCKHOLDERS
|
|
|
1 |
|
2.1
|
|
PLACE OF MEETINGS
|
|
|
1 |
|
2.2
|
|
ANNUAL MEETING
|
|
|
1 |
|
2.3
|
|
SPECIAL MEETING
|
|
|
1 |
|
2.4
|
|
NOTICE OF STOCKHOLDERS MEETINGS
|
|
|
4 |
|
2.5
|
|
MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE
|
|
|
5 |
|
2.6
|
|
QUORUM
|
|
|
5 |
|
2.7
|
|
ADJOURNED MEETING; NOTICE
|
|
|
6 |
|
2.8
|
|
ADMINISTRATION OF THE MEETING
|
|
|
6 |
|
2.9
|
|
VOTING
|
|
|
7 |
|
2.10
|
|
STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING
|
|
|
7 |
|
2.11
|
|
RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING CONSENTS
|
|
|
7 |
|
2.12
|
|
PROXIES
|
|
|
8 |
|
2.13
|
|
LIST OF STOCKHOLDERS ENTITLED TO VOTE
|
|
|
8 |
|
2.14
|
|
NOTICE OF STOCKHOLDER BUSINESS AND NOMINATIONS
|
|
|
9 |
|
2.15
|
|
SUBMISSION OF QUESTIONNAIRE, REPRESENTATION AND AGREEMENT
|
|
|
13 |
|
ARTICLE III
|
|
DIRECTORS
|
|
|
14 |
|
3.1
|
|
POWERS
|
|
|
14 |
|
3.2
|
|
NUMBER OF DIRECTORS
|
|
|
14 |
|
3.3
|
|
ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS
|
|
|
14 |
|
3.4
|
|
RESIGNATION AND VACANCIES
|
|
|
14 |
|
3.5
|
|
PLACE OF MEETINGS; MEETINGS BY TELEPHONE
|
|
|
14 |
|
3.6
|
|
REGULAR MEETINGS
|
|
|
15 |
|
3.7
|
|
SPECIAL MEETINGS; NOTICE
|
|
|
15 |
|
3.8
|
|
QUORUM
|
|
|
15 |
|
3.9
|
|
WAIVER OF NOTICE
|
|
|
16 |
|
3.10
|
|
BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING
|
|
|
16 |
|
3.11
|
|
ADJOURNED MEETING; NOTICE
|
|
|
16 |
|
3.12
|
|
FEES AND COMPENSATION OF DIRECTORS
|
|
|
16 |
|
3.13
|
|
REMOVAL OF DIRECTORS
|
|
|
16 |
|
ARTICLE IV
|
|
COMMITTEES
|
|
|
17 |
|
4.1
|
|
COMMITTEES OF DIRECTORS
|
|
|
17 |
|
-i-
TABLE OF CONTENTS
(continued)
|
|
|
|
|
|
|
|
|
|
|
Page |
4.2
|
|
COMMITTEE MINUTES
|
|
|
17 |
|
4.3
|
|
MEETINGS AND ACTION OF COMMITTEES
|
|
|
17 |
|
ARTICLE V
|
|
OFFICERS
|
|
|
18 |
|
5.1
|
|
OFFICERS
|
|
|
18 |
|
5.2
|
|
APPOINTMENT OF OFFICERS
|
|
|
18 |
|
5.3
|
|
SUBORDINATE OFFICERS
|
|
|
18 |
|
5.4
|
|
REMOVAL AND RESIGNATION OF OFFICERS
|
|
|
18 |
|
5.5
|
|
VACANCIES IN OFFICES
|
|
|
19 |
|
5.6
|
|
REPRESENTATION OF SHARES OF OTHER CORPORATIONS
|
|
|
19 |
|
5.7
|
|
AUTHORITY AND DUTIES OF OFFICERS
|
|
|
19 |
|
ARTICLE VI
|
|
RECORDS AND REPORTS
|
|
|
19 |
|
6.1
|
|
MAINTENANCE AND INSPECTION OF RECORDS
|
|
|
19 |
|
6.2
|
|
INSPECTION BY DIRECTORS
|
|
|
20 |
|
ARTICLE VII
|
|
GENERAL MATTERS
|
|
|
20 |
|
7.1
|
|
CHECKS; DRAFTS; EVIDENCES OF INDEBTEDNESS
|
|
|
20 |
|
7.2
|
|
EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS
|
|
|
20 |
|
7.3
|
|
STOCK CERTIFICATES; PARTLY PAID SHARES
|
|
|
20 |
|
7.4
|
|
SPECIAL DESIGNATION ON CERTIFICATES
|
|
|
20 |
|
7.5
|
|
LOST CERTIFICATES
|
|
|
21 |
|
7.6
|
|
DIVIDENDS
|
|
|
21 |
|
7.7
|
|
FISCAL YEAR
|
|
|
21 |
|
7.8
|
|
SEAL
|
|
|
21 |
|
7.9
|
|
TRANSFER OF STOCK
|
|
|
21 |
|
7.10
|
|
STOCK TRANSFER AGREEMENTS
|
|
|
22 |
|
7.11
|
|
REGISTERED STOCKHOLDERS
|
|
|
22 |
|
7.12
|
|
WAIVER OF NOTICE
|
|
|
22 |
|
ARTICLE VIII
|
|
NOTICE BY ELECTRONIC TRANSMISSION
|
|
|
22 |
|
8.1
|
|
NOTICE BY ELECTRONIC TRANSMISSION
|
|
|
22 |
|
8.2
|
|
DEFINITION OF ELECTRONIC TRANSMISSION
|
|
|
23 |
|
8.3
|
|
INAPPLICABILITY
|
|
|
23 |
|
ARTICLE IX
|
|
INDEMNIFICATION OF DIRECTORS AND OFFICERS
|
|
|
24 |
|
9.1
|
|
POWER TO INDEMNIFY IN ACTIONS, SUITS OR PROCEEDINGS OTHER THAN
THOSE BY OR IN THE RIGHT OF THE COMPANY |
|
|
24 |
|
9.2
|
|
POWER TO INDEMNIFY IN ACTIONS, SUITS OR PROCEEDINGS BY OR IN
THE RIGHT OF THE COMPANY |
|
|
24 |
|
-ii-
TABLE OF CONTENTS
(continued)
|
|
|
|
|
|
|
|
|
|
|
Page |
9.3
|
|
AUTHORIZATION OF INDEMNIFICATION
|
|
|
25 |
|
9.4
|
|
GOOD FAITH DEFINED
|
|
|
25 |
|
9.5
|
|
INDEMNIFICATION BY A COURT
|
|
|
25 |
|
9.6
|
|
EXPENSES PAYABLE IN ADVANCE
|
|
|
26 |
|
9.7
|
|
NONEXCLUSIVITY OF INDEMNIFICATION AND ADVANCEMENT OF EXPENSES
|
|
|
26 |
|
9.8
|
|
INSURANCE
|
|
|
26 |
|
9.9
|
|
CERTAIN DEFINITIONS
|
|
|
27 |
|
9.10
|
|
SURVIVAL OF INDEMNIFICATION AND ADVANCEMENT OF EXPENSES
|
|
|
27 |
|
9.11
|
|
LIMITATION ON INDEMNIFICATION
|
|
|
27 |
|
9.12
|
|
INDEMNIFICATION OF EMPLOYEES AND AGENTS
|
|
|
27 |
|
9.13
|
|
EFFECT OF AMENDMENT OR REPEAL
|
|
|
28 |
|
ARTICLE X
|
|
MISCELLANEOUS
|
|
|
28 |
|
10.1
|
|
PROVISIONS OF CERTIFICATE GOVERN
|
|
|
28 |
|
10.2
|
|
CONSTRUCTION; DEFINITIONS
|
|
|
28 |
|
10.3
|
|
SEVERABILITY
|
|
|
28 |
|
10.4
|
|
AMENDMENT
|
|
|
28 |
|
-iii-
BYLAWS
OF
MISTRAS GROUP, INC.
ARTICLE I
CORPORATE OFFICES
1.1 REGISTERED OFFICE.
The registered office of Mistras Group, Inc. (the Company) shall be fixed in the Companys
certificate of incorporation, as the same may be amended and/or restated from time to time (as so
amended and/or restated, the Certificate).
1.2 OTHER OFFICES.
The Companys Board of Directors (the Board) may at any time establish other offices at any
place or places where the Company is qualified to do business.
ARTICLE II
MEETINGS OF STOCKHOLDERS
2.1 PLACE OF MEETINGS.
Meetings of stockholders shall be held at any place within or outside the State of Delaware as
designated by the Board. The Board may, in its sole discretion, determine that a meeting of
stockholders shall not be held at any place, but may instead be held solely by means of remote
communication as authorized by Section 211(a)(2) of the Delaware General Corporation Law (the
DGCL). In the absence of any such designation or determination, stockholders meetings shall be
held at the Companys principal place of business.
2.2 ANNUAL MEETING.
The annual meeting of stockholders shall be held each year on a date and at a time designated
by the Board. At the annual meeting, directors shall be elected and any other proper business may
be transacted.
2.3 SPECIAL MEETING.
(A) General. Unless otherwise required by law or the Certificate, special meetings
of the stockholders may be called at any time, for any purpose or purposes, only by
(i) the Chairperson of the Board, (ii) the Chief Executive Officer or (iii) by the
Board acting pursuant to a resolution adopted by a majority of the Board. Subject to
Section 2.3(B), a special meeting of stockholders shall also be called by the
secretary of the Company upon the written request of one or
more stockholders entitled to cast not less than thirty-five percent (35%) of all of
the votes entitled to be cast at that meeting.
(B) Stockholder Requested Special Meetings. (1) Any stockholder of record seeking to
have stockholders request a special meeting shall, by sending written notice to the
secretary (the Record Date Request Notice) by registered mail, return receipt
requested, request the Board of Directors to fix a record date to determine the
stockholders entitled to request a special meeting (the Request Record Date). The
Record Date Request Notice shall set forth the purpose of the meeting and the matters
proposed to be acted on at it, shall be signed by one or more stockholders of record
as of the date of signature (or their agents duly authorized in a writing
accompanying the Record Date Request Notice), shall bear the date of signature of
each such stockholder (or such agent) and shall set forth all information relating to
each such stockholder that must be disclosed in solicitations of proxies for election
of directors in an election contest (even if an election contest is not involved), or
is otherwise required, in each case pursuant to Regulation 14A (or any successor
provision) under the Securities Exchange Act of 1934, as amended (the Exchange
Act). Upon receiving the Record Date Request Notice, the Board of Directors may fix
a Request Record Date. The Request Record Date shall not precede and shall not be
more than ten (10) days after the close of business on the date on which the
resolution fixing the Request Record Date is adopted by the Board of Directors. If
the Board of Directors, within ten (10) days after the date on which a valid Record
Date Request Notice is received, fails to adopt a resolution fixing the Request
Record Date, the Request Record Date shall be the close of business on the tenth
(10th) day after the first date on which the Record Date Request Notice is received
by the secretary.
(2) In order for any stockholder to request a special meeting, one or more
written requests for a special meeting signed by stockholders of record (or their
agents duly authorized in a writing accompanying the request) as of the Request
Record Date entitled to cast not less than thirty-five percent (35%) (the Special
Meeting Percentage) of all of the votes entitled to be cast at such meeting (the
Special Meeting Request) shall be delivered to the secretary. In addition, the
Special Meeting Request (a) shall set forth the purpose of the meeting and the
matters proposed to be acted on at it (which shall be limited to those lawful matters
set forth in the Record Date Request Notice received by the secretary), (b) shall
bear the date of signature of each such stockholder (or such agent) signing the
Special Meeting Request, (c) shall set forth the name and address, as they appear in
the Companys books, of each stockholder signing such request (or on whose behalf the
Special Meeting Request is signed) and the class, series and number of all shares of
stock of the Company which are owned by each such stockholder, and the nominee holder
for, and number of, shares owned by such stockholder beneficially but not of record,
(d) shall be sent to the secretary by registered mail, return receipt requested, and
(e) shall be received by the secretary within sixty (60) days after the Request
Record Date. Any requesting stockholder (or agent duly authorized in a writing
accompanying the revocation or the Special
-2-
Meeting Request) may revoke his, her or its request for a special meeting at any time
by written revocation delivered to the secretary.
(3) The secretary shall inform the requesting stockholders of the reasonably
estimated cost of preparing and mailing the notice of meeting (including the
Companys proxy materials). The secretary shall not be required to call a special
meeting upon stockholder request and such meeting shall not be held unless, in
addition to the documents required by paragraph (2) of this Section 2.3(B), the
secretary receives payment of such reasonably estimated cost prior to the mailing of
any notice of the meeting.
(4) Except as provided in the next sentence, any special meeting shall be held
at such place, date and time as may be designated by the Chairperson of the Board,
the Chief Executive Officer or the Board of Directors, whoever has called the
meeting. In the case of any special meeting called by the secretary upon the request
of stockholders (a Stockholder Requested Meeting), such meeting shall be held at
such place, date and time as may be designated by the Board of Directors; provided,
however, that the date of any Stockholder Requested Meeting shall be not more than 90
days after the record date for such meeting (the Meeting Record Date); and provided
further that if the Board of Directors fails to designate, within ten (10) days after
the date that a valid Special Meeting Request is actually received by the secretary
(the Delivery Date), a date and time for a Stockholder Requested Meeting, then such
meeting shall be held at 2:00 p.m. local time on the 90th day after the Meeting
Record Date or, if such 90th day is not a Business Day (as defined below), on the
first preceding Business Day; and provided further that in the event that the Board
of Directors fails to designate a place for a Stockholder Requested Meeting within
ten (10) days after the Delivery Date, then such meeting shall be held at the
principal executive office of the Company. In fixing a date for any special meeting,
the Chairperson of the Board, the Chief Executive Officer or the Board of Directors
may consider such factors as he, she or it deems relevant within the good faith
exercise of business judgment, including, without limitation, the nature of the
matters to be considered, the facts and circumstances surrounding any request for
meeting and any plan of the Board of Directors to call an annual meeting or a special
meeting. In the case of any Stockholder Requested Meeting, if the Board of Directors
fails to fix a Meeting Record Date that is a date within 30 days after the Delivery
Date, then the close of business on the 30th day after the Delivery Date shall be the
Meeting Record Date. The Board of Directors may revoke the notice for any
Stockholder Requested Meeting in the event that the requesting stockholders fail to
comply with the provisions of paragraph (3) of this Section 2.3(B).
(5) If written revocations of requests for the special meeting have been
delivered to the secretary and the result is that stockholders of record (or their
agents duly authorized in writing), as of the Request Record Date, entitled to cast
less than the Special Meeting Percentage have delivered, and not revoked, requests
for a special meeting to the secretary, the secretary shall: (i) if the notice of
meeting has not already been mailed, refrain from mailing the notice of the
-3-
meeting and send to all requesting stockholders who have not revoked such requests
written notice of any revocation of a request for the special meeting, or (ii) if the
notice of meeting has been mailed, send to all requesting stockholders who have not
revoked requests for a special meeting written notice of any revocation of a request
for the special meeting and the secretarys intention to revoke the notice of the
meeting, and then revoke the notice of the meeting at any time before ten (10) days
before the commencement of the meeting. Any request for a special meeting received
after a revocation by the secretary of a notice of a meeting shall be considered a
request for a new special meeting.
(6) The Board of Directors, the Chairperson of the Board or the Chief Executive
Officer may appoint independent inspectors of elections to act as the agent of the
Company for the purpose of promptly performing a ministerial review of the validity
of any purported Special Meeting Request received by the secretary. For the purpose
of permitting the inspectors to perform such review, no such purported request shall
be deemed to have been delivered to the secretary until the earlier of (i) five
Business Days after receipt by the secretary of such purported request and (ii) such
date as the independent inspectors certify to the Company that the valid requests
received by the secretary represent at least the Special Meeting Percentage. Nothing
contained in this paragraph (6) shall in any way be construed to suggest or imply
that the Company or any stockholder shall not be entitled to contest the validity of
any request, whether during or after such five Business Day period, or to take any
other action (including, without limitation, the commencement, prosecution or defense
of any litigation with respect thereto, and the seeking of injunctive relief in such
litigation).
(7) For purposes of these Bylaws, Business Day shall mean any day other than
a Saturday, a Sunday or other day on which banking institutions in the State of New
York are authorized or obligated by law or executive order to close.
2.4 NOTICE OF STOCKHOLDERS MEETINGS.
All notices of meetings of stockholders shall be sent or otherwise given in accordance with
either Section 2.5 or Section 8.1 of these bylaws not less than ten (10) nor more than sixty (60)
days before the date of the meeting to each stockholder entitled to vote at such meeting, except as
otherwise required by applicable law. The notice shall specify the place, if any, date and hour of
the meeting, the means of remote communication, if any, by which stockholders and proxy holders may
be deemed to be present in person and vote at such meeting, and, in the case of a special meeting,
the purposes for which the meeting is called. Any previously scheduled meeting of stockholders may
be postponed, and, unless the Certificate provides otherwise, any special meeting of the
stockholders may be cancelled by resolution duly adopted by a majority of the Board members then in
office upon public notice given prior to the date previously scheduled for such meeting of
stockholders.
Whenever notice is required to be given, under the DGCL, the Certificate or these bylaws, to
any person with whom communication is unlawful, the giving of such notice to such person shall not
be required and there shall be no duty to apply to any governmental authority or
-4-
agency for a license or permit to give such notice to such person. Any action or meeting
which shall be taken or held without notice to any such person with whom communication is unlawful
shall have the same force and effect as if such notice had been duly given. In the event that the
action taken by the Company is such as to require the filing of a certificate with the Secretary of
State of Delaware, the certificate shall state, if such is the fact and if notice is required, that
notice was given to all persons entitled to receive notice except such persons with whom
communication is unlawful.
Whenever notice is required to be given, under any provision of the DGCL, the Certificate or
these bylaws, to any stockholder to whom (A) notice of two (2) consecutive annual meetings or (B)
all, and at least two (2), payments (if sent by first-class mail) of dividends or interest on
securities during a 12-month period, have been mailed addressed to such person at such persons
address as shown on the records of the Company and have been returned undeliverable, the giving of
such notice to such person shall not be required. Any action or meeting which shall be taken or
held without notice to such person shall have the same force and effect as if such notice had been
duly given. If any such person shall deliver to the Company a written notice setting forth such
persons then current address, the requirement that notice be given to such person shall be
reinstated. In the event that the action taken by the Company is such as to require the filing of
a certificate with the Secretary of State of Delaware, the certificate need not state that notice
was not given to persons to whom notice was not required to be given pursuant to Section 230(b) of
the DGCL.
The exception in subsection (A) of the above paragraph to the requirement that notice be given
shall not be applicable to any notice returned as undeliverable if the notice was given by
electronic transmission.
2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE.
Notice of any meeting of stockholders shall be given:
(A) if mailed, when deposited in the United States mail, postage prepaid, directed to
the stockholder at such stockholders address as it appears on the Companys records;
(B) if electronically transmitted, as provided in Section 8.1 of these bylaws; or
(C) otherwise, when delivered.
An affidavit of the secretary or an assistant secretary of the Company or of the transfer
agent or any other agent of the Company that the notice has been given shall, in the absence of
fraud, be prima facie evidence of the facts stated therein.
Notice may be waived in accordance with Section 7.12 of these bylaws.
2.6 QUORUM.
The holders of a majority of the stock issued and outstanding and entitled to vote, present in
person or represented by proxy, shall constitute a quorum for the transaction of business at all
-5-
meetings of the stockholders. If, however, such quorum is not present or represented at any
meeting of the stockholders, then either (i) the chairperson of the meeting or (ii) the
stockholders entitled to vote at the meeting, present in person or represented by proxy, shall have
power to adjourn the meeting from time to time, without notice other than announcement at the
meeting, until a quorum is present or represented. At such adjourned meeting at which a quorum is
present or represented, any business may be transacted that might have been transacted at the
meeting as originally noticed.
2.7 ADJOURNED MEETING; NOTICE.
When a meeting is adjourned to another time or place, unless these bylaws otherwise require,
notice need not be given of the adjourned meeting if the time, place if any thereof, and the means
of remote communications if any by which stockholders and proxy holders may be deemed to be present
in person and vote at such adjourned meeting are announced at the meeting at which the adjournment
is taken. At the continuation of the adjourned meeting, the Company may transact any business that
was permitted to have been transacted at the original meeting. If the adjournment is for more than
30 days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice
of the adjourned meeting shall be given to each stockholder of record entitled to vote at the
meeting in accordance with the provisions of Section 2.4 and Section 2.5 of these bylaws.
2.8 ADMINISTRATION OF THE MEETING.
Meetings of stockholders shall be presided over by the Chairperson of the Board, or in the
absence of the Chairperson of the Board, the Chief Executive Officer of the Company. If both the
Chairperson of the Board and the Chief Executive Officer will not be present at a meeting of
stockholders, such meeting shall be presided over by such chairperson as the Board shall appoint,
or, in the event that the Board shall fail to make such appointment, any officer of the Company
appointed by the Board. The secretary of the meeting shall be the secretary of the Company, or, in
the absence of the secretary of the Company, such person as the chairperson of the meeting
appoints.
The Board shall, in advance of any meeting of stockholders, appoint one (1) or more
inspector(s), who may include individual(s) who serve the Company in other capacities, including
without limitation as officers, employees or agents, to act at the meeting of stockholders and make
a written report thereof. The Board may designate one (1) or more persons as alternate
inspector(s) to replace any inspector who fails to act. If no inspector or alternate has been
appointed or is able to act at a meeting of stockholders, the chairperson of the meeting shall
appoint one (1) or more inspector(s) to act at the meeting. Each inspector, before discharging his
or her duties, shall take and sign an oath to faithfully execute the duties of inspector with
strict impartiality and according to the best of his or her ability. The inspector(s) or
alternate(s) shall have the duties prescribed pursuant to Section 231 of the DGCL and other
applicable law.
The Board shall be entitled to make such rules or regulations for the conduct of meetings of
stockholders as it shall deem necessary, appropriate or convenient. Subject to such rules and
regulations, if any, the chairman of the meeting shall have the right and authority to prescribe
-6-
such rules, regulations and procedures and to do all acts as, in the judgment of such
chairman, are necessary, appropriate or convenient for the proper conduct of the meeting, including
without limitation establishing an agenda of business of the meeting, rules or regulations to
maintain order, restrictions on entry to the meeting after the time fixed for commencement thereof
and the fixing of the date and time of the opening and closing of the polls for each matter upon
which the stockholders will vote at a meeting (and shall announce such at the meeting).
2.9 VOTING.
The stockholders entitled to vote at any meeting of stockholders shall be determined in
accordance with the provisions of Section 2.11 of these bylaws, subject to Section 217 (relating to
voting rights of fiduciaries, pledgors and joint owners of stock) and Section 218 (relating to
voting trusts and other voting agreements) of the DGCL.
Except as otherwise provided in the provisions of Section 213 of the DGCL (relating to the
fixing of a date for determination of stockholders of record), each stockholder shall be entitled
to that number of votes for each share of capital stock held by such stockholder as set forth in
the Certificate, or in the case of shares of Preferred Stock, by resolution of the Board, or in the
Certificate, as the case may be.
In all matters, other than the election of directors and except as otherwise required by law,
the Certificate or these bylaws, the affirmative vote of a majority of the voting power of the
shares present or represented by proxy at the meeting and entitled to vote on the subject matter
shall be the act of the stockholders. Directors shall be elected by a plurality of the voting
power of the shares present in person or represented by proxy at the meeting and entitled to vote
on the election of directors.
The stockholders of the Company shall not have the right to cumulate their votes for the
election of directors of the Company.
2.10 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING.
Subject to the rights of the holders of the shares of any series of Preferred Stock or any
other class of stock or series thereof having a preference over the Common Stock as to dividend or
liquidation rights, any action required or permitted to be taken by the stockholders of the Company
must be effected at a duly called annual or special meeting of stockholders of the Company and may
not be effected by any consent in writing by such stockholders.
2.11 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING CONSENTS.
In order that the Company may determine the stockholders entitled to notice of or to vote at
any meeting of stockholders or any adjournment thereof, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any other lawful
action, the Board may fix, in advance, a record date, which record date shall not precede the date
on which the resolution fixing the record date is adopted and which shall not be more than sixty
-7-
(60) nor less than ten (10) days before the date of such meeting, nor more than sixty (60)
days prior to any other such action.
If the Board does not fix a record date in accordance with these bylaws and applicable law:
(A) The record date for determining stockholders entitled to notice of or to vote at
a meeting of stockholders shall be at the close of business on the day next preceding
the day on which notice is given, or, if notice is waived, at the close of business
on the day next preceding the day on which the meeting is held.
(B) The record date for determining stockholders for any other purpose shall be at
the close of business on the day on which the Board adopts the resolution relating
thereto.
A determination of stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided, however, that
the Board may fix a new record date for the adjourned meeting.
2.12 PROXIES.
Each stockholder entitled to vote at a meeting of stockholders may authorize another person or
persons to act for such stockholder by proxy authorized by an instrument in writing or by a
transmission permitted by law and filed with the secretary of the Company, but no such proxy shall
be voted or acted upon after three (3) years from its date, unless the proxy provides for a longer
period. A stockholder may also authorize another person or persons to act for him, her or it as
proxy in the manner(s) provided under Section 212(c) of the DGCL or as otherwise provided under
Delaware law. The revocability of a proxy that states on its face that it is irrevocable shall be
governed by the provisions of Section 212 of the DGCL.
2.13 LIST OF STOCKHOLDERS ENTITLED TO VOTE.
The officer who has charge of the stock ledger of the Company shall prepare and make, at least
ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to
vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder
and the number of shares registered in the name of each stockholder. The Company shall not be
required to include electronic mail addresses or other electronic contact information on such list.
Such list shall be open to the examination of any stockholder, for any purpose germane to the
meeting for a period of at least ten (10) days prior to the meeting: (a) on a reasonably accessible
electronic network, provided that the information required to gain access to such list is provided
with the notice of the meeting or (b) during ordinary business hours, at the Companys principal
place of business.
In the event that the Company determines to make the list available on an electronic network,
the Company may take reasonable steps to ensure that such information is available only to
stockholders of the Company. If the meeting is to be held at a place, then the list shall be
produced and kept at the time and place of the meeting during the whole time thereof, and may be
inspected by any stockholder who is present. If the meeting is to be held solely by means of
-8-
remote communication, then the list shall also be open to the examination of any stockholder
during the whole time of the meeting on a reasonably accessible electronic network, and the
information required to access such list shall be provided with the notice of the meeting. Such
list shall presumptively determine the identity of the stockholders entitled to vote at the meeting
and the number of shares held by each of them.
2.14 NOTICE OF STOCKHOLDER BUSINESS AND NOMINATIONS.
(A) Annual Meetings of Stockholders.
(1) Nominations of persons for election to the Board and the proposal of business to be
considered by the stockholders may be made at an annual meeting of stockholders only (a) pursuant
to the Companys notice of meeting (or any supplement thereto), (b) by or at the direction of the
Board, or (c) by any stockholder of the Company who (i) was a stockholder of record of the Company
at the time the notice provided for in this Section 2.14 is delivered to the Secretary of the
Company, (ii) shall be entitled to vote at such meeting, and (iii) complies with the notice
procedures set forth in this Section 2.14 as to such nomination or business. Clause (C) shall be
the exclusive means for a stockholder to (x) submit business (other than matters properly brought
under Rule 14a-8 (or any successor thereto) under the Securities Exchange Act and set forth in the
Companys notice of meeting) or (y) make nominations before an annual meeting of stockholders.
(2) Without qualification, for nominations or any other business to be properly brought before
an annual meeting by a stockholder pursuant to Section 2.14(A)(1)(c), the stockholder, in addition
to any other applicable requirements, must have given timely notice thereof in writing to the
Secretary of the Company and any such proposed business must constitute a proper matter for
stockholder action. To be timely, a stockholders notice must be delivered to the Secretary of the
Company at the principal executive offices of the Company not later than the close of business on
the ninetieth (90th) day nor earlier than the close of business on the one hundred twentieth
(120th) day prior to the first anniversary of the preceding years annual meeting (provided,
however, that in the event that the date of the annual meeting is more than thirty days before or
more than sixty (60) days after such anniversary date, notice by the stockholder must be so
delivered not earlier than the close of business on the one hundred twentieth (120th) day prior to
such annual meeting and not later than the close of business on the later of the ninetieth (90th)
day prior to such annual meeting or the tenth (10th) day following the day on which public
announcement of the date of such meeting is first made by the Company). In no event shall the
public announcement of an adjournment or postponement of the annual meeting of stockholders
commence a new time period (or extend any time period) for the giving of a stockholders notice as
described above. To be in proper form, a stockholders notice to the Secretary (whether pursuant
to this Section 2.14(A)(2) or Section 2.14(B)) shall set forth:
(a) as to each person, if any, whom the stockholder proposes to nominate for
election as a director (i) all information relating to such person that is required
to be disclosed in solicitations of proxies for election of directors in an
election contest, or is otherwise required, in each case pursuant to and in
accordance with Section 14 of the Exchange Act and the rules and regulations
promulgated thereunder, (ii) such persons written consent to being named in the
proxy
-9-
statement as a nominee and to serving as a director if elected, (iii) a description
of all direct and indirect compensation and other material monetary agreements,
arrangements and understandings during the past three years, and any other material
relationships, between or among such stockholder and beneficial owner, if any, and
their respective affiliates and associates, or others acting in concert therewith,
on the one hand, and each proposed nominee, and his or her respective affiliates
and associates, or others acting in concert therewith, on the other hand,
including, without limitation all information that would be required to be
disclosed pursuant to Rule 404 promulgated under Regulation S-K if the stockholder
making the nomination and any beneficial owner on whose behalf the nomination is
made, if any, or any affiliate or associate thereof or person acting in concert
therewith, were the registrant for purposes of such rule and the nominee were a
director or executive officer of such registrant; and (iv) with respect to each
nominee for election or reelection to the Board, include a completed and signed
questionnaire, representation and agreement required by Section 2.15;
(b) if the notice relates to any business (other than the nomination of persons for
election as directors) that the stockholder proposes to bring before the meeting,
(i) a brief description of the business desired to be brought before the annual
meeting, (ii) the reasons for conducting such business at the annual meeting, (iii)
the text of the proposal or business (including the text of any resolutions
proposed for consideration and in the event that such business includes a proposal
to amend these bylaws, the language of the proposed amendment), (iv) any material
interest in such business of such stockholder and the beneficial owner, if any, on
whose behalf the proposal is made, and (v) a description of all agreements,
arrangements and understandings between such stockholder and beneficial owner, if
any, and any other person or persons (including their names) in connection with the
proposal of such business by such stockholder; and
(c) as to the stockholder giving the notice and the beneficial owner, if any, on
whose behalf the nomination or proposal is made (i) the name and address of such
stockholder, as they appear on the Companys books, and of such beneficial owner,
if any, (ii)(A) the class or series and number of shares of capital stock of the
Company that are, directly or indirectly, owned beneficially and of record by such
stockholder and by such beneficial owner, (B) any option, warrant, convertible
security, stock appreciation right, or similar right with an exercise or conversion
privilege or a settlement payment or mechanism at a price related to any class or
series of capital stock of the Company, whether or not such instrument or right
shall be subject to settlement in the underlying class or series of capital stock
of the Company or otherwise (a Derivative Instrument) directly or indirectly
owned beneficially by such stockholder and by such beneficial owner, if any, and
any other direct or indirect opportunity held or owned beneficially by such
stockholder and by such beneficial owner, if any, to profit or share in any profit
derived from any increase or decrease in the value of shares of the Company, (C)
any proxy, contract, arrangement, understanding, or relationship pursuant to which
such stockholder or beneficial owner, if any, has a
-10-
right to vote any shares of any security of the Company, (D) any short interest in
any security of the Company (for purposes of this Section 2.14, a person shall be
deemed to have a short interest in a security if such person directly or
indirectly, through a contract, arrangement, understanding, relationship or
otherwise, has the opportunity to profit or share in any profit derived from any
decrease in the value of the subject security), (E) any right to
dividends on the shares of capital stock of the Company owned beneficially by such stockholder or
such beneficial owner, if any, which right is separated or separable from the
underlying shares, (F) any proportionate interest in shares of capital stock of the
Company or Derivative Instrument held, directly or indirectly, by a general or
limited partnership in which such stockholder or such beneficial owner, if any, is
a general partner or with respect to which such stockholder or such beneficial
owner, if any, directly or indirectly, beneficially owns an interest in a general
partner, and (G) any performance-related fees (other than an asset-based fee) to
which such stockholder or such beneficial owner, if any, is entitled to based on
any increase or decrease in the value of shares of the Company or Derivative
Instruments, if any, in each case with respect to the information required to be
included in the notice pursuant to (A) through (G) above, as of the date of such
notice and including, without limitation, any such interests held by members of
such stockholders or such beneficial owners immediate family sharing the same
household (which information shall be supplemented by such stockholder and such
beneficial owner, if any, (y) not later than ten (10) days after the record date
for the annual meeting to disclose such ownership as of the record date and (z) ten
(10) days before the annual meeting date), (iii) any other information relating to
such stockholder and beneficial owner, if any, that would be required to be
disclosed in a proxy statement or other filings required to be made in connection
with solicitation of proxies for election of directors in a contested election
pursuant to Section 14 of the Exchange Act and the rules and regulations
promulgated thereunder, (iv) a representation that the stockholder is a holder of
record of stock of the Company entitled to vote at such meeting and intends to
appear in person or by proxy at the meeting to propose such business or nomination,
and (v) a representation whether the stockholder or the beneficial owner, if any,
intends or is part of a group that intends (a) to deliver a proxy statement and/or
form of proxy to holders of at least the percentage of the Companys outstanding
capital stock required to approve or adopt the proposal or elect the nominee or (b)
otherwise to solicit proxies from stockholders in support of such proposal or
nomination.
The Company may require any proposed nominee to furnish such other information as it may reasonably
require (i) to determine the eligibility of such proposed nominee to serve as a director of the
Company, including with respect to qualifications established by any committee of the Board (ii) to
determine whether such nominee qualifies as an independent director or audit committee financial
expert under applicable law, securities exchange rule or regulation, or any publicly-disclosed
corporate governance guideline or committee charter of the Company; and (iii) that could be
material to a reasonable stockholders understanding of the independence and qualifications, or
lack thereof, of such nominee.
-11-
(3) Notwithstanding anything in the second sentence of Section 2.14(A)(2) to the contrary, in
the event that the number of directors to be elected to the Board at an annual meeting is increased
and there is no public announcement by the Company naming all of the nominees for director or
specifying the size of the increased Board at least one hundred (100) days prior to the first
anniversary of the preceding years annual meeting, a stockholders notice required by this Section
2.14 shall also be considered timely, but only with respect to nominees for any new positions
created by such increase, if it shall be delivered to the Secretary of the Company at the principal
executive offices of the Company not later than the close of business on the tenth (10th) day
following the day on which such public announcement is first made by the Company.
(B) Special Meetings of Stockholders.
Only such business shall be conducted at a special meeting of stockholders as shall have been
brought before the meeting pursuant to the Companys notice of meeting. Nominations of persons for
election to the Board may be made at a special meeting of stockholders at which directors are to be
elected pursuant to the Companys notice of meeting (1) by or at the direction of the Board or (2)
provided that the Board has determined that the directors shall be elected at such meeting, by any
stockholder of the Company who is a stockholder of record at the time the notice provided for in
this Section 2.14 is delivered to the Secretary of the Company and at the time of the special
meeting, who is entitled to vote at the meeting and upon such election, and who complies with the
notice procedures set forth in this Section 2.14. In the event the Company calls a special meeting
of stockholders for the purpose of electing one or more directors to the Board, any such
stockholder entitled to vote in such election of directors may nominate a person or persons (as the
case may be) for election to such position(s) as specified in the Companys notice of meeting, if
the stockholders notice in the same form as required by Section 2.14(A)(2) with respect to any
nomination (including the completed and signed questionnaire, representation and agreement required
by Section 2.15) shall be delivered to the Secretary at the principal executive offices of the
Company not earlier than the close of business on the one hundred twentieth (120th) day prior to
such special meeting and not later than the close of business on the later of the ninetieth (90th)
day prior to such special meeting or the tenth (10th) day following the day on which public
announcement is first made of the date of the special meeting and of the nominees proposed by the
Board to be elected at such meeting. In no event shall the public announcement of an adjournment
or postponement of a special meeting commence a new time period (or extend any time period) for the
giving of a stockholders notice as described above.
(C) General.
(1) Subject to Section 3.14, only such persons who are nominated in accordance with the
procedures set forth in this Section 2.14 shall be eligible to be elected at an annual or special
meeting of stockholders of the Company to serve as directors and only such business shall be
conducted at a meeting of stockholders as shall have been brought before the meeting in accordance
with the procedures set forth in this Section 2.14. Except as otherwise provided by law, the
Certificate or these bylaws, the chairperson of the meeting shall have the power and duty (a) to
determine whether a nomination or any business proposed to be brought before the meeting was made
or proposed, as the case may be, in accordance with the procedures
-12-
set forth in this Section 2.14 and (b) if any proposed nomination or business was not made or
proposed in compliance with this Section 2.14, to declare that such nomination shall be disregarded
or that such proposed business shall not be transacted. Notwithstanding the foregoing provisions
of this Section 2.14, unless otherwise required by law, if the stockholder (or a qualified
representative of the stockholder) does not appear at the annual or special meeting of stockholders
of the Company to present a nomination or proposed business, such nomination shall be disregarded
and such proposed business shall not be transacted, notwithstanding that proxies in respect of such
vote may have been received by the Company. For purposes of this Section 2.14, to be considered a
qualified representative of the stockholder, a person must be authorized by a writing executed by
such stockholder or an electronic transmission delivered by such stockholder to act for such
stockholder as proxy at the meeting of stockholders and such person must produce such writing or
electronic transmission, or a reliable reproduction of the writing or electronic transmission, at
the meeting of the stockholders.
(2) For purpose of this Section 2.14, public announcement shall include disclosure in a
press release reported by the Dow Jones News Service, Associated Press, or comparable national news
service or in a document publicly filed by the Company with the Securities and Exchange Commission
pursuant to Section 13, 14, or 15(d) of the Exchange Act and the rules and regulations promulgated
thereunder.
(3) Nothing in this Section 2.14, shall be deemed to affect any rights (a) of stockholders to
request inclusion of proposals or nominations in the Companys proxy statement pursuant to Rule
14a-8 (or any successor thereto) promulgated under the Exchange Act or (b) of the holders of any
series of Preferred Stock to nominate and elect directors pursuant to and to the extent provided in
any applicable provisions of the Certificate of Incorporation.
2.15 SUBMISSION OF QUESTIONNAIRE, REPRESENTATION AND AGREEMENT.
To be eligible to be a nominee for election or reelection as a director of the Company, a
person must deliver (in accordance with the time periods prescribed for delivery of notice under
Section 2.14 of these bylaws) to the Secretary at the principal executive offices of the Company a
written questionnaire with respect to the background and qualification of such person and the
background of any other person or entity on whose behalf the nomination is being made (which
questionnaire shall be provided by the Secretary upon written request) and a written representation
and agreement (in the form provided by the Secretary upon written request) that such person (A) is
not and will not become a party to (1) any agreement, arrangement or understanding with, and has
not given any commitment or assurance to, any person or entity as to how such person, if elected as
a director of the Company, will act or vote on any issue or question (a Voting Commitment) that
has not been disclosed to the Company or (2) any Voting Commitment that could limit or interfere
with such persons ability to comply, if elected as a director of the Company, with such persons
fiduciary duties under applicable law, (B) is not and will not become a party to any agreement,
arrangement or understanding with any person or entity other than the Company with respect to any
direct or indirect compensation, reimbursement or indemnification in connection with service or
action as a director that has not been disclosed therein, and (C) in such persons individual
capacity and on behalf of any person or entity on whose behalf the nomination is being made, would
be in compliance, if elected as a
-13-
director of the Company, and will comply with all applicable publicly disclosed corporate
governance, conflict of interest, confidentiality and stock trading policies and guidelines of the
Company.
ARTICLE III
DIRECTORS
3.1 POWERS.
Subject to the provisions of the DGCL and any limitations in the Certificate, the business and
affairs of the Company shall be managed and all corporate powers shall be exercised by or under the
direction of the Board.
3.2 NUMBER OF DIRECTORS.
The Board shall consist of one or more members, each of whom shall be a natural person. The
authorized number of directors shall be determined from time to time by resolution of the Board,
provided the Board shall consist of at least one (1) member. No reduction of the authorized number
of directors shall have the effect of removing any director before that directors term of office
expires.
3.3 ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS.
Directors need not be stockholders unless so required by the Certificate or these bylaws. The
Certificate or these bylaws may prescribe other qualifications for directors. Each director,
including a director elected to fill a vacancy, shall hold office until such directors successor
is elected and qualified or until such directors earlier death, resignation or removal.
3.4 RESIGNATION AND VACANCIES.
Any director may resign at any time upon written notice or by electronic transmission to the
Company.
Vacancies occurring on the Board for any reason and newly created directorships, resulting
from an increase in the authorized number of directors may be filled only by a vote of a majority
of the remaining members of the Board, although less than a quorum, or by a sole remaining
director, at any meeting of the Board. A person so elected by the Board to fill a vacancy or newly
created directorship shall hold office until the next annual meeting of stockholders and until his
or her successor shall be duly elected and qualified.
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE.
The Board may hold meetings, both regular and special, either within or outside the State of
Delaware.
Unless otherwise restricted by the Certificate or these bylaws, members of the Board, or any
committee designated by the Board, may participate in a meeting of the Board, or any
-14-
committee, by means of conference telephone or other communications equipment by means of
which all persons participating in the meeting can hear each other, and such participation in a
meeting shall constitute presence in person at the meeting.
3.6 REGULAR MEETINGS.
Regular meetings of the Board may be held without notice at such time and at such place as
shall from time to time be determined by the Board.
3.7 SPECIAL MEETINGS; NOTICE.
Special meetings of the Board for any purpose or purposes may be called at any time by the
Chairperson of the Board, the Chief Executive Officer, at any time when there is no Chairperson of
the Board or Chief Executive Officer, the President, or a majority of the authorized number of
directors. The person(s) authorized to call special meetings of the Board may fix the place and
time of the meeting.
Notice of the time and place of special meetings shall be:
(A) delivered personally by hand, by courier or by telephone;
(B) sent by United States first-class mail, postage prepaid;
(C) sent by facsimile; or
(D) sent by electronic mail,
directed to each director at that directors address, telephone number, facsimile number or
electronic mail address, as the case may be, as shown on the Companys records.
If the notice is (i) delivered personally by hand, by courier or by telephone, (ii) sent by
facsimile or (iii) sent by electronic mail, it shall be delivered or sent at least 24 hours before
the time of the holding of the meeting. If the notice is sent by United States mail, it shall be
deposited in the United States mail at least four (4) days before the time of the holding of the
meeting. Any oral notice may be communicated either to the director or to a person at the office
of the director who the person giving notice has reason to believe will promptly communicate such
notice to the director. The notice need not specify the place of the meeting if the meeting is to
be held at the Companys principal executive office nor the purpose of the meeting.
3.8 QUORUM.
Except as otherwise required by law or the Certificate, at all meetings of the Board, a
majority of the authorized number of directors (as determined pursuant to Section 3.2 of these
bylaws) shall constitute a quorum for the transaction of business, except to adjourn as provided in
Section 3.11 of these bylaws. A meeting at which a quorum is initially present may continue to
transact business notwithstanding the withdrawal of directors, if any action taken is approved by
at least a majority of the required quorum for that meeting. The vote of a majority of the
-15-
directors present at any meeting at which a quorum is present shall be the act of the Board,
except as may be otherwise specifically provided by statute, the Certificate or these bylaws.
3.9 WAIVER OF NOTICE.
Whenever notice is required to be given under any provisions of the DGCL, the Certificate or
these bylaws, a written waiver thereof, signed by the person entitled to notice, or a waiver by
electronic transmission by the person entitled to notice, whether before or after the time stated
therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall
constitute a waiver of notice of such meeting, except when the person attends a meeting solely for
the express purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the business to be
transacted at, nor the purpose of, any regular or special meeting of the directors, or members of a
committee of directors, need be specified in any written waiver of notice or any waiver by
electronic transmission unless so required by the Certificate or these bylaws.
3.10 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING.
Unless otherwise restricted by the Certificate or these bylaws, any action required or
permitted to be taken at any meeting of the Board, or of any committee thereof, may be taken
without a meeting if all members of the Board or committee, as the case may be, consent thereto in
writing or by electronic transmission and the writing or writings or electronic transmission or
transmissions are filed with the minutes of proceedings of the Board or committee. Such filing
shall be in paper form if the minutes are maintained in paper form and shall be in electronic form
if the minutes are maintained in electronic form.
3.11 ADJOURNED MEETING; NOTICE.
If a quorum is not present at any meeting of the Board, then a majority of the directors
present thereat may adjourn the meeting from time to time, without notice other than announcement
at the meeting, until a quorum is present.
3.12 FEES AND COMPENSATION OF DIRECTORS.
Unless otherwise restricted by the Certificate or these bylaws, the Board shall have the
authority to fix the compensation of directors.
3.13 REMOVAL OF DIRECTORS.
Any director may be removed from the Board by the stockholders of the Company only for cause,
and in such case only by the affirmative vote of the holders of at least a majority of the voting
power of the issued and outstanding shares of capital stock of the Company then entitled to vote in
the election of directors.
-16-
ARTICLE IV
COMMITTEES
4.1 COMMITTEES OF DIRECTORS.
The Board may designate one or more committees, each committee to consist of one or more of
the directors of the Company. The Board may designate one or more directors as alternate members
of any committee, who may replace any absent or disqualified member at any meeting of the
committee. In the absence or disqualification of a member of a committee, the member or members
thereof present at any meeting and not disqualified from voting, whether or not such member or
members constitute a quorum, may unanimously appoint another member of the Board to act at the
meeting in the place of any such absent or disqualified member. Any such committee, to the extent
provided in the resolution of the Board or in these bylaws, shall have and may exercise such
lawfully delegable powers and duties as the Board may confer.
4.2 COMMITTEE MINUTES.
Each committee shall keep regular minutes of its meetings and report to the Board when
required.
4.3 MEETINGS AND ACTION OF COMMITTEES.
Meetings and actions of committees shall be governed by, and held and taken in accordance
with, the provisions of:
(A) Section 3.5 (relating to place of meetings and meetings by telephone);
(B) Section 3.6 (relating to regular meetings);
(C) Section 3.7 (relating to special meetings and notice);
(D) Section 3.8 (relating to quorum);
(E) Section 3.9 (relating to waiver of notice);
(F) Section 3.10 (relating to action without a meeting); and
(G) Section 3.11 (relating to adjournment and notice of adjournment)
of these bylaws, with such changes in the context of those bylaws as are necessary to substitute
the committee and its members for the Board and its members.
Notwithstanding the foregoing:
(i) the time of regular meetings of committees may be determined either by resolution of the
Board or by resolution of the committee;
-17-
(ii) special meetings of committees may also be called by resolution of the Board or by
resolution of the committee; and
(iii) notice of special meetings of committees shall also be given to all alternate members,
who shall have the right to attend all meetings of the committee. The Board may adopt rules for the
government of any committee not inconsistent with the provisions of these bylaws.
ARTICLE V
OFFICERS
5.1 OFFICERS.
The officers of the Company shall be a Chief Executive Officer, President, Chief Financial
Officer and a Secretary. The Company may also have, at the discretion of the Board, a chairperson
of the Board, a vice chairperson of the Board, a Treasurer, one or more vice presidents, one or
more assistant vice presidents, one or more assistant treasurers, one or more assistant
secretaries, and any such other officers as may be appointed in accordance with the provisions of
these bylaws.
|
Any number of offices may be held by the same person.
5.2 APPOINTMENT OF OFFICERS. |
The Board shall appoint the officers of the Company, except such officers as may be appointed
in accordance with the provisions of Section 5.3 of these bylaws, subject to the rights, if any, of
an officer under any contract of employment. Each officer shall hold office until his or her
successor is elected and qualified or until his or her earlier resignation or removal. A failure
to elect officers shall not dissolve or otherwise affect the Company.
5.3 SUBORDINATE OFFICERS.
The Board may appoint, or empower the Chief Executive Officer or, in the absence of a Chief
Executive Officer, the President of the Company to appoint, such other officers and agents as the
business of the Company may require, other than the Chairperson of the Board or the Chief Executive
Officer. Each of such officers and agents shall hold office for such period, have such authority,
and perform such duties as are provided in these bylaws or as the Board may from time to time
determine.
5.4 REMOVAL AND RESIGNATION OF OFFICERS.
Any officer may be removed, either with or without cause, by an affirmative vote of the
majority of the Board at any regular or special meeting of the Board or, except in the case of an
officer appointed by the Board, by any officer upon whom such power of removal may be conferred by
the Board.
-18-
Any officer may resign at any time by giving written notice to the Company. Any resignation
shall take effect at the date of the receipt of that notice or at any later time specified in that
notice. Unless otherwise specified in the notice of resignation, the acceptance of the resignation
shall not be necessary to make it effective. Any resignation is without prejudice to the rights,
if any, of the Company under any contract to which the officer is a party.
5.5 VACANCIES IN OFFICES.
Any vacancy occurring in any office of the Company may only be filled by the Board or as
provided in Section 5.3 of these bylaws.
5.6 REPRESENTATION OF SHARES OF OTHER CORPORATIONS.
The Chairperson of the Board, the Chief Executive Officer, the President or the Chief
Financial Officer, or any other person authorized by the Board, the Chairperson of the Board, the
Chief Executive Officer, the President or the Chief Financial Officer, is authorized to vote,
represent, and exercise on behalf of this Company all rights incident to any and all shares or
other equity interests of any other company or entity standing in the name of this Company. The
authority granted herein may be exercised either by such person directly or by any other person
authorized to do so by proxy or power of attorney duly executed by such person having the
authority.
5.7 AUTHORITY AND DUTIES OF OFFICERS.
In addition to the foregoing authority and duties, all officers of the Company shall
respectively have such authority and perform such duties in the management of the business of the
Company as may be designated from time to time by the Board.
ARTICLE VI
RECORDS AND REPORTS
6.1 MAINTENANCE AND INSPECTION OF RECORDS.
The Company shall, either at its principal executive office or at such place or places as
designated by the Board, keep a record of its stockholders, listing their names and addresses and
the number and class of shares held by each stockholder, a copy of these bylaws, as may be amended
to date, minute books, accounting books and other records.
Any such records maintained by the Company may be kept on, or by means of, or be in the form
of, any information storage device or method, provided that the records so kept can be converted
into clearly legible paper form within a reasonable time. The Company shall so convert any records
so kept upon the request of any person entitled to inspect such records pursuant to the provisions
of the DGCL. When records are kept in such manner, a clearly legible paper form produced from or
by means of the information storage device or method shall be admissible in evidence, and accepted
for all other purposes, to the same extent as an original paper form accurately portrays the
record.
-19-
6.2 INSPECTION BY DIRECTORS.
Any director shall have the right to examine the Companys stock ledger, a list of its
stockholders, and its other books and records for a purpose reasonably related to his or her
position as a director.
ARTICLE VII
GENERAL MATTERS
7.1 CHECKS; DRAFTS; EVIDENCES OF INDEBTEDNESS.
From time to time, the Board shall determine by resolution which person or persons may sign or
endorse all checks, drafts, other orders for payment of money, notes or other evidences of
indebtedness that are issued in the name of or payable to the Company, and only the persons so
authorized shall sign or endorse those instruments.
7.2 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS.
Except as otherwise provided in these bylaws, the Board, or any officers of the Company
authorized thereby, may authorize any officer or officers, or agent or agents, to enter into any
contract or execute any instrument in the name of and on behalf of the Company; such authority may
be general or confined to specific instances.
7.3 STOCK CERTIFICATES; PARTLY PAID SHARES.
The shares of the Company shall be represented by certificates, provided that the Board may
provide by resolution or resolutions that some or all of any or all classes or series of its stock
shall be uncertificated shares. Any such resolution shall not apply to shares represented by a
certificate until such certificate is surrendered to the Company. Every holder of stock
represented by certificates and upon request every holder of uncertificated shares shall be
entitled to have a certificate signed by, or in the name of the Company by the Chairperson of the
Board or a vice-chairperson of the Board, or the President or vice-president, and by the Treasurer
or an assistant treasurer, or the Secretary or an assistant secretary of the Company representing
the number of shares registered in certificate form. Any or all of the signatures on the
certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed upon a certificate has ceased to be such officer,
transfer agent or registrar before such certificate is issued, it may be issued by the Company with
the same effect as if he or she were such officer, transfer agent or registrar at the date of
issue.
7.4 SPECIAL DESIGNATION ON CERTIFICATES.
If the Company is authorized to issue more than one class of stock or more than one series of
any class, then the powers, designations, preferences, and relative, participating, optional or
other special rights of each class of stock or series thereof and the qualifications, limitations
or restrictions of such preferences and/or rights shall be set forth in full or summarized on the
face or back of the certificate that the Company shall issue to represent such class or series of
stock; provided, however, that, except as otherwise provided in Section 202 of
-20-
the DGCL, in lieu of the foregoing requirements there may be set forth on the face or back of
the certificate that the Company shall issue to represent such class or series of stock a statement
that the Company will furnish without charge to each stockholder who so requests the powers,
designations, preferences, and relative, participating, optional or other special rights of each
class of stock or series thereof and the qualifications, limitations or restrictions of such
preferences and/or rights.
7.5 LOST CERTIFICATES.
Except as provided in this Section 7.5, no new certificates for shares shall be issued to
replace a previously issued certificate unless the latter is surrendered to the Company and
cancelled at the same time. The Company may issue a new certificate of stock or uncertificated
shares in the place of any certificate theretofore issued by it, alleged to have been lost, stolen
or destroyed, and the Company may require the owner of the lost, stolen or destroyed certificate,
or such owners legal representative, to give the Company a bond sufficient to indemnify it against
any claim that may be made against it on account of the alleged loss, theft or destruction of any
such certificate or the issuance of such new certificate or uncertificated shares.
7.6 DIVIDENDS.
The Board, subject to any restrictions contained in either (a) the DGCL or (b) the
Certificate, may declare and pay dividends upon the shares of its capital stock. Dividends may be
paid in cash, in property, or in shares of the Companys capital stock.
The Board may set apart out of any of the funds of the Company available for dividends a
reserve or reserves for any proper purpose and may abolish any such reserve.
7.7 FISCAL YEAR.
The fiscal year of the Company shall be fixed by resolution of the Board and may be changed by
the Board.
7.8 SEAL.
The Company may adopt a corporate seal, which shall be adopted and which may be altered by the
Board. The Company may use the corporate seal by causing it or a facsimile thereof to be impressed
or affixed or in any other manner reproduced.
7.9 TRANSFER OF STOCK.
Transfers of stock shall be made only upon the transfer books of the Company kept at an office
of the Company or by transfer agents designated to transfer shares of the stock of the Company.
Except where a certificate is issued in accordance with Section 7.5 of these bylaws, an outstanding
certificate for the number of shares involved shall be surrendered for cancellation before a new
certificate is issued therefore. Upon surrender to the Company or the transfer agent of the
Company of a certificate for shares duly endorsed or accompanied by proper evidence of succession,
assignation or authority to transfer, it shall be the duty of the Company to issue a
-21-
new certificate to the person entitled thereto, cancel the old certificate, and record the
transaction in its books.
7.10 STOCK TRANSFER AGREEMENTS.
The Company shall have power to enter into and perform any agreement with any number of
stockholders of any one or more classes or series of stock of the Company to restrict the transfer
of shares of stock of the Company of any one or more classes or series owned by such stockholders
in any manner not prohibited by the DGCL.
7.11 REGISTERED STOCKHOLDERS.
The Company:
(A) shall be entitled to recognize the exclusive right of a person registered on its
books as the owner of shares to receive dividends and to vote as such owner; and
(B) shall not be bound to recognize any equitable or other claim to or interest in
such share or shares on the part of another person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Delaware.
7.12 WAIVER OF NOTICE.
Whenever notice is required to be given under any provision of the DGCL, the Certificate or
these bylaws, a written waiver, signed by the person entitled to notice, or a waiver by electronic
transmission by the person entitled to notice, whether before or after the time of the event for
which notice is to be given, shall be deemed equivalent to notice. Attendance of a person at a
meeting shall constitute a waiver of notice of such meeting, except when the person attends a
meeting solely for the express purpose of objecting at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting of the
stockholders need be specified in any written waiver of notice or any waiver by electronic
transmission unless so required by the Certificate or these bylaws.
ARTICLE VIII
NOTICE BY ELECTRONIC TRANSMISSION
8.1 NOTICE BY ELECTRONIC TRANSMISSION.
Without limiting the manner by which notice otherwise may be given effectively to stockholders
pursuant to the DGCL, the Certificate or these bylaws, any notice to stockholders given by the
Company under any provision of the DGCL, the Certificate or these bylaws shall be effective if
given by a form of electronic transmission consented to by the stockholder to whom the notice is
given. Any such consent shall be revocable by the stockholder by written notice to the Company.
Any such consent shall be deemed revoked if:
-22-
(A) the Company is unable to deliver by electronic transmission two consecutive
notices given by the Company in accordance with such consent; and
(B) such inability becomes known to the secretary or an assistant secretary of the
Company or to the transfer agent, or other person responsible for the giving of
notice.
However, the inadvertent failure to treat such inability as a revocation shall not invalidate any
meeting or other action.
Any notice given pursuant to the preceding paragraph shall be deemed given:
(i) if by facsimile telecommunication, when directed to a number at which the stockholder has
consented to receive notice;
(ii) if by electronic mail, when directed to an electronic mail address at which the
stockholder has consented to receive notice;
(iii) if by a posting on an electronic network together with separate notice to the
stockholder of such specific posting, upon the later of (A) such posting and (B) the giving of such
separate notice; and
(iv) if by any other form of electronic transmission, when directed to the stockholder.
An affidavit of the secretary or an assistant secretary or of the transfer agent or other
agent of the Company that the notice has been given by a form of electronic transmission shall, in
the absence of fraud, be prima facie evidence of the facts stated therein.
8.2 DEFINITION OF ELECTRONIC TRANSMISSION.
An electronic transmission means any form of communication, including without limitation an
email communication, not directly involving the physical transmission of paper, that creates a
record that may be retained, retrieved, and reviewed by a recipient thereof, and that may be
directly reproduced in paper form by such a recipient through an automated process.
8.3 INAPPLICABILITY.
Notice by a form of electronic transmission shall not apply to Section 164 (relating to
failure to pay for stock; remedies), Section 296 (relating to adjudication of claims; appeal),
Section 311 (relating to revocation of voluntary dissolution), Section 312 (relating to renewal,
revival, extension and restoration of certificate of incorporation) or Section 324 (relating to
attachment of shares of stock or any option, right or interest therein) of the DGCL.
-23-
ARTICLE IX
INDEMNIFICATION OF DIRECTORS AND OFFICERS
9.1 POWER TO INDEMNIFY IN ACTIONS, SUITS OR PROCEEDINGS OTHER THAN THOSE BY OR IN THE RIGHT OF
THE COMPANY.
Subject to Section 9.3 of these bylaws, the Company shall indemnify, to the fullest extent
permitted by the DGCL, as now or hereafter in effect, any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other than an action by or in the right
of the Company) by reason of the fact that such person (or the legal representative of such person)
is or was a director or officer of the Company or any predecessor of the Company, or is or was a
director or officer of the Company serving at the request of the Company as a director or officer,
employee or agent of another Company, partnership, joint venture, trust, employee benefit plan or
other enterprise, against expenses (including attorneys fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by such person in connection with such action, suit
or proceeding if such person acted in good faith and in a manner such person reasonably believed to
be in or not opposed to the best interests of the Company, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe such persons conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a
plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the
person did not act in good faith and in a manner which such person reasonably believed to be in or
not opposed to the best interests of the Company, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that such persons conduct was unlawful.
9.2 POWER TO INDEMNIFY IN ACTIONS, SUITS OR PROCEEDINGS BY OR IN THE RIGHT OF THE COMPANY.
Subject to Section 9.3 of these bylaws, the Company shall indemnify, to the fullest extent
permitted by the DGCL, as now or hereafter in effect, any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or suit by or in the
right of the Company to procure a judgment in its favor by reason of the fact that such person (or
the legal representative of such person) is or was a director or officer of the Company or any
predecessor of the Company, or is or was a director or officer of the Company serving at the
request of the Company as a director, officer, employee or agent of another Company, partnership,
joint venture, trust, employee benefit plan or other enterprise against expenses (including
attorneys fees) actually and reasonably incurred by such person in connection with the defense or
settlement of such action or suit if such person acted in good faith and in a manner such person
reasonably believed to be in or not opposed to the best interests of the Company; except that no
indemnification shall be made in respect of any claim, issue or matter as to which such person
shall have been adjudged to be liable to the Company unless and only to the extent that the Court
of Chancery or the court in which such action or suit was brought shall determine upon application
that, despite the adjudication of liability but in view of all the circumstances of the case, such
person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery
or such other court shall deem proper.
-24-
9.3 AUTHORIZATION OF INDEMNIFICATION.
Any indemnification under this Article IX (unless ordered by a court) shall be made by the
Company only as authorized in the specific case upon a determination that indemnification of the
director or officer is proper in the circumstances because such person has met the applicable
standard of conduct set forth in Section 9.1 or Section 9.2 of these bylaws, as the case may be.
Such determination shall be made, with respect to a person who is either a director or officer at
the time of such determination or a former director or officer, (i) by a majority vote of the
directors who are not parties to such action, suit or proceeding, even though less than a quorum,
or (ii) by a committee of such directors designated by a majority vote of such directors, even
though less than a quorum, or (iii) if there are no such directors, or if such directors so direct,
by independent legal counsel in a written opinion or (iv) by the stockholders (but only if a
majority of the directors who are not parties to such action, suit or proceeding, if they
constitute a quorum of the board of directors, presents the issue of entitlement to indemnification
to the stockholders for their determination). To the extent, however, that a present or former
director or officer of the Company has been successful on the merits or otherwise in defense of any
action, suit or proceeding described above, or in defense of any claim, issue or matter therein,
such person shall be indemnified against expenses (including attorneys fees) actually and
reasonably incurred by such person in connection therewith, without the necessity of authorization
in the specific case.
9.4 GOOD FAITH DEFINED.
For purposes of any determination under Section 9.3 of these bylaws, to the fullest extent
permitted by applicable law, a person shall be deemed to have acted in good faith and in a manner
such person reasonably believed to be in or not opposed to the best interests of the Company, or,
with respect to any criminal action or proceeding, to have had no reasonable cause to believe such
persons conduct was unlawful, if such persons action is based on the records or books of account
of the Company or another enterprise, or on information supplied to such person by the officers of
the Company or another enterprise in the course of their duties, or on the advice of legal counsel
for the Company or another enterprise or on information or records given or reports made to the
Company or another enterprise by an independent certified public accountant or by an appraiser or
other expert selected with reasonable care by the Company or another enterprise. The term another
enterprise as used in this Section 9.4 shall mean any other Company or any partnership, joint
venture, trust, employee benefit plan or other enterprise of which such person is or was serving at
the request of the Company as a director, officer, employee or agent. The provisions of this
Section 9.4 shall not be deemed to be exclusive or to limit in any way the circumstances in which a
person may be deemed to have met the applicable standard of conduct set forth in Section 9.1 or
Section 9.2 of these bylaws, as the case may be.
9.5 INDEMNIFICATION BY A COURT.
Notwithstanding any contrary determination in the specific case under Section 9.3 of this
Article IX, and notwithstanding the absence of any determination thereunder, any director or
officer may apply to the Court of Chancery in the State of Delaware for indemnification to the
extent otherwise permissible under Section 9.1 and Section 9.2 of these bylaws. The basis of such
indemnification by a court shall be a determination by such court that indemnification of the
director or officer is proper in the circumstances because such person has met the applicable
-25-
standards of conduct set forth in Section 9.1 or Section 9.2 of these bylaws, as the case may
be. Neither a contrary determination in the specific case under Section 9.3 of these bylaws nor the
absence of any determination thereunder shall be a defense to such application or create a
presumption that the director or officer seeking indemnification has not met any applicable
standard of conduct. Notice of any application for indemnification pursuant to this Section 9.5
shall be given to the Company promptly upon the filing of such application. If successful, in
whole or in part, the director or officer seeking indemnification shall also be entitled to be paid
the expense of prosecuting such application.
9.6 EXPENSES PAYABLE IN ADVANCE.
To the fullest extent not prohibited by the DGCL, or by any other applicable law, expenses
incurred by a person who is or was a director or officer in defending any civil, criminal,
administrative or investigative action, suit or proceeding shall be paid by the Company in advance
of the final disposition of such action, suit or proceeding; provided, however,
that if the DGCL requires, an advance of expenses incurred by any person in his or her capacity as
a director or officer (and not in any other capacity) shall be made only upon receipt of an
undertaking by or on behalf of such person to repay such amount if it shall ultimately be
determined that such person is not entitled to be indemnified by the Company as authorized in this
Article IX.
9.7 NONEXCLUSIVITY OF INDEMNIFICATION AND ADVANCEMENT OF EXPENSES.
The indemnification and advancement of expenses provided by or granted pursuant to this
Article IX shall not be deemed exclusive of any other rights to which those seeking indemnification
or advancement of expenses may be entitled under the Certificate, any bylaw, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in such persons official
capacity and as to action in another capacity while holding such office, it being the policy of the
Company that indemnification of the persons specified in Section 9.1 and Section 9.2 of these
bylaws shall be made to the fullest extent permitted by law. The provisions of this Article IX
shall not be deemed to preclude the indemnification of any person who is not specified in Section
9.1 or Section 9.2 of these bylaws but whom the Company has the power or obligation to indemnify
under the provisions of the DGCL, or otherwise. The Company is specifically authorized to enter
into individual contracts with any or all of its directors, officers, employees or agents
respecting indemnification and advances, to the fullest extent not prohibited by the DGCL, or by
any other applicable law.
9.8 INSURANCE.
To the fullest extent permitted by the DGCL or any other applicable law, the Company may
purchase and maintain insurance on behalf of any person who is or was a director, officer, employee
or agent of the Company, or is or was a director, officer, employee or agent of the Company serving
at the request of the Company as a director, officer, employee or agent of another Company,
partnership, joint venture, trust, employee benefit plan or other enterprise against any liability
asserted against such person and incurred by such person in any such capacity, or arising out of
such persons status as such, whether or not the Company would have
-26-
the power or the obligation to indemnify such person against such liability under the
provisions of this Article IX.
9.9 CERTAIN DEFINITIONS.
For purposes of this Article IX, references to the Company shall include, in addition to the
resulting company, any constituent company (including any constituent of a constituent) absorbed in
a consolidation or merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors or officers, so that any person who is or was a director or
officer of such constituent company, or is or was a director or officer of such constituent company
serving at the request of such constituent company as a director, officer, employee or agent of
another company, partnership, joint venture, trust, employee benefit plan or other enterprise,
shall stand in the same position under the provisions of this Article IX with respect to the
resulting or surviving company as such person would have with respect to such constituent company
if its separate existence had continued. For purposes of this Article IX, references to fines
shall include any excise taxes assessed on a person with respect to an employee benefit plan; and
references to serving at the request of the Company shall include any service as a director,
officer, employee or agent of the Company which imposes duties on, or involves services by, such
director or officer with respect to an employee benefit plan, its participants or beneficiaries;
and a person who acted in good faith and in a manner such person reasonably believed to be in the
interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have
acted in a manner not opposed to the best interests of the Company as referred to in this Article
IX.
9.10 SURVIVAL OF INDEMNIFICATION AND ADVANCEMENT OF EXPENSES.
The rights to indemnification and advancement of expenses conferred by this Article IX shall
continue as to a person who has ceased to be a director or officer and shall inure to the benefit
of the heirs, executors, administrators and other personal and legal representatives of such a
person.
9.11 LIMITATION ON INDEMNIFICATION.
Notwithstanding anything contained in this Article IX to the contrary, except for proceedings
to enforce rights to indemnification (which shall be governed by Section 9.5 of these bylaws), the
Company shall not be obligated to indemnify any director or officer in connection with a proceeding
(or part thereof) initiated by such person unless such proceeding (or part thereof) was authorized
or consented to by the Board.
9.12 INDEMNIFICATION OF EMPLOYEES AND AGENTS.
The Company may, to the extent authorized from time to time by the Board, provide rights to
indemnification and to the advancement of expenses to employees and agents of the Company similar
to those conferred in this Article IX to directors and officers of the Company.
-27-
9.13 EFFECT OF AMENDMENT OR REPEAL.
Neither any amendment or repeal of any Section of this Article IX, nor the adoption of any
provision of the Certificate or the bylaws inconsistent with this Article IX, shall adversely
affect any right or protection of any director, officer, employee or other agent established
pursuant to this Article IX existing at the time of such amendment, repeal or adoption of an
inconsistent provision, including without limitation by eliminating or reducing the effect of this
Article IX, for or in respect of any act, omission or other matter occurring, or any action or
proceeding accruing or arising (or that, but for this Article IX, would accrue or arise), prior to
such amendment, repeal or adoption of an inconsistent provision.
ARTICLE X
MISCELLANEOUS
10.1 PROVISIONS OF CERTIFICATE GOVERN.
In the event of any inconsistency between the terms of these bylaws and the Certificate, the
terms of the Certificate will govern.
10.2 CONSTRUCTION; DEFINITIONS.
Unless the context requires otherwise, the general provisions, rules of construction, and
definitions in the DGCL shall govern the construction of these bylaws. Without limiting the
generality of this provision, the singular number includes the plural, the plural number includes
the singular, and the term person includes both a corporation and a natural person.
10.3 SEVERABILITY.
In the event that any bylaw or the application thereof becomes or is declared by a court of
competent jurisdiction to be illegal, void or unenforceable, the remaining bylaws will continue in
full force and effect.
10.4 AMENDMENT.
In furtherance and not in limitation of the powers conferred by statute, the Board is
expressly authorized to adopt, amend, alter or repeal these bylaws. The affirmative vote of at
least a majority of the Board then in office shall be required in order for the Board to adopt,
amend, alter or repeal these bylaws. No bylaw hereafter legally amended, altered or repealed shall
invalidate any prior act of the directors or officers of the Company that would have been valid if
such bylaw had not been amended, altered or repealed.
Except as otherwise set forth in these bylaws, these bylaws may be altered, amended or
repealed or new bylaws may be adopted by the affirmative vote of the holders of at least a majority
of the shares of the capital stock of the Company issued and outstanding and entitled to vote at
any annual meeting of stockholders, or at any special meeting of stockholders, provided notice of
such alteration, amendment, repeal or adoption of new bylaws shall have been stated in the notice
of such special meeting.
-28-
MISTRAS GROUP, INC.
a Delaware corporation
CERTIFICATE OF ADOPTION OF AMENDED AND RESTATED BYLAWS
The undersigned hereby certifies that he is the duly elected, qualified, and acting Secretary
of Mistras Group, Inc., a Delaware corporation (the Company), and that the foregoing
amended and restated bylaws, comprising 28 pages, were adopted as the
Companys bylaws (i) on ,
2009 by the Companys board of directors and (ii) on
,
2009 by the stockholders
of the Company.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand on , 2009.
|
|
|
|
|
By: |
|
|
|
|
|
|
|
|
|
Print Name:
|
|
Paul Pete Peterik
|
|
|
Title:
|
|
Secretary |
|
|
|
|
|
|
|
|
|
|
-i-
exv10w1
Exhibit 10.1
MISTRAS GROUP, INC.
INDEMNIFICATION AGREEMENT
THIS AGREEMENT is entered into, effective as of «Date» by and between Mistras Group, Inc., a
Delaware corporation (the Company), and «Name» (Indemnitee), effective as of
the date that the Registration Statement on Form S-1 related to the initial public offering of the
Companys Common Stock is declared effective by the United States Securities and Exchange
Commission.
WHEREAS, it is essential to the Company to retain and attract as directors and officers the
most capable persons available;
WHEREAS, Indemnitee is a director and/or officer of the Company;
WHEREAS, both the Company and Indemnitee recognize the increased risk of litigation and other
claims currently being asserted against directors and officers of corporations;
WHEREAS, the Certificate of Incorporation and Bylaws of the Company require the Company to
indemnify and advance expenses to its directors and officers to the fullest extent permitted under
Delaware law, and the Indemnitee has been serving and continues to serve as a director and/or
officer of the Company in part in reliance on the Companys Certificate of Incorporation and
Bylaws; and
WHEREAS, in recognition of the Companys desire to continue to retain the services of
Indemnitee as a director and/or officer of the Company, and of the Indemnitees need for (i)
substantial protection against personal liability based on Indemnitees reliance on the aforesaid
Certificate of Incorporation and Bylaws, (ii) specific contractual assurance that the protection
promised by the Certificate of Incorporation and Bylaws will be available to Indemnitee (regardless
of, among other things, any amendment to or revocation of the Certificate of Incorporation and
Bylaws or any change in the composition of the Companys Board of Directors or acquisition
transaction relating to the Company) and (iii) an inducement to continue to provide services to the
Company as a director and/or officer, the Company wishes to provide in this Agreement for the
indemnification of and the advancing of expenses to Indemnitee to the fullest extent (whether
partial or complete) permitted under Delaware law and as set forth in this Agreement, and, to the
extent insurance is maintained, to provide for the continued coverage of Indemnitee under the
Companys directors and officers liability insurance policies.
NOW, THEREFORE, in consideration of the above premises and of Indemnitee continuing to serve
the Company directly or, at its request, with another enterprise, and intending to be legally bound
hereby, the parties agree as follows:
1. Certain Definitions:
(a) Board shall mean the Board of Directors of the Company.
(b) Affiliate shall mean any corporation or other person or entity that directly, or
indirectly through one or more intermediaries, controls or is controlled by or is under
common control with, the person specified, including, without limitation, with respect to the
Company, any direct or indirect subsidiary of the Company.
(c) A Change in Control shall be deemed to have occurred if (i) any person
(as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as
amended (the Exchange Act )) (other than a trustee or other fiduciary holding securities
under an employee benefit plan of the Company or a corporation owned directly or indirectly by the
stockholders of the Company in substantially the same proportions as their ownership of stock of
the Company, and other than any person who is beneficial owner, as defined in Rule 13d-3
under the Exchange Act, directly or indirectly, of securities of the Company representing 5% or
more of the total voting power represented by the Companys then outstanding Voting Securities on
the date that the Company first registers under the Act, or any transferee of such individual if
such transferee is a spouse or lineal descendant of the transferee or a trust for the benefit of
the individual, his or her spouse or lineal descendants), is or becomes the beneficial owner,
directly or indirectly, of securities of the Company representing 30% or more of the total voting
power represented by the Companys then outstanding Voting Securities, (ii) during any period of
two consecutive years, individuals who at the beginning of such period constitute the Board and any
new director whose election by the Board or nomination for election by the Companys stockholders
was approved by a vote of at least two-thirds (2/3) of the directors then still in office who
either were directors at the beginning of the period or whose election or nomination for election
was previously so approved, cease for any reason to constitute a majority of the Board, (iii) the
stockholders of the Company approve a merger or consolidation of the Company with any other entity,
other than a merger or consolidation that would result in the Voting Securities of the Company
outstanding immediately prior thereto continuing to represent (either by remaining outstanding or
by being converted into Voting Securities of the surviving entity) at least 80% of the total voting
power represented by the Voting Securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation or (iv) the stockholders of the Company approve a
plan of complete liquidation of the Company or an agreement for the sale or disposition by the
Company (in one transaction or a series of transactions) of all or substantially all of the
Companys assets.
(d) Expenses shall mean any expense, liability or loss, including attorneys fees,
judgments, fines, ERISA excise taxes and penalties, amounts paid or to be paid in settlement, any
interest, assessments or other charges imposed thereon, any federal, state, local or foreign taxes
imposed as a result of the actual or deemed receipt of any payments under this Agreement and all
other costs and obligations, paid or incurred in connection with investigating, defending, being a
witness in, participating in (including on appeal) or preparing for any of the foregoing in, any
Proceeding relating to any Indemnifiable Event.
(e) Indemnifiable Event shall mean any event or occurrence that takes place either
prior to or after the execution of this Agreement, related to the fact that Indemnitee is or was a
director or officer of the Company or an Affiliate of the Company, or while a director or officer
is or was serving at the request of the Company or an Affiliate of the Company as a director,
officer, employee, trustee, agent or fiduciary of another foreign or domestic corporation,
partnership, joint venture, employee benefit plan, trust or other enterprise or was a director,
officer, employee or agent of a foreign or domestic corporation that was a predecessor corporation
of the Company or of another enterprise at the request of such predecessor
- 2 -
corporation, or related to anything done or not done by Indemnitee in any such capacity,
whether or not the basis of the Proceeding is alleged action in an official capacity as a director,
officer, employee or agent or in any other capacity while serving as a director, officer, employee
or agent of the Company or an Affiliate of the Company, as described above.
(f) Independent Counsel shall mean the person or body appointed in connection with
Section 3.
(g) Proceeding shall mean any threatened, pending or completed action, suit or
proceeding or any alternative dispute resolution mechanism (including an action by or in the right
of the Company or an Affiliate of the Company) or any inquiry, hearing or investigation, whether
conducted by the Company or an Affiliate of the Company or any other party, that Indemnitee in good
faith believes might lead to the institution of any such action, suit or proceeding, whether civil,
criminal, administrative, investigative or other.
(h) Reviewing Party shall mean the person or body appointed in accordance with
Section 3.
(i) Voting Securities shall mean any securities of the Company that vote generally
in the election of directors.
2. Agreement to Indemnify.
(a) General Agreement. In the event Indemnitee was, is or becomes a party to or
witness or other participant in, or is threatened to be made a party to or witness or other
participant in, a Proceeding by reason of (or arising in part out of) an Indemnifiable Event, the
Company shall indemnify Indemnitee from and against any and all Expenses to the fullest extent
permitted by law, as the same exists or may hereafter be amended or interpreted (but in the case of
any such amendment or interpretation, only to the extent that such amendment or interpretation
permits the Company to provide broader indemnification rights than were permitted prior thereto).
The parties hereto intend that this Agreement shall provide for indemnification in excess of that
expressly permitted by statute, including, without limitation, any indemnification provided by the
Companys Certificate of Incorporation, its Bylaws, vote of its stockholders or disinterested
directors or applicable law.
(b) Initiation of Proceeding. Notwithstanding anything in this Agreement to the
contrary, Indemnitee shall not be entitled to indemnification pursuant to this Agreement in
connection with any Proceeding initiated by Indemnitee against the Company or any director or
officer of the Company unless (i) the Company has joined in or the Board has consented to the
initiation of such Proceeding, (ii) the Proceeding is one to enforce indemnification rights under
Section 5 or (iii) the Proceeding is instituted after a Change in Control (other than a Change in
Control approved by a majority of the directors on the Board who were directors immediately prior
to such Change in Control) and Independent Counsel has approved its initiation.
(c) Expense Advances. If so requested by Indemnitee, the Company shall advance
(within thirty (30) days of such request) any and all Expenses to Indemnitee (an Expense
Advance). The Indemnitee shall qualify for such Expense Advances upon the execution and
delivery to the Company of this Agreement which shall constitute an undertaking
- 3 -
providing that the Indemnitee undertakes to repay such Expense Advances if and to the extent
that it is ultimately determined by a court of competent jurisdiction in a final judgment, not
subject to appeal, that Indemnitee is not entitled to be indemnified by the Company. Indemnitees
obligation to reimburse the Company for Expense Advances shall be unsecured and no interest shall
be charged thereon. This Section 2(c) shall not apply to any claim made by Indemnitee for which
indemnity is excluded pursuant to Section 2(b) or 2(f).
(d) Mandatory Indemnification. Notwithstanding any other provision of this Agreement,
to the extent that Indemnitee has been successful on the merits or otherwise in defense of any
Proceeding relating in whole or in part to an Indemnifiable Event or in defense of any issue or
matter therein, Indemnitee shall be indemnified against all Expenses incurred in connection
therewith.
(e) Partial Indemnification. If Indemnitee is entitled under any provision of this
Agreement to indemnification by the Company for some or a portion of Expenses, but not, however,
for the total amount thereof, the Company shall nevertheless indemnify Indemnitee for the portion
thereof to which Indemnitee is entitled.
(f) Prohibited Indemnification. No indemnification pursuant to this Agreement shall
be paid by the Company on account of any Proceeding in which a final judgment is rendered against
Indemnitee or Indemnitee enters into a settlement, in each case (i) for an accounting of profits
made from the purchase or sale by Indemnitee of securities of the Company pursuant to the
provisions of Section 16(b) of the Exchange Act or similar provisions of any federal, state or
local laws; (ii) for which payment has actually been made to or on behalf of Indemnitee under any
insurance policy or other indemnity provision, except with respect to any excess beyond the amount
paid under any insurance policy or other indemnity provision; or (iii) for which payment is
prohibited by law. Notwithstanding anything to the contrary stated or implied in this Section
2(f), indemnification pursuant to this Agreement relating to any Proceeding against Indemnitee for
an accounting of profits made from the purchase or sale by Indemnitee of securities of the Company
pursuant to the provisions of Section 16(b) of the Exchange Act or similar provisions of any
federal, state or local laws shall not be prohibited if Indemnitee ultimately establishes in any
Proceeding that no recovery of such profits from Indemnitee is permitted under Section 16(b) of the
Exchange Act or similar provisions of any federal, state or local laws.
3. Reviewing Party. Prior to any Change in Control, the Reviewing Party shall be any
appropriate person or body consisting of a member or members of the Board or any other person or
body appointed by the Board who is not a party to the particular Proceeding with respect to which
Indemnitee is seeking indemnification; provided that if all members of the Board are parties to the
particular Proceeding with respect to which Indemnitee is seeking indemnification, the Independent
Counsel referred to below shall become the Reviewing Party; after a Change in Control, the
Independent Counsel referred to below shall become the Reviewing Party. With respect to all
matters arising before a Change in Control for which Independent Counsel shall be the Reviewing
Party and all matters arising after a Change in Control, in each case concerning the rights of
Indemnitee to indemnity payments and Expense Advances under this Agreement or any other agreement
or under applicable law or the Companys Certificate of Incorporation or Bylaws now or hereafter in
effect relating to
- 4 -
indemnification for Indemnifiable Events, the Company shall seek legal advice only from
Independent Counsel selected by Indemnitee and approved by the Company (which approval shall not be
unreasonably withheld or delayed), and who has not otherwise performed services for the Company or
the Indemnitee (other than in connection with indemnification matters) within the last five years.
The Independent Counsel shall not include any person who, under the applicable standards of
professional conduct then prevailing, would have a conflict of interest in representing either the
Company or Indemnitee in an action to determine Indemnitees rights under this Agreement. Such
counsel, among other things, shall render its written opinion to the Company and Indemnitee as to
whether and to what extent the Indemnitee should be permitted to be indemnified under applicable
law. The Company agrees to pay the reasonable fees of the Independent Counsel and to indemnify
fully such counsel against any and all expenses (including attorneys fees), claims, liabilities,
loss and damages arising out of or relating to this Agreement or the engagement of Independent
Counsel pursuant hereto.
4. Indemnification Process and Appeal.
(a) Indemnification Payment. Indemnitee shall be entitled to indemnification of
Expenses, and shall receive payment thereof, from the Company in accordance with this Agreement as
soon as practicable after Indemnitee has made written demand on the Company for indemnification,
but in no event later than thirty (30) business days after demand, unless the Reviewing Party has
given a written opinion to the Company that Indemnitee is not entitled to indemnification under
applicable law. Indemnitee shall cooperate with the Reviewing Party making a determination with
respect to Indemnitees entitlement to indemnification, including providing to the Reviewing Party
upon reasonable advance request any documentation or information which is not privileged or
otherwise protected from disclosure and which is reasonably available to Indemnitee and reasonably
necessary to such determination.
(b) Suit to Enforce Rights. Regardless of any action by the Reviewing Party, if
Indemnitee has not received full indemnification within thirty (30) days after making a demand in
accordance with Section 4(a), Indemnitee shall have the right to enforce its indemnification rights
under this Agreement by commencing litigation in any court in the State of Delaware having subject
matter jurisdiction thereof seeking an initial determination by the court or challenging any
determination by the Reviewing Party or any aspect thereof. The Company hereby consents to service
of process and to appear in any such proceeding. Any determination by the Reviewing Party not
challenged by the Indemnitee shall be binding on the Company and Indemnitee. The Company shall be
precluded from asserting in any such proceeding that the procedures and presumptions of this
Agreement are not valid, binding and enforceable and shall stipulate in any such court that the
Company is bound by all the provisions of this Agreement. The remedy provided for in this Section
4 shall be in addition to any other remedies available to Indemnitee at law or in equity.
(c) Defense to Indemnification, Burden of Proof, and Presumptions. It shall be a
defense to any action brought by Indemnitee against the Company to enforce this Agreement (other
than an action brought to enforce a claim for Expenses incurred in defending a Proceeding in
advance of its final disposition) that it is not permissible under applicable law for the Company
to indemnify Indemnitee for the amount claimed. In connection with any such action or any
determination by the Reviewing Party or otherwise as to whether Indemnitee is
- 5 -
entitled to be indemnified hereunder, the burden of proving such a defense or determination
shall be on the Company. Neither the failure of the Reviewing Party or the Company (including its
Board, independent legal counsel or its stockholders) to have made a determination prior to the
commencement of such action by Indemnitee that indemnification of the claimant is proper under the
circumstances because Indemnitee has met the standard of conduct set forth in applicable law, nor
an actual determination by the Reviewing Party or Company (including its Board, independent legal
counsel or its stockholders) that the Indemnitee had not met such applicable standard of conduct,
shall be a defense to the action or create a presumption that the Indemnitee has not met the
applicable standard of conduct. For purposes of this Agreement, the termination of any claim,
action, suit or proceeding, by judgment, order, settlement (whether with or without court
approval), conviction or upon a plea of nolo contendere or its equivalent, shall not create a
presumption that Indemnitee did not meet any particular standard of conduct or have any particular
belief or that a court has determined that indemnification is not permitted by applicable law. For
purposes of any determination of good faith under any applicable standard of conduct, Indemnitee
shall be deemed to have acted in good faith if Indemnitees action is based on the records or books
of account of the Company, including financial statements, or on information supplied to Indemnitee
by the officers of the Company in the course of their duties, or on the advice of legal counsel for
the Company or the Board or counsel selected by any committee of the Board or on information or
records given or reports made to the Company by an independent certified public accountant or by an
appraiser, investment banker or other expert selected with reasonable care by the Company or the
Board or any committee of the Board. The provisions of the preceding sentence shall not be deemed
to be exclusive or to limit in any way the other circumstances in which the Indemnitee may be
deemed to have met the applicable standard of conduct. The knowledge and/or actions, or failure to
act, of any director, officer, agent or employee of the Company shall not be imputed to Indemnitee
for purposes of determining the right to indemnification under this Agreement.
5. Indemnification for Expenses Incurred in Enforcing Rights. The Company shall
indemnify Indemnitee against any and all Expenses that are incurred by Indemnitee in connection
with any action brought by Indemnitee for
(i) indemnification or advance payment of Expenses by the Company under this Agreement or any
other agreement or under applicable law or the Companys Certificate of Incorporation or Bylaws now
or hereafter in effect relating to indemnification for Indemnifiable Events, and/or
(ii) recovery under directors and officers liability insurance policies maintained by the
Company;
but, in each case, only in the event that Indemnitee ultimately is determined to be entitled to
such indemnification or insurance recovery, as the case may be. In addition, the Company shall, if
so requested by Indemnitee, advance the foregoing Expenses to Indemnitee, subject to and in
accordance with Section 2(c).
- 6 -
6. Notification and Defense of Proceeding.
(a) Notice. Promptly after receipt by Indemnitee of notice of the commencement of any
Proceeding, Indemnitee shall, if a claim in respect thereof is to be made against the Company under
this Agreement, notify the Company of the commencement thereof; but the omission so to notify the
Company will not relieve the Company from any liability that it may have to Indemnitee, except as
provided in Section 6(c).
(b) Defense. With respect to any Proceeding as to which Indemnitee notifies the
Company of the commencement thereof, the Company will be entitled to participate in the Proceeding
at its own expense and except as otherwise provided below, to the extent the Company so wishes, it
may assume the defense thereof with counsel reasonably satisfactory to Indemnitee. After notice
from the Company to Indemnitee of its election to assume the defense of any Proceeding, the Company
shall not be liable to Indemnitee under this Agreement or otherwise for any Expenses subsequently
incurred by Indemnitee in connection with the defense of such Proceeding other than reasonable
costs of investigation or as otherwise provided below. Indemnitee shall have the right to employ
legal counsel in such Proceeding, but all Expenses related thereto incurred after notice from the
Company of its assumption of the defense shall be at Indemnitees expense unless: (i) the
employment of legal counsel by Indemnitee has been authorized by the Company, (ii) Indemnitee has
reasonably determined that there may be a conflict of interest between Indemnitee and the Company
in the defense of the Proceeding, (iii) after a Change in Control, the employment of counsel by
Indemnitee has been approved by the Independent Counsel or (iv) the Company shall not in fact have
employed counsel to assume the defense of such Proceeding, in each of which cases all Expenses of
the Proceeding shall be borne by the Company. The Company shall not be entitled to assume the
defense of any Proceeding brought by or on behalf of the Company, or as to which Indemnitee shall
have made the determination provided for in (ii) above or under the circumstances provided for in
(iii) and (iv) above.
(c) Settlement of Claims. The Company shall not be liable to indemnify Indemnitee
under this Agreement or otherwise for any amounts paid in settlement of any Proceeding effected
without the Companys written consent, such consent not to be unreasonably withheld; provided,
however, that if a Change in Control has occurred, the Company shall be liable for indemnification
of Indemnitee for amounts paid in settlement if the Independent Counsel has approved the
settlement. The Company shall not settle any Proceeding in any manner that would impose any
penalty or limitation on Indemnitee without Indemnitees written consent. The Company shall not be
liable to indemnify the Indemnitee under this Agreement with regard to any judicial award if the
Company was not given a reasonable and timely opportunity as a result of Indemnitees failure to
provide notice, at its expense, to participate in the defense of such action, and the lack of such
notice materially prejudiced the Companys ability to participate in defense of such action. The
Companys liability hereunder shall not be excused if participation in the Proceeding by the
Company was barred by this Agreement.
7. Establishment of Trust. In the event of a Change in Control, the Company shall,
upon written request by Indemnitee, create a Trust for the benefit of the Indemnitee and from time
to time upon written request of Indemnitee shall fund the Trust in an amount sufficient to satisfy
any and all Expenses reasonably anticipated at the time of each such request to be
- 7 -
incurred in connection with investigating, preparing for, participating in, and/or defending
any Proceeding relating to an Indemnifiable Event. The amount or amounts to be deposited in the
Trust pursuant to the foregoing funding obligation shall be determined by the Independent Counsel.
The terms of the Trust shall provide that (i) the Trust shall not be revoked or the principal
thereof invaded without the written consent of the Indemnitee, (ii) the Trustee shall advance,
within thirty (30) days of a request by the Indemnitee, any and all Expenses to the Indemnitee (and
the Indemnitee hereby agrees to reimburse the Trust under the same circumstances for which the
Indemnitee would be required to reimburse the Company under Section 2(c) of this Agreement), (iii)
the Trust shall continue to be funded by the Company in accordance with the funding obligation set
forth above, (iv) the Trustee shall promptly pay to the Indemnitee all amounts for which the
Indemnitee shall be entitled to indemnification pursuant to this Agreement or otherwise no later
than thirty (30) days after notice pursuant to Section 4(a) and (v) all unexpended funds in the
Trust shall revert to the Company upon a final determination by the Independent Counsel or a court
of competent jurisdiction, as the case may be, that the Indemnitee has been fully indemnified under
the terms of this Agreement. The Trustee shall be chosen by the Indemnitee. Nothing in this
Section 7 shall relieve the Company of any of its obligations under this Agreement. All income
earned on the assets held in the Trust shall be reported as income by the Company for federal,
state, local and foreign tax purposes. The Company shall pay all costs of establishing and
maintaining the Trust and shall indemnify the Trustee against any and all expenses (including
attorneys fees), claims, liabilities, loss and damages arising out of or relating to this
Agreement or the establishment and maintenance of the Trust.
8. Non-Exclusivity. The rights of Indemnitee hereunder shall be in addition to any
other rights Indemnitee may have under the Companys Certificate of Incorporation, Bylaws,
applicable law or otherwise; provided, however, that this Agreement shall supersede any prior
indemnification agreement between the Company and the Indemnitee. To the extent that a change in
applicable law (whether by statute or judicial decision) permits greater indemnification than would
be afforded currently under the Companys Certificate of Incorporation, Bylaws, applicable law or
this Agreement, it is the intent of the parties that Indemnitee enjoy by this Agreement the greater
benefits so afforded by such change.
9. Liability Insurance. To the extent the Company maintains an insurance policy or
policies providing general and/or directors and officers liability insurance, Indemnitee shall be
covered by such policy or policies, in accordance with its or their terms, to the maximum extent of
the coverage available for any Company director or officer.
10. Period of Limitations. No legal action shall be brought and no cause of action
shall be asserted by or on behalf of the Company or any Affiliate of the Company against
Indemnitee, Indemnitees spouse, heirs, executors or personal or legal representatives after the
expiration of two (2) years from the date of accrual of such cause of action or such longer period
as may be required by state law under the circumstances. Any claim or cause of action of the
Company or its Affiliate shall be extinguished and deemed released unless asserted by the timely
filing and notice of a legal action within such period; provided, however, that if any shorter
period of limitations is otherwise applicable to any such cause of action, the shorter period shall
govern.
- 8 -
11. Amendment of this Agreement. No supplement, modification or amendment of this
Agreement shall be binding unless executed in writing by both of the parties hereto. No waiver of
any of the provisions of this Agreement shall be binding unless in the form of a writing signed by
the party against whom enforcement of the waiver is sought, and no such waiver shall operate as a
waiver of any other provisions hereof (whether or not similar), nor shall such waiver constitute a
continuing waiver. Except as specifically provided herein, no failure to exercise or any delay in
exercising any right or remedy hereunder shall constitute a waiver thereof.
12. Subrogation. In the event of payment under this Agreement, the Company shall be
subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall
execute all papers required and shall do everything that may be necessary to secure such rights,
including the execution of such documents necessary to enable the Company effectively to bring suit
to enforce such rights.
13. No Duplication of Payments. The Company shall not be liable under this Agreement
to make any payment in connection with any claim made against Indemnitee to the extent Indemnitee
has otherwise received payment (under any insurance policy, Bylaw or otherwise) of the amounts
otherwise indemnifiable hereunder.
14. Duration of Agreement. This Agreement shall continue until and terminate upon the
later of (a) ten (10) years after the date that Indemnitee shall have ceased to serve as a director
or officer of the Company or (b) one (1) year after the final termination of any Proceeding,
including any appeal, then pending in respect of which Indemnitee is granted rights of
indemnification or advancement of Expenses hereunder and of any proceeding commenced by Indemnitee
pursuant to Section 4(b) of this Agreement relating thereto.
15. Binding Effect. This Agreement shall be binding upon and inure to the benefit of
and be enforceable by the parties hereto and their respective successors (including any direct or
indirect successor by purchase, merger, consolidation or otherwise to all or substantially all of
the business and/or assets of the Company), assigns, spouses, heirs and personal and legal
representatives. The Company shall require and cause any successor (whether direct or indirect by
purchase, merger, consolidation or otherwise) to all, substantially all or a substantial part, of
the business and/or assets of the Company, by written agreement in form and substance satisfactory
to Indemnitee, expressly to assume and agree to perform this Agreement in the same manner and to
the same extent that the Company would be required to perform if no such succession had taken
place. The indemnification provided under this Agreement shall continue as to Indemnitee for any
action taken or not taken while serving in an indemnified capacity pertaining to an Indemnifiable
Event even though Indemnitee may have ceased to serve in such capacity at the time of any
Proceeding.
16. Severability. If any provision (or portion thereof) of this Agreement shall be
held by a court of competent jurisdiction to be invalid, void or otherwise unenforceable, (a) the
remaining provisions shall remain enforceable to the fullest extent permitted by law; (b) such
provision or provisions shall be deemed reformed to the extent necessary to conform to applicable
law and to give the maximum effect to the intent of the parties hereto; and (c) to the fullest
extent possible, the provisions of this Agreement (including, without limitation, each portion of
this Agreement containing any provision held to be invalid, void or otherwise
- 9 -
unenforceable, that is not itself invalid, void or unenforceable) shall be construed so as to
give effect to the intent manifested by the provision held invalid, void or unenforceable.
17. Contribution. To the fullest extent permissible under applicable law, whether or
not the indemnification provided for in this Agreement is available to Indemnitee for any reason
whatsoever, the Company shall pay all or a portion of the amount that would otherwise be incurred
by Indemnitee for Expenses in connection with any claim relating to an Indemnifiable Event, as is
deemed fair and reasonable in light of all of the circumstances of such Proceeding in order to
reflect (i) the relative benefits received by the Company and Indemnitee as a result of the
event(s) and/or transaction(s) giving cause to such Proceeding; and/or (ii) the relative fault of
the Company (and its directors, officers, employees and agents) and Indemnitee in connection with
such event(s) and/or transaction(s).
18. Governing Law. This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of Delaware applicable to contracts made and to be performed
in such State without giving effect to its principles of conflicts of laws. The Company and
Indemnitee hereby irrevocably and unconditionally (i) agree that any action or proceeding arising
out of or in connection with this Agreement may be brought in the Delaware Court of Chancery, (ii)
consent to submit to the jurisdiction of the Delaware Court of Chancery for purposes of any action
or proceeding arising out of or in connection with this Agreement, (iii)waive any objection to the
laying of venue of any such action or proceeding in the Delaware Court of Chancery, and (iv) waive,
and agree not to plead or to make, any claim that any such action or proceeding brought in the
Delaware Court of Chancery has been brought in an improper or inconvenient forum.
19. Notices. All notices, demands and other communications required or permitted
hereunder shall be made in writing and shall be deemed to have been duly given if delivered by
hand, against receipt or mailed, postage prepaid, certified or registered mail, return receipt
requested and addressed to the Company at:
Mistras Group, Inc.
195 Clarksville Rd
Princeton Jct, NJ 08550
Fax: 609.716.4179
Attention: Chief Executive Officer
and to Indemnitee at:
the address set forth below Indemnitees signature hereto. Notice of change of address shall be
effective only when given in accordance with this Section. All notices complying with this Section
shall be deemed to have been received on the date of hand delivery or on the third business day
after mailing.
20. 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 -
IN WITNESS WHEREOF, the parties hereto have duly executed and delivered this Agreement as of
the day specified above.
|
|
|
|
|
|
|
MISTRAS GROUP, INC. |
|
|
a Delaware corporation |
|
|
|
|
|
|
|
By: |
|
|
|
|
|
|
|
Print Name: |
|
|
|
|
|
|
|
|
|
Title: |
|
|
|
|
|
|
|
|
|
|
|
|
INDEMNITEE, |
|
|
an individual |
|
|
|
|
|
|
|
|
|
|
|
«name» |
|
|
|
|
|
|
|
|
|
Address for notices: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 11 -
exv10w2
Exhibit
10.2
AMENDED AND RESTATED
CREDIT AGREEMENT
Dated as of April 23, 2007,
Effective as of October 31, 2006
among
MISTRAS GROUP, INC.,
as Borrower,
BANK OF AMERICA, N.A.,
as Agent, Co-Lead Bookrunner
and
L/C Issuer,
JPMORGAN CHASE BANK, N.A.
as Co-Lead Bookrunner
and
Any Other Lenders Party Hereto
TABLE OF CONTENTS
|
|
|
|
|
|
|
ARTICLE I. DEFINITIONS AND ACCOUNTING TERMS |
|
|
1 |
|
|
|
|
|
|
|
|
1.01 |
|
Defined Terms |
|
|
1 |
|
1.02 |
|
Other Interpretive Provisions |
|
|
20 |
|
1.03 |
|
Accounting Terms |
|
|
21 |
|
1.04 |
|
Rounding |
|
|
21 |
|
1.05 |
|
Times of Day |
|
|
21 |
|
1.06 |
|
Letter of Credit Amounts |
|
|
21 |
|
|
|
|
|
|
|
|
ARTICLE II. THE COMMITMENTS AND CREDIT EXTENSIONS |
|
|
22 |
|
2.01 |
|
Loans |
|
|
22 |
|
2.02 |
|
Borrowings, Conversions and Continuations of Committed Loans |
|
|
22 |
|
2.03 |
|
Letters of Credit |
|
|
24 |
|
2.04 |
|
Repayment of Loans |
|
|
33 |
|
2.05 |
|
Prepayments |
|
|
34 |
|
2.06 |
|
Termination or Reduction of Commitments |
|
|
35 |
|
2.07 |
|
Interest |
|
|
36 |
|
2.08 |
|
Fees |
|
|
37 |
|
2.09 |
|
Computation of Interest and Fees |
|
|
37 |
|
2.10 |
|
Evidence of Debt |
|
|
37 |
|
2.11 |
|
Payments Generally; Agents Clawback |
|
|
38 |
|
2.12 |
|
Sharing of Payments |
|
|
40 |
|
2
|
|
|
|
|
|
|
ARTICLE III. TAXES, YIELD PROTECTION AND ILLEGALITY |
|
|
41 |
|
|
|
|
|
|
|
|
3.01 |
|
Taxes |
|
|
41 |
|
3.02 |
|
Illegality |
|
|
42 |
|
3.03 |
|
Inability to Determine Rates |
|
|
43 |
|
3.04 |
|
Increased Costs |
|
|
43 |
|
3.05 |
|
Compensation for Losses |
|
|
44 |
|
3.06 |
|
Mitigation Obligations |
|
|
45 |
|
3.07 |
|
Survival |
|
|
45 |
|
|
|
|
|
|
|
|
ARTICLE IV. CONDITIONS PRECEDENT TO CREDIT EXTENSIONS |
|
|
45 |
|
|
|
|
|
|
|
|
4.01 |
|
Conditions of Initial Credit Extension |
|
|
45 |
|
4.02 |
|
Conditions to all Credit Extensions |
|
|
47 |
|
|
|
|
|
|
|
|
ARTICLE V. REPRESENTATIONS AND WARRANTIES |
|
|
48 |
|
|
|
|
|
|
|
|
5.01 |
|
Existence, Qualification and Power |
|
|
48 |
|
5.02 |
|
Authorization; No Contravention |
|
|
48 |
|
5.03 |
|
Governmental Authorization; Other Consents |
|
|
49 |
|
5.04 |
|
Binding Effect |
|
|
49 |
|
5.05 |
|
Financial Statements; No Material Adverse Effect |
|
|
49 |
|
5.06 |
|
Litigation |
|
|
50 |
|
5.07 |
|
No Default |
|
|
50 |
|
5.08 |
|
Ownership of Property; Liens |
|
|
50 |
|
5.09 |
|
Environmental Compliance |
|
|
51 |
|
5.10 |
|
Insurance |
|
|
51 |
|
5.11 |
|
Taxes |
|
|
51 |
|
5.12 |
|
ERISA Compliance |
|
|
51 |
|
3
|
|
|
|
|
|
|
5.13 |
|
Subsidiaries |
|
|
52 |
|
5.14 |
|
Margin Regulations; Investment Company Act; Public Utility Holding Company Act |
|
|
52 |
|
5.15 |
|
Disclosure |
|
|
53 |
|
5.16 |
|
Compliance with Laws |
|
|
53 |
|
5.17 |
|
Taxpayer Identification Number |
|
|
53 |
|
5.18 |
|
Intellectual Property; Licenses, Etc. |
|
|
53 |
|
5.19 |
|
Rights in Collateral; Priority of Liens |
|
|
53 |
|
|
|
|
|
|
|
|
ARTICLE VI. AFFIRMATIVE COVENANTS |
|
|
53 |
|
|
|
|
|
|
|
|
6.01 |
|
Financial Statements |
|
|
54 |
|
6.02 |
|
Certificates; Other Information |
|
|
54 |
|
6.03 |
|
Notices |
|
|
56 |
|
6.04 |
|
Payment of Obligations |
|
|
56 |
|
6.05 |
|
Preservation of Existence, Etc |
|
|
56 |
|
6.06 |
|
Maintenance of Properties |
|
|
57 |
|
6.07 |
|
Maintenance of Insurance |
|
|
57 |
|
6.08 |
|
Compliance with Laws |
|
|
57 |
|
6.09 |
|
Books and Records |
|
|
57 |
|
6.10 |
|
Inspection Rights |
|
|
58 |
|
6.11 |
|
Use of Proceeds |
|
|
58 |
|
6.12 |
|
Financial Covenants |
|
|
58 |
|
6.13 |
|
Additional Guarantors |
|
|
59 |
|
6.14 |
|
Collateral Records |
|
|
59 |
|
6.15 |
|
Security Interests |
|
|
59 |
|
6.16 |
|
Deposits |
|
|
60 |
|
4
|
|
|
|
|
|
|
ARTICLE VII. NEGATIVE COVENANTS |
|
|
60 |
|
|
|
|
|
|
|
|
7.01 |
|
Liens |
|
|
60 |
|
7.02 |
|
Investments |
|
|
61 |
|
7.03 |
|
Indebtedness |
|
|
62 |
|
7.04 |
|
Fundamental Changes |
|
|
63 |
|
7.05 |
|
Dispositions |
|
|
64 |
|
7.06 |
|
Restricted Payments |
|
|
64 |
|
7.07 |
|
Change in Nature of Business |
|
|
65 |
|
7.08 |
|
Transactions with Affiliates |
|
|
65 |
|
7.09 |
|
Burdensome Agreements |
|
|
65 |
|
7.10 |
|
Use of Proceeds |
|
|
65 |
|
|
|
|
|
|
|
|
ARTICLE VIII. EVENTS OF DEFAULT AND REMEDIES |
|
|
65 |
|
|
|
|
|
|
|
|
8.01 |
|
Events of Default |
|
|
65 |
|
8.02 |
|
Remedies Upon Event of Default |
|
|
68 |
|
8.03 |
|
Application of Funds |
|
|
68 |
|
|
|
|
|
|
|
|
ARTICLE IX. ADMINISTRATIVE AGENT |
|
|
69 |
|
|
|
|
|
|
|
|
9.01 |
|
Appointment and Authorization of Administrative Agent |
|
|
70 |
|
9.02 |
|
Rights as a Lender |
|
|
70 |
|
9.03 |
|
Exculpatory Provisions |
|
|
70 |
|
9.04 |
|
Reliance by Administrative Agent |
|
|
71 |
|
9.05 |
|
Delegation of Duties |
|
|
72 |
|
9.06 |
|
Resignation of Agent |
|
|
72 |
|
9.07 |
|
Non-Reliance on Agent and Other Lenders |
|
|
73 |
|
9.08 |
|
No Other Duties, Etc |
|
|
73 |
|
5
|
|
|
|
|
|
|
9.09 |
|
Administrative Agent May File Proofs of Claim |
|
|
73 |
|
9.10 |
|
Guaranty Matters |
|
|
74 |
|
9.11 |
|
Collateral Matters |
|
|
74 |
|
|
|
|
|
|
|
|
ARTICLE X. MISCELLANEOUS |
|
|
76 |
|
|
|
|
|
|
|
|
10.01 |
|
Amendments, Etc |
|
|
76 |
|
10.02 |
|
Notices; Effectiveness; Electronic Communications |
|
|
77 |
|
10.03 |
|
No Waiver; Cumulative Remedies |
|
|
79 |
|
10.04 |
|
Expenses; Indemnity; Damage Waiver |
|
|
79 |
|
10.05 |
|
Payments Set Aside |
|
|
81 |
|
10.06 |
|
Successors and Assigns |
|
|
81 |
|
10.07 |
|
Treatment of Certain Information; Confidentiality |
|
|
86 |
|
10.08 |
|
Right of Setoff |
|
|
87 |
|
10.09 |
|
Interest Rate Limitation |
|
|
87 |
|
10.10 |
|
Counterparts; Integration; Effectiveness |
|
|
87 |
|
10.11 |
|
Survival of Representations and Warranties |
|
|
88 |
|
10.12 |
|
Severability |
|
|
88 |
|
10.13 |
|
Governing Law; Jurisdiction; Etc |
|
|
88 |
|
10.14 |
|
Waiver of Jury Trial |
|
|
89 |
|
10.15 |
|
No Advisory or Fiduciary Responsibility |
|
|
89 |
|
10.16 |
|
USA PATRIOT Act Notice |
|
|
90 |
|
10.17 |
|
Time of the Essence |
|
|
90 |
|
6
|
|
|
|
|
|
|
SCHEDULES |
|
|
|
|
2.01 |
|
Commitments and Applicable Percentages |
|
|
|
|
5.06 |
|
Litigation |
|
|
|
|
5.09 |
|
Environmental Matters |
|
|
|
|
5.13 |
|
Subsidiaries and Other Equity Investments |
|
|
|
|
7.01 |
|
Existing Liens |
|
|
|
|
7.03 |
|
Existing Indebtedness |
|
|
|
|
10.02 |
|
Administrative Agents Office, Certain Addresses for Notices |
|
|
|
|
10.06 |
|
Processing and Recordation Fees |
|
|
|
|
|
|
|
|
|
|
|
EXHIBITS |
|
|
|
|
Form of |
|
|
|
|
|
|
A |
|
Committed Loan Notice |
|
|
|
|
B |
|
Revolving Note |
|
|
|
|
C |
|
Term Note |
|
|
|
|
D |
|
Compliance Certificate |
|
|
|
|
E |
|
Assignment and Assumption |
|
|
|
|
F |
|
Legal Opinion of Counsel to Borrower |
|
|
|
|
7
AMENDED AND RESTATED CREDIT AGREEMENT
THIS AMENDED AND RESTATED CREDIT AGREEMENT (this Agreement) is entered into as of April 23, 2007,
effective as of October 31, 2006, among MISTRAS GROUP, INC. (formerly known as Mistras Holdings
Corp.), a Delaware corporation (the Borrower), BANK OF AMERICA, N.A., as Agent, Co-Lead
Bookrunner and L/C Issuer, JPMORGAN CHASE BANK, N.A., as Co-Lead Bookrunner and each lender from
time to time party hereto (collectively, Lenders and individually, a Lender).
Borrower has requested that Lenders provide a revolving credit facility and a term loan, and
Lenders are willing to do so on the terms and conditions set forth herein. In consideration of the
mutual covenants and agreements herein contained, the parties hereto covenant and agree as follows:
ARTICLE I. DEFINITIONS AND ACCOUNTING TERMS
1.01 Defined Terms. As used in this Agreement, the following terms shall have the meanings set forth below:
Administrative Agent or Agent means Bank of America, N.A., in its capacity as
administrative agent under any of the Loan Documents, or any successor administrative agent.
Administrative Questionnaire means an Administrative Questionnaire in a form supplied by
Agent.
Affiliate means, with respect to any Person, another Person that directly, or indirectly
through one or more intermediaries, Controls or is Controlled by or is under common Control with
the Person specified.
Agent Fee Letter has the meaning specified in Section 2.08(b).
Agents Office means Agents address and, as appropriate, account as set forth on
Schedule 10.02, or such other address or account as Agent may from time to time notify
Borrower and Lenders.
Aggregate Commitments means, collectively, the Aggregate Revolving Loan Commitments and
the Aggregate Term Loan Commitments.
Aggregate Revolving Loan Commitments means the Revolving Loan Commitments of all Lenders.
Aggregate Term Loan Commitments means the Term Loan Commitments of all Lenders.
Agreement means this Amended and Restated Credit Agreement.
Applicable Percentage means, with respect to any Lender at any time, the percentage
(carried out to the ninth decimal place) of (i) the Aggregate Revolving Loan Commitments
represented by such Lenders Revolving Loan Commitment at such time and (ii) the Aggregate Term
Loan Commitments represented by such Lenders Term Loan Commitment at such time. If the commitment
of each Lender to make Revolving Loans and the obligation of the L/C Issuer to make L/C Credit
Extensions have been terminated pursuant to Section 8.02 or if the Aggregate Revolving Loan
Commitments have expired, then the Applicable Percentage of each Lender with respect to the
Revolving Loans shall be determined based on the Applicable Percentage of such Lender most recently
in effect, giving effect to any subsequent assignments. The initial Applicable Percentage of each
Lender is set forth opposite the name of such Lender on Schedule 2.01 or in the Assignment
and Assumption pursuant to which such Lender becomes a party hereto, as applicable.
Applicable Rate means, from time to time, the following percentages per annum, based upon
the ratio of Funded Debt to EBITDA (the Financial Covenant) as set forth in the most
recent Compliance Certificate received by Agent pursuant to Section 6.02(b):
Applicable Rate
|
|
|
|
|
|
|
Pricing |
|
|
|
Base Rate |
|
Eurodollar |
Level |
|
Funded Debt : EBITDA |
|
+/- |
|
Rate +/- |
|
|
|
|
|
|
|
1
|
|
£1.75:1
|
|
-.75%
|
|
+1.50% |
|
|
|
|
|
|
|
2
|
|
>1.75:1 but <2.50:1
|
|
-.25%
|
|
+2.00% |
|
|
|
|
|
|
|
3
|
|
>2.50:1 but <3.00:1
|
|
+.00%
|
|
+2.25% |
|
|
|
|
|
|
|
4
|
|
>3.00:1
|
|
+.50%
|
|
+2.50% |
Any increase or decrease in the Applicable Rate resulting from a change in the Financial Covenant
shall become effective as of the first Business Day of the month immediately following the date a
Compliance Certificate is delivered pursuant to Section 6.02(b); provided, however, that if a
Compliance Certificate is not delivered when due in accordance with such Section, then Pricing
Level 3 shall apply as of the first Business Day of the month following the date such Compliance
Certificate was required to have been delivered until the first Business Day of the month
immediately following the delivery of such Compliance Certificate. The Applicable Rate in effect
from the Closing
Date until receipt of the Compliance Certificate for the period ended November 30, 2006 shall be
determined based upon Pricing Level 3.
2
Assignee Group means two or more Eligible Assignees that are Affiliates of one
another.
Assignment and Assumption means an assignment and assumption entered into by a Lender and
an assignee (with the consent of any party whose consent is required by Section 10.06(b)), and
accepted by Agent, in substantially the form of Exhibit E or any other form approved by
Agent.
Attributable Indebtedness means, on any date, (a) in respect of any capital lease of any
Person, the capitalized amount thereof that would appear on a balance sheet of such Person prepared
as of such date in accordance with GAAP, and (b) in respect of any Synthetic Lease Obligation, the
capitalized amount of the remaining lease payments under the relevant lease that would appear on a
balance sheet of such Person prepared as of such date in accordance with GAAP if such lease were
accounted for as a capital lease.
Audited Financial Statements means the audited consolidated balance sheet of Borrower and
its Consolidated Subsidiaries for the fiscal year ended May 31, 2006 and the related consolidated
statements of income or operations, shareholders equity and cash flows for such fiscal year of
Borrower and its Consolidated Subsidiaries, including the notes thereto.
Availability Period means the period from and including the Closing Date to the earliest
of (a) the Maturity Date, (b) the date of termination of the Aggregate Revolving Loan Commitments
pursuant to Section 2.06, and (c) the date of termination of the commitment of each Lender to make
Loans and of the obligation of the L/C Issuer to make L/C Credit Extensions pursuant to Section
8.02.
Bank of America means Bank of America, N.A. and its successors.
Base Rate means for any day a fluctuating rate per annum equal to the higher of (a) the
Federal Funds Rate plus 1/2 of 1% and (b) the rate of interest in effect for such day as publicly
announced from time to time by Bank of America as its prime rate. The prime rate is a rate set
by Bank of America based upon various factors including Bank of Americas costs and desired return,
general economic conditions and other factors, and is used as a reference point for pricing some
loans, which may be priced at, above, or below such announced rate. Any change in such rate
announced by Bank of America shall take effect at the opening of business on the day specified in
the public announcement of such change.
Base Rate Loan means a Committed Loan that bears interest at a rate based on the Base
Rate.
Borrower has the meaning specified in the introductory paragraph hereto.
Borrower Materials has the meaning specified in Section 6.02.
3
Borrowing means a Committed Borrowing.
Business Day means any day other than a Saturday, Sunday or other day on which commercial
banks are authorized to close under the Laws of, or are in fact closed in, the state where the
Agents Office is located and, if such day relates to any Eurodollar Rate Loan, means any such day
on which dealings in Dollar deposits are conducted by and between banks in the London interbank
eurodollar market.
Cash Collateralize has the meaning specified in Section 2.03(g).
Change in Law means the occurrence, after the date of this Agreement, of any of the
following: (a) the adoption or taking effect of any law, rule, regulation or treaty, (b) any change
in any law, rule, regulation or treaty or in the administration, interpretation or application
thereof by any Governmental Authority or (c) the making or issuance of any request, guideline or
directive (whether or not having the force of law) by any Governmental Authority.
Change of Control means, with respect to any Person, an event or series of events by
which:
(a) any person or group (as such terms are used in Sections 13(d) and 14(d) of the Securities
Exchange Act of 1934, but excluding any employee benefit plan of such person or its subsidiaries,
and any person or entity acting in its capacity as trustee, agent or other fiduciary or
administrator of any such plan) becomes the beneficial owner (as defined in Rules 13d-3 and 13d-5
under the Securities Exchange Act of 1934, except that a person or group shall be deemed to have
beneficial ownership of all securities that such person or group has the right to acquire,
whether such right is exercisable immediately or only after the passage of time (such right, an
option right)), directly or indirectly, of more than 50% of the equity securities of such
Person entitled to vote for members of the board of directors or equivalent governing body of such
Person on a fully-diluted basis (and taking into account all such securities that such person or
group has the right to acquire pursuant to any option right);
(b) during any period of 24 consecutive months, a majority of the members of the board of directors
or other equivalent governing body of such Person cease to be composed of individuals (i) who were
members of that board or equivalent governing body on the first day of such period, (ii) whose
election or nomination to that board or equivalent governing body was approved by individuals
referred to in clause (i) above constituting at the time of such election or nomination at least a
majority of that board or equivalent governing body or (iii) whose election or nomination to that
board or other equivalent governing body was approved by individuals referred to in clauses (i) and
(ii) above constituting at the time of such election or nomination at least a majority of that
board or equivalent governing body (excluding, in the case of both clause (ii) and clause (iii),
any individual whose initial nomination for, or assumption of office as, a member of that board or
equivalent governing body occurs as a result of an actual or threatened
solicitation of proxies or consents for the election or removal of one or more directors by
4
any
person or group other than a solicitation for the election of one or more directors by or on behalf
of the board of directors);
(c) any individual(s) or entity(s) acting in concert shall have acquired by contract or otherwise,
or shall have entered into a contract or arrangement that, upon consummation thereof, will result
in its or their acquisition of the power to exercise, directly or indirectly, a controlling
influence over the management or policies of such Person, or control over the equity securities of
such Person entitled to vote for members of the board of directors or equivalent governing body of
such Person on a fully-diluted basis (and taking into account all such securities that such
individual(s) or entity(s) or group has the right to acquire pursuant to any option right)
representing more than 50% of the combined voting power of such securities; or
(d) In the case of Mistras Group, Inc., Sotirios Vahaviolos ceases to own and control, directly and
indirectly, at least fifty-one (51%) percent of its capital stock entitled to vote for the election
of directors.
Closing Date means the first date all the conditions precedent in Section 4.01 are
satisfied or waived in accordance with Section 10.01.
Code means the Internal Revenue Code of 1986.
Co-Lead Bookrunner means either JPMorgan Chase Bank, N.A. or Bank of America, N.A. in its
capacity as co-lead bookrunner under any of the Loan Documents, or any successor co-lead
bookrunner.
Collateral shall mean any and all assets and rights and interests in or to property of
Borrower and each of the other Loan Parties, whether real or personal, tangible or intangible, in
which a Lien is granted or purported to be granted pursuant to the Collateral Documents.
Collateral Documents means all agreements, instruments and documents now or hereafter
executed and delivered in connection with this Agreement pursuant to which Liens are granted or
purported to be granted to Agent in Collateral securing all or part of the Obligations each in form
and substance satisfactory to Agent.
Commitment means, as to each Lender, its Revolving Loan Commitment and its Term Loan
Commitment.
Committed Borrowing means a borrowing consisting of simultaneous Committed Loans of the
same Type and, in the case of Eurodollar Rate Loans, having the same Interest Period made by each
of the Lenders pursuant to Section 2.01.
Committed Loan means the Term Loan (or any portion thereof made by a Lender) or a
Revolving Loan (or any portion thereof made by a Lender).
5
Committed Loan Notice means a notice of (a) a Committed Borrowing, (b) a conversion of
Committed Loans from one Type to the other, or (c) a continuation of Eurodollar Rate Loans,
pursuant to Section 2.02(a), which, if in writing, shall be substantially in the form of
Exhibit A.
Compliance Certificate means a certificate substantially in the form of Exhibit
D.
Consolidated Subsidiary means each of Quality Services Laboratories, Inc., CONAM
Inspection & Engineering Services, Inc., Physical Acoustics Ltd., Euro Physical Acoustics, S.A.,
Anru Physical ALC TLP Beheer B.V., Physical Acoustics India Private Ltd., Nippon Physical Acoustics
Limited, Diapac, Physical Acoustics South America Ltda. and any other Subsidiary of Borrower now or
hereafter included in the Audited Financial Statements.
Contractual Obligation means, as to any Person, any provision of any security issued by
such Person or any agreement, instrument or other undertaking to which such Person is a party or by
which it or any of its property is bound.
Control means the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of a Person, whether through the ability to exercise voting
power, by contract or otherwise. Controlling and Controlled have meanings correlative thereto.
Credit Extension means each of the following: (a) a Borrowing and (b) an L/C Credit
Extension.
Debtor Relief Laws means the Bankruptcy Code of the United States, 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 or other applicable jurisdictions from time to time in effect and affecting the
rights of creditors generally.
Debt Service Coverage Ratio means the ratio of Fixed Charge Cash Flow to the sum of the
current portion of long-term liabilities and the current portion of capitalized lease obligations,
plus interest expense on all obligations.
Default means any event or condition that constitutes an Event of Default or that, with
the giving of any notice, the passage of time, or both, would be an Event of Default.
Default Rate means (a) when used with respect to Obligations other than L/C Fees an
interest rate equal to (i) the Base Rate plus (ii) the Applicable Rate, if any, applicable to Base
Rate Loans plus (iii) 2% per annum; provided, however, that with respect to a Eurodollar Rate Loan,
the Default Rate shall be an interest rate equal to the interest rate (including any Applicable
Rate) otherwise applicable to such Loan plus 2% per annum, and (b) when used with respect to L/C
Fees, a rate equal to the Applicable Rate plus 2% per annum.
6
Defaulting Lender means any Lender that (a) has failed to fund any portion of the
Committed Loans or participations in L/C Obligations required to be funded by it hereunder within
one Business Day of the date required to be funded by it hereunder unless such failure has been
cured, (b) has otherwise failed to pay over to Agent or any other Lender any other amount required
to be paid by it hereunder within one Business Day of the date when due, unless the subject of a
good faith dispute or unless such failure has been cured, or (c) has been deemed insolvent or
become the subject of a bankruptcy or insolvency proceeding.
Disposition or Dispose means the sale, transfer, license, lease or other
disposition (including any sale and leaseback transaction) of any property by any Person, including
any sale, assignment, transfer or other disposal, with or without recourse, of any notes or
accounts receivable or any rights and claims associated therewith.
Dollar and $ mean lawful money of the United States.
EBITDA means net income, less income or plus loss from discontinued operations and
extraordinary items, plus income taxes, plus interest expense, plus depreciation, depletion, and
amortization (including non-cash loss on retirement of assets), plus stock option expense, less
cash expense related to stock options and adjusted for certain historical expenses, accounting
adjustments, and other non-cash charges, all in the Required Lenders sole discretion. With
respect to each company acquired by the Borrower in accordance with Section 7.02(f), (i) for
purposes of determining compliance by the Borrower with Section 6.12 of this Agreement, EBITDA
shall not include the EBITDA of such acquired company to the extent attributable to periods prior
to the date of such acquisition and (ii) for purposes of determining the Applicable Rate, EBITDA
shall include the historical EBITDA of such acquired company during the applicable 12-month
reporting period, whether or not the acquired company was owned by the Borrower during the entire
period in question.
Eligible Assignee means any Person that meets the requirements to be an assignee
under Section 10.06(b)(v) and (vi) (subject to such consents, if any, as may be required under
Section 10.06(b)(iii)).
Environmental Laws means any and all Federal, state, local, and foreign statutes, laws,
regulations, ordinances, rules, judgments, orders, decrees, permits, concessions, grants,
franchises, licenses, agreements or governmental restrictions relating to pollution and the
protection of the environment or the release of any materials into the environment, including those
related to hazardous substances or wastes, air emissions and discharges to waste or public systems.
Environmental Liability means any liability, contingent or otherwise (including any
liability for damages, costs of environmental remediation, fines, penalties or indemnities), of
Borrower, any other Loan Party or any of their respective Subsidiaries directly or indirectly
resulting from or based upon (a) violation of any Environmental Law, (b) the generation, use,
handling, transportation, storage, treatment or disposal of
7
any Hazardous Materials, (c) exposure to any Hazardous Materials, (d) the release or threatened
release of any Hazardous Materials into the environment or (e) any contract, agreement or other
consensual arrangement pursuant to which liability is assumed or imposed with respect to any of the
foregoing.
Equity Interests means, with respect to any Person, all of the shares of capital stock of
(or other ownership or profit interests in) such Person, all of the warrants, options or other
rights for the purchase or acquisition from such Person of shares of capital stock of (or other
ownership or profit interests in) such Person, all of the securities convertible into or
exchangeable for shares of capital stock of (or other ownership or profit interests in) such Person
or warrants, rights or options for the purchase or acquisition from such Person of such shares (or
such other interests), and all of the other ownership or profit interests in such Person (including
partnership, member or trust interests therein), whether voting or nonvoting, and whether or not
such shares, warrants, options, rights or other interests are outstanding on any date of
determination.
ERISA means the Employee Retirement Income Security Act of 1974.
ERISA Affiliate means any trade or business (whether or not incorporated) under common
control with Borrower within the meaning of Section 414(b) or (c) of the Code (and Sections 414(m)
and (o) of the Code for purposes of provisions relating to Section 412 of the Code).
ERISA Event means (a) a Reportable Event with respect to a Pension Plan; (b) a withdrawal
by Borrower or any ERISA Affiliate from a Pension Plan subject to Section 4063 of ERISA during a
plan year in which it was a substantial employer (as defined in Section 4001(a)(2) of ERISA) or a
cessation of operations that is treated as such a withdrawal under Section 4062(e) of ERISA; (c) a
complete or partial withdrawal by Borrower or any ERISA Affiliate from a Multiemployer Plan or
notification that a Multiemployer Plan is in reorganization; (d) the filing of a notice of intent
to terminate, the treatment of a Plan amendment as a termination under Section 4041 or 4041A of
ERISA, or the commencement of proceedings by the PBGC to terminate a Pension Plan or Multiemployer
Plan; (e) an event or condition which constitutes grounds under Section 4042 of ERISA for the
termination of, or the appointment of a trustee to administer, any Pension Plan or Multiemployer
Plan; or (f) the imposition of any liability under Title IV of ERISA, other than for PBGC premiums
due but not delinquent under Section 4007 of ERISA, upon Borrower or any ERISA Affiliate.
Eurodollar Base Rate has the meaning specified in the definition of Eurodollar Rate.
Eurodollar Rate means for any Interest Period with respect to a Eurodollar Rate Loan, a
rate per annum determined by Agent pursuant to the following formula:
|
|
|
Eurodollar Rate =
|
|
Eurodollar Base Rate |
|
|
|
|
|
1.00 Eurodollar Reserve Percentage |
Where,
8
Eurodollar Base Rate means, for such Interest Period the rate per annum equal to the
British Bankers Association LIBOR Rate (BBA LIBOR), as published by Reuters (or other
commercially available source providing quotations of BBA LIBOR as designated by Agent from time to
time) at approximately 11:00 a.m., London time, two Business Days prior to the commencement of such
Interest Period, for Dollar deposits (for delivery on the first day of such Interest Period) with a
term equivalent to such Interest Period. If such rate is not available at such time for any
reason, then the Eurodollar Base Rate for such Interest Period shall be the rate per annum
determined by Agent to be the rate at which deposits in Dollars for delivery on the first day of
such Interest Period in same day funds in the approximate amount of the Eurodollar Rate Loan being
made, continued or converted by Bank of America and with a term equivalent to such Interest Period
would be offered by Bank of Americas London Branch to major banks in the London interbank
eurodollar market at their request at approximately 11:00 a.m. (London time) two Business Days
prior to the commencement of such Interest Period.
Eurodollar Reserve Percentage means, for any day during any Interest Period, the reserve
percentage (expressed as a decimal, carried out to five decimal places) in effect on such day,
whether or not applicable to any Lender, under regulations issued from time to time by the Board of
Governors of the Federal Reserve System of the United States for determining the maximum reserve
requirement (including any emergency, supplemental or other marginal reserve requirement) with
respect to Eurocurrency funding (currently referred to as Eurocurrency liabilities). The
Eurodollar Rate for each outstanding Eurodollar Rate Loan shall be adjusted automatically as of the
effective date of any change in the Eurodollar Reserve Percentage.
Eurodollar Rate Loan means a Committed Loan that bears interest at a rate based on the
Eurodollar Rate.
Event of Default has the meaning specified in Section 8.01.
Excluded Taxes means, with respect to Agent, any Lender, the L/C Issuer or any other
recipient of any payment to be made by or on account of any obligation of Borrower hereunder, (a)
taxes imposed on or measured by its overall net income (however denominated), and franchise taxes
imposed on it (in lieu of net income taxes), by the jurisdiction (or any political subdivision
thereof) under the laws of which such recipient is organized or in which its principal office is
located or, in the case of any Lender, in which its applicable Lending Office is located, and (b)
any branch profits taxes imposed by the United States or any similar tax imposed by any other
jurisdiction in which Borrower is located.
Federal Funds Rate means, for any day, the rate per annum equal to the weighted average
of the rates on overnight Federal funds transactions with members of the Federal Reserve System
arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank of New York
on the Business Day next succeeding such day; provided that (a) if such day is not a Business Day,
the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding
Business Day
9
as so published on the next succeeding Business Day, and (b) if no such rate is so published on
such next succeeding Business Day, the Federal Funds Rate for such day shall be the average rate
(rounded upward, if necessary, to a whole multiple of 1/100 of 1%) charged to Bank of America on
such day on such transactions as determined by Agent.
Fixed Charge Cash Flow means (a) net income, after income tax, (b) less income or plus
loss from discontinued operations and extraordinary items, (c) plus depreciation, depletion and
amortization and other non-cash charges, (d) plus interest expense on all obligations, and (e)
minus unfunded capital expenditures, dividends, cash distributions, withdrawals and other
distributions.
FRB means the Board of Governors of the Federal Reserve System of the United States.
Free Cash Flow means the sum of EBITDA minus all taxes paid or payable in cash, minus
cash interest paid, minus all capital expenditures made in cash, minus all scheduled and
non-scheduled principal payments on Funded Debt made during the period (excluding free cash flow
payments pursuant to Section 2.05(c) of this Agreement), minus acquisition costs and plus or minus
changes in working capital.
Funded Debt means all outstanding liabilities for borrowed money and other
interest-bearing liabilities, including current and long term liabilities.
GAAP means generally accepted accounting principles in the United States 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 in the United States, that are applicable to the circumstances as of the date
of determination, consistently applied.
Governmental Authority means the government of the United States or any other nation, or
of any political subdivision thereof, whether state or local, and any agency, authority,
instrumentality, regulatory body, court, central bank or other entity exercising executive,
legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to
government (including any supra-national bodies such as the European Union or the European Central
Bank).
Guarantee means, as to any Person, any (a) any obligation, contingent or otherwise, of
such Person guaranteeing or having the economic effect of guaranteeing any Indebtedness or other
obligation payable or performable by another Person (the primary obligor) in any manner, whether
directly or indirectly, and including any obligation of such Person, direct or indirect, (i) to
purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or
other obligation, (ii) to purchase or lease property, securities or services for the purpose of
assuring the obligee in respect of such Indebtedness or other obligation of the payment or
performance of such Indebtedness or other obligation, (iii) to maintain working capital,
10
equity capital or any other financial statement condition or liquidity or level of income or cash
flow of the primary obligor so as to enable the primary obligor to pay such Indebtedness or other
obligation, or (iv) entered into for the purpose of assuring in any other manner the obligee in
respect of such Indebtedness or other obligation of the payment or performance thereof or to
protect such obligee against loss in respect thereof (in whole or in part), or (b) any Lien on any
assets of such Person securing any Indebtedness or other obligation of any other Person, whether or
not such Indebtedness or other obligation is assumed by such Person (or any right, contingent or
otherwise, of any holder of such Indebtedness to obtain any such Lien). The amount of any
Guarantee shall be deemed to be an amount equal to the stated or determinable amount of the related
primary obligation, or portion thereof, in respect of which such Guarantee is made or, if not
stated or determinable, the maximum reasonably anticipated liability in respect thereof as
determined by the guaranteeing Person in good faith. The term Guarantee as a verb has a
corresponding meaning.
Guarantor means each of Quality Services Laboratories, Inc., CONAM Inspection &
Engineering Services, Inc., Physical Acoustics Corporation and CISMIS Springfield Corp.
Guaranty means the Guaranty made by each Guarantor in favor of Agent and for the
benefit of the Lenders, in form and substance satisfactory to Agent.
Hazardous Materials means all explosive or radioactive substances or wastes and all
hazardous or toxic substances, wastes or other pollutants, including petroleum or petroleum
distillates, asbestos or asbestos-containing materials, polychlorinated biphenyls, radon gas,
infectious or medical wastes and all other substances or wastes of any nature regulated pursuant to
any Environmental Law.
Indebtedness means, as to any Person at a particular time, without duplication, all of
the following, whether or not included as indebtedness or liabilities in accordance with GAAP:
(a) all obligations of such Person for borrowed money and all obligations of such Person
evidenced by bonds, debentures, notes, loan agreements or other similar instruments;
(b) all direct or contingent obligations of such Person arising under letters of credit
(including standby and commercial), bankers acceptances, bank guaranties, surety bonds and similar
instruments;
(c) net obligations of such Person under any Swap Contract;
(d) all obligations of such Person to pay the deferred purchase price of property or services
(other than trade accounts payable in the ordinary course of business and, in each case, not past
due for more than 60 days or such longer period as permitted in the ordinary course of business);
11
(e) indebtedness (excluding prepaid interest thereon) secured by a Lien on property owned or
being purchased by such Person (including indebtedness arising under conditional sales or other
title retention agreements), whether or not such indebtedness shall have been assumed by such
Person or is limited in recourse;
(f) capital leases and Synthetic Lease Obligations;
(g) all obligations of such Person to purchase, redeem, retire, defease or otherwise make any
payment in respect of any Equity Interest in such Person or any other Person, valued, in the case
of a redeemable preferred interest, at the greater of its voluntary or involuntary liquidation
preference plus accrued and unpaid dividends; and
(h) all Guarantees of such Person in respect of any of the foregoing.
For all purposes hereof, the Indebtedness of any Person shall include the Indebtedness of any
partnership or joint venture (other than a joint venture that is itself a corporation or limited
liability company) in which such Person is a general partner or a joint venturer, unless such
Indebtedness is expressly made non-recourse to such Person. The amount of any net obligation under
any Swap Contract on any date shall be deemed to be the Swap Termination Value thereof as of such
date. The amount of any capital lease or Synthetic Lease Obligation as of any date shall be deemed
to be the amount of Attributable Indebtedness in respect thereof as of such date.
Indemnified Taxes means Taxes other than Excluded Taxes.
Indemnitees has the meaning specified in Section 10.04(b).
Information has the meaning specified in Section 10.07.
Interest Payment Date means, (a) as to any Loan other than a Base Rate Loan, the last day
of each Interest Period applicable to such Loan and the Maturity Date; provided, however, that if
any Interest Period for a Eurodollar Rate Loan exceeds three months, the respective dates that fall
every three months after the beginning of such Interest Period shall also be Interest Payment
Dates; and (b) as to any Base Rate Loan, the last Business Day of each January, April, July and
October and the Maturity Date.
Interest Period means, as to each Eurodollar Rate Loan, the period commencing on the date
such Eurodollar Rate Loan is disbursed or converted to or continued as a Eurodollar Rate Loan and
ending on the date one, two or three months thereafter, as selected by Borrower in its Committed
Loan Notice; provided that:
(i) any Interest Period that would otherwise end on a day that is not a Business Day shall be
extended to the next succeeding Business Day unless such Business Day falls in another calendar
month, in which case such Interest Period shall end on the next preceding Business Day;
12
(ii) any Interest Period that begins on the last Business Day of a calendar month (or on a day
for which there is no numerically corresponding day in the calendar month at the end of such
Interest Period) shall end on the last Business Day of the calendar month at the end of such
Interest Period; and
(iii) no Interest Period shall extend beyond the Maturity Date.
Internal Control Event means a material weakness in, or fraud that involves management or
other employees who have a significant role in Borrowers internal controls over financial
reporting.
Investment means, as to any Person, any direct or indirect acquisition or investment by
such Person, whether by means of (a) the purchase or other acquisition of capital stock or other
securities of another Person, (b) a loan, advance or capital contribution to, Guarantee or
assumption of debt of, or purchase or other acquisition of any other debt or equity participation
or interest in, another Person, including any partnership or joint venture interest in such other
Person and any arrangement pursuant to which the investor Guarantees Indebtedness of such other
Person, or (c) the purchase or other acquisition (in one transaction or a series of transactions)
of assets of another Person that constitute a business unit. For purposes of covenant compliance,
the amount of any Investment shall be the amount actually invested, without adjustment for
subsequent increases or decreases in the value of such Investment.
IRS means the United States Internal Revenue Service.
ISP means, with respect to any Letter of Credit, the International Standby Practices
ISP98 published by the Institute of International Banking Law & Practice (or such later version
thereof as may be in effect at the time of issuance).
Issuer Documents means with respect to any Letter of Credit, the L/C Application, and any
other document, agreement and instrument entered into by the L/C Issuer and Borrower (or any
Subsidiary) or in favor of the L/C Issuer and relating to such Letter of Credit.
Laws means, collectively, 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, authorizations and
permits of, and agreements with, any Governmental Authority, in each case whether or not having the
force of law.
L/C Advance means, with respect to each Lender, such Lenders funding of its
participation in any L/C Borrowing in accordance with its Applicable Percentage.
L/C Application means an application and agreement for the issuance or amendment of a
Letter of Credit in the form from time to time in use by the L/C Issuer.
13
L/C Borrowing means an extension of credit resulting from a drawing under any Letter of
Credit which has not been reimbursed on the date when made or refinanced as a Committed Borrowing.
L/C Credit Extension means, with respect to any Letter of Credit, the issuance thereof or
extension of the expiry date thereof, or the increase of the amount thereof.
L/C Expiration Date means the day that is thirty days prior to the Maturity Date then in
effect (or, if such day is not a Business Day, the next preceding Business Day).
L/C Fee has the meaning specified in Section 2.03(i).
L/C Issuer means Bank of America, N.A. in its capacity as issuer of Letters of Credit
hereunder, or any successor issuer of Letters of Credit hereunder.
L/C Obligations means, as at any date of determination, the aggregate amount available
to be drawn under all outstanding Letters of Credit plus the aggregate of all Unreimbursed Amounts,
including all L/C Borrowings. For purposes of computing the amount available to be drawn under any
Letter of Credit, the amount of such Letter of Credit shall be determined in accordance with
Section 1.06. For all purposes of this Agreement, if on any date of determination a Letter of
Credit has expired by its terms but any amount may still be drawn thereunder by reason of the
operation of Rule 3.14 of the ISP, such Letter of Credit shall be deemed to be outstanding in the
amount so remaining available to be drawn.
L/C Sublimit means an amount equal to $1,000,000. The L/C Sublimit is part of, and not
in addition to, the Aggregate Revolving Loan Commitments.
Lender has the meaning specified in the introductory paragraph hereto.
Lending Office means, as to any Lender, the office or offices of such Lender described as
such in such Lenders Administrative Questionnaire, or such other office or offices as a Lender may
from time to time notify Borrower and Agent.
Letter of Credit means any letter of credit issued hereunder. A Letter of Credit may be
a commercial letter of credit or a standby letter of credit.
Lien means any mortgage, pledge, hypothecation, assignment, deposit arrangement,
encumbrance, lien (statutory or other), charge, or preference, priority or other security interest
or preferential arrangement in the nature of a security interest of any kind or nature whatsoever
(including any conditional sale or other title retention agreement, any easement, right of way or
other encumbrance on title to real property, and any financing lease having substantially the same
economic effect as any of the foregoing).
Loan means an extension of credit by a Lender to Borrower under Article II in the form of
a Revolving Loan or the Term Loan.
14
Loan Documents means this Agreement, each Note, each Issuer Document, the Agent Fee
Letter, each Collateral Document, the Guaranty, the Subordination Agreement and the Post-Closing
Undertaking Agreement.
Loan Parties means, collectively, Borrower and each Person (other than Agent, the L/C
Issuer, or any Lender) executing a Loan Document including, without limitation, each Guarantor and
such each Person executing a Collateral Document.
Majority-Owned Subsidiary of the Borrower means a Subsidiary of which the Borrower owns,
directly or indirectly through another Subsidiary, more than 50% of the issued and outstanding
capital stock or other equity interests.
Material Adverse Effect means (a) a material adverse change in, or a material
adverse effect upon, the operations, business, properties, liabilities (actual or contingent),
condition (financial or otherwise) or prospects of Borrower or Borrower and its Subsidiaries taken
as a whole; (b) a material impairment of the ability of the Borrower to perform its obligations
under this Agreement; or (c) a material adverse effect upon the legality, validity, binding effect
or enforceability against any Loan Party of any Loan Document to which it is a party which could
reasonably be expected to have a material adverse effect upon the rights of the Lenders hereunder.
Maturity Date means October 31, 2012.
Multiemployer Plan means any employee benefit plan of the type described in Section
4001(a)(3) of ERISA, to which Borrower or any ERISA Affiliate makes or is obligated to make
contributions, or during the preceding five plan years, has made or been obligated to make
contributions.
Note means a Revolving Note or a Term Note.
Obligations means all advances to, and debts, liabilities, obligations, covenants and
duties of, any Loan Party arising under any Loan Document or otherwise with respect to any Loan or
Letter of Credit, whether direct or indirect (including those acquired by assumption), absolute or
contingent, due or to become due, now existing or hereafter arising and including interest and fees
that accrue after the commencement by or against any Loan Party or any Affiliate thereof of any
proceeding under any Debtor Relief Laws naming such Person as the debtor in such proceeding,
regardless of whether such interest and fees are allowed claims in such proceeding.
Organization Documents means, (a) with respect to any corporation, the certificate or
articles of incorporation and the bylaws (or equivalent or comparable constitutive documents with
respect to any non-U.S. jurisdiction); (b) with respect to any limited liability company, the
certificate or articles of formation or organization and operating agreement; and (c) with respect
to any partnership, joint venture, trust or other form of business entity, the partnership, joint
venture or other applicable agreement of formation or organization and any agreement, instrument,
filing or notice with respect thereto filed in connection with its formation or organization with
the applicable Governmental
15
Authority in the jurisdiction of its formation or organization and, if applicable, any certificate
or articles of formation or organization of such entity.
Other Taxes means all present or future stamp or documentary taxes imposed by any taxing
authority (i) which may arise from the registration, filing, recording, or perfection of any
security interest in connection with this Agreement or any other Loan Document (other than Taxes
attributable to a voluntary transfer of a Loan or Note by a Lender or Participant) or (ii) from the
enforcement of this Agreement or any other Loan Document in connection with an Event of Default.
Outstanding Revolving Loan Amount means (i) with respect to Revolving Loans on any date,
the aggregate outstanding principal amount thereof after giving effect to any borrowings and
prepayments or repayments of Revolving Loans, as the case may be, occurring on such date; and (ii)
with respect to any L/C Obligations on any date, the amount of such L/C Obligations on such date
after giving effect to any L/C Credit Extension occurring on such date and any other changes in the
aggregate amount of the L/C Obligations as of such date, including as a result of any
reimbursements by Borrower of Unreimbursed Amounts.
Participant has the meaning specified in Section 10.06(d).
PBGC means the Pension Benefit Guaranty Corporation.
PCAOB means the Public Company Accounting Oversight Board.
Pension Plan means any employee pension benefit plan (as such term is defined in
Section 3(2) of ERISA), other than a Multiemployer Plan, that is subject to Title IV of ERISA and
is sponsored or maintained by Borrower or any ERISA Affiliate or to which Borrower or any ERISA
Affiliate contributes or has an obligation to contribute, or in the case of a multiple employer or
other plan described in Section 4064(a) of ERISA, has made contributions at any time during the
immediately preceding five plan years.
Person means any natural person, corporation, limited liability company, trust, joint
venture, association, company, partnership, Governmental Authority or other entity.
Plan means any employee benefit plan (as such term is defined in Section 3(3) of ERISA)
established by Borrower or, with respect to any such plan that is subject to Section 412 of the
Code or Title IV of ERISA, any ERISA Affiliate.
Platform has the meaning specified in Section 6.02.
Post-Closing Undertaking Agreement means the post-closing undertaking agreement as of the
date hereof by and between the Borrower and the Agent.
Register has the meaning specified in Section 10.06(c).
16
Related Parties means, with respect to any Person, such Persons Affiliates and the
partners, directors, officers, employees, agents and advisors of such Person and of such Persons
Affiliates.
Reportable Event means any of the events set forth in Section 4043(c) of ERISA, other
than events for which the 30 day notice period has been waived.
Request for Credit Extension means (a) with respect to a Borrowing, conversion or
continuation of Committed Loans, a Committed Loan Notice and (b) with respect to an L/C Credit
Extension, a L/C Application.
Required Lenders means, as of any date of determination, Lenders having more than 50% of
the sum of the Revolving Loan Commitments and the outstanding principal balance of the Term Loans
(taken as a whole) or, if the commitment of each Lender to make Loans and the obligation of the L/C
Issuer to make L/C Credit Extensions have been terminated pursuant to Section 8.02, Lenders holding
in the aggregate more than 50% of the total outstanding Loans (with the aggregate amount of each
Lenders risk participation and funded participation in L/C Obligations being deemed held by such
Lender for purposes of this definition); provided that the Commitment of, and the portion of the
total outstanding Loans held or deemed held by, any Defaulting Lender shall be excluded for
purposes of making a determination of Required Lenders.
Responsible Officer means the chief executive officer, president, chief financial
officer, treasurer and, solely for purposes of notices given pursuant to Article II, any other
officer or employee of the applicable Loan Party so designated by any of the foregoing officers in
a notice to Agent. Any document delivered hereunder that is signed by a Responsible Officer of a
Loan Party shall be conclusively presumed to have been authorized by all necessary corporate,
partnership and/or other action on the part of such Loan Party and such Responsible Officer shall
be conclusively presumed to have acted on behalf of such Loan Party.
Restricted Payment means any dividend or other distribution (whether in cash, securities
or other property) with respect to any capital stock or other Equity Interest of Borrower or any
Subsidiary, or any payment (whether in cash, securities or other property), including any sinking
fund or similar deposit, on account of the purchase, redemption, retirement, acquisition,
cancellation or termination of any such capital stock or other Equity Interest or on account of any
return of capital to Borrowers stockholders, partners or members (or the equivalent Person
thereof).
Revolving Loan has the meaning specified in Section 2.01(b).
Revolving Loan Commitment means, as to each Lender, its obligation to (a) make Revolving
Loans to Borrower pursuant to Section 2.01(a) and (b) purchase participations in L/C Obligations,
in an aggregate principal amount at any one time outstanding not to exceed the amount set forth
opposite such Lenders name on the portion of Schedule 2.01 describing the Revolving Loans
or in the Assignment and
17
Assumption pursuant to which such Lender becomes a party hereto, as applicable, as such amount may
be adjusted from time to time in accordance with this Agreement.
Revolving Note means a promissory note made by Borrower in favor of a Lender evidencing a
Revolving Loan made by such Lender, substantially in the form of Exhibit B.
Sarbanes-Oxley means the Sarbanes-Oxley Act of 2002.
SEC means the Securities and Exchange Commission, or any Governmental Authority
succeeding to any of its principal functions.
Securities Laws means the Securities Act of 1933, the Securities Exchange Act of 1934,
Sarbanes-Oxley and the applicable accounting and auditing principles, rules, standards and
practices promulgated, approved or incorporated by the SEC or the PCAOB.
Subordination Agreement means the subordination agreement by and among the Borrower, the
Agent and TC NDT Holdings LLC, Altus Capital Partners SBIC, L.P., Altus Mistras Co-Investment, LLC
and Sotirios J. Vahaviolos.
Subsidiary of a Person means a corporation, partnership, joint venture, limited liability
company or other business entity of which a majority of the shares of securities or other interests
having ordinary voting power for the election of directors or other governing body (other than
securities or interests having such power only by reason of the happening of a contingency) are at
the time beneficially owned, or the management of which is otherwise controlled, directly, or
indirectly through one or more intermediaries, or both, by such Person. Unless otherwise
specified, all references herein to a Subsidiary or to Subsidiaries shall refer to a Subsidiary
or Subsidiaries of Borrower.
Swap Contract means (a) any and all rate swap transactions, basis swaps, credit
derivative transactions, forward rate transactions, commodity swaps, commodity options, forward
commodity contracts, equity or equity index swaps or options, bond or bond price or bond index
swaps or options or forward bond or forward bond price or forward bond index transactions, interest
rate options, forward foreign exchange transactions, cap transactions, floor transactions, collar
transactions, currency swap transactions, cross-currency rate swap transactions, currency options,
spot contracts, or any other similar transactions or any combination of any of the foregoing
(including any options to enter into any of the foregoing), whether or not any such transaction is
governed by or subject to any master agreement, and (b) any and all transactions of any kind, and
the related confirmations, which are subject to the terms and conditions of, or governed by, any
form of master agreement published by the International Swaps and Derivatives Association, Inc.,
any International Foreign Exchange Master Agreement, or any other master agreement (any such master
agreement, together with any related schedules, a Master Agreement), including any such
obligations or liabilities under any Master Agreement.
18
Swap Termination Value means, in respect of any one or more Swap Contracts, after taking
into account the effect of any legally enforceable netting agreement relating to such Swap
Contracts, (a) for any date on or after the date such Swap Contracts have been closed out and
termination value(s) determined in accordance therewith, such termination value(s), and (b) for any
date prior to the date referenced in clause (a), the amount(s) determined as the mark-to-market
value(s) for such Swap Contracts, as determined based upon one or more mid-market or other readily
available quotations provided by any recognized dealer in such Swap Contracts (which may include a
Lender or any Affiliate of a Lender).
Synthetic Lease Obligation means the monetary obligation of a Person under (a) a
so-called synthetic, off-balance sheet or tax retention lease, or (b) an agreement for the use or
possession of property creating obligations that do not appear on the balance sheet of such Person
but which, upon the insolvency or bankruptcy of such Person, would be characterized as the
indebtedness of such Person (without regard to accounting treatment).
Taxes means all present or future taxes, levies, imposts, duties, deductions,
withholdings, assessments, fees or other charges imposed by any Governmental Authority, including
any interest, additions to tax or penalties applicable thereto.
Term Loan has the meaning specified in Section 2.01(a).
Term Loan Commitment means, as to each Lender, the amount set forth opposite such
Lenders name on the portion of Schedule 2.01 describing the Term Loan or in the Assignment
and Assumption pursuant to which such Lender becomes a party hereto, as applicable.
Term Note means a promissory note made by Borrower in favor of a Lender evidencing the
Lenders Applicable Percentage of the Term Loan, substantially in the form of Exhibit C.
Threshold Amount means $500,000.
Total Liabilities means the sum of current liabilities plus long term liabilities.
Total Revolving Loan Outstandings means the aggregate Outstanding Revolving Loan Amount
of all Revolving Loans and all L/C Obligations.
Type means, with respect to a Committed Loan, its character as a Base Rate Loan or a
Eurodollar Rate Loan.
Unfunded Pension Liability means the excess of a Pension Plans benefit liabilities under
Section 4001(a)(16) of ERISA, over the current value of that Pension Plans 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.
19
United States and U.S. mean the United States of America.
Unreimbursed Amount has the meaning specified in Section 2.03(c)(i).
Wholly-Owned Subsidiary of the Borrower means a Subsidiary of which the Borrower owns,
directly or indirectly through another Subsidiary, 95% or more of the issued and outstanding
capital stock or other equity interests.
1.02 Other Interpretive Provisions. With reference to this Agreement and each other Loan Document, unless otherwise specified
herein or in such other Loan Document:
(a) The definitions of terms herein shall apply equally to the singular and plural forms of
the terms defined. Whenever the context may require, any pronoun shall include the corresponding
masculine, feminine and neuter forms. The words include, includes and including shall be
deemed to be followed by the phrase without limitation. The word will shall be construed to
have the same meaning and effect as the word shall. Unless the context requires otherwise, (i)
any definition of or reference to any agreement, instrument or other document (including any
Organization Document) shall be construed as referring to such agreement, instrument or other
document as from time to time amended, supplemented or otherwise modified (subject to any
restrictions on such amendments, supplements or modifications set forth herein or in any other Loan
Document), (ii) any reference herein to any Person shall be construed to include such Persons
successors and assigns, (iii) the words herein, hereof and hereunder, and words of similar
import when used in any Loan Document, shall be construed to refer to such Loan Document in its
entirety and not to any particular provision thereof, (iv) all references in a Loan Document to
Articles, Sections, Exhibits and Schedules shall be construed to refer to Articles and Sections of,
and Exhibits and Schedules to, the Loan Document in which such references appear, (v) any reference
to any law shall include all statutory and regulatory provisions consolidating, amending, replacing
or interpreting such law and any reference to any law or regulation shall, unless otherwise
specified, refer to such law or regulation as amended, modified or supplemented from time to time,
and (vi) the words asset and property shall be construed to have the same meaning and effect
and to refer to any and all tangible and intangible assets and properties, including cash,
securities, accounts and contract rights.
(b) In the computation of periods of time from a specified date to a later specified date, the
word from means from and including; the words to and until each mean to but excluding;
and the word through means to and including.
(c) Section headings herein and in the other Loan Documents are included for convenience of
reference only and shall not affect the interpretation of this Agreement or any other Loan
Document.
20
1.03 Accounting Terms
(a) Generally. All accounting terms not specifically or completely defined herein
shall be construed in conformity with, and all financial data (including financial ratios and other
financial calculations) required to be submitted pursuant to 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 Audited Financial Statements, except as otherwise
specifically prescribed herein.
(b) Changes in GAAP. 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 Borrower or the
Required Lenders shall so request, Agent, Lenders and Borrower shall negotiate in good faith to
amend such ratio or requirement to preserve the original intent thereof in light of such change in
GAAP (subject to the approval of the Required Lenders); provided that, until so amended, (i) such
ratio or requirement shall continue to be computed in accordance with GAAP prior to such change
therein and (ii) Borrower shall provide to Agent and Lenders financial statements and other
documents required under this Agreement or as reasonably requested hereunder setting forth a
reconciliation between calculations of such ratio or requirement made before and after giving
effect to such change in GAAP.
(c) Consolidation of Variable Interest Entities. All references herein to
consolidated financial statements of Borrower and its Consolidated Subsidiaries or to the
determination of any amount for Borrower and its Subsidiaries on a consolidated basis or any
similar reference shall, in each case, be deemed to include each variable interest entity that
Borrower is required to consolidate pursuant to FASB Interpretation No. 46 Consolidation of
Variable Interest Entities: an interpretation of ARB No. 51 (January 2003) as if such variable
interest entity were a Subsidiary as defined herein.
1.04 Rounding. Any financial ratios required to be maintained by Borrower 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 herein and rounding the
result up or down to the nearest number (with a rounding-up if there is no nearest number).
1.05 Times of Day. Unless otherwise specified, all references herein to times of day shall be references to
Eastern time (daylight or standard, as applicable).
1.06 Letter of Credit Amounts. Unless otherwise specified herein the amount of a Letter of Credit at any time shall be
deemed to be the stated amount of such Letter of Credit in effect at such time; provided, however,
that with respect to any Letter of Credit that, by its terms or the terms of any Issuer Document
related thereto, provides for one or more automatic increases in the stated amount thereof, the
amount of such Letter of Credit shall be deemed to be the maximum stated amount of such
21
Letter of
Credit after giving effect to all such increases, whether or not such maximum stated amount is in
effect at such time.
ARTICLE II. THE COMMITMENTS AND CREDIT EXTENSIONS
2.01 Loans.
(a) Term Loan. Subject to the terms and conditions set forth herein, each Lender
severally agrees to make a term loan (each such loan, a Term Loan) to Borrower on the
Closing Date in an amount equal to the amount of such Lenders Term Loan Commitment, and to execute
and deliver to each such Lender a Term Note. Term Loans may be Base Rate Loans or Eurodollar Rate
Loans, as further provided herein. Once repaid or prepaid, the Term Loan may not be re-borrowed.
(b) Revolving Loans. Subject to the terms and conditions set forth herein, each
Lender severally agrees to make certain revolving loans (each such revolving loan, a Revolving
Loan) to Borrower from time to time, on any Business Day during the Availability Period, in an
aggregate amount not to exceed at any time outstanding the amount of such Lenders Revolving Loan
Commitment; provided, however, that after giving effect to any Borrowing of a Revolving Loan, (i)
the Total Revolving Loan Outstandings shall not exceed the Aggregate Revolving Loan Commitments,
and (ii) the aggregate Outstanding Revolving Loan Amount of all Revolving Loans of any Lender, plus
such Lenders Applicable Percentage of the Outstanding Revolving Loan Amount of all L/C Obligations
shall not exceed such Lenders Revolving Loan Commitment. Within the limits of each Lenders
Revolving Loan Commitment, and subject to the other terms and conditions hereof, Borrower may
borrow under this Section 2.01(b), prepay under Section 2.04, and reborrow under this Section
2.01(b). The Revolving Loans may be Base Rate Loans or Eurodollar Rate Loans, as further provided
herein and the Borrower shall execute and deliver a Revolving Note to each Lender.
2.02 Borrowings, Conversions and Continuations of Committed Loans.
(a) Each Committed Borrowing, each conversion of Committed Loans from one Type to the other,
and each continuation of Eurodollar Rate Loans shall be made upon Borrowers irrevocable notice to
Agent, which may be given by telephone. Each such notice must be received by Agent not later than
11:00 a.m. (i) three Business Days prior to the requested date of any Borrowing of, conversion to
or continuation of Eurodollar Rate Loans or of any conversion of Eurodollar Rate Loans to Base Rate
Loans, and (ii) on the requested date of any Borrowing of Base Rate Loans. Each telephonic notice
by Borrower pursuant to this Section 2.02(a) must be confirmed promptly by delivery to Agent of a
written Committed Loan Notice, appropriately completed and signed by a Responsible Officer of
Borrower. Each Borrowing of, conversion to or continuation of Eurodollar Rate Loans shall be in a
principal amount of $500,000 or a whole multiple of $100,000 in excess thereof. Except as provided
in Sections 2.03(c), each conversion to Base Rate Loans shall be in a principal amount of
22
$500,000
or a whole multiple of $100,000 in excess thereof. Each Committed Loan Notice (whether telephonic
or written) shall specify (i) whether Borrower is requesting a Committed Borrowing, a conversion of
Committed Loans from one Type to the other, or a continuation of Eurodollar Rate Loans, (ii) the
requested date of the Borrowing, conversion or continuation, as the case may be (which shall be a
Business Day), (iii) the principal amount of Committed Loans to be borrowed, converted or
continued, (iv) the Type of Committed Loans to be borrowed or to which existing Committed Loans are
to be converted, and (v) if applicable, the duration of the Interest Period with respect thereto.
If Borrower fails to specify a Type of Committed Loan in a Committed Loan Notice or if Borrower
fails to give a timely notice requesting a conversion or continuation, then the applicable
Committed Loans shall be made as, or converted to, Base Rate Loans. Any such automatic conversion
to Base Rate Loans shall be effective as of the last day of the Interest Period then in effect with
respect to the applicable Eurodollar Rate Loans. If Borrower requests a Borrowing of, conversion
to, or continuation of Eurodollar Rate Loans in any such Committed Loan Notice, but fails to
specify an Interest Period, it will be deemed to have specified an Interest Period of one month.
(b) Following receipt of a Committed Loan Notice, Agent shall promptly notify each Lender of
the amount of its Applicable Percentage of the applicable Committed Loans, and if no timely notice
of a conversion or continuation is provided by Borrower, Agent shall notify each Lender of the
details of any automatic conversion to Base Rate Loans described in the preceding subsection. In
the case of a Committed Borrowing, each Lender shall make the amount of its Committed Loan
available to Agent in immediately available funds at the Agents Office not later than 2:00 p.m. on
the Business Day specified in the applicable Committed Loan Notice. Upon satisfaction of the
applicable conditions set forth in Section 4.02 (and, if such Borrowing is the initial Credit
Extension, Section 4.01), Agent shall make all funds so received available to Borrower in like
funds as received by Agent either by (i) crediting the account of Borrower on the books of Bank of
America with the amount of such funds or (ii) wire
transfer of such funds, in each case in accordance with instructions provided to (and reasonably
acceptable to) Agent by Borrower; provided, however, that if, on the date the Committed Loan Notice
with respect to such Borrowing is given by Borrower, there are L/C Borrowings outstanding, then the
proceeds of such Borrowing first, shall be applied, to the payment in full of any such L/C
Borrowings, and second, shall be made available to Borrower as provided above.
(c) Except as otherwise provided herein, a Eurodollar Rate Loan may be continued or converted
only on the last day of an Interest Period for such Eurodollar Rate Loan. During the existence of
a Default, no Loans may be requested as, converted to or continued as Eurodollar Rate Loans without
the consent of the Required Lenders, and the Required Lenders may demand that any or all of the
then outstanding Eurodollar Rate Loans be converted immediately to Base Rate Loans and Borrower
agrees to pay all amounts due under Section 3.05 in accordance with the terms thereof due to any
such conversion.
23
(d) Agent shall promptly notify Borrower and Lenders of the interest rate applicable to any
Interest Period for Eurodollar Rate Loans upon determination of such interest rate.
(e) After giving effect to all Committed Borrowings, all conversions of Committed Loans from
one Type to the other, and all continuations of Committed Loans as the same Type, there shall not
be more than four Interest Periods in effect with respect to Committed Loans.
2.03 Letters of Credit.
(a) The Letter of Credit Commitment.
(i) Subject to the terms and conditions set forth herein, (A) the L/C Issuer agrees, in
reliance upon the agreements of the other Lenders set forth in this Section 2.03, (1) from time to
time on any Business Day during the period from the Closing Date until the L/C Expiration Date, to
issue Letters of Credit for the account of Borrower, and to amend or extend Letters of Credit
previously issued by it, in accordance with subsection (b) below, and (2) to honor drawings under
the Letters of Credit; and (B) the Lenders severally agree to participate in Letters of Credit
issued for the account of Borrower and any drawings thereunder; provided that the Lenders shall
have no obligation to issue a Letter of Credit unless after giving effect to any L/C Credit
Extension with respect to any Letter of Credit, (x) the Total Revolving Loan Outstandings shall not
exceed the Aggregate Revolving Loan Commitments, (y) the aggregate Outstanding Revolving Loan
Amount of all Revolving Loans of any Lender, plus such Lenders Applicable Percentage of the
Outstanding Revolving Loan Amount
of all L/C Obligations, plus such Lenders Applicable Percentage of the Term Loan shall not
exceed such Lenders Commitment, and (z) the Outstanding Revolving Loan Amount of the L/C
Obligations shall not exceed the L/C Sublimit. Each request by Borrower for the issuance or
amendment of a Letter of Credit shall be deemed to be a representation by Borrower that the L/C
Credit Extension so requested complies with the conditions set forth in the proviso to the
preceding sentence. Within the foregoing limits, and subject to the terms and conditions hereof,
Borrowers ability to obtain Letters of Credit shall be fully revolving, and accordingly Borrower
may, during the foregoing period, obtain Letters of Credit to replace Letters of Credit that have
expired or that have been drawn upon and reimbursed.
(ii) The L/C Issuer shall not issue any Letter of Credit, if:
(A) subject to Section 2.03(b)(iv), the expiry date of such requested Letter of Credit would
occur more than twelve months after the date of issuance or last extension, unless the Required
Lenders have approved such expiry date; or
24
(B) the expiry date of such requested Letter of Credit would occur after the L/C Expiration
Date, unless all the Lenders have approved such expiry date.
(iii) The L/C Issuer shall be under no obligation to issue any Letter of Credit if:
(A) any order, judgment or decree of any Governmental Authority or arbitrator shall by its
terms purport to enjoin or restrain the L/C Issuer from issuing such Letter of Credit, or any Law
applicable to the L/C Issuer or any request or directive (whether or not having the force of law)
from any Governmental Authority with jurisdiction over the L/C Issuer shall prohibit, or request
that the L/C Issuer refrain from, the issuance of letters of credit generally or such Letter of
Credit in particular or shall impose upon the L/C Issuer with respect to such Letter of Credit any
restriction, reserve or capital requirement (for which the L/C Issuer is not otherwise compensated
hereunder) not in effect on the Closing Date, or shall impose upon the L/C Issuer any unreimbursed
loss, cost or expense which was not applicable on the Closing Date and which in each case the L/C
Issuer in good faith deems material to it;
(B) the issuance of such Letter of Credit would violate one or more policies of the L/C Issuer
applicable to letters of credit generally, a copy of which policies has previously been provided to
the Borrower or is provided in connection with the Borrowers L/C Application
(C) except as otherwise agreed by Agent and the L/C Issuer, such Letter of Credit is in an
initial stated amount less than $10,000, in the case of a commercial Letter of Credit, or $100,000,
in the case of a standby Letter of Credit;
(D) such Letter of Credit is to be denominated in a currency other than Dollars;
(E) a default of any Lenders obligations to fund under Section 2.03(c) exists or any Lender
is at such time a Defaulting Lender hereunder, unless the L/C Issuer has entered into satisfactory
arrangements with Borrower or such Lender to eliminate the L/C Issuers risk with respect to such
Lender; or
(F) unless specifically provided for in this Agreement, such Letter of Credit contains any
provisions for automatic reinstatement of the stated amount after any drawing thereunder.
(iv) The L/C Issuer shall not amend any Letter of Credit if the L/C Issuer would not be
permitted at such time to issue such Letter of Credit in its amended form under the terms hereof.
25
(v) The L/C Issuer shall be under no obligation to amend any Letter of Credit if (A) the L/C
Issuer would have no obligation at such time to issue such Letter of Credit in its amended form
under the terms hereof, or (B) the beneficiary of such Letter of Credit does not accept the
proposed amendment to such Letter of Credit.
(vi) The L/C Issuer shall act on behalf of the Lenders with respect to any Letters of Credit
issued by it and the documents associated therewith, and the L/C Issuer shall have all of the
benefits and immunities (A) provided to Agent in Article IX with respect to any acts taken or
omissions suffered by the L/C Issuer in connection with Letters of Credit issued by it or proposed
to be issued by it and Issuer Documents pertaining to such Letters of Credit as fully as if the
term Administrative Agent or Agent as used in Article IX included the L/C Issuer with respect
to such acts or omissions, and (B) as additionally provided herein with respect to the L/C Issuer.
(b) Procedures for Issuance and Amendment of Letters of Credit; Auto-Extension Letters of
Credit.
(i) Each Letter of Credit shall be issued or amended, as the case may be, upon the request of
Borrower delivered to the L/C Issuer (with a copy to Agent) in the form of a L/C Application,
appropriately completed and signed by a Responsible Officer of Borrower. Such L/C Application must
be received by the L/C Issuer and Agent not later than 11:00 a.m. at least two Business Days (or
such later date and time as Agent and the L/C Issuer may agree in a particular instance in their
sole discretion)
prior to the proposed issuance date or date of amendment, as the case may be. In the case of
a request for an initial issuance of a Letter of Credit, such L/C Application shall specify in form
and detail satisfactory to the L/C Issuer: (A) the proposed issuance date of the requested Letter
of Credit (which shall be a Business Day); (B) the amount thereof; (C) the expiry date thereof; (D)
the name and address of the beneficiary thereof; (E) the documents to be presented by such
beneficiary in case of any drawing thereunder; (F) the full text of any certificate to be presented
by such beneficiary in case of any drawing thereunder; and (G) such other matters as the L/C Issuer
reasonably may require. In the case of a request for an amendment of any outstanding Letter of
Credit, such L/C Application shall specify in form and detail satisfactory to the L/C Issuer (A)
the Letter of Credit to be amended; (B) the proposed date of amendment thereof (which shall be a
Business Day); (C) the nature of the proposed amendment; and (D) such other matters as the L/C
Issuer reasonably may require. Additionally, Borrower shall furnish to the L/C Issuer and Agent
such other documents and information pertaining to such requested Letter of Credit issuance or
amendment, including any Issuer Documents, as the L/C Issuer or Agent reasonably may require.
(ii) Promptly after receipt of any L/C Application at the address set forth in Section 10.02,
the L/C Issuer will confirm with Agent (by telephone or in writing) that Agent has received a copy
of such L/C Application from Borrower and, if not, the L/C Issuer will provide Agent with a copy
thereof. Unless the L/C Issuer has received
26
written notice from any Lender, Agent or any Loan
Party, at least one Business Day prior to the requested date of issuance or amendment of the
applicable Letter of Credit, that one or more applicable conditions in Article IV shall not then be
satisfied, then, subject to the terms and conditions hereof, the L/C Issuer shall, on the requested
date, issue a Letter of Credit for the account of Borrower or enter into the applicable amendment,
as the case may be, in each case in accordance with the L/C Issuers usual and customary business
practices. Immediately upon the issuance of each Letter of Credit, each Lender shall be deemed to,
and hereby irrevocably and unconditionally agrees to, purchase from the L/C Issuer a risk
participation in such Letter of Credit in an amount equal to the product of such Lenders
Applicable Percentage times the amount of such Letter of Credit.
(iii) Promptly after its delivery of any Letter of Credit or any amendment to a Letter of
Credit to an advising bank with respect thereto or to the beneficiary thereof, the L/C Issuer will
also deliver to Borrower and Agent a true and complete copy of such Letter of Credit or amendment.
(iv) If Borrower so requests in any applicable L/C Application, the L/C Issuer may, in its
sole and absolute discretion, agree to issue a Letter of Credit that has automatic extension
provisions (each, an Auto-Extension Letter of Credit); provided that any such
Auto-Extension Letter of Credit must permit the L/C Issuer to prevent any such extension at least
once in each twelve-month period (commencing with the date of issuance of such Letter of Credit) by
giving prior notice to the beneficiary thereof not later than a day (the Non-Extension Notice
Date) in each such twelve-month period to
be agreed upon at the time such Letter of Credit is issued. Unless otherwise directed by the
L/C Issuer, Borrower shall not be required to make a specific request to the L/C Issuer for any
such extension. Once an Auto-Extension Letter of Credit has been issued, the Lenders shall be
deemed to have authorized (but may not require) the L/C Issuer to permit the extension of such
Letter of Credit at any time to an expiry date not later than the L/C Expiration Date; provided,
however, that the L/C Issuer shall not permit any such extension if (A) the L/C Issuer has
determined that it would not be permitted, or would have no obligation, at such time to issue such
Letter of Credit in its revised form (as extended) under the terms hereof (by reason of the
provisions of clause (ii) or (iii) of Section 2.03(a) or otherwise), or (B) it has received notice
(which may be by telephone or in writing) on or before the day that is five Business Days before
the Non-Extension Notice Date (1) from Agent that the Required Lenders have elected not to permit
such extension or (2) from Agent, any Lender or Borrower that one or more of the applicable
conditions specified in Section 4.02 is not then satisfied, and in each such case directing the L/C
Issuer not to permit such extension.
(v) If Borrower so requests in any applicable Letter of Credit Application, the L/C Issuer
may, in its sole and absolute discretion, agree to issue a Letter of Credit that permits the
automatic reinstatement of all or a portion of the stated amount thereof after any drawing
thereunder (each, an Auto-Reinstatement Letter of Credit). Unless otherwise directed by the L/C
Issuer, Borrower shall not be required to
27
make a specific request to the L/C Issuer to permit such
reinstatement. Once an Auto-Reinstatement Letter of Credit has been issued, except as provided in
the following sentence, the Lenders shall be deemed to have authorized (but may not require) the
L/C Issuer to reinstate all or a portion of the stated amount thereof in accordance with the
provisions of such Letter of Credit. Notwithstanding the foregoing, if such Auto-Reinstatement
Letter of Credit permits the L/C Issuer to decline to reinstate all or any portion of the stated
amount thereof after a drawing thereunder by giving notice of such non-reinstatement within a
specified number of days after such drawing (the Non-Reinstatement Deadline), the L/C Issuer
shall not permit such reinstatement if it has received a notice (which may be by telephone or in
writing) on or before the day that is five Business Days before the Non-Reinstatement Deadline (A)
from Agent that the Required Lenders have elected not to permit such reinstatement or (B) from
Agent, any Lender or Borrower that one or more of the applicable conditions specified in Section
4.02 is not then satisfied (treating such reinstatement as an L/C Credit Extension for purposes of
this clause) and, in each case, directing the L/C Issuer not to permit such reinstatement.
(c) Drawings and Reimbursements; Funding of Participations.
(i) Upon receipt from the beneficiary of any Letter of Credit of any notice of a drawing under
such Letter of Credit, the L/C Issuer shall notify Borrower and Agent thereof. Not later than
11:00 a.m. on the date of any payment by the L/C Issuer under a Letter of Credit (each such date,
an Honor Date), Borrower shall reimburse the L/C Issuer through Agent in an amount equal
to the amount of such drawing. If
Borrower fails to so reimburse the L/C Issuer by such time, Agent shall promptly notify each
Lender of the Honor Date, the amount of the unreimbursed drawing (the Unreimbursed
Amount), and the amount of such Lenders Applicable Percentage thereof. In such event,
Borrower shall be deemed to have requested a Committed Borrowing of Base Rate Loans to be disbursed
on the Honor Date in an amount equal to the Unreimbursed Amount, without regard to the minimum and
multiples specified in Section 2.02 for the principal amount of Base Rate Loans, but subject to the
amount of the unutilized portion of the Aggregate Revolving Loan Commitments and the conditions set
forth in Section 4.02 (other than the delivery of a Committed Loan Notice). Any notice given by
the L/C Issuer or Agent pursuant to this Section 2.03(c)(i) may be given by telephone if
immediately confirmed in writing; provided that the lack of such an immediate confirmation shall
not affect the conclusiveness or binding effect of such notice.
(ii) Each Lender shall upon any notice pursuant to Section 2.03(c)(i) make funds available to
Agent for the account of the L/C Issuer at the Agents Office in an amount equal to its Applicable
Percentage of the Unreimbursed Amount not later than 1:00 p.m. on the Business Day specified in
such notice by Agent, whereupon, subject to the provisions of Section 2.03(c)(iii), each Lender
that so makes funds available shall be deemed to have made a Base Rate Loan to Borrower in such
amount. Agent shall remit the funds so received to the L/C Issuer.
28
(iii) With respect to any Unreimbursed Amount that is not fully refinanced by a Committed
Borrowing of Base Rate Loans because the conditions set forth in Section 4.02 cannot be satisfied
or for any other reason, Borrower shall be deemed to have incurred from the L/C Issuer an L/C
Borrowing in the amount of the Unreimbursed Amount that is not so refinanced, which L/C Borrowing
shall be due and payable on demand (together with interest) and shall bear interest at the Default
Rate. In such event, each Lenders payment to Agent for the account of the L/C Issuer pursuant to
Section 2.03(c)(ii) shall be deemed payment in respect of its participation in such L/C Borrowing
and shall constitute an L/C Advance from such Lender in satisfaction of its participation
obligation under this Section 2.03.
(iv) Until each Lender funds its Committed Loan or L/C Advance pursuant to this Section
2.03(c) to reimburse the L/C Issuer for any amount drawn under any Letter of Credit, interest in
respect of such Lenders Applicable Percentage of such amount shall be solely for the account of
the L/C Issuer.
(v) Each Lenders obligation to make Committed Loans or L/C Advances to reimburse the L/C
Issuer for amounts drawn under Letters of Credit, as contemplated by this Section 2.03(c), shall be
absolute and unconditional and shall not be affected by any circumstance, including (A) any setoff,
counterclaim, recoupment, defense or other right which such Lender may have against the L/C Issuer,
Borrower or any other Person for any reason whatsoever; (B) the occurrence or continuance of a
Default, or (C) any other occurrence, event or condition, whether or not similar to any of the
foregoing; provided, however, that each Lenders obligation to make Committed Loans pursuant to
this Section 2.03(c) is subject to the conditions set forth in Section 4.02 (other than delivery by
Borrower of a Committed Loan Notice). No such making of an L/C Advance shall relieve or otherwise
impair the obligation of Borrower to reimburse the L/C Issuer for the amount of any payment made by
the L/C Issuer under any Letter of Credit, together with interest as provided herein.
(vi) If any Lender fails to make available to Agent for the account of the L/C Issuer any
amount required to be paid by such Lender pursuant to the foregoing provisions of this Section
2.03(c) by the time specified in Section 2.03(c)(ii), the L/C Issuer shall be entitled to recover
from such Lender (acting through Agent), on demand, such amount with interest thereon for the
period from the date such payment is required to the date on which such payment is immediately
available to the L/C Issuer at a rate per annum equal to the greater of the Federal Funds Rate and
a rate determined by the L/C issuer in accordance with banking industry rules on interbank
compensation, plus any administrative, processing or similar fees customarily charged by the LC/
Issuer in connection with the foregoing. If such Lender pays such amount (with interest and fees
as aforesaid), the amount so paid shall constitute such Lenders Committed Loan included in the
relevant Committed Borrowing or L/C Advance in respect of the relevant L/C Borrowing, as the case
may be. A certificate of the L/C Issuer submitted to any Lender (through Agent) with respect to
any amounts owing under this clause (vi) shall be conclusive absent manifest error.
29
(d) Repayment of Participations.
(i) At any time after the L/C Issuer has made a payment under any Letter of Credit and has
received from any Lender such Lenders L/C Advance in respect of such payment in accordance with
Section 2.03(c), if Agent receives for the account of the L/C Issuer any payment in respect of the
related Unreimbursed Amount or interest thereon (whether directly from Borrower or otherwise,
including proceeds of Cash Collateral applied thereto by Agent), Agent will distribute to such
Lender its Applicable Percentage thereof in the same funds as those received by Agent.
(ii) If any payment received by Agent for the account of the L/C Issuer pursuant to Section
2.03(c)(i) is required to be returned under any of the circumstances described in Section 10.05
(including pursuant to any settlement entered into by the L/C Issuer in its discretion), each
Lender shall pay to Agent for the account of the L/C Issuer its Applicable Percentage thereof on
demand of Agent, plus interest thereon from the date of such demand to the date such amount is
returned by such Lender, at a rate per annum equal to the Federal Funds Rate from time to time in
effect. The obligations of Lenders under this clause shall survive the payment in full of the
Obligations and the termination of this Agreement.
(e) Obligations Absolute. The obligation of Borrower to reimburse the L/C Issuer for
each drawing under each Letter of Credit and to repay each L/C Borrowing shall be absolute,
unconditional and irrevocable, and shall be paid strictly in accordance with the terms of this
Agreement under all circumstances, including the following:
(i) any lack of validity or enforceability of such Letter of Credit, this Agreement, or any
other Loan Document;
(ii) the existence of any claim, counterclaim, setoff, defense or other right that Borrower
may have at any time against any beneficiary or any transferee of such Letter of Credit (or any
Person for whom any such beneficiary or any such transferee may be acting), the L/C Issuer or any
other Person, whether in connection with this Agreement, the transactions contemplated hereby or by
such Letter of Credit or any agreement or instrument relating thereto, or any unrelated
transaction;
(iii) any draft, demand, certificate or 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; or any loss or delay in the transmission or otherwise of
any document required in order to make a drawing under such Letter of Credit;
(iv) any payment by the L/C Issuer under such Letter of Credit against presentation of a draft
or certificate that does not strictly comply with the terms of such Letter of Credit; or any
payment made by the L/C Issuer under such Letter of Credit to
30
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 Law; or
(v) any other circumstance or happening whatsoever, whether or not similar to any of the
foregoing, including any other circumstance that might otherwise constitute a defense available to,
or a discharge of, Borrower.
Borrower shall promptly examine a copy of each Letter of Credit and each amendment thereto that is
delivered to it and, in the event of any claim of noncompliance with Borrowers instructions or
other irregularity, Borrower will promptly notify the L/C Issuer. Borrower shall be conclusively
deemed to have waived any such claim against the L/C Issuer and its correspondents unless such
notice is given as aforesaid.
(f) Role of L/C Issuer. Each Lender and Borrower agree that, in paying any drawing
under a Letter of Credit, the L/C Issuer 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. None of the L/C Issuer, Agent, any of their respective Related Parties nor any
correspondent, participant or assignee of the L/C Issuer shall be liable to any Lender for (i) any
action taken or omitted in connection herewith at the request or with the approval of Lenders or
the Required Lenders, as applicable; (ii) any action taken or omitted in the absence of gross
negligence or willful misconduct; or (iii) the due execution, effectiveness, validity or
enforceability of any document or instrument related to any Letter of Credit or Issuer 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; provided, however, that this assumption is not intended
to, and shall not, preclude Borrowers pursuing such rights and remedies as it may have against the
beneficiary or transferee at law or under any other agreement. None of the L/C Issuer, Agent, any
of their respective Related Parties nor any correspondent, participant or assignee of the L/C
Issuer, shall be liable or responsible for any of the matters described in clauses (i) through (v)
of Section 2.03(e); provided, however, that anything in such clauses to the contrary
notwithstanding, Borrower may have a claim against the L/C Issuer, and the L/C Issuer may be liable
to Borrower, to the extent, but only to the extent, of any direct, as opposed to consequential or
exemplary, damages suffered by Borrower which Borrower proves were caused by the L/C Issuers
willful misconduct or gross negligence or the L/C Issuers willful failure to pay under any Letter
of Credit after the presentation to it by the beneficiary of a sight draft and certificate(s)
strictly complying with the terms and conditions of a Letter of Credit. In furtherance and not in
limitation of the foregoing, the L/C Issuer 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 the L/C Issuer shall not be responsible for the validity or sufficiency of any
instrument transferring or assigning or purporting to transfer
31
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.
(g) Cash Collateral. Upon the request of Agent, (i) if the L/C Issuer has honored any
full or partial drawing request under any Letter of Credit and such drawing has resulted in an L/C
Borrowing, or (ii) if, as of the L/C Expiration Date, any L/C Obligation for any reason remains
outstanding, Borrower shall, in each case, immediately Cash Collateralize the then Outstanding
Revolving Loan Amount of all L/C Obligations. Sections 2.05 and 8.02(c) set forth certain
additional requirements to deliver Cash Collateral hereunder. For purposes hereof, Cash
Collateralize means to pledge and deposit with or deliver to Agent, for the benefit of the L/C
Issuer and the Lenders, as collateral for the L/C Obligations, cash or deposit account balances
pursuant to documentation in form and substance satisfactory to Agent and the L/C Issuer (which
documents are hereby consented to by Lenders). Derivatives of such term have corresponding
meanings. Borrower hereby grants to Agent, for the benefit of the L/C Issuer and Lenders, a
security interest in all such cash, deposit accounts and all balances therein and all proceeds of
the foregoing. Cash collateral shall be maintained in blocked, interest bearing deposit accounts
at Bank of America.
(h) Applicability of ISP and UCP. Unless otherwise expressly agreed by the L/C Issuer
and Borrower when a Letter of Credit is issued, (i) the rules of the ISP shall apply to each
standby Letter of Credit, and (ii) the rules of the Uniform Customs and Practice for Documentary
Credits, as most recently published by the International Chamber of Commerce at the time of
issuance shall apply to each commercial Letter of Credit.
(i) L/C Fees. Borrower shall pay to Agent for the account of each Lender in
accordance with its Applicable Percentage a L/C fee (the L/C Fee) for each standby Letter
of Credit equal to 1% per annum times the daily amount available to be drawn under such Letter of
Credit. For purposes of computing the daily amount available to be drawn under any Letter of
Credit, the amount of such Letter of Credit shall be determined in accordance with Section 1.06.
L/C Fees shall be (i) due and payable on the first Business Day after the end of each March, June,
September and December, commencing with the first such date to occur after the issuance of such
Letter of Credit, on the L/C Expiration Date and thereafter on demand and (ii) computed on a
quarterly basis in arrears. If there is any change in the Applicable Rate during any quarter, the
daily amount available to be drawn under each Letter of Credit shall be computed and multiplied by
the Applicable Rate separately for each period during such quarter that such Applicable Rate was in
effect. Notwithstanding anything to the contrary contained herein, upon the request of the
Required Lenders, while any Event of Default exists, all L/C Fees shall accrue at the Default Rate.
(j) Fronting Fee and Documentary and Processing Charges Payable to L/C Issuer.
Borrower shall pay directly to the L/C Issuer for its own account a fronting fee (i)
32
with respect
to each commercial Letter of Credit at the rate specified in the Agent Fee Letter, computed on the
amount of such Letter of Credit, and payable upon the issuance thereof, (ii) with respect to any
amendment of a commercial Letter of Credit increasing the amount of such Letter of Credit, at a
rate separately agreed between Borrower and the L/C Issuer, computed on the amount of such
increase, and payable upon the effectiveness of such amendment, and (iii) with respect to each
Letter of Credit, at the rate per annum specified in the Agent Fee Letter, computed on the daily
amount available to be drawn under such Letter of Credit and on a quarterly basis in arrears. Such
fronting fee shall be due and payable on the tenth Business Day after the end of each March, June,
September and December, in respect of the most recently-ended quarterly period (or portion thereof,
in the case of the first payment), commencing with the first such date to occur after the issuance
of such Letter of Credit, on the L/C Expiration Date and thereafter on demand. For purposes of
computing the daily amount available to be drawn under any Letter of Credit, the amount of such
Letter of Credit shall be determined in accordance with Section 1.06. In addition, Borrower shall
pay directly to the L/C Issuer for its own account the reasonable and customary issuance,
presentation, amendment and other processing fees, and other standard costs and charges, of the L/C
Issuer relating to letters of credit as from time to time in effect. Such individual customary
fees and standard costs and charges are due and payable on demand and are nonrefundable.
(k) Conflict with Issuer Documents. In the event of any conflict between the terms
hereof and the terms of any Issuer Documents, the terms hereof shall control.
2.04 Repayment of Loans
(a) Borrower shall repay to Lenders on the Maturity Date the aggregate principal amount of all
Revolving Loans outstanding on such date.
(b) The Borrower shall repay to the Agent for the ratable account of the Lenders the
percentage of the aggregate principal amount of the Term Loan as follows (with adjustment for any
prepayments made under Section 2.05), each such payment to be made on the last Business Day
of the applicable quarterly period:
|
|
|
|
|
Quarter Ending |
|
Payment |
|
|
|
|
|
January 31, 2007 |
|
|
1.25 |
% |
|
|
|
|
|
April 30, 2007 |
|
|
1.25 |
% |
|
|
|
|
|
July 31, 2007 |
|
|
1.25 |
% |
|
|
|
|
|
October 31, 2007 |
|
|
1.25 |
% |
|
|
|
|
|
January 31, 2008 |
|
|
2.50 |
% |
|
|
|
|
|
April 30, 2008 |
|
|
2.50 |
% |
33
|
|
|
|
|
Quarter Ending |
|
Payment |
|
|
|
|
|
July 31, 2008 |
|
|
2.50 |
% |
|
|
|
|
|
October 31, 2008 |
|
|
2.50 |
% |
|
|
|
|
|
January 31, 2009 |
|
|
3.75 |
% |
|
|
|
|
|
April 30, 2009 |
|
|
3.75 |
% |
|
|
|
|
|
July 31, 2009 |
|
|
3.75 |
% |
|
|
|
|
|
October 31, 2009 |
|
|
3.75 |
% |
|
|
|
|
|
January 31, 2010 |
|
|
5.00 |
% |
|
|
|
|
|
April 30, 2010 |
|
|
5.00 |
% |
|
|
|
|
|
July 31, 2010 |
|
|
5.00 |
% |
|
|
|
|
|
October 31, 2010 |
|
|
5.00 |
% |
|
|
|
|
|
January 31, 2011 |
|
|
5.00 |
% |
|
|
|
|
|
April 30, 2011 |
|
|
5.00 |
% |
|
|
|
|
|
July 31, 2011 |
|
|
5.00 |
% |
|
|
|
|
|
October 31, 2011 |
|
|
5.00 |
% |
|
|
|
|
|
January 31, 2012 |
|
|
7.50 |
% |
|
|
|
|
|
April 30, 2012 |
|
|
7.50 |
% |
|
|
|
|
|
July 31, 2012 |
|
|
7.50 |
% |
|
|
|
|
|
October 31, 2012 |
|
|
7.50 |
% |
; provided that on the Maturity Date, all Loans outstanding on such date shall be repaid.
2.05 Prepayments
(a) Borrower may, upon notice to Agent, at any time or from time to time voluntarily prepay
the Term Loan or Revolving Loans in whole or in part without premium or penalty; provided that such
notice must be received by Agent not later than 11:00 a.m. three Business Days prior to any date of
prepayment of Eurodollar Rate Loans. Each such notice shall specify the date and amount of such
34
prepayment and the Type(s) of Committed Loans to be prepaid and, if Eurodollar Rate Loans are to be
prepaid, the Interest Period(s) of such Loans. Agent will promptly notify each Lender of its
receipt of each such notice, and of the amount of such Lenders Applicable Percentage of such
prepayment. If such notice is given by Borrower, Borrower shall make such prepayment and the
payment amount specified in such notice shall be due and payable on the date specified therein.
Any prepayment of a Eurodollar Rate Loan shall be accompanied by all accrued interest on the amount
prepaid, together with any additional amounts required pursuant to Section 3.05. Each such
prepayment shall be applied to the Committed Loans of Lenders in accordance with their respective
Applicable Percentages.
(b) If for any reason the Total Revolving Loan Outstandings at any time exceed the Aggregate
Revolving Loan Commitments then in effect, Borrower shall immediately prepay Revolving Loans and/or
Cash Collateralize the L/C Obligations in an aggregate amount equal to such excess; provided,
however, that Borrower shall not
be required to Cash Collateralize the L/C Obligations pursuant to this Section 2.05 unless after
the prepayment in full of the Revolving Loans the Total Revolving Loan Outstandings exceed the
Aggregate Revolving Loan Commitments then in effect.
(c) Until such time as the ratio of Funded Debt to EBITDA is less than 2.0:1.0, on or before
October 1 of each year, beginning in 2008, Borrower shall pay to Agent for the ratable account of
the Lenders an amount equal to twenty-five (25%) percent of Free Cash Flow for the immediately
preceding fiscal year; provided, however, if the financial statements delivered by
the Borrower pursuant to Section 6.01(a) and the Compliance Certificate delivered by the Borrower
pursuant to Section 6.02(a) evidence the Borrowers satisfaction of the Financial Covenants in
Section 6.12 through the fiscal year ending May 31, 2008, the prepayment required under this
Section 2.05(c) shall be the lesser of twenty-five (25%) percent of Free Cash Flow for the
immediately preceding fiscal year or $1,500,000.
(d) All prepayments under this Section 2.05 shall be applied to installments due under the
Term Loan in the inverse order of their maturity.
2.06 Termination or Reduction of Commitments. Borrower may, upon notice to Agent, terminate the Aggregate Revolving Loan Commitments, or
from time to time permanently reduce the Aggregate Revolving Loan Commitments; provided that (i)
any such notice shall be received by Agent not later than 11:00 a.m. five Business Days prior to
the date of termination or reduction, (ii) any such partial reduction shall be in an aggregate
amount of $5,000,000 or any whole multiple of $1,000,000 in excess thereof, (iii) Borrower shall
not terminate or reduce the Aggregate Revolving
Loan Commitments if, after giving effect thereto
and to any concurrent prepayments hereunder, the Total Revolving Loan Outstandings would exceed the
Aggregate Revolving Loan Commitments, and (iv) if, after giving effect to any reduction of the
Aggregate Revolving Loan Commitments, the L/C Sublimit exceeds the amount of the Aggregate
Revolving
35
Loan Commitments, such Sublimit shall be automatically reduced by the amount of such
excess. Agent will promptly notify the Lenders of any such notice of termination or reduction of
the Aggregate Revolving Loan Commitments. Any reduction of the Aggregate Revolving Loan
Commitments shall be applied to the Revolving Loan Commitment of each Lender according to its
Applicable Percentage. All fees accrued until the effective date of any termination of the
Aggregate Revolving Loan Commitments shall be paid on the effective date of such termination.
2.07 Interest.
(a) Subject to the provisions of subsection (b) below, (i) each Eurodollar Rate Loan shall
bear interest on the outstanding principal amount thereof for each Interest Period at a rate per
annum equal to the Eurodollar Rate for such Interest Period plus the Applicable Rate and (ii) each
Base Rate Loan shall bear interest on the outstanding
principal amount thereof from the applicable borrowing date at a rate per annum equal to the
Base Rate plus the Applicable Rate.
(b) (i) If any amount of principal of any Loan is not paid when due (without regard to any
applicable grace periods), whether at stated maturity, by acceleration or otherwise, such amount
shall thereafter bear interest at a fluctuating interest rate per annum at all times equal to the
Default Rate to the fullest extent permitted by applicable Laws.
(ii) If any amount (other than principal of any Loan) payable by Borrower under any Loan
Document is not paid when due (without regard to any applicable grace periods), whether at stated
maturity, by acceleration or otherwise, then upon the request of the Required Lenders, such amount
shall thereafter bear interest at a fluctuating interest rate per annum at all times equal to the
Default Rate to the fullest extent permitted by applicable Laws.
(iii) Upon the request of the Required Lenders, while any Event of Default exists, Borrower
shall pay interest on the principal amount of all outstanding Obligations hereunder at a
fluctuating interest rate per annum at all times equal to the Default Rate to the fullest extent
permitted by applicable Laws.
(iv) Accrued and unpaid interest on past due amounts (including interest on past due interest)
shall be due and payable upon demand.
(c) Interest on each Loan shall be due and payable in arrears on each Interest Payment Date
applicable thereto and at such other times as may be specified herein. Interest hereunder shall be
due and payable in accordance with the terms hereof before and after judgment, and before and after
the commencement of any proceeding under any Debtor Relief Law.
36
2.08 Fees. In addition to certain fees described in subsections (i) and (j) of Section 2.03:
(a) Commitment Fee. Borrower shall pay to Agent for the account of each Lender in
accordance with its Applicable Percentage, a commitment fee equal to .375% of the daily amount by
which the Aggregate Revolving Loan Commitments exceed the sum of (i) the Outstanding Revolving Loan
Amount of Revolving Loans and (ii) the Outstanding Revolving Loan Amount of L/C Obligations,
calculated on the basis of a 360-day year and the number of actual days elapsed. The commitment
fee shall accrue at all times during the Availability Period, including at any time during which
one or more of the conditions in Article IV is not met, and shall be due and payable quarterly in
arrears on the last Business Day of each March, June, September and December,
commencing with the first such date to occur after the Closing Date, and on the last day of
the Availability Period. The commitment fee shall be calculated quarterly in arrears, and if there
is any change in the Applicable Rate during any quarter, the actual daily amount shall be computed
and multiplied by the Applicable Rate separately for each period during such quarter that such
Applicable Rate was in effect.
(b) Lenders Upfront Fee. On the Closing Date, Borrower shall pay to Agent, for the
account of each Lender in accordance with their respective Applicable Percentages, an upfront fee
in an amount of $200,000. Such upfront fees are for the credit facilities committed by Lenders
under this Agreement and are fully earned on the date paid. The upfront fee paid to each Lender is
solely for its own account and is nonrefundable for any reason whatsoever.
2.09 Computation of Interest and Fees. All computations of interest for Base Rate Loans when the Base Rate is determined by Bank of
Americas prime rate shall be made on the basis of a year of 365 or 366 days, as the case may be,
and actual days elapsed. All other computations of fees and interest shall be made on the basis of
a 360-day year and actual days elapsed (which results in more fees or interest, as applicable,
being paid than if computed on the basis of a 365-day year). 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, subject to Section 2.11(a), bear interest for one day. Each
determination by Agent of an interest rate or fee hereunder shall be conclusive and binding for all
purposes, absent manifest error.
2.10 Evidence of Debt.
(a) The Credit Extensions made by each Lender shall be evidenced by one or more accounts or
records maintained by such Lender and by Agent in the ordinary course of business. The accounts or
records maintained by Agent and each Lender shall be conclusive absent manifest error of the amount
of the Credit Extensions made
37
by Lenders to Borrower and the interest and payments thereon. Any
failure to so record or any error in doing so shall not, however, limit or otherwise affect the
obligation of Borrower hereunder to pay any amount owing with respect to the Obligations. In the
event of any conflict between the accounts and records maintained by any Lender and the accounts
and records of Agent in respect of such matters, the accounts and records of Agent shall control in
the absence of manifest error. Upon the request of any Lender made through Agent, Borrower shall
execute and deliver to such Lender (through Agent) a Note, which shall evidence such Lenders Loans
in addition to such accounts or records. Each Lender may attach schedules to its Note and endorse
thereon the
date, Type (if applicable), amount and maturity of its Loans and payments with respect
thereto.
(b) In addition to the accounts and records referred to in subsection (a), each Lender and
Agent shall maintain in accordance with its usual practice accounts or records evidencing the
purchases and sales by such Lender of participations in Letters of Credit. In the event of any
conflict between the accounts and records maintained by Agent and the accounts and records of any
Lender in respect of such matters, the accounts and records of Agent shall control in the absence
of manifest error.
2.11 Payments Generally; Agents Clawback.
(a) (i) General. All payments to be made by Borrower shall be made without condition
or deduction for any counterclaim, defense, recoupment or setoff. Except as otherwise expressly
provided herein, all payments by Borrower hereunder shall be made to Agent, for the account of the
respective Lenders to which such payment is owed, at the Agents Office in Dollars and in
immediately available funds not later than 12:00 noon on the date specified herein. Agent will
promptly distribute to each Lender its Applicable Percentage (or other applicable share as provided
herein) of such payment in like funds by wire transfer to such Lenders Lending Office. All
payments received by Agent after 12:00 noon shall be deemed received on the next succeeding
Business Day and any applicable interest or fee shall continue to accrue. If any payment to be
made by Borrower shall come due on a day other than a Business Day, payment shall be made on the
next following Business Day, and such extension of time shall be reflected in computing interest or
fees, as the case may be.
(ii) On each date when the payment of any principal, interest or fees are due hereunder or
under any Note, Borrower agrees to maintain on deposit in an ordinary checking account maintained
by Borrower with Agent (as such account shall be designated by Borrower in a written notice to
Agent from time to time, the Borrower Account) an amount sufficient to pay such
principal, interest or fees in full on such date. Borrower hereby authorizes Agent (A) to deduct
automatically all principal, interest or fees when due hereunder or under any Note from the
Borrower Account, and (B) if and to the extent any payment of principal, interest or fees under
this Agreement or any Note is not made when due to deduct any such amount from any or all of the
38
accounts of Borrower maintained at Agent. Agent agrees to provide written notice to Borrower of
any automatic deduction made pursuant to this Section 2.11(a)(ii) showing in reasonable detail the
amounts of such deduction. Lenders agree to reimburse Borrower promptly based on their Applicable
Percentage for any amounts deducted from such accounts in excess of amount due hereunder and under
any other Loan Documents.
(b) (i) Funding by Lenders; Presumption by Agent. Unless Agent shall have received
notice from a Lender prior to the proposed date of any Committed Borrowing of Eurodollar Rate Loans
(or, in the case of any Committed Borrowing of Base Rate Loans, prior to 12:00 noon on the date of
such Committed Borrowing) that such Lender will not make available to Agent such Lenders share of
such Committed Borrowing, Agent may assume that such Lender has made such share available on such
date in accordance with Section 2.02 (or, in the case of a Committed Borrowing of Base Rate Loans,
that such Lender has made such share available in accordance with and at the time required by
Section 2.02) and may, in reliance upon such assumption, make available to Borrower a corresponding
amount. In such event, if a Lender has not in fact made its share of the applicable Committed
Borrowing available to Agent, then the applicable Lender and Borrower severally agree to pay to
Agent forthwith on demand such corresponding amount in immediately available funds with interest
thereon, for each day from and including the date such amount is made available to Borrower to but
excluding the date of payment to Agent, at (A) in the case of a payment to be made by such Lender,
the greater of the Federal Funds Rate and a rate determined by Agent in accordance with banking
industry rules on interbank compensation, plus any administrative, processing or similar fees
customarily charged by Agent in connection with the foregoing and (B) in the case of a payment to
be made by Borrower, the interest rate applicable to Base Rate Loans. If Borrower and such Lender
shall pay such interest to Agent for the same or an overlapping period, Agent shall promptly remit
to Borrower the amount of such interest paid by Borrower for such period. If such Lender pays its
share of the applicable Committed Borrowing to Agent, then the amount so paid shall constitute such
Lenders Revolving Loan included in such Committed Borrowing. Any payment by Borrower shall be
without prejudice to any claim Borrower may have against a Lender that shall have failed to make
such payment to Agent.
(ii) Payments by Borrower; Presumptions by Agent. Unless Agent shall have received
notice from Borrower prior to the date on which any payment is due to Agent for the account of the
Lenders or the L/C Issuer hereunder that Borrower will not make such payment, Agent may assume that
Borrower has made such payment on such date in accordance herewith and may, in reliance upon such
assumption, distribute to Lenders or the L/C Issuer, as the case may be, the amount due. In such
event, if Borrower has not in fact made such payment, then each of Lenders or the L/C Issuer, as
the case may be, severally agrees to repay to Agent forthwith on demand the amount so distributed
to such Lender or the L/C Issuer, in immediately available funds with interest thereon, for each
day from and including the date such amount is distributed to it to but excluding the date of
payment to Agent, at the greater of the
39
Federal Funds Rate and a rate determined by Agent in
accordance with banking industry rules on interbank compensation. A notice of Agent to any Lender
or Borrower with respect to any amount owing under this subsection (b) shall be conclusive, absent
manifest error.
(c) Failure to Satisfy Conditions Precedent. If any Lender makes available to Agent
funds for any Loan to be made by such Lender as provided in the foregoing
provisions of this Article II, and such funds are not made available to Borrower by Agent
because the conditions to the applicable Credit Extension set forth in Article IV are not satisfied
or waived in accordance with the terms hereof, Agent shall return such funds (in like funds as
received from such Lender) to such Lender, without interest.
(d) Obligations of Lenders Several. The obligations of Lenders hereunder to make
Committed Loans, to fund participations in Letters of Credit and to make payments under Section
10.04(c) are several and not joint. The failure of any Lender to make any Committed Loan, to fund
any such participation or to make any payment under Section 10.04(c) on any date required
hereunder shall not relieve any other Lender of its corresponding obligation to do so on such date,
and no Lender shall be responsible for the failure of any other Lender to so make its Committed
Loan, purchase its participation or to make its payment under Section 10.04(c).
(e) Funding Source. Nothing herein shall be deemed to obligate any Lender to obtain
the funds for any Loan in any particular place or manner or to constitute a representation by any
Lender that it has obtained or will obtain the funds for any Loan in any particular place or
manner.
2.12 Sharing of Payments. If any Lender shall, by exercising any right of setoff or counterclaim or otherwise, obtain
payment in respect of any principal of or interest on any of the Committed Loans made by it, or the
participations in L/C Obligations held by it resulting in such Lenders receiving payment of a
proportion of the aggregate amount of such Committed Loans or participations and accrued interest
thereon greater than its pro rata share thereof as provided herein, then the Lender receiving such
greater proportion shall (a) notify Agent of such fact, and (b) purchase (for cash at face value)
participations in the Committed Loans and subparticipations in L/C Obligations of the other
Lenders, or make such other adjustments as shall be equitable, so that the benefit of all such
payments shall be shared by the Lenders ratably in accordance with the aggregate amount of
principal of and accrued interest on their respective Committed Loans and other amounts owing them,
provided that:
(i) if any such participations or subparticipations are purchased and all or any portion of
the payment giving rise thereto is recovered, such participations or subparticipations shall be
rescinded and the purchase price restored to the extent of such recovery, without interest; and
40
(ii) the provisions of this Section shall not be construed to apply to (x) any payment made by
Borrower pursuant to and in accordance with the express terms of this Agreement or (y) any payment
obtained by a Lender as consideration for the assignment of or sale of a participation in any of
its Committed Loans or subparticipations in L/C Obligations to any assignee or participant, other
than to
Borrower or any Subsidiary thereof (as to which the provisions of this Section shall apply).
Each Loan Party consents to the foregoing and agrees, to the extent it may effectively do so under
applicable Law, that any Lender acquiring a participation pursuant to the foregoing arrangements
may exercise against such Loan Party rights of setoff and counterclaim with respect to such
participation as fully as if such Lender were a direct creditor of such Loan Party in the amount of
such participation.
ARTICLE III. TAXES, YIELD PROTECTION AND ILLEGALITY
3.01 Taxes.
(a) Payments Free of Taxes. Any and all payments by Borrower to or on account of any
obligation of Borrower hereunder or under any other Loan Document shall be made free and clear of
and without reduction or withholding for any Indemnified Taxes or Other Taxes, provided that if
Borrower shall be required by any applicable law to deduct any Indemnified Taxes (including any
Other Taxes) from such payments, then, (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), Agent, Lender or L/C Issuer, as the case may be, receives an amount equal to
the sum it would have received had no such deductions been made, (ii) Borrower shall make such
deductions, and (iii) Borrower shall timely pay the full amount deducted to the relevant
Governmental Authority in accordance with applicable Law.
(b) Payment of Other Taxes by Borrower. Without limiting the provisions of subsection
(a) above, Borrower shall timely pay any Other Taxes to the relevant Governmental Authority in
accordance with applicable Law.
(c) Indemnification by Borrower. Borrower shall indemnify Agent, each Lender and the
L/C Issuer, within 10 days after demand therefor, for the full amount of any Indemnified Taxes or
Other Taxes (including Indemnified Taxes or Other Taxes imposed or asserted on or attributable to
amounts payable under this Section) paid by Agent, such Lender or the L/C Issuer, as the case may
be, and any penalties, interest and reasonable expenses arising therefrom or with respect thereto,
whether or not such Indemnified Taxes or Other Taxes were correctly or legally imposed or asserted
by the relevant Governmental Authority. A certificate as to the amount of such payment or
liability delivered to Borrower by a Lender or the L/C Issuer (with a copy to Agent), or by
41
Agent
on its own behalf or on behalf of a Lender or the L/C Issuer, shall be conclusive absent manifest
error.
(d) Status of Lenders. Any Lender, if requested by Borrower or Agent, shall deliver
such documentation prescribed by applicable law or reasonably requested by Borrower or Agent as
will enable Borrower or Agent to determine whether or not such Lender is subject to backup
withholding or information reporting requirements.
(e) Treatment of Certain Refunds. If Agent, any Lender or the L/C Issuer has received
a refund of any Taxes or Other Taxes as to which it has been indemnified by Borrower or with
respect to which Borrower has paid additional amounts pursuant to this Section, it shall pay to
Borrower an amount equal to such refund (but only to the extent of indemnity payments made, or
additional amounts paid, by Borrower under this Section with respect to the Taxes or Other Taxes
giving rise to such refund), net of all out-of-pocket expenses of Agent, such Lender or the L/C
Issuer, as the case may be, and without interest (other than any interest paid by the relevant
Governmental Authority with respect to such refund), provided that Borrower, upon the request of
Agent, such Lender or the L/C Issuer, agrees to repay the amount paid over to Borrower (plus any
penalties, interest or other charges imposed by the relevant Governmental Authority) to Agent, such
Lender or the L/C Issuer in the event Agent, such Lender or the L/C Issuer is required to repay
such refund to such Governmental Authority. This subsection shall not be construed to require
Agent, any Lender or the L/C Issuer to make available its tax returns (or any other information
relating to its taxes that it deems confidential) to Borrower or any other Person.
3.02 Illegality. If any Lender determines that any applicable Law has made it unlawful, or that any
Governmental Authority has asserted that it is unlawful, for any Lender or its applicable Lending
Office to make, maintain or fund Eurodollar Rate Loans, or to determine or charge interest rates
based upon the Eurodollar Rate, or any Governmental Authority has imposed material restrictions on
the authority of such Lender to purchase or sell, or to take deposits of, Dollars in the London
interbank market, then, on notice thereof by such Lender to Borrower through Agent, any obligation
of such Lender to make or continue Eurodollar Rate Loans or to convert Base Rate Loans to
Eurodollar Rate Loans shall be suspended until such Lender notifies Agent and Borrower that the
circumstances giving rise to such determination no longer exist. Upon receipt of such notice,
Borrower shall, upon demand from such Lender (with a copy to Agent), prepay or, if applicable,
convert all Eurodollar Rate Loans of such Lender to Base Rate Loans, either on the last day of the
Interest Period therefor, if such Lender may lawfully continue to maintain such Eurodollar Rate
Loans to such day, or immediately, if such Lender may not lawfully continue to maintain such
Eurodollar Rate Loans. Upon any such prepayment or conversion, Borrower shall also pay accrued
interest on the amount so prepaid or converted and all amounts due under Section 3.05 in accordance
with the terms thereof due to such prepayment or conversion.
42
3.03 Inability to Determine Rates. If Agent determines in connection with any request for a Eurodollar Rate Loan or a
conversion to or continuation thereof that (a) Dollar deposits are not being offered to banks in
the London interbank eurodollar market for the applicable amount and Interest Period of such
Eurodollar Rate Loan, (b) adequate and reasonable means do not exist for determining the Eurodollar
Base Rate for any requested Interest Period with respect to a proposed Eurodollar Rate Loan, or (c)
the Eurodollar Base Rate for any requested Interest Period with respect to a proposed Eurodollar
Rate Loan does not adequately and fairly reflect the cost to such Lenders of funding such Loan,
Agent will promptly so notify Borrower and each Lender. Thereafter, the obligation of Lenders to
make or maintain Eurodollar Rate Loans shall be suspended until Agent (upon the instruction of the
Required Lenders) revokes such notice. Upon receipt of such notice, Borrower may revoke any
pending request for a Borrowing of, conversion to or continuation of Eurodollar Rate Loans or,
failing that, will be deemed to have converted such request into a request for a Committed
Borrowing of Base Rate Loans in the amount specified therein.
3.04 Increased Costs.
(a) Increased Costs Generally. If any Change in Law applicable to the
Lender or the L/C Issuer shall:
(i) impose, modify or deem applicable any reserve, special deposit, compulsory loan, insurance
charge or similar requirement against assets of, deposits with or for the account of, or credit
extended or participated in by, any Lender (except any reserve requirement reflected in the
Eurodollar Rate) or the L/C Issuer;
(ii) subject any Lender or the L/C Issuer to any tax of any kind whatsoever with respect to
this Agreement, any Letter of Credit, any participation in a Letter of Credit or any Eurodollar
Rate Loan made by it, or change the basis of taxation of payments to such Lender or the L/C Issuer
in respect thereof (except for Indemnified Taxes or Other Taxes covered by Section 3.01 and the
imposition of, or any change in the rate of, any Excluded Tax payable by such Lender or the L/C
Issuer); or
(iii) impose on any Lender or the L/C Issuer or the London interbank market any other
condition, cost or expense affecting this Agreement or Eurodollar Rate Loans made by such Lender or
any Letter of Credit or participation therein;
and the result of any of the foregoing shall be to increase the cost to such Lender of making or
maintaining any Eurodollar Rate Loan (or of maintaining its obligation to
make any such Loan), or to increase the cost to such Lender or the L/C Issuer of participating in,
issuing or maintaining any Letter of Credit (or of maintaining its obligation to participate in or
to issue any Letter of Credit), or to reduce the amount of any sum received or receivable by such
Lender or the L/C Issuer hereunder (whether of principal, interest or any other amount) then, upon
request of such Lender or the L/C
43
Issuer, Borrower will pay to such Lender or the L/C Issuer, as
the case may be, such additional amount or amounts as will compensate such Lender or the L/C
Issuer, as the case may be, for such additional costs incurred or reduction suffered.
(b) Capital Requirements. If any Lender or the L/C Issuer determines that any Change
in Law affecting such Lender or the L/C Issuer or any Lending Office of such Lender or such
Lenders or the L/C Issuers holding company, if any, regarding capital requirements has or would
have the effect of reducing the rate of return on such Lenders or the L/C Issuers capital or on
the capital of such Lenders or the L/C Issuers holding company, if any, as a consequence of this
Agreement, the Commitments of such Lender or the Loans made by, or participations in Letters of
Credit held by, such Lender, or the Letters of Credit issued by the L/C Issuer, to a level below
that which such Lender or the L/C Issuer or such Lenders or the L/C Issuers holding company could
have achieved but for such Change in Law (taking into consideration such Lenders or the L/C
Issuers policies and the policies of such Lenders or the L/C Issuers holding company with
respect to capital adequacy), then from time to time Borrower will pay to such Lender or the L/C
Issuer, as the case may be, such additional amount or amounts as will compensate such Lender or the
L/C Issuer or such Lenders or the L/C Issuers holding company for any such reduction suffered.
(c) Certificates for Reimbursement. A certificate of a Lender or the L/C Issuer
setting forth the amount or amounts necessary to compensate such Lender or the L/C Issuer or its
holding company, as the case may be, as specified in subsection (a) or (b) of this Section and
delivered to Borrower shall be conclusive absent manifest error. Borrower shall pay such Lender or
the L/C Issuer, as the case may be, the amount shown as due on any such certificate within 10 days
after receipt thereof.
(d) Delay in Requests. Failure or delay on the part of any Lender or the L/C Issuer
to demand compensation pursuant to the foregoing provisions of this Section shall not constitute a
waiver of such Lenders or the L/C Issuers right to demand such compensation, provided that
Borrower shall not be required to compensate a Lender or the L/C Issuer pursuant to the foregoing
provisions of this Section for any increased costs incurred or reductions suffered more than nine
months prior to the date that such Lender or the L/C Issuer, as the case may be, notifies Borrower
of the Change in Law giving rise to such increased costs or reductions and of such Lenders or the
L/C Issuers intention to claim compensation therefor (except that, if the Change in Law giving
rise to such increased costs or reductions is retroactive, then the nine-month period referred to
above shall be extended to include the period of retroactive effect thereof).
3.05 Compensation for Losses.
Upon demand of any Lender (with a copy to Agent) from time to time, Borrower shall promptly
compensate such Lender for and hold such Lender harmless from any loss, cost or expense incurred by
it as a result of:
44
(a) any continuation, conversion, payment or prepayment of any Loan other than a Base Rate
Loan on a day other than the last day of the Interest Period for such Loan (whether voluntary,
mandatory, automatic, by reason of acceleration, or otherwise); or
(b) any failure by Borrower (for a reason other than the failure of such Lender to make a
Loan) to prepay, borrow, continue or convert any Loan other than a Base Rate Loan on the date or in
the amount notified by Borrower;
including any loss of anticipated profits and any loss or expense arising from the liquidation or
reemployment of funds obtained by it to maintain such Loan or from fees payable to terminate the
deposits from which such funds were obtained. Borrower shall also pay any customary administrative
fees charged by such Lender in connection with the foregoing. For purposes of calculating amounts
payable by Borrower to Lenders under this Section 3.05, each Lender shall be deemed to have funded
each Eurodollar Rate Loan made by it at the Eurodollar Base Rate used in determining the Eurodollar
Rate for such Loan by a matching deposit or other borrowing in the London interbank eurodollar
market for a comparable amount and for a comparable period, whether or not such Eurodollar Rate
Loan was in fact so funded.
3.06 Mitigation Obligations. If any Lender requests compensation under Section 3.04, or Borrower is required to pay any
additional amount to any Lender or any Governmental Authority for the account of any Lender
pursuant to Section 3.01, or if any Lender gives a notice pursuant to Section 3.02, then such
Lender shall use reasonable efforts to designate a different Lending Office for funding or booking
its Loans hereunder or to assign its rights and obligations hereunder to another of its offices,
branches or affiliates, if, in the judgment of such Lender, such designation or assignment (i)
would eliminate or reduce amounts payable pursuant to Section 3.01 or 3.04, as the case may be, in
the future, or eliminate the need for the notice pursuant to Section 3.02, as applicable, and (ii)
in each case, would not subject such Lender to any unreimbursed cost or expense and would not
otherwise be disadvantageous to such Lender. Borrower hereby agrees to pay all reasonable costs
and expenses incurred by any Lender in connection with any such designation or assignment.
3.07 Survival. All of Borrowers obligations under this Article III shall survive termination of the
Aggregate Revolving Loan Commitments and repayment of all other Obligations hereunder.
ARTICLE IV. CONDITIONS PRECEDENT TO CREDIT EXTENSIONS
4.01 Conditions of Initial Credit Extension. The obligation of the L/C Issuer and each Lender to make its initial Credit Extension
hereunder is subject to satisfaction of the following conditions precedent:
45
(a) Agents receipt of the following, each of which shall be originals or telecopies (followed
promptly by originals) unless otherwise specified, each properly executed by a Responsible Officer
of the signing Loan Party, each dated the Closing Date (or, in the case of certificates of
governmental officials, a recent date before the Closing Date) and each in form and substance
satisfactory to Agent and each of the Lenders:
(i) executed counterparts of this Agreement, all Collateral Documents and the Guaranty,
sufficient in number for distribution to Agent, each Lender and Borrower;
(ii) a Note executed by Borrower in favor of each Lender requesting such Note;
(iii) such certificates of resolutions or other action, incumbency certificates and/or other
certificates of Responsible Officers of each Loan Party as Agent may require evidencing the
identity, authority and capacity of each Responsible Officer thereof authorized to act as a
Responsible Officer in connection with this Agreement and the other Loan Documents to which such
Loan Party is a party;
(iv) such documents and certifications as Agent may reasonably require to evidence that each
Loan Party is duly organized or formed, and that each Loan Party is validly existing, in good
standing and qualified to engage in business in each jurisdiction where its ownership, lease or
operation of properties or the conduct of its business requires such qualification, except to the
extent that failure to do so could not reasonably be expected to have a Material Adverse Effect;
(v) a favorable opinion of counsel to the Loan Parties acceptable to Agent addressed to Agent
and each Lender, as to the matters set forth concerning the Loan Parties and the Loan Documents in
the form attached hereto as Exhibit F;
(vi) a certificate of a Responsible Officer of each Loan Party either (A) attaching copies of
all consents, licenses and approvals required in connection with the execution, delivery and
performance by such Loan Party and the validity against such Loan Party of the Loan Documents to
which it is a party, and such consents, licenses and approvals shall be in full force and effect,
or (B) stating that no such consents, licenses or approvals are so required;
(vii) evidence that all insurance required to be maintained pursuant to the Loan Documents has
been obtained and is in effect;
46
(viii) a duly completed Compliance Certificate as of the last day of the fiscal quarter of
Borrower most recently ended prior to the Closing Date, signed by a Responsible Officer of
Borrower;
(ix) evidence that all commitments under the Amended and Restated Revolving Credit, Term Loan
and Security Agreement dated August 8, 2003, as amended, among Borrower and certain of its
Subsidiaries and PNC Bank National Association, as lender and as agent (the Existing Credit
Agreement) have been or concurrently with the Closing Date are being terminated, and all
outstanding amounts thereunder paid in full and all Liens securing obligations under the Existing
Credit Agreement have been or concurrently with the Closing Date are being released;
(x) a forecast for the Borrowers fiscal year ending May 31, 2007, in the same format as
required for the 2008 fiscal year forecast, all as described in Section 6.01(e); and
(xi) such other assurances, certificates, documents, consents or opinions as Agent, the L/C
Issuer or the Required Lenders reasonably may require.
(b) Any fees required to be paid on or before the Closing Date shall have been paid.
(c) Unless waived by Agent, Borrower shall have paid the reasonable fees, charges and
disbursements of counsel to Agent (directly to such counsel if requested by Agent) to the extent
invoiced prior to or on the Closing Date, plus such additional amounts of such fees, charges and
disbursements as shall constitute its reasonable estimate of such fees, charges and disbursements
incurred or to be incurred by it through the closing proceedings (provided that the aggregate
amount of such fees, exclusive of disbursements, shall not exceed $65,000 for work performed prior
to the Closing Date and that such estimate shall not thereafter preclude a final settling of
accounts between Borrower and Agent).
(d) The Closing Date shall have occurred on or before November 30, 2006.
Without limiting the generality of the provisions of Section 9.04, for purposes of determining
compliance with the conditions specified in this Section 4.01, each Lender that has signed this
Agreement shall be deemed to have consented to, approved or accepted or to be satisfied with, each
document or other matter required thereunder to be consented to or approved by or acceptable or
satisfactory to a Lender unless Agent shall have received notice from such Lender prior to the
proposed Closing Date specifying its objection thereto.
4.02 Conditions to all Credit Extensions. The obligation of each Lender to honor any Request for Credit Extension is subject to the
following conditions precedent:
47
(a) The representations and warranties of Borrower and each other Loan Party contained in
Article V or any other Loan Document, or which are contained in any document furnished at any time
under or in connection herewith or therewith, shall be true and correct on and as of the date of
such Credit Extension, except to the extent that such representations and warranties specifically
refer to an earlier date, in which case they shall be true and correct as of such earlier date, and
except that for purposes of this Section 4.02, the representations and warranties contained in
subsections (a) and (b) of Section 5.05 shall be deemed to refer to the most recent statements
furnished pursuant to clauses (a) and (b), respectively, of Section 6.01.
(b) No Default shall exist, or would result from such proposed Credit Extension or from the
application of the proceeds thereof.
(c) Agent and, if applicable, the L/C Issuer shall have received a Request for Credit
Extension in accordance with the requirements hereof.
(d) Agent shall have received, in form and substance satisfactory to it, such other
assurances, certificates, documents or consents related to the foregoing as Agent or the Required
Lenders reasonably may require.
Each Request for Credit Extension submitted 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 the applicable Credit Extension.
ARTICLE V. REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants to Agent and the Lenders that:
5.01 Existence, Qualification and Power. Each Loan Party (a) is duly organized or formed, validly existing and, as applicable, in
good standing under the Laws of the jurisdiction of its incorporation or organization, (b) has all
requisite power and authority and all requisite governmental licenses, authorizations, consents and
approvals to (i) own or lease its assets and carry on its business and (ii) execute, deliver and
perform its obligations under the Loan Documents to which it is a party, and (c) is duly qualified
and is licensed and, as applicable, in good standing under the Laws of each jurisdiction where its
ownership, lease or operation of properties or the conduct of its business requires such
qualification or license; except in each case referred to in clause (b)(i) or (c), to the extent
that failure to do so could not reasonably be expected to have a Material Adverse Effect.
5.02 Authorization; No Contravention. The execution, delivery and performance by each Loan Party of each Loan Document to which
such Person is party, have been duly authorized by all necessary corporate or other organizational
action, and do not and will not (a) contravene the terms of any of such Persons Organization
48
Documents; (b) conflict with or result in any breach or contravention of, or the creation of any
Lien under, or require any payment to be made under (i) any Contractual Obligation to which such
Person is a party or affecting such Person or the properties of such Person or any of its
Subsidiaries or (ii) any order, injunction, writ or decree of any Governmental Authority or any
arbitral award to which such Person or its property is subject; or (c) violate any applicable Law
except in the case of subsections (b) and (c) where such breach, contravention or payment could not
reasonably be expected to have a Material Adverse Effect.
5.03 Governmental Authorization; Other Consents.
No approval, consent, exemption, authorization, or other action by, or notice to, or filing
with, any Governmental Authority or any other Person is necessary or required in connection with
the execution, delivery or performance by, or enforcement against, any Loan Party of this Agreement
or any other Loan Document except for such filings as may be necessary to perfect the security
interest of the Agent in the Collateral.
5.04 Binding Effect. This Agreement has been, and each other Loan Document, when delivered hereunder, will have
been, duly executed and delivered by each Loan Party that is party thereto. This Agreement
constitutes, and each other Loan Document when so delivered will constitute, a legal, valid and
binding obligation of such Loan Party, enforceable against each Loan Party that is party thereto in
accordance with its terms.
5.05 Financial Statements; No Material Adverse Effect; No Internal Control Event.
(a) (i) The Audited Financial Statements (i) were prepared in accordance with GAAP
consistently applied throughout the period covered thereby, except as otherwise expressly noted
therein; (ii) fairly present the financial condition of Borrower and its Consolidated Subsidiaries
as of the date thereof and their results of operations for the period covered thereby in accordance
with GAAP consistently applied throughout the period covered thereby, except as otherwise expressly
noted therein; and (iii) show all material indebtedness and other liabilities, direct or
contingent, of Borrower and its Consolidated Subsidiaries as of the date thereof, including
liabilities for taxes, material commitments and Indebtedness.
(b) The unaudited consolidated balance sheets of Borrower and its Consolidated Subsidiaries
dated August 31, 2006, and the related consolidated statements of income or operations,
shareholders equity and cash flows for the fiscal quarter ended on that date (i) were prepared in
accordance with GAAP consistently applied throughout the period covered thereby, except as
otherwise expressly noted therein, and (ii) fairly present the financial condition of Borrower and
its Consolidated Subsidiaries as of the date thereof and their results of operations for the period
covered
49
thereby, subject, in the case of clauses (i) and (ii), to the absence of footnotes and to
normal year-end audit adjustments.
(c) Since the date of the Audited Financial Statements, there has been no event or
circumstance, either individually or in the aggregate, that has had or could reasonably be expected
to have a Material Adverse Effect.
(d) To the best knowledge of Borrower, no Internal Control Event exists or has occurred since
the date of the Audited Financial Statements that has resulted in or could reasonably be expected
to result in a misstatement in any material respect, in any financial information delivered or to
be delivered to Agent or Lenders, of (i) covenant compliance calculations provided hereunder or
(ii) the assets, liabilities, financial condition or results of operations of Borrower and its
Subsidiaries on a consolidated basis.
(e) The forecasted balance sheet and statements of income and cash flows of Borrower and its
Consolidated Subsidiaries delivered pursuant to Section 6.01(c) were prepared in good faith on the
basis of the assumptions stated therein, which assumptions were fair in light of the conditions
existing at the time of delivery of such forecasts, and represented, at the time of delivery,
Borrowers best estimate of its future financial condition and performance.
5.06 Litigation.
There are no actions, suits, proceedings, claims or disputes pending or, to the knowledge of
Borrower after due and diligent investigation, threatened or contemplated, at law, in equity, in
arbitration or before any Governmental Authority, by or against Borrower or any of its Subsidiaries
or against any of their properties or revenues that (a) purport to affect or pertain to this
Agreement or any other Loan Document, or any of the transactions contemplated hereby, or (b) except
as specifically disclosed in Schedule 5.06, either individually or in the aggregate, if
determined adversely, could reasonably be expected to have a Material Adverse Effect, and there has
been no adverse change in the status, or financial effect on any Loan Party or any Subsidiary
thereof, of the matters described on Schedule 5.06.
5.07 No Default.
Neither any Loan Party nor any Subsidiary thereof is in default under or with respect to any
Contractual Obligation that could, either individually or in the aggregate, reasonably be expected
to have a Material Adverse Effect. No Default has occurred and is continuing or would result from
the consummation of the transactions contemplated by this Agreement or any other Loan Document.
5.08 Ownership of Property; Liens. Each of Borrower and each Subsidiary has good record and marketable title in fee simple to,
or valid leasehold interests in, all real property necessary or used in the ordinary conduct of its
business, except for such defects in title as could not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect. The property of Borrower and its
Subsidiaries is subject
50
to no Liens, other than Liens permitted by Section 7.01, including Liens
listed on Schedule 7.01.
5.09 Environmental Compliance. Borrower and its Subsidiaries conduct in the ordinary course of business a review of the
effect of existing Environmental Laws and claims alleging potential liability or responsibility for
violation of any Environmental Law on their respective businesses, operations and properties, and
as a result thereof Borrower has reasonably concluded that, except as specifically disclosed in
Schedule 5.09, such Environmental Laws and claims could not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect.
5.10 Insurance. The properties of Borrower and its Subsidiaries are insured with financially sound and
reputable insurance companies not Affiliates of Borrower, in such amounts (after giving effect to
any self-insurance compatible with the following standards), with such deductibles and covering
such risks as Borrower reasonably believes appropriate. All insurance with respect to the
Collateral shall (i) contain a breach of warranty clause in favor of the Agent, (ii) provide that
no cancellation, reduction in amount or change in coverage thereof shall be effective until at
least 30 days after receipt by the Agent of written notice thereof and (iii) be reasonably
satisfactory in all material respects to the Agent.
5.11 Taxes. Borrower and its Subsidiaries have filed all foreign and domestic Federal, state and other
material tax returns and reports required to be filed, and have paid all foreign and domestic
Federal, state and other material taxes, assessments, fees and other governmental charges levied or
imposed upon them or their properties, income or assets otherwise due and payable, except those
which are being contested in good faith by appropriate proceedings diligently conducted and for
which adequate reserves have been provided in accordance with GAAP. There is no proposed tax
assessment against Borrower or any Subsidiary that would, if made, have a Material Adverse Effect.
5.12 ERISA Compliance.
(a) Each Plan is in compliance with the applicable provisions of ERISA, the Code and other
Federal or state Laws except for any failure to comply which, either individually or in the
aggregate, could not reasonably be expected to result in a Material Adverse Effect. Each Plan that
is intended to qualify under Section 401(a) of the Code has received a favorable determination
letter from the IRS or an application for such a letter is currently being processed by the IRS
with respect thereto and, to the best knowledge of Borrower, nothing has occurred which would
prevent, or cause the loss of, such qualification. Borrower and each ERISA Affiliate have made all
required contributions to each Plan subject to Section 412 of the Code, and no application for a
funding waiver or an extension of any amortization period pursuant to Section 412 of the Code has
been made with respect to any such Plan.
51
(b) There are no pending or, to the best knowledge of Borrower, threatened claims, actions or
lawsuits, or action by any Governmental Authority, with respect to any Plan that could be
reasonably be expected to have a Material Adverse Effect. There has been no prohibited transaction
or violation of the fiduciary responsibility rules with respect to any Plan that has resulted or
could reasonably be expected to result in a Material Adverse Effect.
(c) (i) No ERISA Event has occurred or is reasonably expected to occur; (ii) no Pension Plan
has any Unfunded Pension Liability in excess of the Threshold Amount; (iii) neither Borrower nor
any ERISA Affiliate has incurred, or reasonably expects to incur, any liability under Title IV of
ERISA with respect to any Pension Plan (other than premiums due and not delinquent under Section
4007 of ERISA); (iv) neither Borrower nor any ERISA Affiliate has incurred, or reasonably expects
to incur, any liability (and no event has occurred which, with the giving of notice under Section
4219 of ERISA, would result in such liability) under Section 4201 or 4243 of ERISA with respect to
a Multiemployer Plan; and (v) neither Borrower nor any ERISA Affiliate has engaged in a transaction
that could be subject to Section 4069 or 4212(c) of ERISA.
5.13 Subsidiaries. As of the Closing Date, Borrower has no Subsidiaries other than those specifically
disclosed in Part (a) of Schedule 5.13, and the outstanding Equity Interests in such
Subsidiaries have been validly issued, are fully paid and nonassessable and are owned by a Loan
Party in the amounts specified on Part (a) of Schedule 5.13 free and clear of all Liens.
Borrower has no equity investments in any other corporation or entity other than those specifically
disclosed in Part(b) of Schedule 5.13. All of the outstanding Equity Interests in Borrower
have been validly issued and are fully paid and nonassessable and are owned by the parties
specified and in the amounts specified on Part (c) of Schedule 5.13 free and clear of all
Liens.
5.14 Margin Regulations; Investment Company Act; Public Utility Holding Company Act.
(a) Neither Borrower nor any Subsidiary is engaged or will engage, principally or as one of
its important activities, in the business of purchasing or carrying margin stock (within the
meaning of Regulation U issued by the FRB), or extending credit for the purpose of purchasing or
carrying margin stock.
(b) None of Borrower, any Person Controlling Borrower, or any Subsidiary (i) is a holding
company, or a subsidiary company of a holding company, or an affiliate of a holding
company or of a subsidiary company of a holding company, within the meaning of the Public
Utility Holding Company Act of 1935, or (ii) is or is required to be registered as an investment
company under the Investment Company Act of 1940.
52
5.15 Disclosure. Borrower has disclosed to Agent and Lenders all agreements, instruments and corporate or
other restrictions to which it or any of its Subsidiaries is subject, and all other matters known
to it, that, individually or in the aggregate, could reasonably be expected to result in a Material
Adverse Effect.
5.16 Compliance with Laws. Each Loan Party and each Subsidiary thereof is in compliance in all material respects with
the requirements of all Laws and all orders, writs, injunctions and decrees applicable to it or to
its properties, except in such instances in which (a) such requirement of Law or order, writ,
injunction or decree is being contested in good faith by appropriate proceedings diligently
conducted or (b) the failure to comply therewith, either individually or in the aggregate, could
not reasonably be expected to have a Material Adverse Effect.
5.17 Taxpayer Identification Number. Borrowers true and correct U.S. taxpayer identification number is set forth on
Schedule 10.02.
5.18 Intellectual Property; Licenses, Etc. Borrower and its Subsidiaries own, or possess the right to use, all of the trademarks,
service marks, trade names, copyrights, patents, patent rights, franchises, licenses and other
intellectual property rights that are reasonably necessary for the operation of their respective
businesses, without conflict with the rights of any other Person. To the best knowledge of
Borrower, no slogan or other advertising device, product, process, method, substance, part or other
material now employed, or now contemplated to be employed, by Borrower or any Subsidiary infringes
upon any rights held by any other Person. No claim or litigation regarding any of the foregoing is
pending or, to the best knowledge of Borrower, threatened, which, either individually or in the
aggregate, could reasonably be expected to have a Material Adverse Effect.
5.19 Rights in Collateral; Priority of Liens. Borrower and each other Loan Party own the property granted by it as Collateral under the
Collateral Documents, free and clear of any and all Liens in favor of third parties, other than
Liens permitted under Section 7.01, including Liens set forth on Schedule 7.01. Upon the
proper filing of UCC financing statements and trademark and patent assignments, the Liens granted
pursuant to the Collateral Documents will constitute valid and enforceable first, prior and
perfected Liens in favor of Agent, for the
ratable benefit of Agent and Lenders on all collateral on which a lien may be perfected by the
filing of such UCC financing statements and trademark and patent assignments, subject only to the
Liens set forth on Schedule 7.01.
ARTICLE VI. AFFIRMATIVE COVENANTS
53
So long as any Lender shall have any Commitment hereunder, any Loan or other Obligation hereunder
shall remain unpaid or unsatisfied, or any Letter of Credit shall remain outstanding, Borrower
shall, and shall (except in the case of the covenants set forth in Sections 6.01, 6.02, and 6.03)
cause each Subsidiary to:
6.01 Financial Statements. Deliver to Agent a sufficient number of copies for delivery by Agent to each Lender, in
form and detail satisfactory to Agent and the Required Lenders:
(a) as soon as available, but in any event within 120 days after the end of each fiscal year
of Borrower, a consolidated balance sheet of Borrower and its Consolidated Subsidiaries as at the
end of such fiscal year, and the related consolidated statements of income or operations,
shareholders equity and cash flows for such fiscal year, setting forth in each case in comparative
form the figures for the previous fiscal year, all in reasonable detail and prepared in accordance
with GAAP, such consolidated statements to be audited and accompanied by a report and opinion of
Amper, Politziner & Mattia P.C. or another independent certified public accounting firm of
recognized standing reasonably acceptable to the Required Lenders, which report and opinion shall
be prepared in accordance with generally accepted auditing standards and applicable Securities Laws
and shall not be subject to any going concern or like qualification or exception or any
qualification or exception as to the scope of such audit or with respect to the absence of any
material misstatement.
(b) as soon as available, but in any event within 45 days after the end of each fiscal quarter
of each fiscal year of Borrower, a consolidated balance sheet of Borrower and its Consolidated
Subsidiaries as at the end of such fiscal quarter, and the related consolidated statements of
income or operations, shareholders equity and cash flows for such fiscal quarter and for the
portion of Borrowers fiscal year then ended, setting forth in each case in comparative form the
figures for the corresponding fiscal quarter of the previous fiscal year and the corresponding
portion of the previous fiscal year, all in reasonable detail, such consolidated statements to be
certified by the chief executive officer, chief financial officer, treasurer or controller of
Borrower as fairly presenting the financial condition, results of operations, shareholders equity
and cash flows of Borrower and its Consolidated Subsidiaries in accordance with GAAP, subject only
to normal year-end audit adjustments and the absence of footnotes; and
(c) as soon as available, but in any event at least 15 days before the end of each fiscal year
of Borrower, forecasts prepared by management of Borrower, in form satisfactory to Agent and the
Required Lenders, of consolidated balance sheets and statements of income or operations of Borrower
and its Consolidated Subsidiaries for the immediately following fiscal year prepared (i) on a
quarterly basis in the case of the forecast for Borrowers fiscal year ending May 31, 2008 or (ii)
an annual basis in the case of the forecasts for each subsequent fiscal year of Borrower (including
the fiscal year in which the Maturity Date occurs).
54
6.02 Certificates; Other Information. Deliver to Agent a sufficient number of copies for delivery by Agent to each Lender, in
form and detail satisfactory to Agent and the Required Lenders:
(a) concurrently with the delivery of the financial statements referred to in Sections 6.01(a)
and (b), a duly completed Compliance Certificate signed by the chief financial officer or president
of Borrower;
(b) promptly after any request by Agent or any Lender, copies of any detailed audit reports,
management letters or recommendations submitted to the board of directors (or the audit committee
of the board of directors) of Borrower by independent accountants in connection with the accounts
or books of Borrower or any Subsidiary, or any audit of any of them;
(c) promptly after the same are available, copies of each annual report, proxy or financial
statement or other report or communication sent to the stockholders of Borrower, and copies of any
annual, regular, periodic and special reports and registration statements which Borrower may file
or be required to file with the Securities and Exchange Commission under Section 13 or 15(d) of the
Securities Exchange Act of 1934, and not otherwise required to be delivered to Agent pursuant
hereto;
(d) promptly after the furnishing thereof, copies of any statement or report furnished to any
holder of debt securities of any Loan Party or any Subsidiary thereof pursuant to the terms of any
indenture, loan or credit or similar agreement and not otherwise required to be furnished to the
Lenders pursuant to Section 6.01 or any other clause of this Section 6.02;
(e) promptly, and in any event within five Business Days after receipt thereof by any Loan
Party or any Subsidiary thereof, copies of each notice or other correspondence received from the
Securities and Exchange Commission (or comparable agency in any applicable non-U.S. jurisdiction)
concerning any investigation or possible investigation or other inquiry by such agency regarding
financial or other operational results of any Loan Party or any Subsidiary thereof; and
(f) promptly, such additional information regarding the business, financial or corporate
affairs of Borrower or any Subsidiary, or compliance with the terms of the Loan Documents, as Agent
or any Lender may from time to time reasonably request.
Borrower hereby acknowledges that (a) Agent will make available to Lenders and the L/C Issuer
materials and/or information provided by or on behalf of Borrower hereunder (collectively,
Borrower Materials) by posting Borrower Materials on IntraLinks or another similar
electronic system (the Platform) and (b) certain of the Lenders may be public-side
Lenders (i.e., Lenders that do not wish to receive material non-public information with respect to
Borrower or its securities) (each, a Public Lender).
55
Borrower hereby agrees that (w) all
Borrower Materials that are to be made available to Public Lenders shall be clearly and
conspicuously marked PUBLIC which, at a minimum, shall mean that the word PUBLIC shall appear
prominently on the first page thereof; (x) by marking Borrower Materials PUBLIC, Borrower shall
be deemed to have authorized Agent, the L/C Issuer and the Lenders to treat such Borrower Materials
as not containing any material non-public information with respect to Borrower or its securities
for purposes of United States Federal and state securities laws (provided, however, that to the
extent such Borrower Materials constitute Information, they shall be treated as set forth in
Section 10.07); (y) all Borrower Materials marked PUBLIC are permitted to be made available
through a portion of the Platform designated Public Investor; and (z) Agent shall be entitled to
treat any Borrower Materials that are not marked PUBLIC as being suitable only for posting on a
portion of the Platform not designated Public Investor.
6.03 Notices. Promptly notify Agent and each Lender for which the Agent has provided an address:
(a) of the occurrence of any Default;
(b) of any matter that has resulted or could reasonably be expected to result in a Material
Adverse Effect,
(c) of the occurrence of any ERISA Event;
(d) of any material change in accounting policies or financial reporting practices by Borrower
or any Subsidiary, and
(e) of Borrowers determination at any time of the occurrence or existence of any Internal
Control Event.
Each notice pursuant to this Section shall be accompanied by a statement of a Responsible Officer
of Borrower setting forth details of the occurrence referred to therein and stating what action
Borrower has taken and proposes to take with respect thereto. Each notice pursuant to Section
6.03(a) shall describe with particularity any and all provisions of this Agreement and any other
Loan Document that have been breached.
6.04 Payment of Obligations. Pay and discharge as the same shall become due and payable, all its obligations and
liabilities, including (a) all tax liabilities, assessments and governmental charges or levies upon
it or its properties or assets, unless the same are being contested in good faith by appropriate
proceedings diligently conducted and adequate reserves in accordance with GAAP are being maintained
by Borrower or such Subsidiary; (b) all lawful claims which, if unpaid, would by law become a Lien
upon its property; and (c) all Indebtedness, as and when due and payable, but
56
subject to any
subordination provisions contained in any instrument or agreement evidencing such Indebtedness.
6.05 Preservation of Existence, Etc. (a) Preserve, renew and maintain in full force and effect its legal existence and good
standing under the Laws of the jurisdiction of its organization except in a transaction permitted
by Section 7.04 or 7.05; (b) take all reasonable action to maintain all rights, privileges,
permits, licenses and franchises necessary or desirable in the normal conduct of its business,
except to the extent that failure to do so could not reasonably be expected to have a Material
Adverse Effect; and (c) preserve or renew any registered patents, trademarks, trade names and
service marks, the non-preservation of which could reasonably be expected to have a Material
Adverse Effect.
6.06 Maintenance of Properties. (a) Maintain, preserve and protect all of its material properties and equipment necessary
in the operation of its business in good working order and condition, ordinary wear and tear
excepted; and (b) make all necessary repairs thereto and renewals and replacements thereof except
where the failure to do so could not reasonably be expected to have a Material Adverse Effect.
6.07 Maintenance of Insurance. Maintain with financially sound and reputable insurance companies not Affiliates of
Borrower, insurance with respect to its properties and business against loss or damage of the kinds
customarily insured against by Persons engaged in the same or similar business, of such types and
in such amounts (after giving effect to any self-insurance compatible with the following standards) as are customarily carried under similar
circumstances by such other Persons and providing for not less than 30 days prior notice to Agent
of termination, lapse or cancellation of such insurance. Borrower shall cause its carriers to name
the Agent as additional insured and, in the case of property or casualty insurance for all tangible
Collateral, first loss payee, and shall provide the Agent with a certificate or certificates
evidencing such coverages and the payment of premiums therefore, on or before the Closing Date and
at such times as the insurance in question is modified or renewed.
6.08 Compliance with Laws. Comply in all material respects with the requirements of all Laws and all orders, writs,
injunctions and decrees applicable to it or to its business or property, except in such instances
in which (a) such requirement of Law or order, write, injunction or decree is being contested in
good faith by appropriate proceedings diligently conducted; or (b) the failure to comply therewith
could not reasonably be expected to have a Material Adverse Effect.
6.09 Books and Records. (a) Maintain proper books of record and account, in which full, true and correct entries
in conformity with GAAP consistently applied shall be made of all financial transactions and
matters involving the assets and business of Borrower or such Subsidiary, as the case may be; and
(b) maintain such books of
57
record and account in material conformity with all applicable
requirements of any Governmental Authority having regulatory jurisdiction over Borrower or such
Subsidiary, as the case may be. Borrower shall maintain at all times books and records pertaining
to the Collateral in such detail, form and scope as Agent or any Lender shall reasonably require.
6.10 Inspection Rights. Permit representatives and independent contractors of Agent and each Lender to visit and
inspect any of its properties, to examine its corporate, financial and operating records, and make
copies thereof or abstracts therefrom, and to discuss its affairs, finances and accounts with its
directors, officers, and independent public accountants, all at the expense of Borrower and at such
reasonable times during normal business hours and as often as may be reasonably desired, upon
reasonable advance notice to Borrower; provided, however, that when an Event of Default exists
Agent or any Lender (or any of their respective representatives or independent contractors) may do
any of the foregoing at the expense of Borrower at any time during normal business hours and
without advance notice.
6.11 Use of Proceeds. Use the proceeds of the Credit Extensions to refinance all of the Borrowers existing
Funded Debt, to support working capital needs (including the issuance of Letters of Credit) and
finance acquisitions as permitted hereunder.
6.12 Financial Covenants
(a) EBITDA. Maintain on a consolidated basis EBITDA of not less than the following
amounts calculated for the 12-month periods ending on the following dates:
|
|
|
|
|
Fiscal Year |
|
Minimum Annual EBITDA |
|
|
|
|
|
2007 |
|
$ |
11,000,000 |
|
2008 |
|
$ |
13,900,000 |
|
2009 |
|
$ |
16,000,000 |
|
2010 |
|
$ |
17,000,000 |
|
2011 |
|
$ |
17,500,000 |
|
2012 |
|
$ |
18,000,000 |
|
(b) Debt Service Coverage Ratio. Maintain on a consolidated basis a Debt Service
Coverage Ratio of at least 1.10:1.0.
This ratio will be calculated at the end of each reporting period for which this Agreement requires
Borrower to deliver financial statements, using the results of the twelve-month period ending with
that reporting period. The current portion of long-term liabilities will be measured as of the
last day of the calculation period.
58
(c) Funded Debt to EBITDA Ratio. Maintain on a consolidated basis a ratio of Funded
Debt to EBITDA not exceeding 3.25:1.0 on the Closing Date, and the ratios indicated for each period
specified below:
|
|
|
Period |
|
Ratio |
|
|
|
Through 5/31/08
|
|
3.0:1.0 |
|
|
|
From 6/1/08
through 5/31/09
|
|
2.75:1.0 |
|
|
|
From 6/1/09 and thereafter
|
|
2.5:1.0 |
This ratio will be calculated at the end of each reporting period for which this Agreement requires
Borrower to deliver financial statements, using the results of the twelve-month period ending with
that reporting period.
6.13 Additional Guarantors. Notify Agent at the time that any Person becomes a Subsidiary, and promptly thereafter (and
in any event within 30 days), cause such Person that is a Majority-Owned Subsidiary to (a) become a
Guarantor by executing and delivering to Agent a counterpart of the Guaranty or such other document
as Agent shall deem appropriate for such purpose and (b) deliver to Agent documents of the types
referred to in clauses (iii) and (iv) of Section 4.01(a), all in form, content and scope reasonably
satisfactory to Agent, provided that such Subsidiary has assets or operating income that represents
5% or more of the assets or operating income of Borrower and/or was formed or incorporated in the
United States.
6.14 Collateral Records. To execute and deliver promptly, and to cause each other Loan Party to execute and deliver
promptly, to Agent, from time to time, solely for Agents convenience in maintaining a record of
the Collateral, such written statements and schedules as Agent may reasonably require designating,
identifying or describing the Collateral. The failure by Borrower or any other Loan Party,
however, to promptly give Agent such statements or schedules shall not affect, diminish, modify or
otherwise limit the Liens on the Collateral granted pursuant to the Collateral Documents.
6.15 Security Interests. To, and to cause each other Loan Party to, (a) defend the Collateral against all claims and
demands of all Persons at any time claiming the same or any interest therein, (b) comply with the
requirements of all United States state and federal laws in order to grant to Agent and Lenders
valid and perfected security interests in the Collateral subject only to Liens set forth on
Schedule 7.01, with perfection, in the case of any investment property, deposit account or
letter of credit, being effected by giving Agent control of such investment property or deposit
account or letter of credit, rather than by the filing of a Uniform Commercial Code (UCC)
financing statement with respect to such investment property, and (c) do whatever Agent may
reasonably request, from time to time, to effect the purposes of this Agreement and the
59
other Loan
Documents, including filing notices of liens, UCC financing statements, fixture filings and
amendments, renewals and continuations thereof; cooperating with Agents representatives; keeping
stock records; using reasonable efforts to obtain waivers from landlords and mortgagees and from
warehousemen and their landlords and mortgages; and paying claims which might, if unpaid, become a
Lien on the Collateral. Agent is hereby authorized by Borrower to file any UCC financing
statements covering the Collateral whether or not Borrowers signatures appear thereon.
6.16 Deposits. The Borrower shall maintain its primary deposit relationship, including, without
limitation, operating accounts and cash management services with the Agent, such services to be
provided at reasonable costs to Borrower.
ARTICLE VII. NEGATIVE COVENANTS
So long as any Lender shall have any Commitment hereunder, any Loan or other Obligation hereunder
shall remain unpaid or unsatisfied, or any Letter of Credit shall remain outstanding, Borrower
shall not, nor shall it permit any Subsidiary to, directly or indirectly:
7.01 Liens. Create, incur, assume or suffer to exist any Lien upon any of its property, assets or
revenues, whether now owned or hereafter acquired, other than the following:
(a) Liens pursuant to any Loan Document;
(b) Liens existing on the date hereof and listed on Schedule 7.01 and any renewals or
extensions thereof, provided that (i) the property covered thereby is not changed, (ii) the amount
secured or benefited thereby is not increased except as contemplated by Section 7.03(b), (iii) the
direct or any contingent obligor with respect thereto is not changed, and (iv) and any renewal or
extension of the obligations secured or benefited thereby is permitted by Section 7.03(b);
(c) Liens for taxes not yet due or which are being contested in good faith and by appropriate
proceedings diligently conducted, if adequate reserves with respect thereto are maintained on the
books of the applicable Person in accordance with GAAP;
(d) carriers, warehousemens, mechanics, materialmens, repairmens or other like Liens
arising in the ordinary course of business which are not overdue for a period of more than 30 days
or which are being contested in good faith and by appropriate proceedings diligently conducted, if
adequate reserves with respect thereto are maintained on the books of the applicable Person;
60
(e) pledges or deposits in the ordinary course of business in connection with workers
compensation, unemployment insurance and other social security legislation, other than any Lien
imposed by ERISA;
(f) deposits to secure the performance of bids, trade contracts and leases (other than
Indebtedness), statutory obligations, surety and appeal bonds, performance bonds and other
obligations of a like nature incurred in the ordinary course of business;
(g) easements, rights-of-way, restrictions and other similar encumbrances affecting real
property which, in the aggregate, are not substantial in amount, and which do not in any case
materially detract from the value of the property subject thereto or materially interfere with the
ordinary conduct of the business of the applicable Person;
(h) Liens securing judgments for the payment of money not constituting an Event of Default
under Section 8.01(h); and
(i) Liens securing Indebtedness permitted under Section 7.03(e); provided that (i) such Liens
do not at any time encumber any property other than the property financed by such Indebtedness and
(ii) the Indebtedness secured thereby does not exceed the cost or fair market value, whichever is
lower, of the property being acquired on the date of acquisition.
7.02 Investments
Make any Investments, except:
(a) Investments held by Borrower or such Subsidiary in the form of cash equivalents or
short-term marketable debt securities;
(b) advances to officers, directors and employees of Borrower and Subsidiaries in an aggregate
amount not to exceed $250,000 at any time outstanding, for travel, entertainment, relocation and
analogous ordinary business purposes;
(c) Investments of Borrower in any Wholly-Owned Subsidiary; investments of Borrower or any
Wholly-Owned Subsidiary in other Subsidiaries, not to exceed $2,000,000 in any 12-month period; and
Investments of any Wholly-Owned Subsidiary in Borrower or in another Wholly-Owned Subsidiary;
(d) Investments of Borrower or its Subsidiaries for strategic purposes in non-Subsidiary joint
ventures, not to exceed $2,000,000 individually in any 12-month period; provided,
however, Investments permitted under this Section 7.02(c) shall not be construed to
increase the $5,000,000 limit on new acquisitions described in 7.02(f) below;
61
(e) Investments consisting of extensions of credit in the nature of accounts receivable or
notes receivable arising from the grant of trade credit in the ordinary course of business, and
Investments received in satisfaction or partial satisfaction thereof from financially troubled
account debtors to the extent reasonably necessary in order to prevent or limit loss;
(f) Investments in acquisitions (i) that do not exceed $7,500,000 in any 12-month period, (ii)
of an entity that is in a line of business substantially similar to the business conducted by
Borrower or its Subsidiaries, and (iii) for which pro-forma compliance with the financial covenants
contained in Section 6.12 can be evidenced by Borrower to the reasonable satisfaction of Agent and
Required Lenders; provided, however, that in all such instances notice of such acquisition shall be
delivered to the Agent no later than 15 days prior to the date of the closing of such acquisition,
and all material acquisition documents shall promptly be delivered to the Agent upon the Agents
request. Notwithstanding the foregoing, the aggregate consideration paid by Borrower for any one
acquisition shall not exceed $2,000,000, except that Borrower shall have the one-time right to make
an acquisition for an aggregate consideration in excess of $2,000,000, but not exceeding
$2,500,000, provided that all other conditions in this Section 7.2(f) are met; and
(g) Guarantees permitted by Section 7.03.
7.03 Indebtedness. Create, incur, assume or suffer to exist any Indebtedness, except:
(a) Indebtedness under the Loan Documents;
(b) Indebtedness outstanding on the date hereof and listed on Schedule 7.03 and any
refinancings, refundings, renewals or extensions thereof; provided that (i) the amount of such
Indebtedness is not increased at the time of such refinancing, refunding, renewal or extension
except by an amount equal to a reasonable premium or other reasonable amount paid, and fees and
expenses reasonably incurred, in connection with such refinancing and by an amount equal to any
existing commitments unutilized thereunder and (ii) the terms relating to principal amount,
amortization, maturity, collateral (if any) and subordination (if any), and other material terms
taken as a whole, of any such refinancing, refunding, renewing or extending Indebtedness, and of
any agreement entered into and of any instrument issued in connection therewith, are no less
favorable in any material respect to the Loan Parties or Lenders than the terms of any agreement or
instrument governing the Indebtedness being refinanced, refunded, renewed or extended and the
interest rate applicable to any such refinancing, refunding, renewing or extending Indebtedness
does not exceed the then applicable market interest rate;
62
(c) Guarantees of Borrower or any Subsidiary in respect of Indebtedness otherwise permitted
hereunder of Borrower or any Subsidiary;
(d) obligations (contingent or otherwise) of Borrower or any Subsidiary existing or arising
under any Swap Contract, provided that (i) such obligations are (or were) entered into by such
Person in the ordinary course of business for the purpose of
directly mitigating risks associated with liabilities, commitments, investments, assets, or
property held or reasonably anticipated by such Person, or changes in the value of securities
issued by such Person, and not for purposes of speculation or taking a market view; and (ii) such
Swap Contract does not contain any provision exonerating the non-defaulting party from its
obligation to make payments on outstanding transactions to the defaulting party;
(e) Indebtedness in respect of capital leases, Synthetic Lease Obligations and purchase money
obligations for fixed or capital assets within the limitations set forth in Section 7.01(i);
provided, however, that the aggregate amount of all such Indebtedness at any one time outstanding
shall not exceed $10,000,000; and
(f) Assumed indebtedness incurred in connection with acquisitions permitted under this
Agreement or subordinated indebtedness issued in connection with payment for acquisitions permitted
under this Agreement that is subordinated to payment of the Obligations on terms approved by the
Agent in writing, or is otherwise approved by the Agent in writing, provided that the covenants set
forth under Section 6.12 shall at all times continue to be satisfied, as tested on a pro forma
basis.
7.04 Fundamental Changes. Merge, dissolve, liquidate, consolidate with or into another Person, or Dispose of (whether
in one transaction or in a series of transactions) all or substantially all of its assets (whether
now owned or hereafter acquired) to or in favor of any Person, except that, so long as no Default
exists or would result therefrom:
(a) any Subsidiary may merge with (i) Borrower, provided that Borrower shall be the continuing
or surviving Person, or (ii) any one or more other Subsidiaries, provided that when any
Majority-Owned Subsidiary is merging with another Subsidiary, the Majority-Owned Subsidiary shall
be the continuing or surviving Person, and, provided further that if a Guarantor is merging with
another Subsidiary, the Guarantor shall be the surviving Person; and
(b) any Subsidiary may Dispose of all or substantially all of its assets (upon voluntary
liquidation or otherwise) to Borrower or to another Subsidiary; provided that if the transferor in
such a transaction is a Majority-Owned Subsidiary, then the transferee must either be Borrower or a
Majority-Owned Subsidiary and, provided further that if the transferor of such assets is a
Guarantor, the transferee must either be Borrower or a Guarantor.
63
7.05 Dispositions. Make any Disposition or enter into any agreement to make any Disposition, except:
(a) Dispositions of obsolete or worn out property, whether now owned or hereafter acquired, in
the ordinary course of business;
(b) Dispositions of inventory in the ordinary course of business;
(c) Dispositions of equipment or real property to the extent that (i) such property is
exchanged for credit against the purchase price of similar replacement property or (ii) the
proceeds of such Disposition are reasonably promptly applied to the purchase price of such
replacement property;
(d) Dispositions of property by any Subsidiary to Borrower or to a Majority-Owned Subsidiary;
provided that if the transferor of such property is a Guarantor, the transferee thereof must either
be Borrower or a Guarantor;
(e) Dispositions permitted by Section 7.04; and
(f) Dispositions of up to $500,000 individually or in a series of related Dispositions.
provided, however, that any Disposition pursuant to clauses (a) through (e) shall be for fair
market value.
7.06 Restricted Payments. Declare or make, directly or indirectly, any Restricted Payment, or incur any obligation
(contingent or otherwise) to do so, or issue or sell any Equity Interests, except that, so long as
no Default shall exist at the time of any action described below or would result therefrom:
(a) each Subsidiary may make Restricted Payments to Borrower, Guarantors and any other Person
that owns an Equity Interest in such Subsidiary, ratably according to their respective holdings of
the type of Equity Interest in respect of which such Restricted Payment is being made;
(b) Borrower and each Subsidiary may declare and make dividend payments or other distributions
payable solely in the common stock or other common Equity Interests of such Person;
(c) Borrower and each Subsidiary may purchase, redeem or otherwise acquire Equity Interests
issued by it with the proceeds received from the substantially concurrent issue of new shares of
its common stock or other common Equity Interests; and
64
(d) Borrower may make Restricted Payments to the extent permitted under the Subordination
Agreement.
7.07 Change in Nature of Business. Engage in any material line of business substantially different from those lines of
business conducted by Borrower and its Subsidiaries on the date hereof or any business
substantially related or incidental thereto.
7.08 Transactions with Affiliates. Enter into any transaction of any kind with any Affiliate of Borrower, whether or not in
the ordinary course of business, other than on fair and reasonable terms substantially as favorable
to Borrower or such Subsidiary as would be obtainable by Borrower or such Subsidiary at the time in
a comparable arms length transaction with a Person other than an Affiliate, provided that the
foregoing restriction shall not apply to transactions between or among Borrower and any Guarantor
or between and among Guarantors, so long as the effect of such transactions is not to circumvent
the limitations contained in Section 7.02.
7.09 Burdensome Agreements. Enter into any Contractual Obligation (other than this Agreement or any other Loan
Document) that (a) limits the ability (i) of any Subsidiary to make Restricted Payments to Borrower
or any Guarantor or to otherwise transfer property to Borrower or any Guarantor, (ii) of any
Subsidiary to Guarantee the Indebtedness of Borrower or (iii) of Borrower or any Subsidiary to
create, incur, assume or suffer to exist Liens on property of such Person; provided, however, that
this clause (iii) shall not prohibit any negative pledge incurred or provided in favor of any
holder of Indebtedness permitted under Section 7.03(e) solely to the extent any such negative
pledge relates to the property financed by or the subject of such Indebtedness; or (b) requires the
grant of a Lien to secure an obligation of such Person if a Lien is granted to secure another
obligation of such Person.
7.10 Use of Proceeds. Use the proceeds of any Credit Extension, whether directly or indirectly, and whether
immediately, incidentally or ultimately, to purchase or carry margin stock (within
the meaning of Regulation U of the FRB) or to extend credit to others for the purpose of
purchasing or carrying margin stock or to refund indebtedness originally incurred for such purpose.
ARTICLE VIII. EVENTS OF DEFAULT AND REMEDIES
8.01 Events of Default. Any of the following shall constitute an Event of Default:
(a) Non-Payment. Borrower or any other Loan Party fails to pay (i) when and as
required to be paid herein, any amount of principal of any Loan or any L/C Obligation, or (ii)
within three days after the same becomes due, any interest on any Loan or on any L/C Obligation, or
any fee due hereunder, or (iii) within five days after
65
the same becomes due, any other amount
payable hereunder or under any other Loan Document; or
(b) Specific Covenants. Borrower fails to perform or observe any term, covenant or
agreement contained in any of Section 6.01, 6.02, 6.03, 6.05, 6.07, 6.08, 6.10, 6.11, 6.12 or 6.13;
or Borrower fails to perform or observe any term, covenant or agreement contained Article VII, or
any Guarantor fails to perform or observe any term, covenant or agreement contained in Article III
of the Guaranty; or
(c) Other Defaults. Any Loan Party fails to perform or observe any other covenant or
agreement (not specified in subsection (a) or (b) above) contained in any Loan Document on its part
to be performed or observed and such failure continues for 30 days or any default or Event of
Default occurs under any other Loan Document; or
(d) Representations and Warranties. Any representation, warranty, certification or
statement of fact made or deemed made by or on behalf of Borrower or any other Loan Party herein,
in any other Loan Document, or in any document delivered in connection herewith or therewith shall
be incorrect or misleading in any material respect when made or deemed made; or
(e) Cross-Default. (i) Borrower or any Subsidiary (A) fails to make any payment when
due (whether by scheduled maturity, required prepayment, acceleration, demand, or otherwise) in
respect of any Indebtedness or Guarantee (other than Indebtedness hereunder and Indebtedness under
Swap Contracts), such failed payment having an aggregate principal amount (including any payments
owing due to acceleration caused by such failed payment) of more than the Threshold Amount, or (B)
fails to observe or perform any other agreement or condition relating to any such Indebtedness or
Guarantee or contained in any instrument or agreement evidencing, securing or relating thereto, or
any other event occurs, the effect of which default or
other event is to cause, or to permit the holder or holders of such Indebtedness or the
beneficiary or beneficiaries of such Guarantee (or a trustee or agent on behalf of such holder or
holders or beneficiary or beneficiaries) to cause, with the giving of notice if required, such
Indebtedness to be demanded or to become due or to be repurchased, prepaid, defeased or redeemed
(automatically or otherwise), or an offer to repurchase, prepay, defease or redeem such
Indebtedness to be made, prior to its stated maturity, or such Guarantee to become payable or cash
collateral in respect thereof to be demanded; or (ii) there occurs under any Swap Contract an Early
Termination Date (as defined in such Swap Contract) resulting from (A) any event of default under
such Swap Contract as to which Borrower or any Subsidiary is the Defaulting Party (as defined in
such Swap Contract) or (B) any Termination Event (as so defined) under such Swap Contract as to
which Borrower or any Subsidiary is an Affected Party (as so defined) and, in either event, the
Swap Termination Value owed by Borrower or such Subsidiary as a result thereof is greater than the
Threshold Amount; or
66
(f) Insolvency Proceedings, Etc. Any Loan Party institutes or consents to the
institution of any proceeding under any Debtor Relief Law, or makes an assignment for the benefit
of creditors; or applies for or consents to the appointment of any receiver, trustee, custodian,
conservator, liquidator, rehabilitator or similar officer for it or for all or any material part of
its property; or any receiver, trustee, custodian, conservator, liquidator, rehabilitator or
similar officer is appointed without the application or consent of such Person and the appointment
continues undischarged or unstayed for 60 calendar days; or any proceeding under any Debtor Relief
Law relating to any such Person or to all or any material part of its property is instituted
without the consent of such Person and continues undismissed or unstayed for 60 calendar days, or
an order for relief is entered in any such proceeding; or
(g) Inability to Pay Debts; Attachment. (i) Borrower or any Subsidiary becomes unable
or admits in writing its inability or fails generally to pay its debts as they become due, or (ii)
any writ or warrant of attachment or execution or similar process is issued or levied against all
or any material part of the property of any such Person and is not released, vacated or fully
bonded within 30 days after its issue or levy; or
(h) Judgments. There is entered against Borrower or any Subsidiary (i) one or more
final judgments or orders for the payment of money in an aggregate amount (as to all such judgments
or orders) exceeding the Threshold Amount (to the extent not covered by independent third-party
insurance as to which the insurer does not dispute coverage), or (ii) any one or more non-monetary
final judgments that have, or could reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect and, in either case, (A) enforcement proceedings are commenced
by any creditor upon such judgment or order, or (B) there is a period of 10 consecutive days during
which a stay of enforcement of such judgment, by reason of a pending appeal or otherwise, is not in
effect; or
(i) ERISA. (i) An ERISA Event occurs with respect to a Pension Plan or Multiemployer
Plan which has resulted or could reasonably be expected to result in liability of Borrower under
Title IV of ERISA to the Pension Plan, Multiemployer Plan or the PBGC which, either individually or
in the aggregate, could reasonably be expected to have a Material Adverse Effect, or (ii) Borrower
or any ERISA Affiliate fails to pay when due, after the expiration of any applicable grace period,
any installment payment with respect to its withdrawal liability under Section 4201 of ERISA under
a Multiemployer Plan in an aggregate amount in excess of the Threshold Amount; or
(j) Invalidity of Loan Documents. This Agreement, any Collateral Document or any
Guaranty or any provision thereof, at any time after its execution and delivery and for any reason
other than as expressly permitted hereunder or thereunder or satisfaction in full of all the
Obligations, ceases to be in full force and effect; or any Loan Party or any other Person contests
in any manner the validity or enforceability of any Loan Document or any provision thereof; or any
Loan Party denies that it has any or
67
further liability or obligation under any Loan Document, or
purports to revoke, terminate or rescind any Loan Document or any provision thereof; or
(k) Change of Control. There occurs any Change of Control with respect to Borrower
and/or any Guarantor except as permitted by Section 7.04 or 7.05; provided, however, that a Change
of Control resulting from the death of Sotirios Vahaviolos shall not constitute an Event of Default
if Borrower identifies and employs a replacement executive officer reasonably acceptable to the
Agent within 60 days; or
(l) Material Adverse Effect. There occurs any event or circumstance that has a
Material Adverse Effect.
8.02 Remedies Upon Event of Default. If any Event of Default occurs and is continuing, Agent shall, at the request of, or may,
with the consent of, the Required Lenders, take any or all of the following actions:
(a) declare the commitment of each Lender to make Loans and any obligation of the L/C Issuer
to make L/C Credit Extensions to be terminated, whereupon such commitments and obligation shall be
terminated;
(b) declare the unpaid principal amount of all outstanding Loans, all interest accrued and
unpaid thereon, and all other amounts owing or payable hereunder or under any other Loan Document
to be immediately due and payable, without presentment, demand, protest or other notice of any
kind, all of which are hereby expressly waived by Borrower;
(c) require that Borrower Cash Collateralize the L/C Obligations (in an amount equal to the
then Outstanding Revolving Loan Amount thereof); and
(d) exercise on behalf of itself, the Lenders and the L/C Issuer all rights and remedies
available to it, the Lenders and the L/C Issuer under the Loan Documents;
provided, however, that upon the occurrence of an actual or deemed entry of an
order for relief with respect to Borrower under the Bankruptcy Code of the United States, the
obligation of each Lender to make Loans and any obligation of the L/C Issuer to make L/C Credit
Extensions shall automatically terminate, the unpaid principal amount of all outstanding Loans and
all interest and other amounts as aforesaid shall automatically become due and payable, and the
obligation of Borrower to Cash Collateralize the L/C Obligations as aforesaid shall automatically
become effective, in each case without further act of Agent or any Lender.
8.03 Application of Funds. After the exercise of remedies provided for in Section 8.02 (or after the Loans have
automatically become immediately due and
68
payable and the L/C Obligations have automatically been
required to be Cash Collateralized as set forth in the proviso to Section 8.02), any amounts
received on account of the Obligations shall be applied by Agent in the following order:
First, to payment of that portion of the Obligations constituting fees, indemnities,
expenses and other amounts (including reasonable fees, charges and disbursements of counsel to
Agent and amounts payable under Article III), payable to Agent in its capacity as such;
Second, to payment of that portion of the Obligations constituting fees, indemnities and
other amounts (other than principal, interest and L/C Fees) payable to Lenders and the L/C Issuer
(including fees, charges and disbursements of counsel to the respective Lenders and the L/C Issuer
(including fees and time charges for attorneys who may be employees of any Lender or the L/C
Issuer) and amounts payable under Article III), ratably among them in proportion to the respective
amounts described in this clause Second payable to them;
Third, to payment of that portion of the Obligations constituting accrued and unpaid L/C
Fees and interest on the Loans, L/C Borrowings and other Obligations, ratably among Lenders and the
L/C Issuer in proportion to the respective amounts described in this clause Third payable to them;
Fourth, to payment of that portion of the Obligations constituting unpaid principal of the
Loans and L/C Borrowings, ratably among Lenders and the L/C Issuer in proportion to the respective
amounts described in this clause Fourth held by them;
Fifth, to Agent for the account of the L/C Issuer, to Cash Collateralize that portion of
L/C Obligations comprised of the aggregate undrawn amount of Letters of Credit; and
Last, the balance, if any, after all of the Obligations have been indefeasibly paid in
full, to Borrower or as otherwise required by applicable Law.
Subject to Section 2.03(c), amounts used to Cash Collateralize the aggregate undrawn amount of
Letters of Credit pursuant to clause Fifth above shall be applied to satisfy drawings under
such Letters of Credit as they occur. If any amount remains on deposit as Cash Collateral after
all Letters of Credit have either been fully drawn or expired, such remaining amount shall be
applied to the other Obligations, if any, in the order set forth above.
ARTICLE IX. AGENT
9.01 Appointment and Authorization of Agent.
(a) Each of the Lenders and the L/C issuer hereby irrevocably appoints Bank of America to act
on its behalf as Agent hereunder and under the other Loan Documents and authorizes Agent to take
such actions on its behalf and to exercise
69
such powers as are delegated to Agent by the terms
hereof and thereof, together with such actions and powers as are reasonably incidental thereto.
The provisions of this Article are solely for the benefit of Agent, the Lenders and the L/C Issuer,
and neither Borrower nor any other Loan Party shall have rights as a third party beneficiary of any
of such provisions.
(b) Agent shall also act as the collateral agent under the Loan Documents, and each of the
Lenders and the L/C Issuer hereby irrevocably appoints and authorizes Agent to act as the agent of
such Lender and the L/C Issuer for purposes of acquiring, holding and enforcing any and all Liens
on Collateral granted by any of the Loan Parties to secure any of the Obligations, together with
such powers and discretion as are reasonably incidental thereto. In this connection, Agent, as
collateral agent and any co-agents, sub-agents and attorneys-in-fact appointed by Agent pursuant
to Section 9.05 or otherwise for purposes of holding or enforcing any Lien on the Collateral (or
any portion thereof) granted under the Collateral Documents, or for exercising any rights and
remedies thereunder at the direction of Agent), shall be entitled to the benefits of all provisions
of this Article IX and Article X, as though such co-agents, sub-agents and attorneys-in-fact were
the collateral agent under the Loan Documents as if set forth in full herein with respect
thereto.
9.02 Rights as a Lender. The Person serving as Agent hereunder shall have the same rights and powers in its capacity
as a Lender as any other Lender and may exercise the same as though it were not Agent and the term
Lender or Lenders shall, unless otherwise expressly indicated or unless the context otherwise
requires, include the Person serving as Agent hereunder in its individual capacity. Such Person
and its Affiliates may accept deposits from, lend money to, act as the financial advisor or in any
other advisory capacity for and generally engage in any kind of business with Borrower or any
Subsidiary or other Affiliate thereof as if such Person were not Agent hereunder and without any
duty to account therefor to Lenders.
9.03 Exculpatory Provisions. Agent shall not have any duties or obligations except those expressly set forth herein and
in the other Loan Documents. Without limiting the generality of the foregoing, Agent:
(a) shall not be subject to any fiduciary or other implied duties, regardless of whether a
Default has occurred and is continuing;
(b) shall not have any duty to take any discretionary action or exercise any discretionary
powers, except discretionary rights and powers expressly contemplated hereby or by the other Loan
Documents that Agent is required to exercise as directed in writing by the Required Lenders (or
such other number or percentage of the Lenders as shall be expressly provided for herein or in the
other Loan Documents), provided that Agent shall not be required to take any action that, in its
opinion or the opinion of its
70
counsel, may expose Agent to liability or that is contrary to any
Loan Document or applicable Law; and
(c) shall not, except as expressly set forth herein and in the other Loan Documents, have any
duty to disclose, and shall not be liable for the failure to disclose, any information relating to
Borrower or any of its Affiliates that is communicated to or obtained by the Person serving as
Agent or any of its Affiliates in any capacity.
(d) Agent shall not be liable for any action taken or not taken by it (i) with the consent or
at the request of the Required Lenders (or such other number or percentage of the Lenders as shall
be necessary, or as Agent shall believe in good faith shall be necessary, under the circumstances
as provided in Sections 8.02 and 10.01) or (ii) in the absence of its own gross negligence or
willful misconduct. Agent shall be deemed not to have knowledge of any Default unless and until
written notice describing such Default is given to Agent by Borrower, a Lender or the L/C Issuer.
Agent shall not be responsible for or have any duty to ascertain or inquire into (i) any statement,
warranty or representation made in or in connection with this Agreement or any other Loan Document,
(ii) the contents of any certificate, report or other document delivered hereunder or thereunder or
in connection herewith or therewith, (iii) the performance or
observance of any of the covenants, agreements or other terms or conditions set forth herein
or therein or the occurrence of any Default, (iv) the validity, enforceability, effectiveness or
genuineness of this Agreement, any other Loan Document or any other agreement, instrument or
document or (v) the satisfaction of any condition set forth in Article IV or elsewhere herein,
other than to confirm receipt of items expressly required to be delivered to Agent.
9.04 Reliance by Agent. Agent shall be entitled to rely upon, and shall not incur any liability for relying upon,
any notice, request, certificate, consent, statement, instrument, document or other writing
(including any electronic message, Internet or intranet website posting or other distribution)
believed by it to be genuine and to have been signed, sent or otherwise authenticated by the proper
Person. Agent also may rely upon any statement made to it orally or by telephone and believed by
it to have been made by the proper Person, and shall not incur any liability for relying thereon.
In determining compliance with any condition hereunder to the making of a Loan, or the issuance of
a Letter of Credit, that by its terms must be fulfilled to the satisfaction of a Lender or the L/C
Issuer, Agent may presume that such condition is satisfactory to such Lender or the L/C Issuer
unless Agent shall have received notice to the contrary from such Lender or the L/C Issuer prior to
the making of such Loan or the issuance of such Letter of Credit. Agent may consult with legal
counsel (who may be counsel for Borrower), independent accountants and other experts selected by
it, and shall not be liable for any action taken or not taken by it in accordance with the advice
of any such counsel, accountants or experts.
71
9.05 Delegation of Duties. Agent may perform any and all of its duties and exercise its rights and powers hereunder or
under any other Loan Document by or through any one or more sub agents appointed by Agent. Agent
and any such sub agent may perform any and all of its duties and exercise its rights and powers by
or through their respective Related Parties. The exculpatory provisions of this Article shall
apply to any such sub agent and to the Related Parties of Agent and any such sub agent, and shall
apply to their respective activities in connection with the syndication of the credit facilities
provided for herein as well as activities as Agent.
9.06 Resignation of Agent. Agent may at any time give notice of its resignation to Lenders, the L/C Issuer and
Borrower. Upon receipt of any such notice of resignation, the Required Lenders shall have the
right, in consultation with Borrower, to appoint a successor, which shall be a bank with an office
in the United States, or an Affiliate of any such bank with an office in the United States. If no
such successor shall have been so appointed by the Required Lenders and shall have accepted such
appointment within 30 days after the
retiring Agent gives notice of its resignation, then the retiring Agent may on behalf of
Lenders and the L/C Issuer, appoint a successor Agent meeting the qualifications set forth above;
provided that if Agent shall notify Borrower and the Lenders that no qualifying Person has accepted
such appointment, then such resignation shall nonetheless become effective in accordance with such
notice and (1) the retiring Agent shall be discharged from its duties and obligations hereunder and
under the other Loan Documents (except that in the case of any collateral security held by Agent on
behalf of the Lenders or the L/C Issuer under any of the Loan Documents, the retiring Agent shall
continue to hold such collateral security until such time as a successor Agent is appointed) and
(2) all payments, communications and determinations provided to be made by, to or through Agent
shall instead be made by or to each Lender and the L/C Issuer directly, until such time as the
Required Lenders appoint a successor Agent as provided for above in this Section. Upon the
acceptance of a successors appointment as Agent hereunder, such successor shall succeed to and
become vested with all of the rights, powers, privileges and duties of the retiring (or retired)
Agent, and the retiring Agent shall be discharged from all of its duties and obligations hereunder
or under the other Loan Documents (if not already discharged therefrom as provided above in this
Section). The fees payable by Borrower to a successor Agent shall be the same as those payable to
its predecessor unless otherwise agreed between Borrower and such successor. After the retiring
Agents resignation hereunder and under the other Loan Documents, the provisions of this Article
and Section 10.04 shall continue in effect for the benefit of such retiring Agent, its sub agents
and their respective Related Parties in respect of any actions taken or omitted to be taken by any
of them while the retiring Agent was acting as Agent.
Any resignation by Bank of America as Agent pursuant to this Section shall also constitute its
resignation as L/C Issuer. Upon the acceptance of a successors appointment as Agent hereunder,
(a) such successor shall succeed to and become vested with all of the rights, powers, privileges
and duties of the retiring L/C Issuer, (b)
72
the retiring L/C Issuer shall be discharged from all of
their respective duties and obligations hereunder or under the other Loan Documents, and (c) the
successor L/C Issuer shall issue letters of credit in substitution for the Letters of Credit, if
any, outstanding at the time of such succession or make other arrangements satisfactory to the
retiring L/C Issuer to effectively assume the obligations of the retiring L/C Issuer with respect
to such Letters of Credit.
9.07 Non-Reliance on Agent and Other Lenders. Each Lender and the L/C Issuer acknowledges that it has, independently and without reliance
upon Agent or any other Lender or any of their Related Parties and based on such documents and
information as it has deemed appropriate, made its own credit analysis and decision to enter into
this Agreement. Each Lender and the L/C Issuer also acknowledges that it will, independently and
without reliance upon Agent or any other Lender or any of their Related Parties and based on such
documents and information as it shall from time to time deem appropriate, continue to make its own
decisions in taking or not taking action under or based upon this Agreement, any other Loan
Document or any related agreement or any document furnished hereunder or thereunder.
9.08 No Other Duties, Etc. Anything herein to the contrary notwithstanding, no Lender holding a title listed
on the cover page hereof shall have any powers, duties or responsibilities under this Agreement or
any of the other Loan Documents, except in its capacity, as applicable, as Agent, a Lender or the
L/C Issuer hereunder.
9.09 Agent May File Proofs of Claim. In case of the pendency of any proceeding under any Debtor Relief Law or any other judicial
proceeding relative to any Loan Party, Agent (irrespective of whether the principal of any Loan or
L/C Obligation shall then be due and payable as herein expressed or by declaration or otherwise and
irrespective of whether Agent shall have made any demand on Borrower) shall be entitled and
empowered, by intervention in such proceeding or otherwise:
(a) to file and prove a claim for the whole amount of the principal and interest owing and
unpaid in respect of the Loans, L/C Obligations and all other Obligations that are owing and unpaid
and to file such other documents as may be necessary or advisable in order to have the claims of
Lenders, the L/C Issuer and Agent (including any claim for the reasonable compensation, expenses,
disbursements and advances of Lenders, the L/C Issuer and Agent and their respective agents and
counsel and all other amounts due Lenders, the L/C Issuer and Agent under Sections 2.03(i) and (j),
2.09 and 10.04) allowed in such judicial proceeding; and
(b) to collect and receive any monies or other property payable or deliverable on any such
claims and to distribute the same;
and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official
in any such judicial proceeding is hereby authorized by each Lender and the L/C
73
Issuer to make such
payments to Agent and, in the event that Agent shall consent to the making of such payments
directly to Lenders and the L/C Issuer, to pay to Agent any amount due for the reasonable
compensation, expenses, disbursements and advances of Agent and its agents and counsel, and any
other amounts due Agent under Sections 2.08, 2.11 or 10.04. Nothing contained herein shall be
deemed to authorize Agent to authorize or consent to or accept or adopt on behalf of any Lender or
the L/C Issuer any plan of reorganization, arrangement, adjustment or composition affecting the
Obligations or the rights of any Lender or the L/C Issuer or to authorize Agent to vote in respect
of the claim of any Lender or the L/C Issuer in any such proceeding.
9.10 Guaranty Matters. Each Lender and the L/C Issuer hereby irrevocably authorizes Agent, at its option and in
its discretion, to release any Guarantor from its obligations under the Guaranty if such Person
ceases to be a Subsidiary as a result of a transaction permitted hereunder. Upon request by Agent
at any time, each Lender and the L/C Issuer will confirm in writing Agents authority to release
any Guarantor from its obligations under the Guaranty pursuant to this Section 9.10.
9.11 Collateral Matters.
(a) Each Lender and the L/C Issuer hereby irrevocably authorizes and directs Agent to enter
into the Collateral Documents for the benefit of such Lender and the L/C Issuer. Each Lender and
the L/C Issuer hereby agrees, and each holder of any Note by the acceptance thereof will be deemed
to agree, that, except as otherwise set forth in Section 10.01, any action taken by the Required
Lenders, in accordance with the provisions of this Agreement or the Collateral Documents, and the
exercise by the Required Lenders of the powers set forth herein or therein, together with such
other powers as are reasonably incidental thereto, shall be authorized and binding upon all of
Lenders and the L/C Issuer. Agent is hereby authorized (but not obligated) on behalf of all of
Lenders and the L/C Issuer, without the necessity of any notice to or further consent from any
Lender or the L/C Issuer from time to time prior to, an Event of Default, to take any action with
respect to any Collateral or Collateral Documents which may be necessary to perfect and maintain
perfected the Liens upon the Collateral granted pursuant to the Collateral Documents.
(b) Each Lender and the L/C issuer hereby irrevocably authorize Agent, at its option and in
its discretion,
(i) to release any Lien on any property granted to or held by Agent under any Loan Document
(A) upon termination of the Aggregate Revolving Loan Commitments and payment in full of all
Obligations (other than contingent indemnification obligations) and the expiration or termination
of all Letters of Credit, (B) that is sold or to be sold as part of or in connection with any sale
permitted hereunder or under any other Loan Document, (C) subject to Section 10.01, if approved,
authorized or ratified in writing by the Required Lenders, or (D) in connection with any
foreclosure sale or other disposition of Collateral after the occurrence of an Event of Default;
and
74
(ii) to subordinate any Lien on any property granted to or held by Agent under any Loan
Document to the holder of any Lien on such property that is permitted by this Agreement or any
other Loan Document.
Upon request by Agent at any time, each Lender and the L/C Issuer will confirm in writing Agents
authority to release or subordinate its interest in particular types or items of Collateral
pursuant to this Section 9.11.
(c) Subject to clause (b) above, Agent shall (and is hereby irrevocably authorized by each
Lender and the L/C Issuer to) execute such documents as may be necessary to evidence the release or
subordination of the Liens granted to Agent for the benefit of Agent and Lenders and the L/C Issuer
herein or pursuant hereto upon the applicable Collateral; provided that (i) Agent shall not be
required to execute any such document on terms which, in Agents opinion, would expose Agent to or
create any liability or entail any consequence other than the release or subordination of such
Liens without recourse or warranty and (ii) such release or subordination shall not in any manner
discharge, affect or impair the Obligations or any Liens upon (or obligations of Borrower or any
other Loan Party in respect of) all interests retained by Borrower or any other Loan Party,
including the proceeds of the sale, all of which shall continue to constitute part of the
Collateral. In the event of any sale or transfer of Collateral, or any foreclosure with respect to
any of the Collateral, Agent shall be authorized to deduct all expenses reasonably incurred by
Agent from the proceeds of any such sale, transfer or foreclosure.
(d) Agent shall have no obligation whatsoever to any Lender, the L/C Issuer or any other
Person to assure that the Collateral exists or is owned by Borrower or any other Loan Party or is
cared for, protected or insured or that the Liens granted to Agent herein or in any of the
Collateral Documents or pursuant hereto or thereto have been properly or sufficiently or lawfully
created, perfected, protected or enforced or are entitled to any particular priority, or to
exercise or to continue exercising at all or in any manner or under any duty of care, disclosure or
fidelity any of the rights, authorities and powers granted or available to Agent in this Section
9.11 or in any of the Collateral Documents, it being understood and agreed that in respect of the
Collateral, or any act, omission or event related thereto, Agent may act in any manner it may deem
appropriate, in its sole discretion, given Agents own interest in the Collateral as one of
Lenders and that Agent shall have no duty or liability whatsoever to Lenders or the L/C Issuer.
(e) Each Lender and the L/C Issuer hereby appoints each other Lender as agent for the purpose
of perfecting Lenders and the L/C Issuers security interest in assets which, in accordance with
Article 9 of the UCC can be perfected only by possession. Should any Lender or the L/C Issuer
(other than Agent) obtain possession of any such Collateral, such Lender or the L/C Issuer shall
notify Agent thereof, and, promptly upon Agents request therefor shall deliver such Collateral to
Agent or in accordance with Agents instructions.
75
ARTICLE X. MISCELLANEOUS
10.01 Amendments, Etc. No amendment or waiver of any provision of this Agreement or any other Loan Document, and
no consent to any departure by Borrower or any other Loan Party therefrom, shall be effective
unless in writing signed by the Required Lenders and Borrower or the applicable Loan Party, as the
case may be, and acknowledged by Agent, and each such waiver or consent shall be effective only in
the specific instance and for the specific purpose for which given; provided, however, that no such
amendment, waiver or consent shall:
(a) waive any condition set forth in Section 4.01(a) without the written consent of each
Lender; provided, however, in the sole discretion of Agent, only a waiver by Agent shall be
required with respect to immaterial matters or items specified in Section 4.01(a) (iii) or (iv)
with respect to which Borrower has given assurances satisfactory to Agent that such items shall be
delivered promptly following the Closing Date;
(b) extend or increase the Commitment of any Lender (or reinstate any Commitment terminated
pursuant to Section 8.02) without the written consent of such Lender;
(c) postpone any date fixed by this Agreement or any other Loan Document for any payment
(excluding mandatory prepayments) of principal, interest, fees or other amounts due to Lenders (or
any of them) hereunder or under any other Loan Document without the written consent of each Lender
directly affected thereby;
(d) reduce the principal of, or the rate of interest specified herein on, any Loan or L/C
Borrowing, or (subject to clause (iii) of the second proviso to this Section 10.01) any fees or
other amounts payable hereunder or under any other Loan Document, without the written consent of
each Lender directly affected thereby; provided, however, that only the consent of the Required
Lenders shall be necessary (i) to amend the definition of Default Rate or to waive any obligation
of Borrower to pay interest or L/C Fees at the Default Rate or (ii) to amend any financial covenant
hereunder (or any defined term used therein) even if the effect of such amendment would be to
reduce the rate of interest on any Loan or L/C Borrowing or to reduce any fee payable hereunder;
(e) change Section 2.12 or Section 8.03 in a manner that would alter the pro rata sharing of
payments required thereby without the written consent of each Lender;
(f) change any provision of this Section or the definition of Required Lenders or any other
provision hereof specifying the number or percentage of Lenders required to amend, waive or
otherwise modify any rights hereunder or make any determination or grant any consent hereunder,
without the written consent of each Lender; or
76
(g) release any Guarantor from the Guaranty or release the Liens on all or substantially all
of the Collateral in any transaction or series of related transactions
except in accordance with the terms of any Loan Document, without the written consent of each
Lender;
and, provided further, that (i) no amendment, waiver or consent shall, unless in writing and signed
by the L/C Issuer in addition to the Lenders required above, affect the rights or duties of the L/C
Issuer under this Agreement or any Issuer Document relating to any Letter of Credit issued or to be
issued by it; (ii) no amendment, waiver or consent shall, unless in writing and signed by Agent in
addition to the Lenders required above, affect the rights or duties of Agent under this Agreement
or any other Loan Document; and (iii) the Agent Fee Letter may be amended, or rights or privileges
thereunder waived, in a writing executed only by the parties thereto. Notwithstanding anything to
the contrary herein, no Defaulting Lender shall have any right to approve or disapprove any
amendment, waiver or consent hereunder, except that the Commitment of such Lender may not be
increased or extended without the consent of such Lender.
10.02 Notices; Effectiveness; Electronic Communications.
(a) Notices Generally. Except in the case of notices and other communications
expressly permitted to be given by telephone (and except as provided in subsection (b) below), all
notices and other communications provided for herein shall be in writing and shall be delivered by
hand or overnight courier service, mailed by certified or registered mail or sent by telecopier as
follows, and all notices and other communications expressly permitted hereunder to be given by
telephone shall be made to the applicable telephone number, as follows:
(i) if to Borrower, Agent or the L/C Issuer, to the address, telecopier number, electronic
mail address or telephone number specified for such Person on Schedule 10.02; and
(ii) if to any other Lender, to the address, telecopier number, electronic mail address or
telephone number specified in its Administrative Questionnaire.
Notices sent by hand or overnight courier service, or mailed by certified or registered mail, shall
be deemed to have been given when received; notices sent by telecopier shall be deemed to have been
given when sent (except that, if not given during normal business hours for the recipient, shall be
deemed to have been given at the opening of business on the next business day for the recipient).
Notices delivered through electronic communications to the extent provided in subsection (b) below,
shall be effective as provided in such subsection (b).
(b) Electronic Communications. Notices and other communications to Lenders and the
L/C Issuer hereunder may be delivered or furnished by electronic
77
communication (including e-mail and Internet or intranet websites) pursuant to procedures
approved by Agent, provided that the foregoing shall not apply to notices to any Lender or the L/C
Issuer pursuant to Article II if such Lender or the L/C Issuer, as applicable has notified the
Agent that it is incapable of receiving notices under such Article by electronic communication.
Agent or Borrower may, in its discretion, agree to accept notices and other communications to it
hereunder by electronic communications pursuant to procedures approved by it, provided that
approval of such procedures may be limited to particular notices or communications. Unless Agent
otherwise prescribes, (i) notices and other communications sent to an e-mail address shall be
deemed received upon the senders receipt of an acknowledgement from the intended recipient (such
as by the return receipt requested function, as available, return e-mail or other written
acknowledgement), provided that if such notice or other communication is not sent during the normal
business hours of the recipient, such notice or communication shall be deemed to have been sent at
the opening of business on the next business day for the recipient, and (ii) notices or
communications posted to an Internet or intranet website shall be deemed received upon the deemed
receipt by the intended recipient at its e-mail address as described in the foregoing clause (i) of
notification that such notice or communication is available and identifying the website address
therefor.
(c) The Platform. THE PLATFORM IS PROVIDED AS IS AND AS AVAILABLE. THE AGENT
PARTIES (AS DEFINED BELOW) DO NOT WARRANT THE ACCURACY OR COMPLETENESS OF BORROWER MATERIALS OR THE
ADEQUACY OF THE PLATFORM, AND EXPRESSLY DISCLAIM LIABILITY FOR ERRORS IN OR OMISSIONS FROM BORROWER
MATERIALS. NO WARRANTY OF ANY KIND, EXPRESS, IMPLIED OR STATUTORY, INCLUDING ANY WARRANTY OF
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, NON-INFRINGEMENT OF THIRD PARTY RIGHTS OR
FREEDOM FROM VIRUSES OR OTHER CODE DEFECTS, IS MADE BY ANY AGENT PARTY IN CONNECTION WITH BORROWER
MATERIALS OR THE PLATFORM. In no event shall Agent or any of its Related Parties (collectively,
the Agent Parties) have any liability to Borrower, any Lender, the L/C Issuer or any
other Person for losses, claims, damages, liabilities or expenses of any kind (whether in tort,
contract or otherwise) arising out of Borrowers or Agents transmission of Borrower Materials
through the Internet, except to the extent that such losses, claims, damages, liabilities or
expenses are determined by a court of competent jurisdiction by a final and nonappealable judgment
to have resulted from the gross negligence or willful misconduct of such Agent Party; provided,
however, that in no event shall any Agent Party have any liability to Borrower, any Lender, the L/C
Issuer or any other Person for indirect, special, incidental, consequential or punitive damages (as
opposed to direct or actual damages).
(d) Change of Address, Etc. Each of Borrower, Agent and the L/C Issuer may change its
address, telecopier or telephone number for notices and other communications hereunder by notice to
the other parties hereto. Each other Lender may change its address, telecopier or telephone number
for notices and other communications hereunder by notice to Borrower, Agent and the L/C Issuer. In
78
addition, each Lender agrees to notify Agent from time to time to ensure that Agent has on
record (i) an effective address, contact name, telephone number, telecopier number and electronic
mail address to which notices and other communications may be sent and (ii) accurate wire
instructions for such Lender.
(e) Reliance by Agent, L/C Issuer and Lenders. Agent, the L/C Issuer and Lenders
shall be entitled to rely and act upon any notices (including telephonic Committed Loan Notices)
purportedly given by or on behalf of Borrower even if (i) such notices were not made in a manner
specified herein, were incomplete or were not preceded or followed by any other form of notice
specified herein, or (ii) the terms thereof, as understood by the recipient, varied from any
confirmation thereof. Borrower shall indemnify Agent, the L/C Issuer, each Lender and the Related
Parties of each of them from all losses, costs, expenses and liabilities resulting from the
reliance by such Person on each notice purportedly given by or on behalf of Borrower. All
telephonic notices to and other telephonic communications with Agent may be recorded by Agent, and
each of the parties hereto hereby consents to such recording.
10.03 No Waiver; Cumulative Remedies. No failure by any Lender, the L/C Issuer or Agent to exercise, and no delay by any such
Person 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
hereunder preclude any other or further exercise thereof or the exercise of any other right,
remedy, power or privilege. The rights, remedies, powers and privileges herein provided are
cumulative and not exclusive of any rights, remedies, powers and privileges provided by law.
10.04 Expenses; Indemnity; Damage Waiver.
(a) Costs and Expenses. Borrower shall pay (i) all reasonable out of pocket expenses
incurred by Agent and its Affiliates (including the reasonable fees, charges and disbursements of
counsel for Agent set forth in Section 4.01(c) hereof), in connection with the syndication of the
credit facilities provided for herein, the preparation, negotiation, execution, delivery and
administration of this Agreement and the other Loan Documents or any amendments, modifications or
waivers of the provisions hereof or thereof (whether or not the transactions contemplated hereby or
thereby shall be consummated), (ii) all reasonable out of pocket expenses incurred by the L/C
Issuer in connection with the issuance, amendment, renewal or extension of any Letter of Credit or
any demand for payment thereunder and (iii) all out of pocket expenses incurred by Agent, any
Lender or the L/C Issuer (including the reasonable fees, charges and disbursements of any counsel
for Agent, any Lender or the L/C Issuer), in connection with the enforcement or protection of its
rights (A) in connection
with this Agreement and the other Loan Documents, including its rights under this Section, or
(B) in connection with the Loans made or Letters of Credit issued hereunder, including all such out
of pocket expenses incurred during any workout, restructuring or negotiations in respect of such
Loans or Letters of Credit.
79
(b) Indemnification by Borrower. Borrower shall indemnify Agent (and any sub-agent
thereof), each Lender and the L/C Issuer, and each Related Party of any of the foregoing Persons
(each such Person being called an Indemnitee) against, and hold each Indemnitee harmless
from, any and all losses, claims, damages, liabilities and related expenses (including the
reasonable fees, charges and disbursements of any counsel for any Indemnitee), asserted against any
Indemnitee by any third party or by Borrower or any other Loan Party arising out of, in connection
with, or as a result of (i) the execution or delivery of this Agreement, any other Loan Document or
any agreement or instrument contemplated hereby or thereby, the performance by the parties hereto
of their respective obligations hereunder or thereunder, or the consummation of the transactions
contemplated hereby or thereby, or, in the case of Agent (and any sub-agent thereof) and its
Related Parties only, the administration of this Agreement and the other Loan Documents, (ii) any
Loan or Letter of Credit or the use or proposed use of the proceeds therefrom (including any
refusal by the L/C Issuer to honor a demand for payment under a Letter of Credit if the documents
presented in connection with such demand do not comply with the terms of such Letter of Credit),
(iii) any actual or alleged presence or release of Hazardous Materials on or from any property
owned or operated by Borrower or any of its Subsidiaries, or any Environmental Liability related in
any way to Borrower or any of its Subsidiaries, or (iv) any actual or prospective claim,
litigation, investigation or proceeding relating to any of the foregoing, whether based on
contract, tort or any other theory, whether brought by a third party or by Borrower or any other
Loan Party, and regardless of whether any Indemnitee is a party thereto; provided that such
indemnity shall not, as to any Indemnitee, be available to the extent that such losses, claims,
damages, liabilities or related expenses (x) are determined by a court of competent jurisdiction by
final and nonappealable judgment to have resulted from the gross negligence or willful misconduct
of such Indemnitee; (y) result from a claim brought by Borrower or any other Loan Party against an
Indemnitee for breach in bad faith of such Indemnitees obligations hereunder or under any other
Loan Document, if Borrower or such Loan Party has obtained a final and nonappealable judgment in
its favor on such claim as determined by a court of competent jurisdiction; or (z) are or relate to
Taxes.
(c) Reimbursement by Lenders. To the extent that Borrower for any reason fails to
indefeasibly pay any amount required under subsection (a) or (b) of this Section to be paid by it
to Agent (or any sub-agent thereof), the L/C Issuer or any Related Party of any of the foregoing,
each Lender severally agrees to pay to Agent (or any such sub-agent), the L/C Issuer or such
Related Party, as the case may be, such Lenders Applicable Percentage (determined as of the time
that the applicable unreimbursed expense or indemnity payment is sought) of such unpaid amount,
provided that the unreimbursed expense or indemnified loss, claim, damage, liability or related
expense,
as the case may be, was incurred by or asserted against Agent (or any such sub-agent) or the
L/C Issuer in its capacity as such, or against any Related Party of any of the foregoing acting for
Agent (or any such sub-agent) or L/C Issuer in connection with such capacity. The obligations of
the Lenders under this subsection (c) are subject to the provisions of Section 2.11(d).
80
(d) Waiver of Consequential Damages, Etc. To the fullest extent permitted by
applicable law, Borrower shall not assert, and hereby waives, any claim against any Indemnitee, on
any theory of liability, for special, indirect, consequential or punitive damages (as opposed to
direct or actual damages) arising out of, in connection with, or as a result of, this Agreement,
any other Loan Document or any agreement or instrument contemplated hereby, the transactions
contemplated hereby or thereby, any Loan or Letter of Credit or the use of the proceeds thereof.
No Indemnitee referred to in subsection (b) above shall be liable for any damages arising from the
use by unintended recipients of any information or other materials distributed to such unintended
recipients by such Indemnitee through telecommunications, electronic or other information
transmission systems in connection with this Agreement or the other Loan Documents or the
transactions contemplated hereby or thereby other than for direct or actual damages resulting from
the gross negligence or willful misconduct of such Indemnitee as determined by a final and
nonappealable judgment of a court of competent jurisdiction.
(e) Payments. All amounts due under this Section shall be payable not later than ten
Business Days after demand therefor.
(f) Survival. The agreements in this Section shall survive the resignation of Agent
and the L/C Issuer, the replacement of any Lender, the termination of the Aggregate Revolving Loan
Commitments and the repayment, satisfaction or discharge of all the other Obligations.
10.05 Payments Set Aside. To the extent that any payment by or on behalf of Borrower is made to Agent, the L/C Issuer
or any Lender, or Agent, the L/C Issuer or any Lender exercises its right of setoff, and such
payment or the proceeds of such setoff or any part thereof is subsequently invalidated, declared to
be fraudulent or preferential, set aside or required (including pursuant to any settlement entered
into by Agent, the L/C Issuer or such Lender in its discretion) to be repaid to a trustee,
receiver or any other party, in connection with any proceeding under any Debtor Relief Law or
otherwise, then (a) to the extent of such recovery, the obligation or part thereof originally
intended to be satisfied shall be revived and continued in full force and effect as if such payment
had not been made or such setoff had not occurred, and (b) each Lender and the L/C Issuer severally
agrees to pay to Agent upon demand its applicable share (without duplication) of any amount so
recovered from or repaid by Agent, plus interest thereon from the date
of such demand to the date such payment is made at a rate per annum equal to the Federal Funds
Rate from time to time in effect. The obligations of the Lenders and the L/C Issuer under clause
(b) of the preceding sentence shall survive the payment in full of the Obligations and the
termination of this Agreement.
10.06 Successors and Assigns.
81
(a) Successors and Assigns Generally. The provisions of this Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective successors and
assigns permitted hereby, except that neither Borrower nor any other Loan Party may assign or
otherwise transfer any of its rights or obligations hereunder without the prior written consent of
Agent, the L/C Issuer and each Lender and no Lender may assign or otherwise transfer any of its
rights or obligations hereunder except (i) to an assignee in accordance with the provisions of
subsection (b) of this Section, (ii) by way of participation in accordance with the provisions of
subsection (d) of this Section, or (iii) by way of pledge or assignment of a security interest
subject to the restrictions of subsection (f) of this Section (and any other attempted assignment
or transfer by any party hereto shall be null and void). Nothing in this Agreement, expressed or
implied, shall be construed to confer upon any Person (other than the parties hereto, their
respective successors and assigns permitted hereby, Participants to the extent provided in
subsection (d) of this Section and, to the extent expressly contemplated hereby, the Related
Parties of each of Agent, the L/C Issuer and the Lenders) any legal or equitable right, remedy or
claim under or by reason of this Agreement.
(b) Assignments by Lenders. Any Lender may at any time assign to one or more
assignees all or a portion of its rights and obligations under this Agreement (including all or a
portion of its Commitment and the Loans (including for purposes of this subsection (b),
participations in L/C Obligations) at the time owing to it); provided that any such assignment
shall be subject to the following conditions:
(i) Minimum Amounts.
(A) in the case of an assignment of the entire remaining amount of the assigning Lenders
Commitment and the Loans at the time owing to it or in the case of an assignment to a Lender or an
Affiliate of a Lender no minimum amount need be assigned; and
(B) in any case not described in subsection (b)(i)(A) of this Section, the aggregate amount
of the Commitment (which for this purpose includes Loans outstanding thereunder) or, if the
Commitment is not then in effect, the principal outstanding balance of the Loans of the assigning
Lender subject to each such
assignment, determined as of the date the Assignment and Assumption with respect to such
assignment is delivered to Agent or, if Trade Date is specified in the Assignment and Assumption,
as of the Trade Date, shall not be less than $5,000,000 unless each of Agent and, so long as no
Event of Default has occurred and is continuing, Borrower otherwise consents (each such consent not
to be unreasonably withheld or delayed); provided, however, that concurrent assignments to members
of an Assignee Group and concurrent assignments from members of an Assignee Group to a single
assignee (or to an assignee and members of its Assignee Group) will be treated as a single
assignment for purposes of determining whether such minimum amount has been met.
82
(ii) Proportionate Amounts. Each partial assignment shall be made as an assignment of
a proportionate part of all the assigning Lenders rights and obligations under this Agreement with
respect to the Loans or the Commitment assigned.
(iii) Required Consents. No consent shall be required for any assignment except to
the extent required by subsection (b)(i)(B) of this Section and, in addition:
(A) the consent of Borrower (such consent not to be unreasonably withheld or delayed) shall be
required unless (1) an Event of Default has occurred and is continuing at the time of such
assignment or (2) such assignment is to a Lender or an Affiliate of a Lender;
(B) the consent of Agent (such consent not to be unreasonably withheld or delayed) shall be
required if such assignment is to a Person that is not a Lender or an Affiliate of such Lender with
respect to such Lender; and
(C) the consent of the L/C Issuer (such consent not to be unreasonably withheld or delayed)
shall be required for any assignment that increases the obligation of the assignee to participate
in exposure under one or more Letters of Credit (whether or not then outstanding).
(iv) Assignment and Assumption. The parties to each assignment shall execute and
deliver to Agent an Assignment and Assumption, together with a processing and recordation fee in
the amount, if any, required as set forth in Schedule 10.06; provided, however, that the
Agent may, in its sole discretion, elect to waive such processing and recordation fee in the case
of any assignment. The assignee, if it is not a Lender, shall deliver to Agent an Administrative
Questionnaire. The Agent shall deliver a copy of such Assignment and Assumption to the Borrower,
in accordance with Section 10.02.
(v) No Assignment to Borrower. No such assignment shall be made to Borrower or any of
Borrowers Affiliates or Subsidiaries.
(vi) No Assignment to Natural Persons. No such assignment shall be made to a natural
person.
Subject to acceptance and recording thereof by Agent pursuant to subsection (c) of this Section,
from and after the effective date specified in each Assignment and Assumption, the assignee
thereunder shall be a party to this Agreement and, to the extent of the interest assigned by such
Assignment and Assumption, have the rights and obligations of a Lender under this Agreement, and
the assigning Lender thereunder shall, to the extent of the interest assigned by such Assignment
and Assumption, be released from
83
its obligations under this Agreement (and, in the case of an
Assignment and Assumption covering all of the assigning Lenders rights and obligations under this
Agreement, such Lender shall cease to be a party hereto) but shall continue to be entitled to the
benefits of Sections 3.01, 3.04, 3.05, and 10.04 with respect to facts and circumstances occurring
prior to the effective date of such assignment. Upon request, Borrower (at its expense) shall
execute and deliver a Note to the assignee Lender and (to the extent the assigning Lender continues
to hold any portion of the Commitments being assigned) to the assigning Lender in exchange for the
Note, if any, previously issued to the assigning Lender. Any assignment or transfer by a Lender of
rights or obligations under this Agreement that does not comply with this subsection shall be
treated for purposes of this Agreement as a sale by such Lender of a participation in such rights
and obligations in accordance with subsection (d) of this Section.
(c) Register. Agent, acting solely for this purpose as an agent of Borrower, shall
maintain at the Agents Office a copy of each Assignment and Assumption delivered to it and a
register for the recordation of the names and addresses of the Lenders, and the Commitments of, and
principal amounts of the Loans and L/C Obligations owing to, each Lender pursuant to the terms
hereof from time to time (the Register). The entries in the Register shall be
conclusive, and Borrower, Agent and the Lenders may treat each Person whose name is recorded in the
Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement,
notwithstanding notice to the contrary. The Register shall be available for inspection by Borrower
and any Lender, at any reasonable time and from time to time upon reasonable prior notice.
(d) Participations. Any Lender may at any time, without the consent of, or notice to,
Borrower or Agent, sell participations to any Person (other than a natural person or Borrower or
any of Borrowers Affiliates or Subsidiaries) (each, a Participant) in all or a portion
of such Lenders rights and/or obligations under this Agreement (including all or a portion of its
Commitment and/or the Loans (including such Lenders participations in L/C Obligations) owing to
it); provided that (i) such Lenders obligations under this Agreement shall remain unchanged, (ii)
such Lender shall remain solely responsible to the other parties hereto for the performance of such
obligations and (iii) Borrower, Agent, the L/C Issuer and the Lenders shall continue to deal solely
and directly with such Lender in connection with such Lenders rights and obligations under this
Agreement. Any agreement or instrument pursuant to which a Lender sells such a
participation shall provide that such Lender shall retain the sole right to enforce this
Agreement and to approve any amendment, modification or waiver of any provision of this Agreement;
provided that such agreement or instrument may provide that such Lender will not, without the
consent of the Participant, agree to any amendment, waiver or other modification described in the
first proviso to Section 10.01 that affects such Participant. Subject to subsection (e) of this
Section, Borrower agrees that each Participant shall be entitled to the benefits of Sections 3.01,
3.04 and 3.05 to the same extent as if it were a Lender and had acquired its interest by assignment
pursuant to subsection (b) of this Section. To the extent permitted by law, each Participant also
84
shall be entitled to the benefits of Section 10.08 as though it were a Lender, provided such
Participant agrees to be subject to Section 2.12 as though it were a Lender.
(e) Limitations upon Participant Rights. A Participant shall not be entitled to
receive any greater payment under Section 3.01 or 3.04 than the applicable Lender would have been
entitled to receive with respect to the participation sold to such Participant, unless the sale of
the participation to such Participant is made with Borrowers prior written consent.
(f) Certain Pledges. Any Lender may at any time pledge or assign a security interest
in all or any portion of its rights under this Agreement (including under its Note, if any) to
secure obligations of such Lender, including any pledge or assignment to secure obligations to a
Federal Reserve Bank; provided that no such pledge or assignment shall release such Lender from any
of its obligations hereunder or substitute any such pledgee or assignee for such Lender as a party
hereto.
(g) Electronic Execution of Assignments. The words execution, signed,
signature, and words of like import in any Assignment and Assumption shall be deemed to include
electronic signatures or the keeping of records in electronic form, each of which shall be of the
same legal effect, validity or enforceability as a manually executed signature or the use of a
paper-based recordkeeping system, as the case may be, to the extent and as provided for in any
applicable law, including the Federal Electronic Signatures in Global and National Commerce Act,
the New York State Electronic Signatures and Records Act, or any other similar state laws based on
the Uniform Electronic Transactions Act.
(h) Deemed Consent of Borrower. If the consent of Borrower to an assignment to an
Eligible Assignee is required hereunder (including a consent to an assignment which does not meet
the minimum assignment threshold specified in Section 10.06(b)(i)(B)), Borrower shall be deemed to
have given its consent five Business Days after the date notice thereof has been delivered to
Borrower by the assigning Lender (through Agent) unless such consent is expressly refused by
Borrower prior to such fifth Business Day.
(i) Resignation as L/C Issuer. Notwithstanding anything to the contrary contained
herein, if at any time Bank of America assigns all of its Commitment and Loans pursuant to
subsection (b) above, Bank of America may, upon 30 days notice to Borrower and the Lenders, resign
as L/C Issuer. In the event of any such resignation as L/C Issuer, Borrower shall be entitled to
appoint from among Lenders a successor L/C Issuer hereunder; provided, however, that no failure by
Borrower to appoint any such successor shall affect the resignation of Bank of America as L/C
Issuer. If Bank of America resigns as L/C Issuer, it shall retain all the rights, powers,
privileges and duties of the L/C Issuer hereunder with respect to all Letters of Credit outstanding
as of the effective date of its resignation as L/C Issuer and all L/C Obligations with respect
85
thereto (including the right to require the Lenders to make Base Rate Loans or fund risk
participations in Unreimbursed Amounts pursuant to Section 2.03(c)). Upon the appointment of a
successor L/C Issuer, (a) such successor shall succeed to and become vested with all of the rights,
powers, privileges and duties of the retiring L/C Issuer, as the case may be, and (b) the successor
L/C Issuer shall issue letters of credit in substitution for the Letters of Credit, if any,
outstanding at the time of such succession or make other arrangements satisfactory to Bank of
America to effectively assume the obligations of Bank of America with respect to such Letters of
Credit.
10.07 Treatment of Certain Information; Confidentiality. Each of Agent, Lenders and the L/C Issuer agrees to maintain the confidentiality of the
Information (as defined below), except that Information may be disclosed (a) to its Affiliates and
to its and its Affiliates respective partners, directors, officers, employees, agents, advisors
and representatives (it being understood that the Persons to whom such disclosure is made will be
informed of the confidential nature of such Information and instructed to keep such Information
confidential and that the party disclosing Information to such Person shall remain liable for any
direct damages arising out of any such unauthorized disclosure by any such Person), (b) to the
extent requested by any regulatory authority, purporting to have jurisdiction over it (including
any self-regulatory authority, such as the National Association of Insurance Commissioners), (c) to
the extent required by applicable laws or regulations or by any subpoena or similar legal process
(after prior notice to Borrower to the extent reasonably practicable and not prohibited by
applicable law), (d) to any other party hereto, (e) in connection with the exercise of any remedies
hereunder or under any other Loan Document or any action or proceeding relating to this Agreement
or any other Loan Document or the enforcement of rights hereunder or thereunder, (f) subject to an
agreement containing provisions substantially the same as those of this Section, to (i) any
assignee of or Participant in, or any prospective assignee of or Participant in, any of its rights
or obligations under this Agreement or (ii) any actual or prospective counterparty (or its
advisors) to any swap or derivative transaction relating to Borrower and its obligations, (g) with
the consent of Borrower or (h) to the extent such Information (x) becomes publicly available other
than as a result of a breach of this Section or (y) becomes available to Agent, any Lender, the L/C
Issuer or any of their respective Affiliates on a nonconfidential basis from a source other than
Borrower. For purposes of
this Section, Information means all information received from Borrower or any
Subsidiary relating to Borrower or any Subsidiary or any of their respective businesses, other than
any such information that is available to Agent, any Lender or the L/C Issuer on a nonconfidential
basis prior to disclosure by Borrower or any Subsidiary. Any Person required to maintain the
confidentiality of Information as provided in this Section shall be considered to have complied
with its obligation to do so if such Person has exercised reasonable care to maintain the
confidentiality of such Information. Each of Agent, the Lenders and the L/C Issuer acknowledges
that (a) the Information may include material non-public information concerning Borrower or a
Subsidiary, as the case may be, (b) it has developed compliance procedures regarding the use of
material non-public information and (c) it
86
will handle such material non-public information in
accordance with applicable Law, including applicable Federal and state securities Laws.
10.08 Right of Setoff. If an Event of Default shall have occurred and be continuing, each Lender, the L/C Issuer
and each of their respective Affiliates is hereby authorized at any time and from time to time, to
the fullest extent permitted by applicable law, to set off and apply any and all deposits (general
or special, time or demand, provisional or final, in whatever currency) at any time held and other
obligations (in whatever currency) at any time owing by such Lender, the L/C Issuer or any such
Affiliate to or for the credit or the account of Borrower or any other Loan Party against any and
all of the obligations of Borrower or such Loan Party now or hereafter existing under this
Agreement or any other Loan Document to such Lender or the L/C Issuer or any such Affiliate,
irrespective of whether or not such Lender or the L/C Issuer shall have made any demand under this
Agreement or any other Loan Document and although such obligations of Borrower or such Loan Party
may be contingent or unmatured or are owed to a branch or office of such Lender or the L/C Issuer
different from the branch or office holding such deposit or obligated on such indebtedness. The
rights of each Lender, the L/C Issuer and their respective Affiliates under this Section are in
addition to other rights and remedies (including other rights of setoff) that such Lender, the L/C
Issuer or their respective Affiliates may have. Each Lender and the L/C Issuer agrees to notify
Borrower and Agent promptly after any such setoff and application, provided that the failure to
give such notice shall not affect the validity of such setoff and application.
10.09 Interest Rate Limitation. 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 Agent or any Lender shall
receive interest in an amount that exceeds the Maximum Rate, the excess interest shall be applied
to the principal of the Loans or, if it exceeds such unpaid principal, refunded to Borrower. In
determining whether the interest contracted for, charged, or received by Agent or a 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 hereunder.
10.10 Counterparts; Integration; Effectiveness. This Agreement may be executed in counterparts (and by different parties hereto in
different counterparts), each of which shall constitute an original, but all of which when taken
together shall constitute a single contract. This Agreement and the other Loan Documents
constitute the entire contract among the parties relating to the subject matter hereof and
supersede any and all previous agreements and understandings, oral or written, relating to the
subject matter hereof. Except as provided in Section 4.01, this Agreement shall become effective
when it shall have been executed by Borrower and Agent and when Agent
87
shall have received
counterparts hereof that, when taken together, bear the signatures of each of the other parties
hereto. Delivery of an executed counterpart of a signature page of this Agreement by telecopy
shall be effective as delivery of a manually executed counterpart of this Agreement.
10.11 Survival of Representations and Warranties. All representations and warranties made hereunder and in any other Loan Document or other
document delivered pursuant hereto or thereto or in connection herewith or therewith shall survive
the execution and delivery hereof and thereof. Such representations and warranties have been or
will be relied upon by Agent and each Lender, regardless of any investigation made by Agent or any
Lender or on their behalf and notwithstanding that Agent or any Lender may have had notice or
knowledge of any Default at the time of any Credit Extension, and shall continue in full force and
effect as long as any Loan or any other Obligation hereunder shall remain unpaid or unsatisfied or
any Letter of Credit shall remain outstanding.
10.12 Severability. If any provision of this Agreement or the other Loan Documents is held to be illegal,
invalid or unenforceable, (a) the legality, validity and enforceability of the remaining provisions
of this Agreement and the other Loan Documents shall not be affected or impaired thereby and (b)
the parties shall endeavor in good faith negotiations to replace the illegal, invalid or
unenforceable provisions with valid provisions the economic effect of which comes as close as
possible to that of the illegal, invalid or unenforceable provisions. The invalidity of a
provision in a particular jurisdiction shall not invalidate or render unenforceable such provision
in any other jurisdiction.
10.13 Governing Law; Jurisdiction; Etc.
(a) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAW OF THE STATE OF NEW JERSEY.
(b) SUBMISSION TO JURISDICTION. BORROWER AND EACH OTHER LOAN PARTY IRREVOCABLY AND
UNCONDITIONALLY SUBMITS, FOR ITSELF AND ITS PROPERTY, TO THE NONEXCLUSIVE JURISDICTION OF THE
COURTS OF THE STATE OF NEW JERSEY AND OF THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW
JERSEY, AND ANY APPELLATE COURT FROM ANY THEREOF, IN ANY ACTION OR PROCEEDING ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR FOR RECOGNITION OR ENFORCEMENT OF ANY
JUDGMENT, AND EACH OF THE PARTIES HERETO IRREVOCABLY AND UNCONDITIONALLY AGREES THAT ALL CLAIMS IN
RESPECT OF ANY SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH NEW JERSEY STATE COURT
OR, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, IN SUCH FEDERAL COURT. EACH OF THE PARTIES
88
HERETO AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE
ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW.
NOTHING IN THIS AGREEMENT OR IN ANY OTHER LOAN DOCUMENT SHALL AFFECT ANY RIGHT THAT AGENT, ANY
LENDER OR THE L/C ISSUER MAY OTHERWISE HAVE TO BRING ANY ACTION OR PROCEEDING RELATING TO THIS
AGREEMENT OR ANY OTHER LOAN DOCUMENT AGAINST BORROWER OR ANY OTHER LOAN PARTY OR ITS PROPERTIES IN
THE COURTS OF ANY JURISDICTION.
(c) WAIVER OF VENUE. BORROWER AND EACH OTHER LOAN PARTY IRREVOCABLY AND
UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY OBJECTION THAT IT
MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY ACTION OR PROCEEDING ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT IN ANY COURT REFERRED TO IN PARAGRAPH (b) OF
THIS SECTION. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT
PERMITTED BY APPLICABLE LAW, THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH ACTION
OR PROCEEDING IN ANY SUCH COURT.
(d) SERVICE OF PROCESS. EACH PARTY HERETO IRREVOCABLY CONSENTS TO SERVICE OF PROCESS
IN THE MANNER PROVIDED FOR NOTICES IN SECTION 10.02. NOTHING IN THIS AGREEMENT WILL AFFECT THE
RIGHT OF ANY PARTY HERETO TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY APPLICABLE LAW.
10.14 Waiver of Jury Trial. EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE
LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY
ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY OR THEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY
HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PERSON HAS REPRESENTED,
EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PERSON WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO
ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN
INDUCED TO ENTER INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS BY, AMONG OTHER THINGS, THE
MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.
10.15 No Advisory or Fiduciary Responsibility. In connection with all aspects of each transaction contemplated hereby, Borrower and each
other Loan Party
89
acknowledges and agrees, and acknowledges its Affiliates understanding, that: (i)
the credit facilities provided for hereunder and any related arranging or other services in
connection therewith (including in connection with any amendment, waiver or other modification
hereof or of any other Loan Document) are an arms-length commercial transaction between Borrower,
each other Loan Party and their respective Affiliates, on the one hand, and Agent, on the other
hand, and Borrower and each other Loan Party is capable of evaluating and understanding and
understands and accepts the terms, risks and conditions of the transactions contemplated hereby and
by the other Loan Documents (including any amendment, waiver or other modification hereof or
thereof); (ii) in connection with the process leading to such transaction, Agent is and has been
acting solely as a principal and is not the financial advisor, agent or fiduciary, for Borrower,
any other Loan Party or any of their respective Affiliates, stockholders, creditors or employees or
any other Person; (iii) Agent has not assumed and will not assume an advisory, agency or fiduciary
responsibility in favor of Borrower or any other Loan Party with respect to any of the transactions
contemplated hereby or the process leading thereto, including with respect to any amendment, waiver
or other modification hereof or of any other Loan Document (irrespective of whether Agent has
advised or is currently advising Borrower, any other Loan Party or any of their respective
Affiliates on other matters) and Agent has no obligation to Borrower, any other Loan Party or any
of their respective Affiliates with respect to the transactions contemplated hereby except those
obligations expressly set
forth herein and in the other Loan Documents; (iv) Agent and its Affiliates may be engaged in
a broad range of transactions that involve interests that differ from those of Borrower, the other
Loan Parties and their respective Affiliates, and Agent has no obligation to disclose any of such
interests by virtue of any advisory, agency or fiduciary relationship; and (v) Agent has not
provided and will not provide any legal, accounting, regulatory or tax advice with respect to any
of the transactions contemplated hereby (including any amendment, waiver or other modification
hereof or of any other Loan Document) and each of Borrower and the other Loan Parties has consulted
its own legal, accounting, regulatory and tax advisors to the extent it has deemed appropriate.
Each of Borrower and the other Loan Parties hereby waives and releases, to the fullest extent
permitted by law, any claims that it may have against Agent with respect to any breach or alleged
breach of agency or fiduciary duty.
10.16 USA PATRIOT Act Notice. Each Lender that is subject to the Act (as hereinafter defined) and Agent (for itself and
not on behalf of any Lender) hereby notifies Borrower that pursuant to the requirements of the USA
PATRIOT Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)) (the Act),
it is required to obtain, verify and record information that identifies Borrower, which information
includes the name and address of Borrower and other information that will allow such Lender or
Agent, as applicable, to identify Borrower in accordance with the Act.
10.17 Time of the Essence. Time is of the essence of the Loan Documents.
90
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the
date first above written.
|
|
|
|
|
|
MISTRAS GROUP, INC.
|
|
|
By: |
/s/
Sotirious J. Vahaviolos |
|
|
|
Name: |
Sotirious J. Vahaviolos |
|
|
|
Title: |
Chief Executive Officer |
|
|
|
|
|
|
|
|
BANK OF AMERICA, N.A., as Agent
|
|
|
By: |
/s/
Matthew Correia |
|
|
|
Name: |
Matthew Correia |
|
|
|
Title: |
Vice President |
|
|
|
|
|
|
|
|
BANK OF AMERICA, N.A., as a Lender, Co- Lead Bookrunner and L/C Issuer
|
|
|
By: |
/s/
William T. Franey |
|
|
|
Name: |
William T. Franey |
|
|
|
Title: |
Vice President |
|
|
|
|
|
|
|
|
JPMORGAN CHASE BANK, N.A. as a
Lender and Co-Lead Bookrunner
|
|
|
By: |
/s/
Lawrence Nermile |
|
|
|
Name: |
Lawrence Nermile |
|
|
|
Title: |
Vice President |
|
|
Signature Page to Amended and Restated Credit Agreement
91
FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT
THIS FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT (this
Agreement) is dated as of the 14th day of December, 2007 and is by and among MISTRAS
GROUP, INC. (formerly known as Mistras Holdings Corp.), a Delaware corporation (the Borrower),
BANK OF AMERICA, N.A., as Agent, Co-Lead Bookrunner and L/C Issuer (the Agent), JPMORGAN CHASE
BANK, N.A., as Co-Lead Bookrunner (JPMorgan Chase) and each lender from time to time party
hereto (collectively, Lenders and individually, a Lender).
W I T N E S S E T H:
WHEREAS, the Borrower, the Agent, JPMorgan Chase and the Lenders, are parties to that certain
Amended and Restated Credit Agreement dated as of April 23, 2007, effective as of October 31, 2006
(the Credit Agreement); and
WHEREAS, the Borrower has requested the Agent and Lenders to make certain amendments to the
Credit Agreement as more fully described herein, and the Agent and Lenders have agreed to do so on
the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
1. Defined Terms. Except as otherwise indicated herein, all words and terms defined
in the Credit Agreement shall have the same meanings when used herein.
2. Amendment to Credit Agreement. The following definition appearing in Section 1.01
of the Credit Agreement is hereby amended and restated to read in its entirety as follows:
Funded Debt means all outstanding liabilities for borrowed money and
other interest-bearing liabilities, including current and long term liabilities,
but excluding the capital lease between the Borrower and Sotirios Vahaviolos
relating to the Borrowers occupancy of the premises located at 195 Clarksville
Road, Princeton Junction, New Jersey.
3. Representations and Warranties. In order to induce the Agent and the Lenders to
enter into this Agreement and amend the Credit Agreement as provided herein, the Borrower hereby
represents and warrants to the Agent and the Lenders that:
(a) All of the representations and warranties of the Borrower set forth in the Credit
Agreement and the Loan Documents are true, complete and correct in all material respects on and as
of the date hereof with the same force and effect as if made on and as of the date hereof and as if
set forth at length herein.
(b) No Default or Event of Default presently exists and is continuing on and as of the date
hereof.
(c) Since the date of the Borrowers most recent financial statements delivered to the Agent,
other than as may be related to the Lease, no material adverse change has occurred in the business,
assets, liabilities, financial condition or results of operations of the Borrower, and no event has
occurred or failed to occur which has had a material adverse effect on the business, assets,
liabilities, financial condition or results of operations of the Borrower.
(d) The Borrower has full power and authority to execute, deliver and perform any action or
step which may be necessary to carry out the terms of this Agreement and all other documents
executed in connection herewith (the Amendment Documents); each Amendment Document to
which the Borrower is a party has been duly executed and delivered by the Borrower and is the
legal, valid and binding obligation of the Borrower enforceable in accordance with its terms,
subject to any applicable bankruptcy, insolvency, general equity principles or other similar laws
affecting the enforcement of creditors rights generally.
(e) The execution, delivery and performance of the Amendment Documents by the Borrower will
not (i) violate any provision of any existing law, statute, rule, regulation or ordinance, (ii)
conflict with, result in a breach of, or constitute a default under (A) the certificate of
incorporation or by-laws of the Borrower, (B) any order, judgment, award or decree of any court,
governmental authority, bureau or agency, or (C) any mortgage, indenture, lease, contract or other
agreement or undertaking to which the Borrower is a party or by which the Borrower or any of its
properties or assets may be bound, or (iii) result in the creation or imposition of any lien or
other encumbrance upon or with respect to any property or asset now owned or hereafter acquired by
the Borrower, other than Liens in favor of the Lenders.
(f) No consent, license, permit, approval or authorization of, exemption by, notice to, report
to, or registration, filing or declaration with any person is required in connection with the
execution, delivery, performance or validity of the Amendment Documents or the transactions
contemplated thereby.
4. No Defenses. The Borrower acknowledges that, as of November 14, 2007, the
outstanding principal balance of the Substitute Revolving Credit Note in favor of Bank of America,
N.A. was $9,314.90, the outstanding principal balance of the Substitute Revolving Credit
Note in favor of JPMorgan Chase was $9,314.90, the outstanding principal balance of the
Substitute Term Note in favor of Bank of America, N.A was $11,875,000.00, and the
outstanding principal balance of the Substitute Term Note in favor of JPMorgan Chase was
$11,875,000.00. The Borrower acknowledges and agrees that as of the date hereof it has no
defenses, offsets or counterclaims to its Obligations to the Agent and/or the Lenders under the
Credit Agreement or any other Loan Document and hereby
2
waives and releases all claims against the Agent and Lenders with respect to the Obligations
and the documents evidencing or securing the same.
5. Agent and Lender Costs. The Borrower shall reimburse the Agent and Lenders on
demand for all costs, including legal fees and expenses incurred in connection with this Agreement
and the other Amendment Documents. The Borrower irrevocably authorizes the Agent to charge the
Borrowers Master Account for the amount of such fees and expenses.
6. No Change. Except as expressly set forth herein, all of the terms and provisions
of the Credit Agreement shall continue in full force and effect.
7. Governing Law. This Agreement shall be governed by and construed in accordance
with the laws of the State of New Jersey.
8. Counterparts. This Agreement may be signed in several counterparts, each of which
shall be an original and all of which shall constitute one and the same instrument.
[Signatures on following pages]
3
IN WITNESS WHEREOF, the undersigned have caused their duly authorized representatives to
execute and deliver this Agreement as of the day and year first above written.
|
|
|
|
|
|
MISTRAS GROUP, INC.
|
|
|
By: |
/s/ Paul Peterik |
|
|
|
Name: |
Paul Peterik |
|
|
|
Title: |
Chief Financial Officer |
|
|
|
|
|
|
|
|
BANK OF AMERICA, N.A., as Agent
|
|
|
By: |
/s/ Matthew Correia |
|
|
|
Name: |
Matthew Correia |
|
|
|
Title: |
Vice President |
|
|
|
|
|
|
|
|
BANK OF AMERICA, N.A., as a Lender, Co-Lead Bookrunner and L/C Issuer
|
|
|
By: |
/s/ William T. Franey |
|
|
|
Name: |
William T. Franey |
|
|
|
Title: |
Vice President |
|
|
|
|
|
|
|
|
JPMORGAN CHASE BANK, N.A. as a Lender and Co-Lead Bookrunner
|
|
|
By: |
/s/ Susan M. Graham |
|
|
|
Name: |
Susan M. Graham |
|
|
|
Title: |
Vice President |
|
|
4
REAFFIRMATION
IN WITNESS WHEREOF, each of the undersigned hereby ratifies and reaffirms any and all Loan
Documents to which it is party, which shall continue in full force and effect, giving effect to
this Agreement, and in each such document the term Credit Agreement shall be deemed to refer to
the Credit Agreement, as amended by this Agreement.
|
|
|
|
|
|
MISTRAS GROUP, INC.
|
|
|
By: |
/s/ Paul
Peterik |
|
|
|
Name: |
Paul Peterik |
|
|
|
Title: |
Chief Financial Officer and Secretary |
|
|
|
|
|
|
|
|
QUALITY SERVICES LABORATORIES, INC.
|
|
|
By: |
/s/ Paul
Peterik
|
|
|
|
Name: |
Paul Peterik |
|
|
|
Title: |
Treasurer and Secretary |
|
|
|
|
|
|
|
|
CONAM INSPECTION & ENGINEERING SERVICES, INC.
|
|
|
By: |
/s/ Paul
Peterik |
|
|
|
Name: |
Paul
Peterik |
|
|
|
Title: |
Treasurer and Secretary |
|
|
|
|
|
|
|
|
PHYSICAL ACOUSTICS CORPORATION
|
|
|
By: |
/s/ Paul
Peterik |
|
|
|
Name: |
Paul
Peterik |
|
|
|
Title: |
Treasurer and Secretary |
|
|
|
|
|
|
|
|
CISMIS SPRINGFIELD CORP.
|
|
|
By: |
/s/ Paul
Peterik |
|
|
|
Name: |
Paul
Peterik |
|
|
|
Title: |
Treasurer and Secretary |
|
|
5
SECOND AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT
THIS SECOND AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT (this
Agreement) is dated as of the 30th day of May, 2008 and is by and among MISTRAS GROUP,
INC. (formerly known as Mistras Holdings Corp.), a Delaware corporation (the Borrower), BANK OF
AMERICA, N.A., as Agent, Co-Lead Bookrunner and L/C Issuer (the Agent), JPMORGAN CHASE BANK,
N.A., as Co-Lead Bookrunner (JPMorgan Chase) and each lender from time to time party hereto
(collectively, Lenders and individually, a Lender).
W I T N E S S E T H:
WHEREAS, the Borrower, the Agent, JPMorgan Chase and the Lenders, are parties to that certain
Amended and Restated Credit Agreement dated as of April 23, 2007, effective as of October 31, 2006,
as amended by that certain First Amendment to Amended and Restated Credit Agreement, dated as of
December 14, 2007 (collectively, the Credit Agreement); and
WHEREAS, the Borrower has requested that the Lenders temporarily increase the Aggregate
Revolving Loan Commitments from $15,000,000 to $20,000,000.
NOW, THEREFORE, in consideration of the premises and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
1. Defined Terms. Except as otherwise indicated herein, all words and terms defined
in the Credit Agreement shall have the same meanings when used herein.
2. Amendment to Credit Agreement. Schedule 2.01 to the Credit Agreement is hereby
deleted in its entirety and replaced with the revised Schedule 2.01 attached hereto.
3. Substitute Revolving Notes. Concurrently herewith: (1) the Borrower is executing
and delivering to the Lenders Substitute Revolving Notes, each in the maximum principal amount of
$10,000,000 (the Revolving Notes), subject to reduction to $7,500,000 upon the terms and
conditions set forth in the Revolving Notes, in substitution for, but not in repayment of, the
Substitute Revolving Notes dated April 23, 2007, each in the maximum principal amount of
$7,500,000, previously issued by the Borrower to the Lenders (the Prior Notes), and (2) the
Lenders are delivering to the Borrower the Prior Notes, marked cancelled. The execution and
delivery by the Borrower of the Revolving Notes pursuant to the provisions hereof shall not
constitute a refinancing, repayment, accord and satisfaction or novation of the Prior Notes or the
indebtedness evidenced thereby.
4. Representations and Warranties. In order to induce the Agent and the Lenders to
enter into this Agreement and amend the Credit Agreement as provided herein, the Borrower hereby
represents and warrants to the Agent and the Lenders that:
(a) All of the representations and warranties of the Borrower set forth in the Credit
Agreement and the Loan Documents are true, complete and correct in
all
material respects on and as of the date hereof with the same force and effect as if made on
and as of the date hereof and as if set forth at length herein.
(b) No Default or Event of Default presently exists and is continuing on and as of the date
hereof and no Default or Event of Default will be caused by or result from the closing of the
Acquisition Loan, the funding of the Acquisition Loan or the consummation of the transactions
contemplated under the Acquisition Loan.
(c) Since the date of the Borrowers most recent financial statements delivered to the Agent,
no material adverse change has occurred in the business, assets, liabilities, financial condition
or results of operations of the Borrower, and no event has occurred or failed to occur which has
had a material adverse effect on the business, assets, liabilities, financial condition or results
of operations of the Borrower.
(d) The Borrower has full power and authority to execute, deliver and perform any action or
step which may be necessary to carry out the terms of this Agreement and all other documents
executed in connection herewith (this Agreement and all such other documents are collectively
referred to herein as the Amendment Documents); each Amendment Document to which the
Borrower is a party has been duly executed and delivered by the Borrower and is the legal, valid
and binding obligation of the Borrower enforceable in accordance with its terms, subject to any
applicable bankruptcy, insolvency, general equity principles or other similar laws affecting the
enforcement of creditors rights generally.
(e) The execution, delivery and performance of the Amendment Documents by the Borrower will
not (i) violate any provision of any existing law, statute, rule, regulation or ordinance, (ii)
conflict with, result in a breach of, or constitute a default under (A) the certificate of
incorporation or by-laws of the Borrower, (B) any order, judgment, award or decree of any court,
governmental authority, bureau or agency, or (C) any mortgage, indenture, lease, contract or other
agreement or undertaking to which the Borrower is a party or by which the Borrower or any of its
properties or assets may be bound, or (iii) result in the creation or imposition of any lien or
other encumbrance upon or with respect to any property or asset now owned or hereafter acquired by
the Borrower, other than Liens in favor of the Lenders.
(f) No consent, license, permit, approval or authorization of, exemption by, notice to, report
to, or registration, filing or declaration with any person is required in connection with the
execution, delivery, performance or validity of the Amendment Documents or the transactions
contemplated thereby.
5. No Defenses. The Borrower acknowledges that, as of May 21, 2008, the outstanding
principal balance of the Substitute Revolving Note in favor of Bank of America, N.A. dated as of
April 23, 2007 was $6,908,455.60, the outstanding principal balance of the Substitute
Revolving Note in favor of JPMorgan Chase dated as of April 23, 2007 was $6,908,455.60, the
outstanding principal balance of the Substitute Term Note in favor of Bank of America, N.A dated as
of April 23, 2007 was $11,250,000.00, and the outstanding principal balance of the
Substitute Term Note in favor of JPMorgan Chase dated as of April 23, 2007 was
$11,250,000.00. The Borrower acknowledges and agrees that as of the date hereof it has no
defenses, offsets or counterclaims to its
2
Obligations to the Agent and/or the Lenders under the Credit Agreement or any other Loan
Document and hereby waives and releases all claims against the Agent and Lenders with respect to
the Obligations and the documents evidencing or securing the same.
6. Agent and Lender Costs. The Borrower shall reimburse the Agent and Lenders on
demand for all costs incurred in connection with this transaction, including but not limited to
legal, searches, filings and other expenses incurred in connection with this Agreement and the
other Amendment Documents, whether or not the transactions contemplated under this Agreement are
completed. The Borrower irrevocably authorizes the Agent to charge the Borrowers Master Account
for the amount of such fees and expenses.
7. No Change. Except as expressly set forth herein, all of the terms and provisions
of the Credit Agreement shall continue in full force and effect.
8. Governing Law. This Agreement shall be governed by and construed in accordance
with the laws of the State of New Jersey.
9. Counterparts. This Agreement may be signed in several counterparts, each of which
shall be an original and all of which shall constitute one and the same instrument.
[Signatures on following pages]
3
IN WITNESS WHEREOF, the undersigned have caused their duly authorized representatives to
execute and deliver this Agreement as of the day and year first above written.
|
|
|
|
|
|
MISTRAS GROUP, INC.
|
|
|
By: |
/s/ Paul Peterik |
|
|
|
Name: |
Paul Peterik |
|
|
|
Title: |
Chief Financial Officer |
|
|
|
|
|
|
|
|
BANK OF AMERICA, N.A., as Agent
|
|
|
By: |
/s/ William T. Franey |
|
|
|
Name: |
William T. Franey |
|
|
|
Title: |
Vice President |
|
|
|
|
|
|
|
|
BANK OF AMERICA, N.A., as a Lender,
Co-Lead Bookrunner and L/C Issuer
|
|
|
By: |
/s/ William T. Franey |
|
|
|
Name: |
William T. Franey |
|
|
|
Title: |
Vice President |
|
|
|
|
|
|
|
|
JPMORGAN CHASE BANK, N.A. as a
Lender and Co-Lead Bookrunner |
|
|
By: |
/s/ Susan M. Graham |
|
|
|
Name: |
Susan M. Graham |
|
|
|
Title: |
Vice President |
|
4
THIRD AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT
THIS THIRD AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT (this
Agreement) is dated as of the 1st day of July, 2008 and is by and among
MISTRAS GROUP, INC. (formerly known as Mistras Holdings Corp.), a Delaware corporation (the
Borrower), BANK OF AMERICA, N.A., as Agent, Co-Lead Bookrunner and L/C Issuer (the Agent),
JPMORGAN CHASE BANK, N.A., as Co-Lead Bookrunner (JPMorgan Chase) and each lender from time to
time party hereto (collectively, Lenders and individually, a Lender).
W I T N E S S E T H:
WHEREAS, the Borrower, the Agent, JPMorgan Chase and the Lenders, are parties to that certain
Amended and Restated Credit Agreement dated as of April 23, 2007, effective as of October 31, 2006,
as amended by that certain First Amendment to Amended and Restated Credit Agreement, dated as of
December 14, 2007 and that certain Second Amendment to Amended and Restated Credit Agreement, dated
as of May 30, 2008 (collectively, the Credit Agreement); and
WHEREAS, the Borrower has requested the Lenders to make a new term loan to the Borrower in the
original principal amount of $20,000,000 under and as part of the Credit Agreement, to be used to
fund and/or to reimburse the Borrower for costs relating to the acquisition of (i) certain assets
of Inspection Technologies Inc. (iTi), H&G Inspection Company (H&G), Gonzalez Industrial X-ray,
Inc. (Gonzalez) and South Bay Inspection, Inc. (South Bay, and collectively with iTi, H&G and
Gonzalez, the 2008 Asset Sellers); (ii) the outstanding equity securities of 508732 Alberta Ltd.,
Boss Holdings Inc. and 1113090 Alberta Ltd., which together own all of the outstanding equity
securities of Nomad Inspection Services Ltd. (Nomad); and (iii) certain yet-to-be-determined
additional assets and/or equity securities.
NOW, THEREFORE, in consideration of the premises and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
1. Defined Terms. Except as otherwise indicated herein, all words and terms defined
in the Credit Agreement shall have the same meanings when used herein.
2. Amendments to Credit Agreement.
(a) The recital of the Credit Agreement is hereby amended to read, in its entirety, as
follows:
Borrower has requested that Lenders provide a revolving credit
facility, a term loan, and an acquisition loan, and Lenders are willing to
do so on the terms and conditions set forth herein. In consideration of the
mutual covenants and agreements herein contained, the parties hereto
covenant and agree as follows:
(b) The following definitions are hereby added to, and inserted alphabetically in, Section
1.01 of the Credit Agreement:
Acquisition Loan has the meaning specified in Section
2.01(c).
Acquisition Loan Closing Date means July 1, 2008.
Acquisition Loan Commitment means, as to each Lender, the
amount set forth opposite such Lenders name on the portion of Schedule 2.01
describing the Acquisition Loan or in the Assignment and Assumption pursuant
to which such Lender becomes a party hereto, as applicable.
Acquisition Note means a promissory note made by Borrower in
favor of a Lender evidencing the Lenders Applicable Percentage of the
Acquisition Loan, substantially in the form of Exhibit G.
Aggregate Acquisition Loan Commitments means the Acquisition
Loan Commitments of all Lenders.
Nomad means Nomad Inspection Services Ltd.
Nomad Shareholders means, at any time, the entity or entities
that collectively own and control one hundred (100%) percent of the
outstanding equity securities of Nomad.
2008 Asset Sellers means, collectively, Inspection
Technologies Inc., H&G Inspection Company, Gonzalez Industrial X-ray, Inc.
and South Bay Inspection, Inc.
(c) Each of the following definitions set forth in Section 1.01 of the Credit Agreement is
hereby amended to read, in its entirety, as follows:
Aggregate Commitments means, collectively, the Aggregate
Revolving Loan Commitments, the Aggregate Term Loan Commitments and the
Aggregate Acquisition Loan Commitments.
Applicable Percentage means, with respect to any Lender at
any time, the percentage (carried out to the ninth decimal place) of (i) the
Aggregate Revolving Loan Commitments represented by such Lenders Revolving
Loan Commitment at such time; (ii) the Aggregate Term Loan Commitments
represented by such Lenders Term Loan Commitment at such time and (iii) the
Aggregate Acquisition Loan Commitments represented by such Lenders
Acquisition Loan Commitment at such time. If the commitment of each Lender
to make Revolving Loans and the obligation of the L/C Issuer to make L/C
Credit Extensions have been terminated pursuant to Section 8.02 or if the
Aggregate Revolving Loan
2
Commitments have expired, then the Applicable Percentage of each Lender
with respect to the Revolving Loans shall be determined based on the
Applicable Percentage of such Lender most recently in effect, giving effect
to any subsequent assignments. The initial Applicable Percentage of each
Lender is set forth opposite the name of such Lender on Schedule
2.01 or in the Assignment and Assumption pursuant to which such Lender
becomes a party hereto, as applicable.
Applicable Rate means, from time to time, the following
percentages per annum, based upon the ratio of Funded Debt to EBITDA (the
Financial Covenant) as set forth in the most recent Compliance
Certificate received by Agent pursuant to Section 6.02(b):
Applicable Rate
|
|
|
|
|
|
|
|
|
|
|
|
|
Pricing |
|
|
|
|
|
|
|
|
|
Eurodollar |
Level |
|
Funded Debt : EBITDA |
|
Base Rate +/- |
|
Rate +/- |
1 |
|
|
<1.76:1 |
|
|
|
-.75 |
% |
|
|
+1.50 |
% |
2 |
|
³1.76:1 but <2.51:1 |
|
|
-.25 |
% |
|
|
+2.00 |
% |
3 |
|
|
³2.51:1 |
|
|
|
+.00 |
% |
|
|
+2.25 |
% |
Any increase or decrease in the Applicable Rate resulting from a change in
the Financial Covenant shall become effective as of the first Business Day
of the month immediately following the date a Compliance Certificate is
delivered pursuant to Section 6.02(b); provided, however, that if a
Compliance Certificate is not delivered when due in accordance with such
Section, then Pricing Level 3 shall apply as of the first Business Day of
the month following the date such Compliance Certificate was required to
have been delivered until the first Business Day of the month immediately
following the delivery of such Compliance Certificate. The Applicable Rate
in effect from the Acquisition Loan Closing Date until receipt of the
Compliance Certificate for the period ended August 31, 2008 shall be
determined based upon the Pricing Level in effect as of the date hereof.
Commitment means, as to each Lender, its Revolving Loan
Commitment, its Term Loan Commitment and its Acquisition Loan Commitment.
Committed Loan means the Term Loan (or any portion thereof
made by a Lender), a Revolving Loan (or any portion thereof made by a
Lender) or the Acquisition Loan (or any portion thereof made by a Lender).
Debt Service Coverage Ratio means the ratio of Fixed Charge
Cash Flow to the sum of the current portion of long-term liabilities (which
shall include any conditional payments, including payments due under any
earn-out agreements, deemed due and owing in the next 12-month period)
3
and the current portion of capitalized lease obligations, plus interest
expense on all obligations.
EBITDA means net income, less income or plus loss from
discontinued operations and extraordinary items, plus income taxes, plus
interest expense, plus depreciation, depletion, and amortization (including
non-cash loss on retirement of assets), plus stock option expense, less cash
expense related to stock options and adjusted for certain historical
expenses, accounting adjustments, and other non-cash charges, all in the
Required Lenders sole discretion. With respect to each acquisition by the
Borrower or any of its Subsidiaries of substantially all of the assets or
equity securities of another company, other than the acquisitions relating
to the 2008 Asset Sellers and the Nomad Shareholders, (i) for purposes of
determining compliance by the Borrower with Section 6.12 of this Agreement,
the consolidated EBITDA of the Borrower and its Subsidiaries shall not
include the EBITDA of the company that is the subject of such acquisition to
the extent attributable to periods prior to the date of such acquisition and
(ii) for purposes of determining the Applicable Rate, the consolidated
EBITDA of the Borrower and its Subsidiaries shall include the historical
EBITDA of the company that is the subject of such acquisition during the
applicable 12-month reporting period, whether or not the acquired company
was owned by the Borrower or any of its Subsidiaries during the entire
period in question. With respect to the 2008 Asset Sellers and the Nomad
Shareholders, for purposes of determining compliance by the Borrower with
Section 6.12 of this Agreement and for purposes of determining the
Applicable Rate, the consolidated EBITDA of the Borrower and its
Subsidiaries shall include the following amounts for the following periods,
which amounts represent the Agents determination of the aggregate
historical EBITDA of all of such acquisitions:
|
|
|
|
|
June 1, 2008 August 31, 2008 |
|
$ |
2,500,000 |
|
September 1, 2008 November 30, 2008 |
|
$ |
1,675,000 |
|
December 1, 2008 February 28, 2009 |
|
$ |
837,500 |
|
March 1, 2009 and thereafter |
|
$ |
0 |
|
Notwithstanding the foregoing, in the event that the purchase of the
outstanding equity securities of the Nomad Shareholders has not closed prior
to July 31, 2008, the Agent shall, in its sole discretion, determine the
appropriate add-backs to the consolidated EBITDA of the Borrower and its
Subsidiaries, which shall include the Agents determination of aggregate
historical EBITDA of the 2008 Asset Sellers but shall not include the
aggregate historical EBITDA of the Nomad Shareholders.
Loan means an extension of credit by a Lender to Borrower
under Article II in the form of a Revolving Loan or the Term Loan or the
Acquisition Loan.
4
Note means a Revolving Note, a Term Note or an Acquisition
Note.
Required Lenders means, as of any date of determination,
Lenders having more than 50% of the sum of the Revolving Loan Commitments
and the outstanding principal balance of the Term Loans and the Acquisition
Loan (taken as a whole) or, if the commitment of each Lender to make Loans
and the obligation of the L/C Issuer to make L/C Credit Extensions have been
terminated pursuant to Section 8.02, Lenders holding in the aggregate more
than 50% of the total outstanding Loans (with the aggregate amount of each
Lenders risk participation and funded participation in L/C Obligations
being deemed held by such Lender for purposes of this definition);
provided that the Commitment of, and the portion of the total outstanding
Loans held or deemed held by, any Defaulting Lender shall be excluded for
purposes of making a determination of Required Lenders.
(d) The definition of Change of Control set forth in Section 1.01 of the Credit Agreement is
hereby amended by adding the following provision at the end thereof:
Notwithstanding the foregoing, however, if any of the events or series of
events as set forth in subsections (a), (b), (c) or (d) above occurs solely
as a result of the public offering of the Borrowers common stock pursuant
to an effective registration statement filed under the Securities Act of
1933, as amended, such event or series of events shall not be deemed a
Change of Control for purposes of this Agreement.
(e) Section 2.01 of the Credit Agreement is hereby amended by adding the following provision
after subsection (b):
(c) Acquisition Loan. (i) Subject to the terms and conditions
set forth herein, each Lender severally agrees to make a term loan
(collectively, the Acquisition Loan) to Borrower in an amount
equal to the amount of such Lenders Acquisition Loan Commitment. The
Borrower shall execute and deliver to each such Lender one or more
Acquisition Notes to evidence the Acquisition Loan. The Acquisition Loan
shall be a Eurodollar Rate Loan, as further provided herein. Once repaid or
prepaid, the Acquisition Loan may not be re-borrowed.
(ii) The Acquisition Loan shall be disbursed in no more than two (2)
installments. On the Acquisition Loan Closing Date, the Borrower shall have
the right to request, and each Lender shall fund, the first installment of
the Acquisition Loan in an amount not to exceed such Lenders Acquisition
Loan Commitment (collectively, the First Acquisition Draw). At any time
within ninety (90) days after the Acquisition Loan Closing Date, the
Borrower shall have the right to request, and each Lender shall fund, a
second installment of the
5
Acquisition Loan in an amount not to exceed (A) such Lenders
Acquisition Loan Commitment minus (B) such Lender share of the First
Acquisition Draw (collectively, the Second Acquisition Draw). The
Borrower shall have no right to request, and the Lenders shall have no
obligation to fund, any installments of the Acquisition Loan other than the
First Acquisition Draw and the Second Acquisition Draw as described above.
To the extent that the aggregate amount of the First Acquisition Draw and
the Second Acquisition Draw is less than $20,000,000, or in the event that
the Borrower has not requested the Second Acquisition Draw prior to the
expiration of the 90-day period referred to above, the Borrower shall be
deemed to have automatically and irrevocably waived any right to request or
receive any more funds from the Acquisition Loan.
(f) Section 2.03(a)(i) of the Credit Agreement is hereby deleted in its entirety and replaced
with the following:
(a)(i) Subject to the terms and conditions set forth herein, (A) the
L/C Issuer agrees, in reliance upon the agreements of the other Lenders set
forth in this Section 2.03, (1) from time to time on any Business Day during
the period from the Closing Date until the L/C Expiration Date, to issue
Letters of Credit for the account of Borrower, and to amend or extend
Letters of Credit previously issued by it, in accordance with subsection (b)
below, and (2) to honor drawings under the Letters of Credit; and (B) the
Lenders severally agree to participate in Letters of Credit issued for the
account of Borrower and any drawings thereunder; provided that the Lenders
shall have no obligation to issue a Letter of Credit unless after giving
effect to any L/C Credit Extension with respect to any Letter of Credit, (x)
the Total Revolving Loan Outstandings shall not exceed the Aggregate
Revolving Loan Commitments, (y) the aggregate Outstanding Revolving Loan
Amount of all Revolving Loans of any Lender, plus such Lenders Applicable
Percentage of the Outstanding Revolving Loan Amount of all L/C Obligations,
plus such Lenders Applicable Percentage of the Term Loan plus such Lenders
Applicable Percentage of the Acquisition Loan shall not exceed such Lenders
Commitment, and (z) the Outstanding Revolving Loan Amount of the L/C
Obligations shall not exceed the L/C Sublimit. Each request by Borrower for
the issuance or amendment of a Letter of Credit shall be deemed to be a
representation by Borrower that the L/C Credit Extension so requested
complies with the conditions set forth in the proviso to the preceding
sentence. Within the foregoing limits, and subject to the terms and
conditions hereof, Borrowers ability to obtain Letters of Credit shall be
fully revolving, and accordingly Borrower may, during the foregoing period,
obtain Letters of Credit to replace Letters of Credit that have expired or
that have been drawn upon and reimbursed.
6
(g) Section 2.04 of the Credit Agreement is hereby amended by adding the following provisions
after subsection (b):
(c) Commencing on July 27, 2008 and on the 27th day of each
and every calendar month thereafter, the Acquisition Loan shall be paid in
equal consecutive monthly installments of principal in the amount of
$277,777.78 each month based on a six year amortization schedule, together
with all interest accrued thereon.
(h) Section 2.05(a) of the Credit Agreement is hereby deleted in its entirety and replaced
with the following:
(a) Borrower may, upon notice to Agent, at any time or from time to
time voluntarily prepay the Acquisition Loan, Term Loan or Revolving Loans
in whole or in part without premium or penalty; provided that such notice
must be received by Agent not later than 11:00 a.m. three Business Days
prior to any date of prepayment of Eurodollar Rate Loans. Each such notice
shall specify the date and amount of such prepayment and the Type(s) of
Committed Loans to be prepaid and, if Eurodollar Rate Loans are to be
prepaid, the Interest Period(s) of such Loans. Agent will promptly notify
each Lender of its receipt of each such notice, and of the amount of such
Lenders Applicable Percentage of such prepayment. If such notice is given
by Borrower, Borrower shall make such prepayment and the payment amount
specified in such notice shall be due and payable on the date specified
therein. Any prepayment of a Eurodollar Rate Loan shall be accompanied by
all accrued interest on the amount prepaid, together with any additional
amounts required pursuant to Section 3.05. Each such prepayment shall be
applied to the Committed Loans of Lenders in accordance with their
respective Applicable Percentages.
(i) Section 2.05(d) of the Credit Agreement is hereby deleted in its entirety and replaced
with the following:
(d) All prepayments under this Section 2.05 to the Term Loan or the
Acquisition Loan shall be applied to installments due under the Term Loan or
the Acquisition Loan, as applicable, in the inverse order of their maturity.
(j) Section 2.08 of the Credit Agreement is hereby amended by adding the following provisions
after subsection (b):
(c) Facility Fee. On the Acquisition Loan Closing Date,
Borrower shall pay to the Lenders, pro rata in accordance with the Lenders
respective Acquisition Loan Commitments, a facility fee in the amount of
$120,000.
7
(d) Structuring Fee. On the Acquisition Loan Closing Date,
Borrower shall pay solely to Agent a structuring fee in the amount set forth
in that certain Summary of Terms and Conditions dated May 8, 2008. Such
structuring fee shall be in addition to the portion of the facility fee paid
to Agent in its capacity as Lender pursuant to Section 2.08(c).
(k) Section 6.11 of the Credit Agreement is hereby amended by adding the following sentence to
the end of such section:
Notwithstanding the foregoing, the proceeds of the Acquisition Loan
shall be applied only to fund and/or to reimburse the Borrower for costs
relating to the acquisition of (i) the assets purchased from the 2008 Asset
Sellers, (ii) the outstanding equity securities of the Nomad Shareholders
and (iii) the assets and/or voting securities of certain other entities to
be identified by the Borrower after the date hereof.
(l) Section 6.12(a) of the Credit Agreement is hereby deleted in its entirety and replaced
with the following:
(a) EBITDA. Maintain on a consolidated basis EBITDA of not
less than the following amounts calculated for the 12-month periods ending
on the following dates:
|
|
|
|
|
Fiscal Year |
|
Minimum Annual EBITDA |
2008 |
|
$ |
21,000,000 |
|
2009 |
|
$ |
29,000,000 |
|
2010 |
|
$ |
30,000,000 |
|
2011 |
|
$ |
32,400,000 |
|
2012 |
|
$ |
33,000,000 |
|
(m) Section 7.02(f) of the Credit Agreement is hereby deleted in its entirety and replaced
with the following:
(f) Investments in (i) the acquisitions of certain of the assets of the
2008 Asset Sellers and of the equity securities of the Nomad Shareholders
and (ii) other acquisition(s) of assets and/or equity securities provided
that, with respect to such other acquisition(s) all of the following
conditions are satisfied: (A) the cash portion (paid at closing and in the
first 12 months thereafter) of the purchase price shall not exceed
$7,000,000 in the aggregate in any 12-month period, (B) there shall not be
more than two such other acquisitions in any 12-month period where the cash
portion of the purchase price (paid at closing and in the first 12 months
thereafter) exceeds $3,000,000, (C) immediately following each such other
acquisition, the amount by which the Aggregate Revolving Loan Commitments
exceed the Total Revolving Loan Outstandings shall
8
not be less than $5,000,000, (D) the acquired entity is in a line of
business substantially similar to the business conducted by Borrower or its
Subsidiaries, and (E) pro-forma compliance with the financial covenants
contained in Section 6.12 can be evidenced by Borrower to the reasonable
satisfaction of Agent and Required Lenders; provided, however, that in all
such instances notice of such other acquisition shall be delivered to the
Agent no later than 15 days prior to the date of the closing of such other
acquisition, and all material acquisition documents shall promptly be
delivered to the Agent upon the Agents request; and
(n) Section 7.06 of the Credit Agreement is hereby further amended by adding the following new
subsection (e) after subsection (d):
(e) Borrower may issue or sell its common stock in connection with a
public offering pursuant to an effective registration statement filed under
the Securities Act of 1933, as amended, provided that the terms and
conditions of such offering are reasonably acceptable to the Agent and the
Lenders in all respects.
(o) Schedule 2.01 to the Credit Agreement is hereby deleted in its entirety and replaced with
the revised Schedule 2.01 attached hereto.
(p) Schedule 10.02 to the Credit Agreement is hereby deleted in its entirety and replaced with
the revised Schedule 10.02 attached hereto.
(q) Exhibit G attached hereto is hereby added to the Credit Agreement as Exhibit G thereto.
3. Reaffirmation of Amended and Restated Guaranty. In order to induce the Agent and
the Lenders to enter into this Agreement and amend the Credit Agreement as provided herein,
concurrently herewith, each of Quality Services Laboratories, Inc., CONAM Inspection & Engineering
Services, Inc., Physical Acoustics Corporation and CISMIS Springfield Corp. has executed and
delivered to the Agent a Reaffirmation of Amended and Restated Guaranty.
4. Amendment to Loan Documents.
(a) In order to induce the Agent and the Lenders to enter into this Agreement and amend the
Credit Agreement as provided herein, concurrently herewith, the Borrower has executed and delivered
or caused to be executed and delivered to the Agent, the following amendments to Loan Documents:
|
(i) |
|
First Amendment to Amended and Restated
Security Agreement; |
|
|
(ii) |
|
First Amendment to Trademark and Patent
Security Agreement; |
|
|
(iii) |
|
First Amendment to Amended and Restated Pledge
Agreement; and |
9
|
(iv) |
|
Second Amendment to Subordination Agreement. |
(b) In order to induce the Agent and the Lenders to enter into this Agreement and amend the
Credit Agreement as provided herein, immediately after the consummation of the purchase by the
Borrower, or any direct or indirect Subsidiary of the Borrower (the Nomad Purchaser), of the
outstanding equity securities of the Nomad Shareholders, Borrower shall cause the Nomad Purchaser
to (i) notify the Agent thereof in writing; (ii) execute and deliver to the Agent a Stock Pledge
Agreement, in form and substance acceptable to the Agent, pursuant to which the Nomad Purchaser
pledges to the Agent sixty-five (65%) percent of the outstanding equity securities of each of the
Nomad Shareholders and (iii) cause to be delivered to Agent an opinion of counsel to the Nomad
Purchaser. The Borrower has informed the Agent that, immediately after the purchase by the Nomad
Purchaser of the outstanding equity securities of the Nomad Shareholders, the Borrower currently
intends to amalgamate (the Amalgamation) the Nomad Purchaser, the Nomad Shareholders and Nomad
into one legal entity (the Amalgamated Entity). The Borrower shall deliver to the Agent full
copies of all of the documents effectuating the Amalgamation. In the event that the Amalgamation
is consummated, the Stock Pledge Agreement referred to in this subparagraph 4(b) shall be delivered
by the Subsidiary or Subsidiaries of the Borrower that, following the Amalgamation, collectively
own and control one hundred (100%) percent of the outstanding equity securities of the Amalgamated
Entity.
5. Subordinated Target Notes; Subordination Agreement.
(a) (i) In connection with the purchase of the assets from the 2008 Asset Sellers, CONAM has
delivered to the applicable 2008 Asset Sellers unsecured subordinated promissory notes (each, a
Subordinated Target Note) in payment of a portion of the purchase price for the assets being
acquired from each 2008 Asset Seller by the Borrower or a Subsidiary. Payments under the
Subordinated Target Notes are subordinated and made subject in all respects to any and all Notes
from the Borrower in favor of the Agent or the Lenders and any and all rights of the Agent or the
Lenders thereunder to the extent provided in the terms and conditions of each such applicable
Subordinated Target Note.
(ii) The Borrower covenants that, notwithstanding Section 3 of each of the Subordinated Target
Notes, neither the Borrower nor CONAM shall prepay, or permit or suffer the prepayment by CONAM, of
any amounts under any of the Subordinated Target Notes, other than monthly installments due and
owing in accordance with Section 1 thereof, without the prior written consent of the Agent, which
may be withheld for any reason or no reason, and the Borrower agrees and acknowledges that any such
prepayment shall result in an Event of Default.
(iii) The Borrower covenants that, notwithstanding the provisions of each of the Subordinated
Target Notes, neither the Borrower nor CONAM shall agree to amend any of the Subordinated Target
Notes without the prior written consent of the Agent, which may be withheld for any reason or no
reason, and the Borrower agrees and acknowledges that any such amendment shall result in an Event
of Default.
(b) In connection with the purchase of the outstanding equity securities of the Nomad
Shareholders, the Nomad Purchaser or the Amalgamated Entity, as applicable, intends to
10
deliver to each of (i) John Dyer; (ii) Harry Boss and Maxine Boss; and (iii) Michael Smith and
Vonda Todd (collectively, the Nomad Noteholders), an unsecured subordinated promissory note
(collectively, the Nomad Notes) in payment of a portion of the purchase price for the outstanding
equity interests being acquired from the Nomad Noteholders by the Nomad Purchaser. In order to
induce the Agent and the Lenders to enter into this Agreement and amend the Credit Agreement as
provided herein, the Nomad Purchaser or the Amalgamated Entity, as applicable, shall execute and
deliver to the Agent, and shall cause each of the Nomad Noteholders to execute and deliver to the
Agent, upon closing of the Nomad Purchasers purchase of the Nomad Noteholders outstanding equity
securities, a subordination agreement in form and substance reasonably acceptable to the Agent,
pursuant to which the Nomad Notes, and all rights of the Nomad Noteholders thereunder, are
unconditionally and without limitation subordinated and made subject in all respects to any and all
Notes from the Borrower in favor of the Agent or the Lenders and any and all rights of the Agent or
the Lenders thereunder.
6. Representations and Warranties. In order to induce the Agent and the Lenders to
enter into this Agreement and amend the Credit Agreement as provided herein, the Borrower hereby
represents and warrants to the Agent and the Lenders that:
(a) All of the representations and warranties of the Borrower set forth in the Credit
Agreement and the Loan Documents are true, complete and correct in all material respects on and as
of the date hereof with the same force and effect as if made on and as of the date hereof and as if
set forth at length herein.
(b) No Default or Event of Default presently exists and is continuing on and as of the date
hereof and no Default or Event of Default will be caused by or result from the closing of the
Acquisition Loan, the funding of the Acquisition Loan or the consummation of the transactions
contemplated under the Acquisition Loan.
(c) Since the date of the Borrowers most recent financial statements delivered to the Agent,
no material adverse change has occurred in the business, assets, liabilities, financial condition
or results of operations of the Borrower, and no event has occurred or failed to occur which has
had a material adverse effect on the business, assets, liabilities, financial condition or results
of operations of the Borrower.
(d) With respect to each purchase transaction between the Borrower and each of the 2008 Asset
Sellers, as of the date hereof:
(i) Such purchase transaction has closed and all assets purchased thereunder have been
delivered to the Borrower;
(ii) All conditions to such closing set forth in the applicable purchase agreement have been
satisfied in full;
(iii) There are no liens or encumbrances on the purchased assets, other than those created
pursuant to this Agreement and the other Loan Documents;
11
(iv) There exist no disputes between the Borrower and any such 2008 Asset Seller; and
(v) The Subordinated Target Notes are unsecured.
(e) The Borrower has full power and authority to execute, deliver and perform any action or
step which may be necessary to carry out the terms of this Agreement and all other documents
executed in connection herewith (this Agreement and all such other documents are collectively
referred to herein as the Amendment Documents); each Amendment Document to which the
Borrower is a party has been duly executed and delivered by the Borrower and is the legal, valid
and binding obligation of the Borrower enforceable in accordance with its terms, subject to any
applicable bankruptcy, insolvency, general equity principles or other similar laws affecting the
enforcement of creditors rights generally.
(f) The execution, delivery and performance of the Amendment Documents by the Borrower will
not (i) violate any provision of any existing law, statute, rule, regulation or ordinance, (ii)
conflict with, result in a breach of, or constitute a default under (A) the certificate of
incorporation or by-laws of the Borrower, (B) any order, judgment, award or decree of any court,
governmental authority, bureau or agency, or (C) any mortgage, indenture, lease, contract or other
agreement or undertaking to which the Borrower is a party or by which the Borrower or any of its
properties or assets may be bound, or (iii) result in the creation or imposition of any lien or
other encumbrance upon or with respect to any property or asset now owned or hereafter acquired by
the Borrower, other than Liens in favor of the Lenders.
(g) No consent, license, permit, approval or authorization of, exemption by, notice to, report
to, or registration, filing or declaration with any person is required in connection with the
execution, delivery, performance or validity of the Amendment Documents or the transactions
contemplated thereby.
7. No Defenses. The Borrower acknowledges that, as of June 26, 2008, the outstanding
principal balance of the Substitute Revolving Note in favor of Bank of America, N.A. dated as of
May 30, 2008 was $5,807,500.00 , the outstanding principal balance of the Substitute Revolving Note
in favor of JPMorgan Chase dated as of May 30, 2008 was $5,807,500.00 , the outstanding principal
balance of the Substitute Term Note in favor of Bank of America, N.A dated as of April 23, 2007 was
$11,250,000.00 , and the outstanding principal balance of the Substitute Term Note in favor of
JPMorgan Chase dated as of April 23, 2007 was $11,250,000.00 The Borrower acknowledges and agrees
that as of the date hereof it has no defenses, offsets or counterclaims to its Obligations to the
Agent and/or the Lenders under the Credit Agreement or any other Loan Document and hereby waives
and releases all claims against the Agent and Lenders with respect to the Obligations and the
documents evidencing or securing the same.
8. Agent and Lender Costs. The Borrower shall reimburse the Agent and Lenders on
demand for all costs incurred in connection with this transaction, including but not limited to
legal, searches, filings and other expenses incurred in connection with this Agreement and the
other Amendment Documents, whether or not the transactions contemplated under this Agreement are
completed. The Borrower irrevocably authorizes the Agent to charge the Borrowers Master Account
for the amount of such fees and expenses.
12
9. No Change. Except as expressly set forth herein, all of the terms and provisions
of the Credit Agreement shall continue in full force and effect.
10. Governing Law. This Agreement shall be governed by and construed in accordance
with the laws of the State of New Jersey.
11. Counterparts. This Agreement may be signed in several counterparts, each of which
shall be an original and all of which shall constitute one and the same instrument.
[Signatures on following pages]
13
IN WITNESS WHEREOF, the undersigned have caused their duly authorized representatives to
execute and deliver this Agreement as of the day and year first above written.
|
|
|
|
|
|
MISTRAS GROUP, INC.
|
|
|
By: |
/s/
Paul Peterik |
|
|
|
Name: |
Paul Peterik |
|
|
|
Title: |
Chief Financial Officer |
|
|
|
BANK OF AMERICA, N.A., as Agent
|
|
|
By: |
/s/
William T. Franey |
|
|
|
Name: |
William T. Franey |
|
|
|
Title: |
Vice President |
|
|
|
BANK OF AMERICA, N.A., as a Lender,
Co-Lead Bookrunner and L/C Issuer
|
|
|
By: |
/s/
William T. Franey |
|
|
|
Name: |
William T. Franey |
|
|
|
Title: |
Vice President |
|
|
|
JPMORGAN CHASE BANK, N.A. as a
Lender and Co-Lead Bookrunner
|
|
|
By: |
/s/
Susan M. Graham |
|
|
|
Name: |
Susan M. Graham |
|
|
|
Title: |
Vice President |
|
|
14
exv10w4
Exhibit 10.4
EMPLOYMENT AGREEMENT
AGREEMENT made effective as of the 1st day of September, 2009, by and between MISTRAS GROUP
INC., a Delaware corporation (the Company) and SOTIRIOS J. VAHAVIOLOS (Mr. Vahaviolos).
RECITALS:
WHEREAS, Mr. Vahaviolos is currently employed by the Company as the Chairman of its Board of
Directors (the Board) and its Chief Executive Officer; and
WHEREAS, the parties now desire to provide for the continuing employment of Mr. Vahaviolos by
the Company upon the terms and conditions of this Agreement.
NOW, THEREFORE, the parties agree as follows:
1. Employment. The Company shall employ Mr. Vahaviolos and Mr. Vahaviolos shall be
employed by the Company upon the terms and conditions set forth in this Agreement.
1.1 Term. The term of this Agreement (the Term) will begin September 1, 2009 and
continue through August 31, 2011. Thereafter, the Term will automatically renew for successive
one-year periods unless either party gives notice of non-renewal to the other at least 90 days
before the end of the initial term or then current renewal term, as the case may be.
1.2 Position and Duties. Mr. Vahaviolos shall serve as Executive Chairman of the Board
and as the Chief Executive Officer of the Company, and will have the authority, duties and
responsibilities customarily associated with such titles and positions, and such additional rights,
powers, authority, functions, duties and responsibilities commensurate with such positions as the
Board may assign to him from time to time. Mr. Vahaviolos will report directly to and be subject to
the control and direction of the Board, consistent with his positions and applicable law. At the
request of the Board, Mr. Vahaviolos shall serve as an officer and director of the Companys
subsidiaries and other affiliates without additional compensation.
1.3 Full Time. Mr. Vahaviolos shall devote all of his business time, attention,
knowledge and skills faithfully and to the best of his ability to the performance of the duties and
responsibilities of his employment under this Agreement. It is understood that Mr. Vahaviolos may
desire to serve as a member of or advisor to the board of directors or other governing body of one
or more other corporations or business entities. Mr. Vahaviolos will be permitted to do so, subject
to the prior written consent of the Board or the Compensation Committee of the Board (the
Compensation Committee), which consent will not be unreasonably withheld. Mr. Vahaviolos may
engage in
- 1 -
personal, charitable and passive investment activities, so long as such other activities
do not conflict or interfere with his obligations to, or his ability to perform the duties and
responsibilities of his employment with, the Company.
1.4 Company Policies. Mr. Vahaviolos will observe and adhere to all applicable written
Company policies and procedures in effect from time to time, including, without limitation,
policies on business ethics and conduct, and policies on the use of inside information and insider
trading.
2. Compensation.
2.1 Base Salary. During the Term, the Company will pay a base salary (Base Salary)
to Mr. Vahaviolos at an initial annual rate of $345,000, in accordance with its regular payroll
practices. The Board and/or the Compensation Committee will review Mr. Vahavioloss Base Salary at
least annually. The Board or the Compensation Committee, acting in its discretion, may increase
(but may not decrease) Mr. Vahavioloss Base Salary in effect at any time during the Term.
2.2 Short Term Incentive Awards. Mr. Vahaviolos will be eligible for an annual short
term incentive award under the Companys short term or other annual incentive plan applicable to
senior executives generally, with an annual target incentive opportunity equal to 75% of Mr.
Vahavioloss Base Salary (with actual bonus ranging from 0 to 150% of Base Salary, depending upon
the extent to which the performance target is or is not attained). The performance criteria for the
Companys annual incentive awards for any year will be established and communicated by the Company
before or as soon as practicable after the beginning of the year. The short term incentive award,
if any, earned by Mr. Vahaviolos for any year will be payable consistent with the payment of annual
incentive compensation to senior executives generally.
2.3 Long Term Incentive Award. The Company will issue to Mr. Vahaviolos a one-time
stock option award covering
150,000 shares of Company common stock at an exercise price
per share of $175.00, which award will become vested in four equal annual increments
beginning on the first anniversary of the date hereof, subject to Mr. Vahavioloss continuing
employment or other service with the Company through the applicable vesting date.
3. Benefits and Expenses.
3.1 General. Mr. Vahaviolos will be entitled to participate in such qualified and
nonqualified employee pension plans, stock option or other equity or long term incentive
compensation plans, group health, long term disability and group life insurance plans,
- 2 -
and any
other welfare and fringe benefit plans, arrangements, programs and perquisites sponsored or
maintained by the Company from time to time for the benefit of any other
employee of the Company. Mr. Vahaviolos shall be entitled to four weeks annual vacation, to
be taken in accordance with the vacation policy of the Company applicable to its senior management
generally.
3.2 Specific Items. Unless the Board determines otherwise, during the Term Mr.
Vahaviolos will receive the additional benefits and perquisites described below.
(a) Home Office. The Company will provide such computer and other electronic equipment
and services as are reasonably required in order to enable Mr. Vahaviolos to tend to the business
of the Company outside of regular business hours and when he is otherwise away from the Companys
offices.
(b) Life Insurance Coverage. The Company will pay the annual premium cost of a $1.5
million term life insurance policy on the life of Mr. Vahaviolos (which policy will be owned by Mr.
Vahaviolos or his designee).
3.3 Conditions of Employment. Mr. Vahavioloss place of employment will be at the
Companys headquarters at Princeton Junction, New Jersey, subject to the need for business travel
in connection with the performance of his duties. The conditions of Mr. Vahavioloss employment,
including, without limitation, office space and accoutrements, secretarial, administrative and
other support, will be consistent with his status as the Executive Chairman of the Board and Chief
Executive Officer. Mr. Vahaviolos will be entitled to first-class travel for business travel
outside of the continental United States.
3.4 Reimbursement of Business Expenses. Mr. Vahaviolos is authorized to incur
reasonable expenses in carrying out his duties and responsibilities under this Agreement, and the
Company will promptly reimburse him for all expenses that are so incurred upon presentation of
appropriate vouchers or receipts, subject to the Companys expense reimbursement policies
applicable to senior executive officers generally as in effect from time to time.
4. Termination of Employment Before End of Term.
4.1 Resignation. Mr. Vahaviolos may terminate his employment before the end of the
Term upon 60 days prior written notice to the Company. Upon receipt of such notice, the Company, at
its sole discretion, may relieve Mr. Vahaviolos of his active duties and may require Mr. Vahaviolos
to use any accrued and unused paid time off, including vacation, during the notice period. The
Company may also waive such notice, and/or set an earlier termination date upon receipt of such
notice, in which event Mr. Vahavioloss employment will terminate on the earlier termination date.
4.2 Termination by the Company for Cause. The Company may terminate Mr. Vahavioloss
employment at any time for Cause if Mr. Vahaviolos:
- 3 -
(a) is convicted of or pleads nolo contendre to a felony or is indicted for the commission of
a felony against the Company that has a materially adverse effect on the Companys business;
(b) commits fraud or a material act or omission involving dishonesty with respect to the
Company, as reasonably determined by the Company;
(c) willfully fails or refuses to carry out the material responsibilities of his employment,
as reasonably determined by the Company; or
(d) willfully engages in any act or omission that is in violation of a material policy of the
Company, including, without limitation, policies on business ethics and conduct, and policies on
the use of inside information and insider trading.
A decision to terminate Mr. Vahavioloss employment for Cause must be made, if at all, by the
affirmative vote of a majority of the members of the Board (not including Mr. Vahaviolos) at a
meeting of the Board called and held for such purpose (after reasonable notice to Mr. Vahaviolos
and an opportunity for Mr. Vahaviolos, together with counsel, to be heard before the Board) finding
that, in the good faith opinion of the Board, Mr. Vahaviolos engaged in conduct set forth above and
specifying the particulars thereof in reasonable detail. If the act or omission giving rise to the
termination for Cause is curable by Mr. Vahaviolos, the Board will provide 30 days written notice
to Mr. Vahaviolos of its intent to terminate Mr. Vahaviolos for Cause, with an explanation of the
reason(s) for the termination for Cause, and if Mr. Vahaviolos cures the act or omission within the
30 day notice period (as reasonably determined by the Board in its good faith discretion), the
Board will rescind the notice of termination and Mr. Vahavioloss employment will not be terminated
for Cause at the end of the 30 day notice period. If Mr. Vahaviolos has previously been afforded
the opportunity to cure particular behavior and successfully cured under this provision, the Board
will have no obligation to provide Mr. Vahaviolos with notice and an opportunity to cure a
recurrence of that behavior prior to a termination for Cause. For purposes of this Section, no act
or failure to act by Mr. Vahaviolos shall be deemed willful unless done, or omitted to be done,
by him not in good faith and without reasonable belief that such action of omission was in, or not
opposed to, the best interest of the Company.
4.3 Termination by the Company Without Cause. The Company may terminate Mr.
Vahavioloss employment without Cause at any time before the end of the Term, subject to 60 days
prior written notice to Mr. Vahaviolos. Following such notice, the Company, at its sole discretion,
may relieve Mr. Vahaviolos of his active duties and require Mr. Vahaviolos to use any accrued and
unused paid time off, including vacation, during the notice period. The Company may at its sole
discretion also provide 60 days pay in lieu of notice. For the purposes hereof, the termination of
this Agreement at the expiration of the initial Term or a renewal Term due to non-renewal by the
Company pursuant to Section 1.1 will be deemed to be a termination of Mr. Vahavioloss employment
by the Company without Cause.
- 4 -
4.4 Termination by Mr. Vahaviolos for Good Reason. Mr. Vahaviolos may terminate his
employment for Good Reason at any time (before the end of the Term) if:
(a) there is a material adverse change in Mr. Vahavioloss status or position as Executive
Chairman of the Board and Chief Executive Officer of the
Company, including, without limitation, a material diminution of his position, duties,
responsibilities or authority or the assignment to him of duties or responsibilities that are
materially inconsistent with his status or position; or
(b) a reduction in Mr. Vahavioloss annual Base Salary or failure to pay same; or
(c) a reduction in Mr. Vahaviolos total target incentive award opportunity during a calendar
year in violation of Section 2; or
(d) a breach by the Company of any of its material obligations under this Agreement; or
(e) the relocation of Mr. Vahavioloss principal place of employment by more than 50 miles
from the then current location; or
(f) in connection with a Change in Control, the failure or refusal by the successor or
acquiring company to expressly assume the obligations of the Company under this Agreement.
Before terminating his employment for Good Reason, Mr. Vahaviolos must specify in writing to the
Company (or the successor or acquiring company) the nature of the act or omission that Mr.
Vahaviolos deems to constitute Good Reason and provide the Company (or the successor or acquiring
company) 30 days after receipt of such notice to review and, if required, correct the situation
(and thus prevent Mr. Vahavioloss termination for Good Reason). Notice of termination for Good
Reason must be provided, if at all, within 90 days after the occurrence of the event or condition
giving rise to such termination.
4.5 Termination Due to Disability. If Mr. Vahaviolos becomes Disabled, the Company
may terminate his employment. For this purpose, Mr. Vahaviolos will be considered Disabled if Mr.
Vahaviolos is unable to substantially perform the customary duties and responsibilities of his
employment for 150 consecutive calendar days or 150 or more calendar days during any 365 calendar
day period by reason of physical or mental incapacity which is expected to result in death or last
indefinitely, as determined by a duly licensed physician selected by the Company. Mr. Vahaviolos
acknowledges that, if he becomes Disabled under the preceding definition, he will have become
unable to perform the essential functions of his position and there would be no reasonable
accommodation which would not constitute an undue hardship to the Company that the Company could
make due to the nature of his position. Mr. Vahavioloss termination due to Disability will be
effective immediately upon the Company mailing or transmitting written notice of such termination
to Mr. Vahaviolos.
- 5 -
4.6 Termination Due to Death. If Mr. Vahaviolos dies during the term of this
Agreement, his employment and this Agreement will terminate on the date of his death.
5. Payments and Benefits Upon Termination of Employment.
5.1 Termination of Employment by the Company without Cause or by Mr. Vahaviolos for Good
Reason. If Mr. Vahavioloss employment is terminated by the Company without Cause pursuant to
Section 4.3 or by Mr. Vahaviolos for Good Reason pursuant to Section 4.4, then, subject to Section
7, Mr. Vahaviolos shall be entitled to receive the following payments and benefits:
(a) a single cash payment equal to the sum of (1) the unpaid amount, if any, of Base Salary
previously earned by Mr. Vahaviolos through the date of his termination, and (2) the unpaid amount,
if any, of the short term incentive award earned by Mr. Vahaviolos for the preceding year;
(b) payment of any business expenses that were previously incurred but not reimbursed and are
otherwise eligible for reimbursement;
(c) any payments or benefits which are payable to Mr. Vahaviolos or his covered spouse, or a
dependent or beneficiary of Mr. Vahaviolos, under and in accordance with the provisions of any
employee plan, program or arrangement of the Company, and settlement of any previously earned and
unpaid long-term incentive awards;
(d) a cash payment equal to the product of (1) the short term incentive award (if any) that
would have been earned by Mr. Vahaviolos for the calendar year in which his employment terminates
if his employment had not terminated, multiplied by (2) a fraction, the numerator of which is the
number of days elapsed from the beginning of that calendar year until the date his employment
terminates, and the denominator of which is 365 (Pro Rata Bonus), which payment will be made when
the bonus for such calendar year would otherwise have been paid;
(e) a single sum cash payment, to be made as soon as practicable (but not more than thirty
days) following termination of employment, of an amount equal to 1.0 times the sum of (1) the
highest annual rate of Mr. Vahavioloss Base Salary at any time during the 24 months preceding the
termination of his employment, and (2) Mr. Vahavioloss target short term incentive award for the
calendar year in which his employment terminates (or, if greater, the actual annual short term
incentive award earned by Mr. Vahaviolos for the preceding calendar year);
(f) Mr. Vahaviolos will be deemed to have satisfied in full any service-based vesting
condition under any then outstanding long-term incentive awards (including, without limitation, the
initial incentive award described in Section 2.3(a) hereof), with the amount payable under any then
outstanding performance-based awards being determined at the end of the applicable performance
period as if Mr. Vahavioloss employment had continued;
- 6 -
(g) if, immediately before the termination of his employment, Mr. Vahaviolos and/or his spouse
participates (other than via COBRA) in a Company group health plan, then, for the 24 months
following the date of such termination (or, if sooner, until corresponding coverage is obtained
under a successor employers plan),
Mr. Vahaviolos and/or such spouse may continue participating in such plan at the same benefit and
contribution levels applicable to active senior executives of the Company (which continuing
participation will be deemed to be in addition to and not in lieu of COBRA), or, if such coverage
is not permitted by the plan or by applicable law, the Company will provide COBRA continuation
coverage to Mr. Vahaviolos and his spouse at the Companys sole expense, if and to the extent they
or either of them shall have elected and shall be entitled to receive COBRA continuation coverage;
(h) the Company will continue to make the premium payments and the additional compensation
payments described in Section 3.2(c) with respect to the life insurance policy on Mr. Vahavioloss
life for 24 months following the termination of his employment or until his earlier death; and
(i) Mr. Vahaviolos will continue to receive for a period of 24 months after the termination of
his employment such perquisites (including, without limitation, any financial planning services),
as were made available to him at any time during the 12 months preceding the termination of his
employment.
5.2 Termination Due to Disability or Death. If Mr. Vahavioloss employment is
terminated by the Company due to Disability pursuant to Section 4.5, or if Mr. Vahavioloss
employment terminates by reason of his death, then, subject to Section 7, Mr. Vahaviolos (or his
beneficiary, as the case may be) shall be entitled to receive the following payments and benefits:
(a) a single cash payment equal to the sum of (1) the unpaid amount, if any, of Base Salary
previously earned by Mr. Vahaviolos through the date of his termination, and (2) the amount of any
business expenses that were previously incurred but not reimbursed and are otherwise eligible for
reimbursement;
(b) any payments or benefits which are payable to Mr. Vahaviolos, his spouse or any of his
dependents or any beneficiary under and in accordance with the provisions of any employee plan,
program or arrangement of the Company;
(c) a single sum cash payment equal to the sum of (1) an amount equal to six months Base
Salary, (2) the unpaid amount, if any, of the short term incentive award earned by Mr. Vahaviolos
for the preceding year, and (3) an amount equal to his target bonus for the year multiplied by a
fraction, the numerator of which is the number of days elapsed from the beginning of that calendar
year until the date his employment terminates, and the denominator of which is 365;
(d) Mr. Vahaviolos will be deemed to have satisfied in full any service-based vesting
condition under any then outstanding long-term incentive awards
- 7 -
(including, without limitation, the
initial incentive award described in Section 2.3(a) hereof), with the amount payable under any then
outstanding performance-based awards being determined at the end of the applicable performance
period as if Mr. Vahavioloss employment had continued;
(e) Access to continuing group health plan coverage as described in Section 5.1(g); and
(f) If Mr. Vahavioloss employment is terminated due to his Disability, the Company will
continue to make the premium payments and the additional compensation payments described in Section
3.2(c) with respect to the life insurance policy on Mr. Vahavioloss life for 24 months following
the termination of his employment or until his earlier death.
5.3 Termination by the Company for Cause or Voluntary Termination by Mr. Vahaviolos.
If the Company terminates Mr. Vahavioloss employment for Cause pursuant to Section 4.3 or if Mr.
Vahaviolos resigns his employment before the end of the Term (other than a termination by Mr.
Vahaviolos for Good Reason pursuant to Section 4.4), then Mr. Vahaviolos shall not be entitled to
any additional payments or benefits except for payments and benefits, if any, that may have been
earned and are or will be payable under and in accordance with the terms of any employee benefit
plan in which Mr. Vahaviolos is a participant when his employment terminates.
6. Change in Control.
6.1 General. Except as otherwise specified in this Section 6, Mr. Vahaviolos will not
be entitled to any additional rights, payments or benefits as a result of a Change in Control (as
defined in Section 6.4 below), it being understood, however, that, except as otherwise enhanced
pursuant to this Section 6, the provisions of this Agreement, including, without limitation, the
provisions of Sections 4 and 5 (relating to the termination of Mr. Vahavioloss employment) will
continue in full force and effect subsequent to any such Change in Control. Notwithstanding the
foregoing, if (a) within two years after a Change in Control, Mr. Vahavioloss employment is
terminated by the Company without Cause or by Mr. Vahaviolos for Good Reason, or (b) within six
months before a Change in Control, Mr. Vahavioloss employment is terminated by the Company without
Cause at the request of the acquiring company or otherwise in contemplation of the Change in
Control, then (1) the Pro Rata Bonus element of Mr. Vahavioloss severance, as described in Section
5.1(d) above, will be determined with reference to Mr. Vahavioloss target short term incentive
bonus for the year of termination and payment of the Pro Rata Bonus will be made in a lump sum cash
payment at or promptly after the time of such termination or, if later, immediately prior to the
occurrence of the Change in Control, and (2) the amount of the single sum cash payment described in
Section 5.1(e) will be 200% of the amount that would otherwise be payable in accordance with said
Section 5.1(e) (i.e., the severance multiple will be equal to 2.0, as opposed to 1.0).
- 8 -
6.2 Effect of a Change in Control on Long-Term Incentive Awards. All equity-based
incentive awards granted by the Company to Mr. Vahaviolos shall become fully vested immediately
before the occurrence of a Change in Control if (a) Mr. Vahaviolos is then still employed by or in
the service of the Company, or (b) within six months preceding the Change in Control, Mr.
Vahavioloss employment is terminated by the
Company without Cause or by him for Good Reason; with the payout under any performance-based
award being equal to the target amount.
6.3 Gross-Up Payments.
(a) General. Except as otherwise specified in this Section, if any payment or benefit
received or to be received by Mr. Vahaviolos from the Company pursuant to the terms of this
Agreement, when combined with the payments and benefits Mr. Vahaviolos is entitled to receive under
any other plan, program or arrangement (the Payments) would be subject to the excise tax (the
Excise Tax) imposed by Section 4999 of the Internal Revenue Code (the Code) as determined
below, the Company shall pay Mr. Vahaviolos, at the time(s) specified below, an additional amount
(the Gross-Up Payment) such that the net amount Mr. Vahaviolos retains, after deduction of the
Excise Tax on the Payments and any federal, state, and local income tax and the Excise Tax upon the
Gross-Up Payment, and any interest, penalties, or additions to tax payable by Mr. Vahaviolos with
respect thereto, shall be equal to the total present value (using the applicable federal rate (as
defined in section 1274(d) of the Code) in such calculation) of the Payments at the time such
Payments are to be made.
(b) Calculations. For purposes of determining whether any of the Payments shall be
subject to the Excise Tax and the amount of such excise tax:
(i) the total amount of the Payments shall be treated as parachute payments within the
meaning of section 280G(b)(2) of the Code, and all excess parachute payments within the meaning
of section 280G(b)(1) of the Code shall be treated as subject to the excise tax, except to the
extent that, in the written opinion of independent counsel or an independent national accounting
firm selected by the Company and reasonably acceptable to Mr. Vahaviolos (Independent Adviser), a
Payment (in whole or in part) does not constitute a parachute payment within the meaning of
section 280G(b)(2) of the Code, or such excess parachute payments (in whole or in part) are not
subject to the Excise Tax;
(ii) the amount of the Payments that shall be subject to the Excise Tax shall be equal to the
lesser of (1) the total amount of the Payments or (2) the amount of excess parachute payments
within the meaning of section 280G(b)(1) of the Code (after applying clause (i), above); and
(iii) the value of any non-cash benefits or any deferred payment or benefit shall be
determined by the Independent Adviser in accordance with the principles of section 280G(d)(3) and
(4) of the Code.
- 9 -
(c) Tax Rates. For purposes of determining the amount of the Gross-Up Payment, Mr.
Vahaviolos shall be deemed to pay federal income taxes at the highest marginal rates of federal
income taxation applicable to individuals in the calendar year in which the Gross-Up Payment is to
be made and state and local income taxes, if any, at the highest marginal rates of taxation
applicable to individuals as are in
effect in the state and locality of his residence in the calendar year in which the Gross-Up
Payment is to be made, net of the maximum reduction in federal income taxes that can be obtained
from deduction of such state and local taxes, taking into account any limitations applicable to
individuals subject to federal income tax at the highest marginal rates.
(d) Time of Gross-Up Payments. The Gross-Up Payments provided for in this Section
shall be made upon the earlier of (a) the payment to Mr. Vahaviolos of any Payment or (b) the
imposition upon Mr. Vahaviolos, or any payment by him, of any Excise Tax.
(e) Adjustments to Gross-Up Payments. If it is established pursuant to a final
determination of a court or an Internal Revenue Service proceeding or the written opinion of the
Independent Adviser that the Excise Tax is less than the amount previously taken into account
hereunder, Mr. Vahaviolos shall repay the Company, within 30 days of his receipt of notice of such
final determination or opinion, the portion of the Gross-Up Payment attributable to such reduction
(plus the portion of the Gross-Up Payment attributable to the Excise Tax and federal, state, and
local income tax imposed on the Gross-Up Payment being repaid by Mr. Vahaviolos if such repayment
results in a reduction in Excise Tax or a federal, state, and local income tax deduction) plus any
interest received from the government by Mr. Vahaviolos on the amount of such repayment, provided
that if any such amount has been paid by Mr. Vahaviolos as an Excise Tax or other tax, he shall
cooperate with the Company in seeking a refund of any tax overpayments, and he shall not be
required to make repayments to the Company until the overpaid taxes and interest thereon are
refunded to him.
(f) Additional Gross-Up Payment. If it is established pursuant to a final
determination of a court or an Internal Revenue Service proceeding or the written opinion of the
Independent Adviser that the Excise Tax exceeds the amount taken into account hereunder (including
by reason of any payment the existence or amount of which cannot be determined at the time of the
Gross-Up Payment), the Company shall make an additional Gross-Up Payment in respect of such excess
within 30 days of the Companys receipt of notice of such final determination or opinion.
(g) Change in Law or Interpretation. In the event of any change in or further
interpretation of section 280G or 4999 of the Code and the regulations promulgated thereunder, Mr.
Vahaviolos shall be entitled, by written notice to the Company, to request a written opinion of the
Independent Adviser regarding the application of such change or further interpretation to any of
the foregoing, and the Company shall use its best efforts to cause such opinion to be rendered as
promptly as practicable.
- 10 -
(h) Fees and Expenses. All fees and expenses of the Independent Adviser incurred in
connection with this section shall be borne by the Company.
(i) Survival. The Companys obligation to make a Gross-Up Payment with respect to
Payments made or accrued before the termination of this Agreement
shall survive the termination of the Agreement unless (1) Mr. Vahavioloss employment is
terminated by the Company for Cause or voluntarily by Mr. Vahaviolos without Good Reason, (2) Mr.
Vahaviolos fails to execute a release in accordance with Section 7.1 of this Agreement, or (c) Mr.
Vahaviolos fails to comply with the restrictive covenants contained in Section 8 of this Agreement,
in which event the Companys obligation under this Section shall terminate immediately.
6.4 Reduction of Separation Payments in Lieu of Gross-Up. If it shall be determined
that Mr. Vahaviolos is otherwise entitled to a Gross-Up Payment pursuant to Section 6.3, but that
the Parachute Value (as defined below) of all Payments does not exceed 110% of the Safe Harbor
Amount (as defined below), then Mr. Vahaviolos shall not be entitled to any payment under Section
6.3 and, instead, the amounts otherwise payable to Mr. Vahaviolos under this Agreement (and, if
necessary, under any other agreement or arrangement) shall be reduced so that the Parachute Value
of all Payments, in the aggregate, equals the Safe Harbor Amount. The reduction of amounts
otherwise payable to Mr. Vahaviolos, if applicable, shall be made by first reducing the payment
under Section 5.1(e), unless an alternative method of reduction is elected by Mr. Vahaviolos and
permitted by the Company. For the purposes hereof, (a) the term Parachute Value of a Payment
means the present value as of the date of the Change in Control for purposes of Section 280G of the
Code of the portion of such Payment that constitutes a parachute payment under Section
280G(b)(2), as determined by the Independent Adviser for purposes of determining whether and to
what extent the Excise Tax will apply to such Payment; and (b) the term Safe Harbor Amount means
the maximum Parachute Value of all Payments that Mr. Vahaviolos can receive without any Payments
being subject to the Excise Tax.
6.5 Definition of Change in Control. For the purposes of this Agreement, a Change in
Control shall be deemed to have occurred if (a) any person (within the meaning of Section 13(d)(3)
or 14(d)(2) of the Securities Exchange Act of 1934, as amended (Exchange Act)), other than Mr.
Vahaviolos, the Company, any employee benefit plan of the Company, any entity owned directly or
indirectly by the shareholders of the Company in substantially the same proportion as their
ownership of stock of the Company or any person who becomes a beneficial owner directly or
indirectly of securities of the Company pursuant to a transaction described in (b) below, becomes
the beneficial owner (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of
securities of the Company (not including in the securities beneficially owned by such person any
securities acquired directly from the Company or its affiliates) representing 40% or more of the
combined voting power of the Companys then outstanding voting securities; or (b) there shall have
been consummated a consolidation, merger or reorganization of the Company, unless (1) the
stockholders of the Company immediately before such consolidation, merger or reorganization own,
- 11 -
directly or indirectly, at least a majority of the combined voting power of the outstanding voting
securities of the corporation or other entity resulting from such consolidation, merger or
reorganization, (2) individuals who were members of the Board immediately prior to the execution of
the agreement providing for such consolidation, merger or reorganization constitute a majority of
the board of directors of the surviving corporation or of a corporation directly or indirectly
beneficially owning a majority of the voting
securities of the surviving corporation, and (3) no person beneficially owns more than 50% of
the combined voting power of the then outstanding voting securities of the surviving corporation
(other than a person who is (A) the Company or a subsidiary of the Company, (B) an employee benefit
plan maintained by the Company, the surviving corporation or any subsidiary, or (C) the beneficial
owner of 50% or more of the combined voting power of the outstanding voting securities of the
Company immediately prior to such consolidation, merger or reorganization); or (c) individuals who
are set forth as directors or director nominees of the Company in Amendment No. 3 to the
Registration Statement on Form S-1, as filed on August 24, 2009 (the Registration Statement),
with the Securities and Exchange Commission (the Incumbent Board) cease for any reason to
constitute a majority of the Board, provided that any individual becoming a director subsequent to
the date of the closing of the initial public offering of the common stock of the Company pursuant
to the Registration Statement, as subsequently amended, whose appointment or nomination for
election by the Companys stockholders, was approved by a vote of at least two-thirds of the
Incumbent Board shall be considered as though such individual were a member of the Incumbent Board;
or (d) the stockholders of the Company approve the complete liquidation or dissolution of the
Company, or a sale or other disposition of all or substantially all of the assets of the Company
(other than to an entity described in (b) above).
7. Release of Claims; Restoration of Payments; Section 409A Delayed Payments.
7.1 Release. Notwithstanding anything to the contrary contained herein, Mr.
Vahavioloss right to receive any and all separation payments or
benefits under Section 5.1(d)
5.1(i), 5.2(c) 5.2(f), 6.1, 6.2 and/or 6.3 shall be conditioned on the execution and delivery of
a reasonable and customary form of general release by Mr. Vahaviolos in favor of the Company, its
affiliates and their officers, directors and employees, in such form as the Compensation Committee
or the Board may specify. Any such payment or benefit shall be deferred until the expiration of the
seven day revocation period prescribed by the Age Discrimination in Employment Act of 1967, as
amended, or any similar revocation period in effect on the effective date of the termination of Mr.
Vahavioloss employment.
7.2 Restoration of Payments. Mr. Vahavioloss right to receive any separation payments
and benefits pursuant to this Agreement shall be subject to his substantial compliance with the
non-competition and non-solicitation restrictive covenants set forth in Section 8.5. If Mr.
Vahaviolos fails to substantially comply with such covenants set forth in Section 8.5, then (a) Mr.
Vahaviolos shall not be entitled to any further separation payments and benefits under this
Agreement, and (b) the Company may
- 12 -
seek to obtain the return by Mr. Vahaviolos of any separation
payments and the value of any separation benefits previously received hereunder. This Section shall
not in any manner supersede or limit any other right the Company may have to enforce or seek legal
or equitable relief with respect to a violation or breach by Mr. Vahaviolos of the covenants set
forth in Section 8.5 or the right of Mr. Vahaviolos to otherwise receive payments to which he is
entitled. The Company shall not have the right of set off in connection with the enforcement of its
rights hereunder.
7.3 Section 409A Delayed Payment Requirements. Notwithstanding any provision to the
contrary in this Agreement or in any employee plan or other agreement, plan, policy or program of
the Company, any payment otherwise required to be made to Mr. Vahaviolos on account of his
separation from service (including, without limitation, payments and benefits payable under Section
5.1), to the extent such payment is properly treated as deferred compensation subject to Section
409A of the Internal Revenue Code of 1986 and the regulations and other applicable guidance issued
by the Internal Revenue Service thereunder, shall be delayed until the first business day after the
expiration of six months from the date of the termination of Mr. Vahavioloss employment or, if
earlier, the date of his death. On the delayed payment date, there shall be paid to Mr. Vahaviolos
(or his estate, as the case may be) in a single cash payment an amount equal to the aggregate
amount of the payments delayed pursuant to the preceding sentence. Notwithstanding the foregoing,
Mr. Vahaviolos shall be solely responsible, and the Company shall have no liability, for any taxes,
acceleration of taxes, interest or penalties arising under Section 409A of the Code.
8. Restrictive Covenants.
8.1 Access to Secret and Confidential Information. The Company has furnished and shall
furnish to Mr. Vahaviolos secret and confidential information with respect to the Company and its
affiliates (collectively Secret and Confidential Information), to which Mr. Vahaviolos would not
otherwise have access and of which Mr. Vahaviolos would not otherwise have knowledge. Secret and
Confidential Information includes, without limitation, technical and business information, whether
patentable or not, which is of a confidential, trade secret or proprietary character, and which is
either developed by Mr. Vahaviolos alone, with others or by others; lists of customers; identity of
customers; identity of prospective customers; contract terms; bidding information and strategies;
pricing methods or information; computer software; computer software methods and documentation;
hardware; methods of operation; the procedures, forms and techniques used in servicing accounts;
and other information or documents that the Company or any of its affiliates requires to be
maintained in confidence for its or their continued business success.
8.2 Non-Disclosure of Secret and Confidential Information. Mr. Vahaviolos shall not,
during the period of his employment with the Company or at any time thereafter, knowingly or
intentionally disclose to anyone, including, without limitation, any person, firm, corporation, or
other entity, or publish, or use for any purpose, any Secret and Confidential Information, except
as properly required in the ordinary
- 13 -
course of the Companys business or as directed and authorized
by the Company or as required by court order, law or subpoena, or other legal compulsion to
disclose, it being understood that information that is known generally in the industry or is
otherwise available to the public (other than as a result of a violation of Mr. Vahavioloss
obligation under this Section 8.2) shall not be considered Secret and Confidential Information.
8.3 Duty to Return Company Documents and Property. Upon the termination of Mr.
Vahavioloss employment with the Company for any reason, Mr. Vahaviolos shall immediately return
and deliver to the Company any and all papers, books, records,
documents, memoranda and manuals, e-mail, electronic or magnetic recordings or data, including
all copies thereof, belonging to the Company or relating to its business, in Mr. Vahavioloss
possession, whether prepared by Mr. Vahaviolos or others. If at any time after the termination of
employment, Mr. Vahaviolos determines that he has any Secret and Confidential Information in his
possession or control, Mr. Vahaviolos shall immediately return to the Company all such Secret and
Confidential Information, including all copies and portions thereof.
8.4 Inventions. Any and all writings, computer software, inventions, improvements,
processes, procedures and/or techniques which Mr. Vahaviolos may make, conceive, discover, or
develop, either solely or jointly with any other person or persons, at any time during the term of
his employment, whether at the request or upon the suggestion of the Company or otherwise, which
relate to or are useful in connection with any business now or hereafter carried on or contemplated
by the Company, including developments or expansions of its present fields of operations, shall be
the sole and exclusive property of the Company. Mr. Vahaviolos shall take all actions necessary so
that the Company can prepare and present applications for copyright or letters patent therefor, and
can secure such copyright or letters patent wherever possible, as well as reissue renewals, and
extensions thereof, and can obtain the record title to such copyright or patents. Mr. Vahaviolos
shall not be entitled to any additional or special compensation or reimbursement regarding any such
writings, computer software, inventions, improvements, processes, procedures and techniques. Mr.
Vahaviolos acknowledges that the Company from time to time may have agreements with other persons
or entities which impose obligations or restrictions on the Company regarding inventions made
during the course of work thereunder or regarding the confidential nature of such work. Mr.
Vahaviolos shall be bound by all such obligations and restrictions and take all action necessary to
discharge the obligations of the Company.
8.5 Non-Solicitation and Non-Competition Restrictions. To protect the Companys Secret
and Confidential Information, and in the event of Mr. Vahavioloss termination of employment for
any reason whatsoever, whether by Mr. Vahaviolos or the Company, Mr. Vahaviolos will be subject to
the following restrictive covenants during and for the stated period following the termination of
his employment.
(a) Non-Competition. For two years following the termination of Mr. Vahavioloss
employment with the Company, Mr. Vahaviolos shall not, without the prior
- 14 -
written consent of the
Company, knowingly or intentionally (1) personally engage in Competitive Activities (as defined
below); or (2) work for, own, manage, operate, control, or participate in the ownership,
management, operation, or control of, or provide consulting or advisory services to, any person,
partnership, firm, corporation, institution or other entity engaged in Competitive Activities, or
any company or person affiliated with such person or entity engaged in Competitive Activities;
provided that Mr. Vahavioloss purchase or holding, for investment purposes, of securities of a
publicly traded company shall not constitute ownership or participation in the ownership for
purposes of this paragraph so long as such equity interest in any such company is not more than 5%
of the value of the outstanding stock or 5% of the outstanding voting
securities of said publicly traded company. For the avoidance of doubt, this subsection (a)
shall not prohibit Mr. Vahaviolos from being employed by, or providing services to, a consulting
firm, provided that Mr. Vahaviolos does not personally engage in Competitive Activities or provide
consulting or advisory services to any individual, partnership, firm, corporation, institution or
other entity engaged in Competitive Activities, or any person or entity affiliated with such
individual, partnership, firm, corporation, institution or other entity engaged in Competitive
Activities.
(b) Competitive Activities. For the purposes hereof, the term Competitive Activities
means activities relating to products or services of the same or similar type as the products or
services which are sold (or, pursuant to an existing business plan, will be sold) to paying
customers of the Company or any affiliate. Notwithstanding the previous sentence, an activity shall
not be treated as a Competitive Activity if the geographic marketing area of the relevant products
or services does not overlap with the geographic marketing area for the applicable products and
services of the Company and its affiliates.
(c) Interference With Business Relations For two years following his separation
from employment with Company, Mr. Vahaviolos shall not, without the prior written consent of the
Company, knowingly or intentionally, directly or indirectly:
(i) recruit, induce or solicit any individual who is or who, within the preceding six months,
was a non-clerical employee of the Company (including any of its subsidiaries) for employment or
for retention as a consultant or service provider, or hire any such individual; or
(ii) solicit or induce any client, customer, or prospect of the Company (including any
subsidiary of the Company) (1) to cease being, or not to become, a customer of the Company (or any
such subsidiary), or (2) to divert any business of such customer or prospect from the Company (or
any such subsidiary).
8.6 Reformation. If a court concludes that any time period and/or the geographic area
specified in Section 8.5 is unenforceable, then the time period will be reduced by the number of
months, or the geographic area will be reduced by the elimination of the overbroad portion, or
both, as the case may be, so that the
- 15 -
restrictions may be enforced in the geographic area and for
the time to the fullest extent permitted by law.
8.7 Remedies. It is intended that, in view of the nature of the Companys business,
the restrictions contained in this Section 8 of the Agreement shall be considered reasonable and
necessary to protect the Companys legitimate business interests and that any violation of these
restrictions would result in irreparable injury to the Company. In the event of a breach or a
threatened breach by Mr. Vahaviolos of any restrictive covenant contained herein, the Company shall
be entitled to a temporary restraining order and injunctive relief restraining Mr. Vahaviolos from
the commission of any breach, and to recover the Companys attorneys fees, costs and expenses
related to the breach or threatened breach. Nothing contained herein shall be
construed as prohibiting the Company from pursuing any other remedies available to it for any
breach or threatened breach, including, without limitation, the restoration and other remedies
specified in this Agreement and/or the recovery of money damages, attorneys fees, and costs. These
covenants and restrictions shall each be construed as independent of any other provisions in the
Agreement, and the existence of any claim or cause of action by Mr. Vahaviolos against the Company,
whether predicated on this Agreement or otherwise, shall not constitute a defense to the
enforcement by the Company of such covenants and restrictions.
8.8 Severability. Should a court determine that any paragraph or sentence, or any
portion of a paragraph or sentence of this Section 8 is invalid, unenforceable, or void, this
determination shall not have the effect of invalidating or validating the remainder of the
paragraph, sentence or any other provision of this Section 8. Further, it is intended that the
court should construe this Section 8 by limiting and reducing it only to the extent necessary to be
enforceable under then applicable law, taking into account the intent of the parties.
8.9 Future Employment. If, before the expiration of the period covered by Section 8.5
hereof, Mr. Vahaviolos seeks or is offered employment by any other company, firm, person or entity,
Mr. Vahaviolos shall provide a copy of this Section 8 to the prospective employer before accepting
employment with that prospective employer.
9. No Duty to Mitigate. Except as otherwise specifically provided herein, Mr.
Vahavioloss entitlement to payments or benefits upon or following the termination of his
employment will not be subject to mitigation or a duty to mitigate by Mr. Vahaviolos.
10. Successors and Beneficiaries.
10.1 Successors and Assigns of the Company. The Company shall require any successor or
assignee, whether direct or indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Company and its subsidiaries taken as a whole,
expressly and unconditionally to assume and agree to perform or cause to be performed the Companys
obligations under this Agreement. In
- 16 -
any such event, the term Company, as used herein shall mean
the Company, as defined above, and any such successor or assignee.
10.2 Mr. Vahavioloss Beneficiary. For the purposes hereof, Mr. Vahavioloss
beneficiary will be the person or persons designated as such in a written beneficiary designation
filed with the Company, which may be revoked or revised in the same manner at any time prior to Mr.
Vahavioloss death. In the absence of a properly filed written beneficiary designation or if no
designated beneficiary survives Mr. Vahaviolos, Mr. Vahavioloss beneficiary will be deemed to be
his surviving spouse, if any, or, if none, his estate.
11. Legal Fees to Enforce Rights after a Change in Control. If, following a Change in
Control, the Company fails to comply with any of its obligations under this Agreement or the
Company takes any action to declare this Agreement void or
unenforceable or institutes any litigation or other legal action designed to deny, diminish or
to recover from Mr. Vahaviolos (or Mr. Vahavioloss beneficiary) the payments and benefits intended
to be provided, then Mr. Vahaviolos (or Mr. Vahavioloss beneficiary, as the case may be) shall be
entitled to select and retain counsel at the expense of the Company to represent Mr. Vahaviolos (or
Mr. Vahavioloss beneficiary) in connection with the good faith initiation or defense of any
litigation or other legal action, whether by or against the Company or any director, officer,
stockholder or other person affiliated with the Company or any successor thereto in any
jurisdiction.
12. Arbitration.
12.1 Dispute Resolution. Except as otherwise specifically provided in Section 8.7
(relating to the ability of a party to seek injunctive or other equitable relief from a court), any
claim or controversy arising out of or relating to this Agreement or the breach hereof shall be
resolved exclusively by arbitration.
12.2 Claim Initiation/Time Limits. A party must notify the other party in writing of a
request to arbitrate a dispute within the same statute of limitations period applicable to the
legal claim asserted. The written request for arbitration must specify (a) the factual basis on
which the claim is made; (b) the statutory provision or legal theory under which the claim is made;
and (c) the nature and extent of any relief or remedy sought.
12.3 Procedures. The arbitration will be administered in accordance with the
Employment Dispute Resolution Rules of the American Arbitration Association (AAA), in the
Princeton, New Jersey metropolitan area (or, if different, in the metropolitan area in which Mr.
Vahaviolos is then or was last employed) before an experienced employment law arbitrator licensed
to practice law in that jurisdiction who has been selected in accordance with such Rules. The
Company will pay the fees of the AAA and the arbitrator and will bear the administrative expenses
of any such arbitration proceeding. Each party may be represented by counsel of its or his own
choosing and at its or his own expense; provided, however, that attorneys fees and costs may be
awarded to a prevailing party in the discretion of the arbitrator. The arbitrators award
- 17 -
will be
enforceable, and a judgment may be entered thereon, in a federal or state court of competent
jurisdiction in the state where the arbitration was held. The decision of the arbitrator will be
final and binding.
13. Governing Law. This Agreement shall be governed by the laws of the State of New
Jersey, excluding its conflict of law rules or any other principle that could require the
application of the law of any other jurisdiction.
14. Indemnification. In the absence of a separate written indemnification agreement
between the Company and Mr. Vahaviolos, the Company shall indemnify Mr. Vahaviolos and hold him
harmless from and against any claim, liability and expense (including, without limitation,
reasonable attorney fees) made against him or incurred by him in connection with his employment by
the Company or his membership on the Board (including, without limitation, service for subsidiaries
or affiliates of the Company
in fulfillment of his duties and responsibilities under this Agreement), to the maximum extent
permitted by applicable law.
15. Withholding. The Company and its Affiliates may withhold from any and all amounts
payable under this Agreement such federal, state and local taxes and other amounts as may be
required to be withheld pursuant to applicable law.
16. Entire Agreement. This Agreement (including any exhibits, schedules and other
documents referred to herein) contains the entire understanding between the parties hereto with
respect to the subject matter hereof and supersedes any prior and/or contemporaneous
understandings, agreements or representations, written or oral, relating to the subject matter
hereof.
17. Counterparts. This Agreement may be executed in separate counterparts, each of
which will be an original and all of which taken together shall constitute one and the same
agreement, and any party hereto may execute this Agreement by signing any such counterpart.
18. Severability. Whenever possible, each provision of this Agreement shall be
interpreted in such a manner as to be effective and valid under applicable law and consistent with
the intention of the parties, and, in furtherance thereof, if any provision of this Agreement is
held to be invalid, illegal or unenforceable under any applicable law or rule, the validity,
legality and enforceability of the other provision of this Agreement will not be affected or
impaired thereby.
19. Modification, Amendment, Waiver or Termination. No provision of this Agreement
may be modified, amended, waived or terminated except by an instrument in writing signed by the
parties to this Agreement. No course of dealing between the parties will modify, amend, waive or
terminate any provision of this Agreement or any rights or obligations of any party under or by
reason of this Agreement. No delay on the part of the Company in exercising any right hereunder
shall operate as a waiver of such right. No waiver, express or implied, by a party of any right or
any breach by the other
- 18 -
party shall constitute a waiver of any other right of such party or breach
by such other party.
IN WITNESS WHEREOF, the parties have executed this Agreement on the date first above written.
|
|
|
|
|
|
|
|
|
MISTRAS GROUP INC. |
|
|
|
|
|
|
|
|
|
|
|
By: |
|
Pete Peterik |
|
|
|
|
|
|
Secretary and Chief
Financial Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/
Sotirios J. Vahaviolos |
|
|
|
|
Sotirios J. Vahaviolos |
|
|
- 19 -
exv10w5
Exhibit 10.5
MISTRAS GROUP INC.
2007 STOCK OPTION PLAN
1. Purpose. The purpose of the Mistras Holdings Group Inc. 2007 Stock Option Plan (the
Plan) is to foster the ability of Mistras Holdings Group Inc. (the Company) and its
subsidiaries to attract, motivate, reward and retain key personnel through the grant of options
(Options) to purchase shares of the Companys common stock (Common Stock).
2. Eligibility. Options may be granted under the Plan to such directors, officers,
employees, consultants and other persons who may perform services for the Company or its
affiliates, as the Committee may select.
3. Aggregate Share Limitation. The Company may issue an aggregate of 56,974 shares
of Common Stock under the Plan, exclusive of (a) shares covered by the unexercised portion of an
Option that is forfeited or otherwise terminates, and (b) shares that are withheld in order to pay
the exercise price or satisfy the tax withholding obligations associated with the exercise of an
Option.
4. Administration.
(a) Committee. The Plan will be administered by the Companys Board of Directors (the
Board) or a committee of one or more members of the Board appointed for this purpose by the Board
(the Board in such capacity or such committee being referred to as the Committee).
(b) Responsibility and Authority of Committee. Subject to the provisions of the Plan,
the Committee, acting in its discretion, will have responsibility and full power and authority to
(i) select the persons to whom Options will be granted under the Plan, (ii) prescribe the terms and
conditions of each Option and make amendments thereto, (iii) construe, interpret and apply the
provisions of the Plan and of any agreement or other document evidencing an Option, and (iv) make
any and all determinations and take any and all other actions as it deems necessary or desirable in
order to carry out the terms of the Plan.
(c) Delegation of Authority. Subject to the requirements of applicable law, the
Committee may delegate to any person or group or subcommittee of persons (who may, but need not be,
members of the Committee) such Plan-related functions within the scope of its responsibility, power
and authority as it deems appropriate.
(d) Committee Actions. A majority of the members of the Committee shall constitute a
quorum. The Committee may act by the vote of a majority of its members present at a meeting at
which there is a quorum or by unanimous written consent. The decision of the Committee as to any
disputed question, including questions of construction, interpretation and administration, shall be
final and conclusive on all persons. The Committee shall keep a record of its proceedings and acts
and shall keep or cause to be kept such books and records as may be necessary in connection with
the proper administration of the Plan.
(e) Indemnification. The Company shall indemnify and hold harmless each member of the
Committee and any employee or director of the Company to whom any duty or
1
power relating to the administration or interpretation of the Plan is delegated from and
against any loss, cost, liability (including any sum paid in settlement of a claim with the
approval of the Board), damage and expense (including legal and other expenses incident thereto)
arising out of or incurred in connection with the Plan, unless and except to the extent
attributable to such persons fraud or willful misconduct.
5. Stock Options. Subject to the terms of the Plan, each Option shall be in such form
and contain such terms and conditions as the Committee shall deem appropriate. The Committee may
grant options that do and options that do not qualify as incentive stock options (ISOs) under
Section 422 of the Internal Revenue Code of 1986, as amended (the Code).
(a) Option Term. No Option granted under the Plan may be exercisable after the
expiration of ten years from the date it is granted (five years in the case of an ISO granted to an
employee who is a 10% stockholder within the meaning of Section 422(b)(6) of the Code).
(b) Exercise Price. The exercise price per share of Common Stock covered by an Option
must be at least equal to the fair market value per share on the grant date (110% of fair market
value in the case of an ISO granted to an employee who is a 10% stockholder within the meaning of
Section 422(b)(6) of the Code). For the purposes of the Plan, subject to applicable law and unless
otherwise determined by the Committee, the fair market value per share of Common Stock on any given
date will be (i) if the Common Stock is listed on any established stock exchange or traded on the
Nasdaq National Market or the Nasdaq SmallCap Market, the closing sale price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or market (or the exchange or
market with the greatest volume of trading in the shares) on the date of determination, or (ii) in
the absence of such markets for the Common Stock, the value per share as determined in good faith
by the Committee or pursuant to procedures established by the Committee.
(c) Exercise of Options. A vested Option may be exercised by transmitting to the
Secretary of the Company (or other person designated by the Committee) a written notice identifying
the Option that is being exercised and specifying the number of whole shares to be purchased
pursuant to that Option, together with payment in full of the exercise price and the withholding
taxes due in connection with the exercise, unless and except to the extent that other arrangements
satisfactory to the Company have been made for such payments. The exercise price and applicable tax
withholding obligation may be paid (i) in cash or by check or (ii) at the sole discretion of the
Committee, (1) by the delivery of previously-owned shares of Common Stock, or (2) any other form of
legal consideration that may be acceptable to the Committee, or (iii) by a combination of the
foregoing. After the first date upon which the Common Stock is listed on any securities exchange or
designated (or approved for designation) as a national market security on an interdealer quotation
system, the Committee may permit payment to be made pursuant to a cashless exercise program
established and made available through a registered broker-dealer in accordance with applicable
law. Any shares transferred to the Company (or withheld upon exercise) in connection with the
exercise of an Option shall be valued at fair market value for purposes of determining the extent
to which the exercise price and/or tax withholding obligation is satisfied by such transfer (or
withholding) of shares.
2
(d) Effect of Termination of Employment or Other Service. The Committee may establish
such exercise and other conditions applicable to an Option following the termination of an
optionees employment or other service with the Company or its affiliates (Termination of
Employment) as the Committee deems appropriate on a grant-by-grant basis. Unless the Committee
determines otherwise, either at the time of grant or, subject to applicable law (including, without
limitation, the requirements of Section 409A or the Code), subsequent to that time, in the event of
the an optionees Termination of Employment: (1) that portion of the optionees Option that is not
then vested will expire immediately upon Termination of Employment; (2) that portion of an
optionees Option that is then vested will expire (a) 30 days following a Termination of Employment
for reasons other than death, Disability or Cause (as those terms are defined below), (b) 180 days
following a Termination of Employment due to the optionees death, (c) 180 days following a
Termination of Employment due to the optionees Disability or, if the optionee dies during such
180-day period, 90 days after the optionees death, or (d) immediately upon a Termination of
Employment by the Company or an affiliate for Cause.
(i) Definition of Cause. For purposes of the Plan, the term Cause means any
of the following: (1) an optionees theft, dishonesty, or falsification of any documents or
records related to the Company or any of its affiliates; (2) an optionees improper use or
disclosure of the Companys or any of its affiliates confidential or proprietary
information; (3) any action by an optionee which has a detrimental effect on the reputation
or business of the Company or any of its affiliates; (4) an optionees failure or inability
to substantially perform any reasonably assigned duties, if such failure or inability is
capable of cure, after being provided with a reasonable opportunity to cure, such failure or
inability; or (5) an optionees conviction (including any plea of guilty or nolo contendere)
of any criminal act which impairs the optionees ability to perform his or her duties with
the Company or any of its affiliates, all as determined by the Board in its discretion.
(ii) Definition of Disability. For the purposes of the Plan, the term
Disability means the permanent and total disability of a person within the meaning of
Section 22(e)(3) of the Code.
6. Stockholders Agreement. The Committee may condition the vesting and exercise of an
Option on the completion by the Company of an initial public offering. If the vesting and exercise
of an Option are not so conditioned, then the Committee may condition the exercise of a vested
Option prior to an initial public offering on the optionees (or beneficiarys) becoming a party to
a stockholders agreement by and among the Company and some or all of its stockholders (which
agreement may include, among other things, transfer restrictions, rights of first refusal,
repurchase rights and market standoff conditions with respect to the shares acquired pursuant to
the exercise of the Option), as such agreement may be amended from time to time, or any subsequent
stockholders agreement thereto.
7. Non-Transferability. No Option granted under the Plan shall be transferable by an
optionee other than upon the optionees death to a beneficiary designated by the optionee in a
manner acceptable to the Committee, or, if no duly designated beneficiary shall survive the
optionee, pursuant to the optionees will or by the laws of descent and distribution. All Options
shall be exercisable during the optionees lifetime only by the optionee. Except as otherwise
3
specifically provided by law, no Option granted under the Plan may be transferred in any
manner, and any attempt to transfer any such Option shall be void, and no such Option shall in any
manner be liable for or subject to the debts, contracts, liabilities, engagements or torts of any
person who shall be entitled to such Option, nor shall it be subject to attachment or legal process
for or against such person. Notwithstanding the foregoing, the Committee may determine at the time
of grant or thereafter that an Option (other than an ISO) is transferable in whole or part to such
persons, under such circumstances, and subject to such conditions as the Committee may prescribe.
8. Capital Changes, Reorganization, Sale.
(a) Adjustments Upon Changes in Capitalization. The aggregate number and class of
shares issuable under the Plan and the number and class of shares and the exercise price per share
covered by each outstanding Option and related terms shall be adjusted proportionately or as
otherwise appropriate in the determination of the Board to reflect any increase or decrease in the
number of issued shares of Common Stock resulting from a stock-split, reverse stock-split or
consolidation of shares or any like capital adjustment, or the payment of any stock dividend,
and/or to reflect a change in the character or class of shares covered by the Plan arising from a
readjustment or recapitalization of the Companys capital stock.
(b) Cash, Stock or Other Property for Stock. Except as otherwise provided in this
Section, in the event of an Exchange Transaction (as defined below), all optionees shall be
permitted to exercise their outstanding Options in whole or in part to the extent then vested;
provided, that the Board may in its sole discretion accelerate in whole or in part the vesting of
the remaining unvested portion of the Options immediately prior to such Exchange Transaction, and
any outstanding Options which are not exercised before the Exchange Transaction shall thereupon
terminate. Notwithstanding the preceding sentence, if, as part of an Exchange Transaction, the
stockholders of the Company receive equity capital of another entity (Exchange Stock) in exchange
for their shares of Common Stock (whether or not such Exchange Stock is the sole consideration),
and if the Board, in its sole discretion, so directs, then all outstanding Options shall be
converted into options to purchase shares of Exchange Stock. The amount and price of converted
options shall be determined by adjusting the amount and price of the Options granted hereunder on
the same basis as the determination of the number of shares of Exchange Stock the holders of Common
Stock shall receive in the Exchange Transaction and, unless the Board determines otherwise, the
vesting conditions with respect to the converted options shall be substantially the same as the
vesting conditions set forth in the original Option agreement.
(c) Definition of Exchange Transaction. For purposes hereof, the term Exchange
Transaction means a merger (other than a merger of the Company in which the holders of Common
Stock immediately prior to the merger have the same proportionate ownership of Common Stock in the
surviving corporation immediately after the merger), consolidation, acquisition or disposition of
property or stock, separation, reorganization (other than a mere reincorporation or the creation of
a holding company), liquidation of the Company, or any other similar transaction or event so
designated by the Committee in its sole discretion, as a result of which the stockholders of the
Company receive cash, stock or other property in exchange for or in connection with their shares of
Common Stock.
4
(d) Fractional Shares. In the event of any adjustment in the number of shares covered
by any Option pursuant to the provisions hereof, any fractional shares resulting from such
adjustment shall be disregarded, and each such Option shall cover only the number of full shares
resulting from the adjustment.
(e) Determination of Board to be Final. All adjustments under this Section shall be
made by the Board, and its determination as to what adjustments shall be made, and the extent
thereof, shall be final, binding and conclusive.
9. Tax Withholding. As a condition to the exercise of any Option or the delivery of
any shares of Common Stock pursuant to any Option, or in connection with any other event that gives
rise to a federal or other governmental tax withholding obligation on the part of the Company or an
affiliate relating to an Option, the Company and/or the affiliate may (a) deduct or withhold (or
cause to be deducted or withheld) from any payment or distribution to an optionee whether or not
pursuant to the Plan or (b) require the optionee to remit cash (through payroll deduction or
otherwise), in each case in an amount sufficient in the opinion of the Company to satisfy such
withholding obligation. If the event giving rise to the withholding obligation involves a transfer
of shares of Common Stock, then, at the sole discretion of the Committee, the optionee may satisfy
the withholding obligation described under this Section by electing to have the Company withhold
shares of Common Stock or by tendering previously-owned shares of Common Stock, in each case having
a fair market value equal to the amount of tax to be withheld (or by any other mechanism as may be
required or appropriate to conform with local tax and other rules).
10. Amendment and Termination. The Board may amend or terminate the Plan, provided,
however, that no such action may adversely affect an optionees rights under an outstanding Option
without his written consent. Any amendment that would increase the aggregate number of shares of
Common Stock issuable under the Plan or that would modify the class of persons eligible to receive
Options shall be subject to the approval of the Companys stockholders. The Committee may amend the
terms of any agreement or any Option granted hereunder at any time and from time to time, provided,
however, that any amendment which would adversely affect an optionees rights under an outstanding
Option may not be made without the optionees consent.
11. General Provisions.
(a) Shares Issued Under Plan. Shares of Common Stock available for issuance under the
Plan may be authorized and unissued, held by the Company in its treasury or otherwise acquired for
purposes of the Plan. No fractional shares of Common Stock will be issued under the Plan.
(b) Compliance with Law. The Company will not be obligated to issue or deliver shares
of Common Stock pursuant to the Plan unless the issuance and delivery of such shares complies with
applicable law, including, without limitation, the Securities Act of 1933, as amended, the
Securities Exchange Act of 1934, as amended, and the requirements of any stock
5
exchange or market upon which the Common Stock may then be listed, and shall be further
subject to the approval of counsel for the Company with respect to such compliance.
(c) Transfer Orders; Placement of Legends. All certificates for shares of Common Stock
delivered under the Plan shall be subject to such stock-transfer orders and other restrictions as
the Company may deem advisable under the rules, regulations, and other requirements of the
Securities and Exchange Commission, any stock exchange or market upon which the Common Stock may
then be listed, and any applicable federal or state securities law. The Company may cause a legend
or legends to be placed on any such certificates to make appropriate reference to such
restrictions.
12. No Employment or other Rights. Nothing contained in the Plan or in any Option
agreement shall confer upon any optionee any right with respect to the continuation of his
employment or other service with the Company or an affiliate or interfere in any way with the right
of the Company and its affiliates at any time to terminate such employment or other service or to
increase or decrease, or otherwise adjust, the other terms and conditions of the optionees
employment or other service.
13. Decisions and Determinations Final. All decisions and determinations made by the
Board pursuant to the provisions hereof and, except to the extent rights or powers under the Plan
are reserved specifically to the discretion of the Board, all decisions and determinations of the
Committee, shall be final, binding and conclusive on all persons.
14. Nonexclusivity of the Plan. No provision of the Plan, and neither its adoption by
the Board or submission to the stockholders for approval, shall be construed as creating any
limitations on the power of the Board or a committee thereof to adopt such other incentive
arrangements, apart from the Plan, as it may deem desirable.
15. Governing Law. All rights and obligations under the Plan and each Option agreement
or instrument shall be governed by and construed in accordance with the laws of the State of
[Delaware], without regard to its principles of conflict of laws.
16. Term of the Plan. The Plan shall be effective as of the date of its adoption by
the Board, subject to the approval of the stockholders of the Company within one year from the date
of such adoption by the Board. The Plan shall terminate on the tenth anniversary of the date of its
adoption by the Board, unless sooner terminated by the Board. The rights of any person with respect
to any Option granted under the Plan that is outstanding at the time of the termination of the Plan
shall not be affected solely by reason of the termination of the Plan and shall continue in
accordance with the terms of the Option and of the Plan.
6
MISTRAS GROUP INC.
STOCK OPTION AGREEMENT
AGREEMENT made as of the day of , 20___, by and between Mistras Group Inc. (the
Company), and (the Optionee).
W I T N E S S E T H:
WHEREAS, pursuant to the Mistras Group Inc. 2007 Stock Option Plan (the Plan), the Company
desires to grant to the Optionee, and the Optionee desires to accept, an option to purchase shares
of the Companys common stock (the Common Stock) upon the terms and conditions set forth in this
Agreement and the Plan.
NOW, THEREFORE, the parties hereto agree as follows:
1. Grant of Option. The Company hereby grants to the Optionee an option (the Option)
to purchase up to shares of Common Stock at an exercise price per share of $80.00 upon the terms
and conditions set forth in this Agreement and the Plan. A copy of the Plan is attached to the
Agreement. Capitalized terms that are used but not defined in the Agreement shall have the meanings
ascribed to them by the Plan.
2. Incentive Stock Option Status. To the maximum extent permitted by law, the Option
shall constitute an incentive stock option within the meaning of Section 422 of the Internal
Revenue Code of 1986
3. Option Term. Unless terminated sooner, the Option shall expire if and to the extent
it is not exercised within ten years from the date hereof.
4. Vesting of Option. Except as otherwise provided herein or the Plan, the Option
shall vest in accordance with the following schedule based upon the Optionees continuous
employment or other service with the Company or its affiliates following the date hereof; provided,
however, the Option will not be exercisable, whether or not otherwise vested pursuant to this
Section, unless and until the attainment of the performance objectives described in Exhibit A
annexed to this Agreement.
|
|
|
|
|
Continuous Service |
|
Vested Percentage |
Less than 1 Year |
|
|
0 |
% |
At least 1 Year |
|
|
25 |
% |
At least 2 Years |
|
|
50 |
% |
At least 3 Years |
|
|
75 |
% |
4 or more Years |
|
|
100 |
% |
5. Termination of Employment. Unless the Committee determines otherwise in accordance
with the Plan, upon the termination of the Optionees employment or other service with the Company
and its affiliates (Termination of Employment):
1
(a) that portion of the Option that is not then vested and exercisable will immediately
terminate; and
(b) that portion of the Option that is then vested and exercisable will terminate (1) 30 days
following the Termination of Employment if it occurs for any reason other than death, termination
by the Company or an affiliate due to Disability or termination by the Company or an affiliate for
Cause (as those terms are defined in the Plan), (2) 180 days following the Termination of
Employment if it occurs due to the Optionees death, (c) 180 days following the Termination of
Employment if it is triggered by the Company or an affiliate due to the Optionees Disability or,
if the Optionee dies during such 180-day period, 90 days after the Optionees death, or (d)
immediately upon the Termination of Employment if it is triggered by the Company or an affiliate
for Cause.
Notwithstanding the provisions of this Section, in no event may the Option be exercised after the
expiration of its stated term or before it becomes vested and exercisable.
6. Exercise Procedures. If and to the extent the Option is vested and exercisable, it
may be exercised by transmitting to the Secretary of the Company (or other person designated by the
Committee) (a) a written notice specifying the number of whole shares to be purchased pursuant to
the Option exercise, (b) payment in full of the exercise price and the withholding taxes due in
connection with the exercise, unless and except to the extent that other arrangements satisfactory
to the Committee, in its sole and absolute discretion, have been made for such payments, and (c) if
the shares of the Common Stock to be issued upon exercise of the Option have not been registered
under the Securities Act of 1933, as amended, an executed representation letter in the form of
Exhibit B attached hereto. The exercise price and applicable tax withholding obligation may be paid
in cash or by check or, at the sole and absolute discretion of the Committee, by delivery of
previously-owned shares of Common Stock, any other form of legal consideration that may be
acceptable to the Committee, or a combination of any of the foregoing. If the Common Stock becomes
publicly-traded, the Committee may permit payment to be made pursuant to a cashless exercise
program established and made available through a registered broker-dealer in accordance with
applicable law.
7. Nontransferability. This Option is not assignable or transferable other than to a
beneficiary designated to receive this Option upon the Optionees death in a manner acceptable to
the Company or by will or the laws of descent and distribution, and this Option shall be
exercisable during the lifetime of the Optionee only by the Optionee (or, in the event of the
Optionees incapacity, the Optionees legal representative or guardian). Any attempt by the
Optionee or any other person claiming against, through or under the Optionee to cause this Option
or any part of it to be transferred or assigned in any manner and for any purpose shall be null and
void and without effect upon the Company, the Optionee or any other person.
8. Stockholders Agreement. If the Option is exercised before the completion of an
initial public offering of the Companys Common Stock, then such exercised shall be conditioned
upon the Optionees (or beneficiarys) becoming a party to a stockholders agreement by and among
the Company and some or all of its stockholders (which agreement may include, among other things,
transfer restrictions, rights of first refusal, repurchase rights and market standoff conditions
with respect to the shares acquired pursuant to the exercise of the
2
Option), as such agreement may be amended from time to time, or any subsequent stockholders
agreement (the Stockholders Agreement).
9. Restriction on Transfer of Shares. At any time during which the Companys equity
securities are not publicly-traded, any shares acquired pursuant to the exercise of this Option
shall not be sold, encumbered, disposed of or otherwise transferred without the prior written
consent of the Company, which may be withheld for any or no reason. Any permitted transferee shall
acquire the transferred shares subject to such restrictions and conditions, including, without
limitation, becoming a party to the Stockholders agreement, as the Committee may prescribe, taking
into account the restrictions and conditions to which such shares were or would have been subject
in the hands of the transferor. The restrictions and conditions of this Section shall be reflected
in a legend on the certificate or other evidence for the Common Stock to which this Section
applies. Notwithstanding the foregoing, the restrictions of this Section shall not apply if and to
the extent the shares of Common Stock acquired pursuant to this Option are subject to a right of
first refusal under the Stockholders Agreement.
10. Company Call Rights. Upon the termination of the Optionees employment with the
Company or its affiliates, the Company may at any time within one year after the termination date
repurchase any shares of Common Stock previously acquired by the Optionee (or by the Optionees
beneficiary, as the case may be) pursuant to the exercise of the Option at a repurchase price equal
to (a) the exercise price paid by the Optionee for the purchase of the shares plus 15% if the
Optionees employment was terminated for any reason other than voluntarily by the Optionee or by
the Company for Cause, and (b) the lesser of the Fair Market Value per share on the date of
termination or the exercise price paid by the Optionee for the purchase of the shares by exercise
of the Option, if the Optionees employment is terminated voluntarily by the Optionee or by the
Company for Cause. If the Company elects to exercise a call right under this Section, it shall do
so by delivering to the Optionee a written notice of such election, specifying the number of shares
to be purchased and the closing date and time that is within the one year period. Such closing
shall take place at the Companys principal executive offices. At such closing, the Company shall
pay the Optionee the repurchase price as specified in this Section in cash, or by cancellation of
indebtedness of the Optionee to the Company, provided, however, that the Company may elect to pay
the repurchase price in as many as four substantially equal installments with the first installment
being payable at the closing and subsequent installments paid on each of the first three
anniversary dates of the closing. The installment payments shall bear interest at an annual rate of
5% or, if greater, the minimum annual rate necessary to avoid imputed income under the applicable
provisions of the Internal Revenue Code. Notwithstanding the foregoing, the Company shall cease to
have call rights pursuant to this Section if and when the Companys equity securities become
publicly-traded. The restriction in this Section shall be reflected in the Common Stock legend for
any shares to which this Section applies.
11. Provisions of the Plan Control. This Agreement is subject to all the terms,
conditions and provisions of the Plan and to such rules, regulations and interpretations as may be
established or made by the Committee acting within the scope of its authority and responsibility
under the Plan. The Optionee acknowledges receipt of a copy of the Plan prior to execution of this
Agreement. The applicable provisions of the Plan shall govern in any situation where this Agreement
is silent or where the applicable provisions of this Agreement are contrary to or not reconcilable
with such Plan provisions.
3
12. No Employment Rights. Nothing contained herein or in the Plan shall confer upon
the Optionee any right with respect to the continuation of the Optionees employment or other
service with the Company or an affiliate or interfere in any way with the right of the Company and
its affiliates at any time to terminate such employment or other service or to increase or
decrease, or otherwise adjust, the other terms and conditions of the Optionees employment or other
service.
13. No Stockholder Rights. Neither the Optionee, nor any person entitled to exercise
the Optionees rights in the event of the Optionees death, shall have any of the rights and
privileges of a stockholder with respect to the shares subject to this Option, until certificates
for shares have been issued upon the proper exercise of the Option.
14. Compliance with Law. Shares of Common Stock shall not be issued pursuant to the
exercise of the Option unless such exercise and the issuance and delivery of such shares pursuant
thereto shall comply with all relevant provisions of law, including, without limitation, the
Securities Act of 1933, as amended, the Exchange Act and the requirements of any stock exchange or
market upon which the Common Stock may then be listed. All certificates for shares of Common Stock
delivered hereunder shall be subject to such stock-transfer orders and other restrictions as the
Committee may deem advisable under the rules, regulations, and other requirements of the Securities
and Exchange Commission, any stock exchange or market upon which the Common Stock may then be
listed, and any applicable federal or state securities law. The Committee may cause a legend or
legends to be placed on any such certificates to make appropriate reference to such restrictions.
15. Entire Agreement. This Agreement constitutes the entire agreement between the
parties with respect to the subject matter hereof and may not be amended, except as provided in the
Plan, other than by a written instrument executed by the parties hereto.
4
16. Governing Law. All rights and obligations under this Agreement and the Plan shall be
governed by and construed in accordance with the laws of the State of Delaware, without regard to
its principles of conflict of laws.
IN WITNESS WHEREOF, the Company has caused its duly authorized officer to execute this
Agreement, and the Optionee has executed this Agreement, effective as of the date first above
written.
|
|
|
|
|
|
|
|
|
MISTRAS GROUP INC. |
|
|
|
|
|
|
|
|
|
|
|
By: |
|
|
|
|
|
|
|
|
Sotirios J. Vahaviolos
|
|
|
|
|
|
|
|
|
|
|
|
By: |
|
|
|
|
|
|
|
|
|
|
|
5
EXHIBIT A
PERFORMANCE VESTING CONDITIONS
EXHIBIT B
Mistras Group Inc. 195
Clarksville Road Princeton
Junction, NJ 08550
[Date]
Ladies and Gentlemen:
In connection with the exercise by the undersigned, , of an option to purchase shares of Common
Stock (the Common Stock), of Mistras Group Inc. (the Company), the undersigned hereby
represents, warrants and agrees as of the date hereof that:
(i) He/she will not offer, sell, transfer or otherwise dispose of the Common Stock unless
(A) an effective registration statement under the Securities Act of 1933, as amended (the
Securities Act), covers the disposition of such securities or (B) he/she has delivered to
the Company an opinion of counsel, reasonably satisfactory to Company, that such offer,
sale, transfer or other disposition will not require registration of such securities under
the Securities Act.
(ii) He/she understands that the shares of Common Stock must be held indefinitely unless
they are subsequently registered under the Securities Act or an exemption from such
registration is available. He/she has been advised or is aware of the provisions of Rule
144, which permits limited resale of shares subject to the satisfaction of certain
conditions, and understands that such Rule is not now, and may not become, available for
resale of the shares of Common Stock.
(iii) He/she is familiar with the Companys business, management and financial affairs.
He/she has knowledge and experience in financial and business matters and is capable of
evaluating the merits and risks of an investment in the Common Stock and of making an
informed decision. He/she recognizes that the purchase of the Common Stock involves a
substantial degree of risk, and he/she has the financial ability to bear the economic risk
of this investment. He/she has adequate means for providing for any current needs and
contingencies and has no need for liquidity with respect to such investment in the Company.
He/she has determined that the Common Stock is a suitable investment and at this time he/she
can bear a complete loss of such investment.
exv10w6
Exhibit 10.6
MISTRAS GROUP, INC.
2009 LONG-TERM INCENTIVE PLAN
ARTICLE 1
GENERAL
1.1 Purpose. The purpose of the Plan is to provide a flexible vehicle for offering
equity-based and other incentive opportunities designed to attract, motivate and retain eligible
employees, directors and other eligible persons who contribute to the success of the Company and
its Subsidiaries and thereby enhance shareholder value.
1.2 Eligibility. Awards may be granted under the plan to any present or future
director, officer, employee, consultant or adviser of or to the Company or any of its Subsidiaries.
1.3 Duration of Plan. The Plan shall be effective upon the date of its adoption by the
Board, subject to shareholder approval. Unless terminated sooner, the Plan will terminate upon the
tenth anniversary of the date of its adoption by the Board. Any Awards outstanding when the Plan
terminates will remain outstanding in accordance with their terms. No new Awards may be made after
the termination of the Plan.
ARTICLE 2
DEFINITIONS
As used herein, the following terms shall have the meanings set forth below.
2.1 Award means a Company stock option or stock appreciation right (SAR) granted under
Article 5, a restricted stock or restricted stock unit (RSU) granted under Article 6, a performance
unit award granted under Article 7, any other stock based award granted under Section 8.1, and any
performance based cash incentive award granted under Section 8.2.
2.2 Beneficiary means a person or entity (including, without limitation, a trust or estate)
designated in writing by a Participant to succeed to the Participants Awards under the Plan,
subject to the provisions hereof and of the applicable Award agreement, upon the Participants
death. A Participant may designate a Beneficiary by delivering a written beneficiary designation to
the Committee (or its designee) in such form and in such manner as the Committee (or its designee)
may prescribe. Each Beneficiary designation duly filed with the Committee (or its designee) will
have the effect of superseding and revoking any prior Beneficiary designation. If a Participant
does not designate a Beneficiary or if no designated Beneficiary survives the Participant, then the
Participants Beneficiary will be deemed to be his or her estate.
2.3 Board means the Board of Directors of the Company.
2.4 Code means the Internal Revenue Code of 1986, as amended.
2.5 Committee means the Compensation Committee of the Board.
- 1 -
2.6 Company means Mistras Group, Inc., a Delaware corporation, and any successor thereto.
2.7 Participant means any person who has been selected to receive an Award under the Plan or
who holds an outstanding Award under the Plan.
2.8 Performance-Based Exception means the performance-based exception from the tax
deductibility limitation imposed by Code Section 162(m), as set forth in Code Section 162(m)(4)(C).
2.9 Plan means the Mistras Group, Inc. 2009 Long Term Incentive Plan, as it is set forth
herein and as it may be amended from time to time.
2.10 Share means a share of common stock of the Company.
2.11 Subsidiary means (a) a corporation or other entity in an unbroken chain of corporations
or other entities at least 50% of the total value or voting power of the equity securities of which
is owned by the Company or by any other corporation or other entity in the chain, and (b) any other
corporation or entity in which the Company has a 20% controlling interest, directly or indirectly,
as may be designated by the Committee pursuant to the criteria set forth in Section
1.409A-1(b)(5)(iii)(E).
ARTICLE 3
ADMINISTRATION
3.1 General. Except as otherwise determined by the Board in its discretion, the Plan
shall be administered by the Committee.
3.2 Authority of the Committee. Subject to the provisions of the Plan, the Committee,
acting in its discretion, may select the persons to whom Awards will be made, prescribe the terms
and conditions of each Award and make amendments thereto, construe, interpret and apply the
provisions of the Plan and of any Award agreement, and make any and all determinations and take any
and all other actions as it deems necessary or desirable in order to carry out the terms of the
Plan. In exercising its responsibilities under the Plan, the Committee may obtain at the Companys
expense such advice, guidance and other assistance from outside compensation consultants and other
professional advisers as it deems appropriate.
3.3 Delegation of Authority. Subject to the requirements of applicable law, the
Committee may delegate to any person or group or subcommittee of persons (who may, but need not be
members of the Committee) such Plan-related functions within the scope of its responsibility, power
and authority as it deems appropriate. Without limiting the foregoing, the Committee may delegate
to the Chief Executive Officer of the Company annual discretion to grant Awards to Employees for up
to 228,632 Shares, and may delegate administrative duties to such person or persons as it deems
appropriate. The Committee may not delegate its authority with respect to (a) non-ministerial
actions with respect to individuals who are subject to the reporting requirements of Section 16(a)
of the Exchange Act; (b) non-ministerial actions with respect to Awards that are intended to
qualify for the Performance-Based Exception; and (c)
- 2 -
certifying the satisfaction of performance goals and other material terms attributable to
Awards intended to qualify for the Performance-Based Exception.
3.4 Decisions Binding. All determinations and decisions made by the Committee pursuant
to the Plan shall be final, conclusive, and binding on all persons.
3.5 Indemnification. The Company shall indemnify and hold harmless each member of the
Committee and the Board and any employee or director of the Company or any Subsidiary to whom any
duty or power relating to the administration or interpretation of the Plan is delegated from and
against any loss, cost, liability (including any sum paid in settlement of a claim with the
approval of the Board), damage and expense (including reasonable legal and other expenses incident
thereto) arising out of or incurred in connection with the Plan, unless and except to the extent
attributable to such persons fraud or willful misconduct.
ARTICLE 4
SHARES SUBJECT TO THE PLAN;
INDIVIDUAL AWARD LIMITS
4.1 Number of Shares Issuable under the Plan. The Company may issue an aggregate of
2,286,318 Shares under the Plan, exclusive of Shares covered by the unexercised portion of an Award
that terminates, expires, is canceled or is settled in cash, Shares forfeited or repurchased under
the Plan, and Shares withheld or surrendered in order to pay the exercise or purchase price under
an Award or to satisfy the tax withholding obligations associated with the exercise, vesting or
settlement of an Award. Shares issued under the Plan may be either authorized and unissued Shares,
or authorized and issued Shares held in the Companys treasury, or any combination of the
foregoing.
4.2 Individual Award Limitations. No more than 1,143,159 Shares may be issued pursuant
to Awards granted in a single calendar year to any individual Participant.
ARTICLE 5
STOCK OPTIONS;
STOCK APPRECIATION RIGHTS
5.1 Grant of Company Stock Options. Company stock options granted under the Plan will
have such vesting and other terms and conditions as the Committee, acting in its discretion in
accordance with the Plan, may determine, either at the time the option is granted or, if the
holders rights are not adversely affected, at any subsequent time. Each Company stock option will
be deemed NOT to be an incentive stock option (within the meaning of Section 422 of the Code)
unless and except to the extent it is specifically designated by the Committee as an incentive
stock option at the time the option is granted. In accordance with Section 422(d) of the Code, an
option that is otherwise intended to be an incentive stock option will be treated as an option
that is not an incentive stock option to the extent that the aggregate fair market value of the
Shares with respect to which options (under this Plan or under any other incentive stock option
plan of the Company or any Subsidiary) are exercisable for the first time in any calendar year
exceeds $100,000. If a Company stock option is designated as an incentive stock option and if
part or all of the option does not qualify as an incentive stock option, then the option, or
- 3 -
the portion of the option that does not so qualify, as the case may be, will nevertheless
remain outstanding as if such designation had not been made.
5.2 Option Exercise Price; Fair Market Value. The purchase price per Share under each
Company stock option may not be less than the fair market value per Share on the date the Option is
granted. For the purposes of the Plan, the fair market value per Share on any relevant date shall
be determined as follows: (a) if the Shares are not admitted to trading on a national securities
exchange on such date, the value determined by the Committee acting in its discretion in accordance
with the requirements of applicable tax law, or (b) if the Shares are admitted to trading on a
national securities exchange on such date, (1) the closing price per Share on such date on the
principal securities exchange on which the Shares are traded or, if no Shares are traded on that
date, the closing price per Share on the next preceding date on which Shares are traded, or (2) the
value determined under such other method or convention as the Committee, acting in a consistent
manner in accordance with the Plan and applicable tax law, may prescribe. Notwithstanding the
foregoing, the fair market value per Share on the date of the initial public offering of Shares
shall be deemed to be the initial public offering price per Share.
5.3 Grant of Stock Appreciation Rights. The Committee may grant stock appreciation
rights (SARs), either alone or in connection with the grant of a Company stock option, upon such
vesting and other terms and conditions as the Committee, acting in its discretion in accordance
with the Plan, may determine, either at the time the SARs are granted or, if a Participants rights
are not adversely affected, at any subsequent time. Upon exercise, the holder of an SAR shall be
entitled to receive cash and/or a number of whole Shares having a fair market value equal to the
product of X and Y, where
X = the number of whole Shares as to which the SAR is being
exercised, and
Y = the excess of (i) the fair market value per Share on the date of
exercise over (ii) the fair market value per Share on the date the
SAR is granted (or such greater base value as the Committee may
prescribe at the time the SAR is granted).
5.4 Re-Pricing Prohibited. Company stock options and SARs granted under the Plan may
not be re-priced in the absence of shareholder approval. In no event may an option or SAR be
re-priced if such re-pricing would cause the option or SAR to become covered by Section 409A of
the Code.
5.5 Duration of Company Stock Options and SARs. The Committee may establish such
exercise, forfeiture and other conditions applicable to a Company stock option or SAR following the
termination of a Participants employment or other service with the Company and its Subsidiaries as
the Committee deems appropriate on a grant-by-grant basis. Unless sooner terminated in accordance
with its terms, a Company stock option or SAR granted under the Plan will automatically expire on
the tenth anniversary of the date the option or SAR is granted.
5.6 Exercise of Company Stock Options. A Company stock option that is exercisable may
be exercised by transmitting to the Secretary of the Company (or other person designated for this
purpose by the Committee) a written notice identifying the option that is being exercised
- 4 -
and specifying the number of whole Shares to be purchased pursuant to that option, together
with payment in full of the exercise price and the withholding taxes, if any, that are payable in
connection with the exercise (unless and except to the extent that other arrangements satisfactory
to the Company have been made for the satisfaction of such withholding taxes). The exercise price
may be paid in cash or in any other manner the Committee, in its discretion, may permit, including,
without limitation, (a) by the delivery of previously-owned Shares and/or withholding Shares
otherwise issuable in respect of such exercise, (b) by a combination of a cash payment and delivery
of previously-owned Shares and/or withholding of Shares pursuant to (a) above, or (c) pursuant to a
cashless exercise program established and made available through a registered broker-dealer in
accordance with the Federal Reserve Boards Regulation T and other applicable law. Any Shares
transferred to the Company (or withheld upon exercise) in connection with the exercise of an option
shall be valued at fair market value for purposes of determining the extent to which the exercise
price (and/or related tax withholding obligation) is satisfied.
5.7 Exercise of SARs. An outstanding and exercisable SAR may be exercised by
transmitting to the Secretary of the Company (or other person designated for this purpose by the
Committee) a written notice identifying the SAR that is being exercised and specifying the number
of Shares as to which the SAR is being exercised, together with payment in full of the withholding
taxes due in connection with the exercise, unless and except to the extent that other arrangements
satisfactory to the Company have been made for such payment. The Committee may impose such
additional or different conditions for exercise of an SAR as it deems appropriate. No fractional
Shares will be issued in connection with the exercise of an SAR.
5.8 Non-Transferability. Except as otherwise provided herein or permitted by the
Committee, acting in its discretion, no Company stock option or SAR shall be assignable or
transferable except upon the Participants death to his or her Beneficiary, and, during a
Participants lifetime, a Company stock option or SAR may be exercised only by the Participant or
the Participants guardian or legal representative.
5.9 Rights as a Shareholder. The person shall not have the rights of a shareholder
with respect to any Shares covered by a Company stock option or SAR unless and until the option or
SAR, as the case may be, has been duly and validly exercised and such Shares have been issued to
such person (either in certificated or book entry form).
ARTICLE 6
RESTRICTED STOCK;
RSU AWARDS
6.1 Grant of Restricted Shares and RSUs. Subject to the Plan, the Committee may grant
restricted stock awards pursuant to which the Shares covered by the Awards will be issued in the
name of the recipients at the time the Awards are made, and RSU awards pursuant to which the
recipients may earn the right to receive Shares in the future. Shares covered by a restricted stock
award and the right to receive Shares under an RSU award will be subject to such forfeiture
conditions, transfer restrictions, other restrictions and/or conditions, if any, as the Committee
may impose, which conditions and restrictions may lapse separately or concomitantly, at such times,
under such circumstances (including based on achievement of performance goals and/or future service
requirements), in such installments or otherwise and
- 5 -
under such other circumstances as the Committee may prescribe at the date of grant or, if the
holders rights are not adversely affected, thereafter.
6.2 Minimum Purchase Price for Shares. Unless the Committee, acting in accordance with
applicable law, determines otherwise, the purchase price payable for Shares issued pursuant to a
restricted stock award or an RSU award must be at least equal to the par value of the Shares.
6.3 Restricted Shares. Shares issued pursuant to a restricted stock award may be
evidenced by book entries on the Companys stock transfer records pending satisfaction of the
applicable vesting conditions. If a stock certificate for restricted Shares is issued, the
certificate will bear an appropriate legend to reflect the nature of the conditions and
restrictions applicable to the restricted Shares. The Committee may require that such certificates
bear an appropriate legend referring to the terms, conditions and restrictions applicable to the
restricted Shares, that the Company retain physical possession of the certificates, and that the
Participant deliver a stock power to the Company, endorsed in blank, in order to facilitate the
transfer back to the Company of restricted Shares that are forfeited. Except to the extent
restricted under the terms of the Plan or any applicable Award agreement, a Participant who holds
restricted Shares shall have all of the rights of a shareholder with respect to said Shares,
including the right to vote the Shares and the right to receive dividends thereon (subject to any
mandatory reinvestment, forfeiture condition or other requirements as the Committee may prescribe).
6.4 Shares Covered by RSU Awards. No Shares will be issued pursuant to an RSU Award
(a) unless, in accordance with its terms, the Award will be settled in the form of Shares, and (b)
until all of the conditions of the Award for the issuance of such Shares have been fully satisfied.
The holder of an RSU Award shall have no rights as a shareholder with respect to Shares covered by
the Award unless and until the Award vests and the Shares are issued; provided, however, that the
Committee may provide that such holder will receive dividend equivalents (in the form of cash or
Shares) equal to the dividends that would have been payable with respect to the Shares covered by
the Award if such Shares were outstanding, upon such terms and subject to such vesting and other
conditions as the Committee may prescribe, including, without limitation, conditions required in
order to comply with the applicable distribution timing and other requirements of Section 409A of
the Code.
6.5 Non-Transferability. Except as otherwise contemplated with respect to deceased
Participants or as otherwise permitted by the Committee, acting in its discretion, no restricted
stock Award, RSU Award or restricted Shares outstanding pursuant to a restricted stock Award may be
sold, assigned, transferred, disposed of, pledged or otherwise hypothecated other than to the
Company or its designee in accordance with the terms of the Award or of the Plan, and any attempt
to do so shall be null and void and, unless the Committee determines otherwise, shall result in the
immediate forfeiture of the Award or the restricted Shares, as the case may be.
6.6 Termination of Service Before Vesting; Forfeiture. Unless otherwise specified in
the Award agreement or otherwise subsequently determined by the Committee, unvested restricted
stock awards and deferred stock awards and restricted Shares will be forfeited and canceled upon a
Participants termination of employment or other service with the Company and its Subsidiaries. If
restricted Shares are forfeited, any certificate representing such shares or book entry for such
Shares will be canceled on the books and records of the Company, subject, in the
- 6 -
case of restricted Shares, to any right the holder may have pursuant to the terms of the Award
to receive from the Company an amount equal to any cash purchase price previously paid for such
Shares.
6.7 Special Tax Rules for Settlement of Deferred Stock Awards. Each deferred stock
award may provide that settlement of the Award, in the form of Shares or cash, will occur on any
date from the date the Award becomes vested until the 15th day of the third month
following the calendar year in which the Award becomes vested, or at such other time and in such
other manner as to avoid being covered by Section 409A of the Code. Alternatively, the Award may
that, if the Award becomes vested, settlement will be deferred until at a later date or the
occurrence of a subsequent event, provided that the deferral election(s) and designated settlement
date(s) or event(s) applicable to the Award, as well as the Award agreement itself, satisfy the
election, distribution timing and documentation requirements of Section 409A of the Code.
6.8 Issuance of Vested Shares. The holder of a restricted stock award and, to the
extent settled in the form of Shares, the holder of a deferred stock award that becomes vested and
payable will be entitled to receive Shares (in certificated or book entry form) free and clear of
conditions and restrictions (except as may be imposed in accordance with the terms of the Award or
in order to comply with applicable law), subject, however, to the payment or satisfaction of
applicable withholding taxes. The delivery of vested Shares covered by a deferred stock award may
be deferred if and to the extent permitted by Section 6.7 (relating to compliance with Section 409A
of the Code) and the terms of the applicable Award.
ARTICLE 7
PERFORMANCE UNIT AWARDS
7.1 Grant of Performance Units. Subject to the Plan, the Committee may grant
performance unit awards, with each performance unit representing the right to receive a cash
payment equal to the fair market value (determined by the Committee in accordance with Section 5.2)
of one Share, subject to such performance-based vesting and other terms and conditions as the
Committee may prescribe.
7.2 Settlement of Performance Units. Unless the Committee determines otherwise at the
time a performance unit award is granted, settlement of the performance units covered by the Award
shall be made in a single lump sum cash payment as soon as practicable after the close of the
applicable performance period or the satisfaction of the applicable performance goal(s), but in no
event later than the 15th day of the third month of the calendar year following the
calendar year in which the performance units become vested. Any different settlement method or
settlement date must satisfy the distribution timing and form of payment requirements of Section
409A of the Code.
7.3 Rights as a Shareholder. No person will have any rights as a shareholder with
respect to Shares covered by a performance unit award unless and until the Award becomes vested and
the Shares are issued to such person. At the discretion of the Committee, the holder of a
performance unit award may be entitled to receive dividend equivalents (in the form of cash or
Shares) equal to the dividends that would have been payable with respect to the Shares covered by
the Award if such Shares were outstanding, upon such terms and subject to such vesting and
- 7 -
other conditions as the Committee may prescribe, including, without limitation, conditions
required in order to comply with the applicable distribution timing and other requirements of
Section 409A of the Code.
ARTICLE 8
OTHER AWARDS
8.1 Other Stock-Based Awards. Subject to applicable law, the Committee, acting in its
discretion, may grant such other forms of Award denominated or payable in, valued in whole or in
part by reference to, or otherwise based on or related to, Shares or factors that may influence the
value of the Shares, as the Committee may deems appropriate, including, without limitation, stock
bonuses, dividend equivalents (either alone or in conjunction with other Awards), convertible or
exchangeable debt securities, other rights convertible or exchangeable into Shares, purchase rights
for Shares, and Share-based Awards designed to comply with or take advantage of applicable laws
outside of the United States. All such other stock based Awards will be made upon such terms and
conditions as the Committee may prescribe. In addition, cash incentive Awards, including annual
incentive Awards and long-term incentive Awards, denominated and settled in cash, may be granted
under this Section, which Awards may be earned at such times, under such circumstances (including
based on achievement of performance goals and/or future service requirements), in such installments
or otherwise and under such other circumstances as the committee may determine at the date of grant
or thereafter.
8.2 Cash Incentive Awards. The Committee may make annual and/or long-term incentive
Awards under the Plan pursuant to which a Participant may earn the right to receive a cash payment
conditioned upon the achievement of specified performance objectives established by the Committee
and communicated to the Participant within 90 days after the beginning of the applicable
performance period or before 25% of the applicable performance period has elapsed. No Participant
may earn a cash incentive Award under this Section 8.2 for any calendar year in excess of an amount
equal to the lesser of (a) $5,000,000, or (b) four (4) times the Participants annual salary for
such calendar year. Any cash incentive Awards earned by a Participant under the Plan will be
payable in the form of a single sum cash payment at or as soon as practicable after the expiration
of the applicable performance period or the satisfaction of the applicable performance vesting
conditions, but in no event later than the 15th day of the third month of the year
following the calendar year in which such performance period ends or such performance vesting
conditions are satisfied. Notwithstanding the foregoing, the Committee may require or permit the
deferred payment and/or installment payout of all or part of any such cash incentive Award if (and
only if) the terms and conditions applicable to such deferred or installment payout comply with the
distribution election and distribution timing requirements of Section 409A of the Code.
ARTICLE 9
AWARD AGREEMENTS
9.1 General. Each Award made under the Plan shall be evidenced by an agreement entered
into by the Company and the Participant or another instrument prepared by the Company in lieu of
such an agreement, setting forth the terms and conditions applicable to the Award, which may be in
hard copy, electronic or such other form as the Company may permit.
- 8 -
9.2 Restrictions on Transfer. Subject to the provisions of the Plan, each Award
agreement shall set forth such restrictions on the transferability of the Award and on the
transferability of Shares acquired pursuant to the Award as the Committee may prescribe, including,
without limitation, restrictions under applicable securities laws, under the requirements of any
stock exchange or market upon which the Shares are then listed and/or then traded, and under any
blue sky or state securities laws applicable to such Shares.
9.3 Uniformity Not Required. The provisions of the Award agreements need not be
uniform among all Awards, among all Awards of the same type, among all Awards granted to the same
Participant, or among all Awards granted at the same time.
ARTICLE 10
PERFORMANCE MEASURES
10.1 Performance Criteria. Unless and until the Companys shareholders approve a
change in the general performance measures set forth in this Article, the measures that may be used
to determine the degree of payout and/or vesting with respect to Awards that are designed to
qualify for the Performance-Based Exception shall be chosen from among the following, in a manner
that is consistent with the requirements of Section 1.162-27(e)(2) of the Treasury Regulations
(relating to the performance goal requirement of Section 162(m) of the Code):
(a) Income measures (including, but not limited to, gross profit, operating income, earnings
before or after taxes, or earnings per share);
(b) Return measures (including, but not limited to, return on assets, investment, equity, or
sales);
(c) Cash flow return on investments, which equals net cash flows divided by owners equity;
(d) Earnings per common share;
(e) Gross revenues;
(f) Debt measures (including, without limitation, debt multiples);
(g) Marked value added;
(h) Economic value added; and
(i) Share price (including, but not limited to, growth measures and total shareholder return).
10.2 Permitted Discretion. The Committee shall have the discretion to adjust the
determinations of the degree of attainment of the pre-established performance goals; provided that
Awards that are designed to qualify for the Performance-Based Exception may not be adjusted upward
(although the Committee shall retain the discretion to adjust such Awards downward).
- 9 -
10.3 Certification. In the case of any Award that is granted subject to the condition
that a specified performance measure be achieved, no amount shall be payable pursuant to the Award
unless and until the Committee certifies in writing that the performance measure has been achieved.
For this purpose, approved minutes of the Committee meeting at which the certification is made
shall be treated as a written certification. No such certification is required, however, in the
case of an Award that is based solely on an increase in the value of a Share from the date such
Award was made.
ARTICLE 11
CAPITAL CHANGES; SALE EVENTS
11.1 Adjustments in Authorized Shares. In the event of a stock split, reverse stock
split, split-up, spin-off, stock dividend, recapitalization, consolidation of shares or similar
capital change, the Committee shall make such adjustments to the number and class of shares that
may be issued under the Plan pursuant to Section 4.1, the number and class of Shares that may be
issued pursuant to annual Awards granted to any Participant pursuant to Section 4.2, the number,
class and/or purchase or base price of Shares subject to outstanding Awards, as the Committee, in
its discretion, deems appropriate and equitable in order to prevent dilution or enlargement of the
benefits available under the Plan and of the rights of Participants or to otherwise comport with
the intent and purposes of the Plan; provided that the number of Shares subject to any Award shall
always be a whole number. The Committee shall also make equitable or proportionate adjustments in
the number of shares subject to outstanding Awards and the exercise price and the terms of
outstanding Awards to take into consideration cash dividends paid other than in the ordinary course
or any other extraordinary corporate event, as the Committee, in its discretion, deems appropriate
and equitable. Any determination or adjustment made by the Committee under this Section shall be
binding and conclusive on all persons.
11.2 Effect of Sale Event. If a Sale Event (within the meaning of Section 11.5)
occurs, then, except as otherwise specifically provided by the applicable Award agreement (or any
other applicable agreement approved by the Committee and made by the Company or a Subsidiary with
the Participant to whom an Award was granted) each Award outstanding under the Plan immediately
prior to the Sale Event will be either assumed and continued in accordance with Section 11.3 or
terminated in accordance with Section 11.4.
11.3 Adjustment and Continuation of Award. Subject to Section 11.3, if a Sale Event
occurs, the parties to the Sale Event may agree that any Company stock option, SAR, restricted
stock deferred stock or other Award outstanding under the Plan immediately prior to the Sale Event
shall, at the effective time of the Sale Event, be assumed and continued on substantially the same
vesting and other terms and conditions as a like Award with respect to shares of common stock of
the successor or acquiring company (or a parent company). If a Company stock option or SAR is
assumed, the number of shares and exercise or base price per share covered by the assumed Award
will be adjusted in accordance with the principles set forth in Sections 1.424-1(a)(5) and
1.409A-1(b)(5)(v)(D) of the Treasury Regulations. If a restricted stock, deferred stock or other
Award is assumed, the number of shares covered by the assumed Award will be a whole number that
reflects the exchange ratio or value of the transaction consideration applicable with respect to
holders of Shares in connection with the Sale Event. Notwithstanding the foregoing, if a
Participants employment or other service is terminated by the Company or a
- 10 -
successor or acquiring company (or any of its or their affiliates) for reasons other than
cause within two years after the Sale Event, any then outstanding assumed Awards held by such
terminated Participant shall immediately become fully vested and exercisable or payable, as the
case may be. For this purpose, the term cause means (a) a willful failure to substantially
perform the duties and responsibilities of a Participants employment or other service (for reasons
other than physical or mental illness) after reasonable notice thereof to the Participant; (b) a
Participants misconduct that causes or is reasonably likely to cause material harm to the business
or reputation of the Company or any successor or acquiring company (or any of their respective
affiliates) or that prevents or materially interferes with ability of the Participant to carry out
the carry out the duties and responsibilities of the Participants employment or other service; (c)
a Participants conviction of, or entering into a plea of nolo contendere to, a felony; or (d) the
material breach by a Participant of any material written restrictive covenant or agreement made by
the Participant with the Company or any successor or acquiring company (or any of their respective
affiliates).
11.4 Termination of Award. Subject to Section 11.2, any Award outstanding under the
Plan immediately prior to a Sale Event that is not assumed pursuant to the preceding section will
be terminated at the effective time of the Sale Event. If the terminated Award is a restricted
stock Award, then the restricted Shares covered by the Award immediately prior to the effective
time of the Sale Event will become fully vested and will participate in the Sale Event on the same
basis as other outstanding Shares. If the terminated Award is in a form other than a restricted
stock Award, then the holder of the terminated Award will be entitled to receive at the effective
time of the Sale Event a single sum payment equal to the excess, if any, of the transaction value
of the Shares that are then covered by the Award over the aggregate exercise or base price (in the
case of a Company stock option or SAR) or other purchase price or threshold value (if any, in the
case of any other form of Award) for or with respect to such Shares, in each case as if the Award
had been fully vested immediately prior to the Sale Event. No consideration will be payable in
respect of the termination of a Company stock option or SAR with an exercise or base price per
Share that is not more than the transaction value per Share. The amount payable with respect to the
termination of an outstanding Award pursuant to this section will be paid in cash, unless the
parties to the Sale Event agree that some or all of such amount will be payable in the form of
freely tradable shares of common stock of the successor or acquiring company (or a parent company).
11.5 Definition of Sale Event. For the purposes of the Plan, a Sale Event will be
deemed to have occurred if (a) any person (within the meaning of Section 13(d)(3) or 14(d)(2) of
the Securities Exchange Act of 1934, as amended (Exchange Act)), other than the Company, Mr.
Sotirios Vahaviolos, any employee benefit plan of the Company, any entity owned directly or
indirectly by the shareholders of the Company in substantially the same proportion as their
ownership of stock of the Company or any person who becomes a beneficial owner directly or
indirectly of securities of the Company pursuant to a transaction described in (b) below, becomes
the beneficial owner (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of
securities of the Company (not including in the securities beneficially owned by such person any
securities acquired directly from the Company or its affiliates) representing 40% or more of the
combined voting power of the Companys then outstanding voting securities; or (b) there shall have
been consummated a consolidation, merger or reorganization of the Company, unless (1) the
stockholders of the Company immediately before such consolidation, merger or
- 11 -
reorganization own, directly or indirectly, at least a majority of the combined voting power
of the outstanding voting securities of the corporation or other entity resulting from such
consolidation, merger or reorganization, (2) individuals who were members of the Board immediately
prior to the execution of the agreement providing for such consolidation, merger or reorganization
constitute a majority of the board of directors of the surviving corporation or of a corporation
directly or indirectly beneficially owning a majority of the voting securities of the surviving
corporation, and (3) no person beneficially owns more than 50% of the combined voting power of the
then outstanding voting securities of the surviving corporation (other than a person who is (A) the
Company or a subsidiary of the Company, (B) an employee benefit plan maintained by the Company, the
surviving corporation or any subsidiary, or (C) the beneficial owner of 50% or more of the combined
voting power of the outstanding voting securities of the Company immediately prior to such
consolidation, merger or reorganization); or (c) the stockholders of the Company approve the
complete liquidation or dissolution of the Company, or a sale or other disposition of all or
substantially all of the assets of the Company (other than to an entity described in (b) above).
11.6 Non-employee Director Awards. With respect to Awards granted to a non-employee
director that are assumed or substituted for in connection with a Sale Event, if on the date of or
following such assumption or substitution the Participants status as a director or a director of
the successor corporation, as applicable, is terminated for any reason, then the Participant will
fully vest in and have the right to exercise Options and/or Stock Appreciation Rights as to all of
the Shares underlying such Award, including those Shares which would not otherwise be vested or
exercisable, all restrictions on Restricted Stock and RSUs will lapse, and, with respect to
Performance Units and Performance Shares, all performance goals or other vesting criteria will be
deemed achieved at one hundred percent (100%) of target levels and all other terms and conditions
met.
11.7 No Fractional Shares. In the event of any adjustment in the number of shares
covered by any Award pursuant to the provisions hereof, any fractional shares resulting from such
adjustment shall be disregarded, and each converted Award shall cover only the number of full
shares resulting from the adjustment.
11.8 Determination of Board to be Final. All adjustments under this Article shall be
made by the Board as constituted immediately prior to the Change in Control, and its determination
as to what adjustments shall be made, and the extent thereof, shall be binding and conclusive.
11.9 Section 409A. Notwithstanding any provision of the Plan to the contrary, to the
extent an Award shall be deemed to be vested or restrictions lapse, expire or terminate upon the
occurrence of a Change in Control and such Change in Control does not constitute a change in the
ownership or effective control or a change in the ownership or a substantial portion of the
assets of the Company within the meaning of Code Section 409A(a)(2)(A)(v), then even though such
Award may be deemed to be vested or restrictions lapse, expire or terminate upon the occurrence of
the Change in Control, settlement will be delayed, to the extent necessary to comply with the
provisions of Code Section 409A.
- 12 -
ARTICLE 12
AMENDMENT AND TERMINATION
12.1 Amendment and Termination. Subject to the terms of the Plan, the Board may at any
time and from time to time, alter, amend, suspend, or terminate the Plan in whole or in part;
provided that, unless the Committee specifically provides otherwise, any revision or amendment that
would increase the number of Shares issuable under the Plan (other than an increase made in
accordance with Section 11.1) or that would otherwise cause the Plan to fail to comply with any
requirement of applicable law, regulation, listing requirement or rule if such amendment were not
approved by the shareholders of the Company, shall not be effective unless and until shareholder
approval is obtained.
12.2 Outstanding Awards. Notwithstanding any other provision of the Plan to the
contrary, no termination, amendment, or modification of the Plan shall cause any then outstanding
Award to be forfeited or altered in a way that adversely affects a Participant without the consent
of the Participant.
ARTICLE 13
TAX WITHHOLDING
13.1 Tax Withholding. The Companys obligation to make payments or issue unrestricted
Shares in connection with any Award shall be subject to and conditioned upon the satisfaction by
the holder of applicable tax withholding obligations. The Company and its Subsidiaries may require
a Participant to remit an amount sufficient to satisfy applicable withholding taxes or deduct or
withhold such amount from any payments otherwise owed the Participant (whether or not under the
Plan).
13.2 Withholding of Shares. The Committee, acting in its discretion, may allow a
Participant to elect to satisfy such withholding tax obligation in whole or in part by having the
Company withhold Shares that would otherwise be issued (or by returning Shares that have been
issued) to the Participant with an aggregate fair market value (as of the date the withholding is
effected) that is not greater than the minimum amount of such statutory tax withholding obligation.
ARTICLE 14
MISCELLANEOUS
14.1 Successors. All obligations of the Company with respect to Awards granted under
the Plan shall be binding on any successor to the Company, whether the existence of such successor
is the result of a direct or indirect purchase, merger, consolidation, or otherwise, of all or
substantially all of the business and/or assets of the Company.
14.2 Legal Construction. If any provision of the Plan shall be held illegal or invalid
for any reason, such illegality or invalidity shall not affect the remaining parts of the Plan, and
the Plan shall be construed and enforced as if the illegal or invalid provision had not been
included.
- 13 -
14.3 Requirements of Law. The granting of Awards and the issuance of Shares under the
Plan shall be subject to all applicable laws, rules, and regulations, and to such approvals by any
governmental agencies or national securities exchanges as may be required.
14.4 Provisions for Foreign Participants. The Board may modify Awards granted to
Participants who are foreign nationals or employed outside the United States or establish sub-plans
or procedures under the Plan to recognize differences in laws, rules, regulations or customs of
foreign jurisdictions with respect to tax, securities, currency, employee benefit or other matters.
14.5 Limitation of Rights. The Plan shall not interfere with or limit in any way the
right of the Company or of any Subsidiary to terminate any persons employment or other service at
any time, and the Plan shall not confer upon any person the right to continue in the employ or
other service of the Company or any Subsidiary. No employee, director or other person shall have
any right to be selected to receive an Award or, having been so selected, to be selected to receive
a future Award.
14.6 Decisions and Determinations Final. All decisions and determinations made by the
Board pursuant to the provisions hereof and, except to the extent rights or powers under the Plan
are reserved specifically to the discretion of the Board, all decisions and determinations of the
Committee, shall be final, binding and conclusive on all persons.
14.7 Section 409A Compliance. Notwithstanding any other provisions of the Plan or any
Award agreement, no Award shall be granted, deferred, accelerated, extended, settled or modified in
a manner that would result in the imposition of an additional tax under Section 409A of the Code.
If the Committee reasonably determines that, as a result of Section 409A of the Code, the exercise
or settlement of an Award may not be made at the time contemplated by the terms of the Plan or the
relevant Award agreement, as the case may be, without causing the imposition of additional tax
under Section 409A of the Code, the Committee may take such actions as it determines are necessary
or appropriate in order to comply with, or exempt the Award from coverage by Section 409A of the
Code, which action may include, without limitation, delaying payment to a Participant who is a
specified employee within the meaning of Section 409A of the Code until the first day following
the six-month period beginning on the date of the Participants termination of employment or other
service with the Company and its Subsidiaries (or the Participants earlier death). Neither the
Company, the Committee nor any employee, director or representative of the Company or of any of its
affiliates shall have any liability to any Participants with respect to this section.
14.8 Governing Law. The Plan and all Award agreements shall be construed in accordance
with and governed by the laws of the State of Delaware (without regard to the legislative or
judicial conflict of laws rules of any state).
- 14 -
exv10w7
Exhibit 10.7
MISTRAS GROUP, INC.
STOCK OPTION AGREEMENT
AGREEMENT made as of the day of
, 20 , by and between MISTRAS GROUP, INC.
(the Company), and (the Participant).
1. Grant of Option. In accordance with the Mistras Group, Inc. 2009 Long-Term
Incentive Plan (the Plan), the Company grants to the Participant an option to purchase up to
shares of the Companys common stock (the Common Stock) upon the terms and conditions
set forth in this Agreement and the Plan. Capitalized terms that are used but not defined in this
Agreement shall have the meanings ascribed to them by the Plan.
2. Incentive Stock Option Status. The Option is [not] intended to be treated
as an incentive stock option within the meaning of Section Section 422 of the Internal Revenue
Code of 1986.
3. Option Term. Unless terminated sooner in accordance with this Agreement or the
Plan, the Option shall expire if and to the extent it is not exercised within ten years from the
date hereof.
4. Vesting of Option. Except as otherwise provided herein or the Plan, the Option
shall vest [ ]% commencing on the first anniversary of the date hereof and the
remaining [ ]% of the Shares subject to the Option shall vest in 36 equal monthly installments
thereafter, subject to the Participants continuous employment or other service with the Company or
a Subsidiary on the applicable vesting date.
5. Termination of Employment. Unless the Committee, acting in its sole and absolute
discretion, determines otherwise, upon the termination of the Participants employment and other
service with the Company and its Subsidiaries (Termination of Employment):
(a) that portion of the Option that is not then vested and exercisable will immediately
terminate; and
(b) that portion of the Option that is then vested and exercisable will terminate (1) 90 days
following the Termination of Employment if the Participants employment or other service is
terminated for any reason other than death, Disability (as defined below) or Cause (as defined
in the Plan), (2) one year following the Termination of Employment if the Participants employment
or other service is terminated by reason of the Participants death or Disability, and (3)
immediately upon Termination of Employment if the Participants employment is terminated by the
Company or a Subsidiary for Cause. For the purpose hereof, the Participants employment will be
deemed to be terminated due to Disability if such employment is terminated by the Company or a
Subsidiary by reason of the Participants being unable to perform the duties of the Participants
employment by reason of a physical or mental illness or injury that is expected to result in death
or to last indefinitely, as determined by a duly licensed physician selected by the Company.
Notwithstanding the provisions of this Section, in no event may the Option be exercised after the
expiration of its stated term or before it become vested and exercisable.
- 1 -
6. Exercise Procedures. If and to the extent the Option is vested and exercisable, it
may be exercised by transmitting to the Secretary of the Company (or other person designated by the
Committee) (a) a written notice specifying the number of whole shares to be purchased pursuant to
the exercise of the Option, (b) payment in full of the exercise price and the withholding taxes due
in connection with the exercise, unless and except to the extent that other arrangements
satisfactory to the Committee, in its sole and absolute discretion, have been made for such
payments, and (c) such other documents or information as the Committee may prescribe in connection
with the administration of the Plan. The exercise price may be paid in cash or in any other manner
the Committee, in its discretion, may permit, including, without limitation, (a) by the delivery of
previously-owned Shares, (b) by a combination of a cash payment and delivery of previously-owned
Shares, or (c) pursuant to a cashless exercise program established and made available through a
registered broker-dealer in accordance with the Federal Reserve Boards Regulation T and other
applicable law.
7. Nontransferability. Except as otherwise permitted by the Committee in accordance
with the Plan, the Option is not assignable or transferable other than to a beneficiary designated
to receive the Option upon the Participants death or by will or the laws of descent and
distribution, and the Option shall be exercisable during the lifetime of the Participant only by
the Participant (or, in the event of the Participants incapacity, the Participants legal
representative or guardian). Any attempt by the Participant or any other person claiming against,
through or under the Participant to cause the Option or any part of it to be transferred or
assigned in any manner and for any purpose not permitted hereunder or under the Plan shall be null
and void and without effect upon the Company, the Participant or any other person.
8. Rights as a Stockholder. No shares of Common Stock shall be sold, issued or
delivered hereunder until full payment for such shares has been made (including, for this purpose,
satisfaction of the applicable withholding tax). The Participant shall have no rights as a
stockholder with respect to any shares covered by the Option unless and until the Option is
exercised and the shares covered by the exercise of the Option are issued in the name of the
Participant. Except as otherwise specified, no adjustment shall be made for dividends or
distributions of other rights for which the record date is prior to the date such shares are
issued.
9. Provisions of the Plan Control. This Agreement is subject to all the terms,
conditions and provisions of the Plan and to such rules, regulations and interpretations as may be
established or made by the Committee acting within the scope of its authority and responsibility
under the Plan. The Participant acknowledges receipt of a copy of the Plan prior to execution of
this Agreement. The applicable provisions of the Plan shall govern in any situation where this
Agreement is silent or where the applicable provisions of this Agreement are contrary to or not
reconcilable with such Plan provisions.
10. No Employment Rights. Nothing contained herein or in the Plan shall confer upon
the Participant any right with respect to the continuation of the Participants employment or other
service with the Company or a Subsidiary or interfere in any way with the right of the Company and
its Subsidiaries at any time to terminate such employment or other service or to increase or
decrease, or otherwise adjust, the Participants compensation and any other terms and conditions of
the Participants employment or other service.
- 2 -
11. Withholding. The Companys obligation to issue shares of Common Stock pursuant to
the exercise of the Option shall be subject to and conditioned upon the satisfaction by the
Participant of applicable tax withholding obligations. The Company and its Subsidiaries may require
the Participant to remit an amount sufficient to satisfy applicable withholding taxes or deduct or
withhold such amount from any payments otherwise owed the Participant (whether or not under this
Agreement or the Plan). The Participant expressly authorizes the Company to deduct from any
compensation or any other payment of any kind due to the Participant, including withholding the
issuance of shares of Common Stock, the amount of any federal, state, local or foreign taxes
required by law to be withheld as a result of the exercise of the Option; provided, however, that
the value of the shares withheld may not exceed the statutory minimum withholding amount required
by law.
12. Committee Authority. The Committee under the Plan shall have complete discretion
in the exercise of its rights, powers, and duties under this Agreement. Any interpretation or
construction of any provision of, and the determination of any question arising under, this
Agreement shall be made by the Committee in its discretion and such exercise shall be final,
conclusive, and binding. The Committee may designate any individual or individuals to perform any
of its functions hereunder.
13. Successors. This Agreement shall be binding upon, and inure to the benefit of, any
successor or successors of the Company, the Participant and any beneficiary of the Participant.
14. Entire Agreement. This Agreement constitutes the entire agreement between the
parties with respect to the subject matter hereof and may not be amended, except as provided in the
Plan, other than by a written instrument executed by the parties hereto.
15. Governing Law. All rights and obligations under this Agreement and the Plan shall
be governed by and construed in accordance with the laws of the State of Delaware, without regard
to its principles of conflict of laws.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above
written.
|
|
|
|
|
|
|
|
|
MISTRAS GROUP, INC. |
|
|
|
|
|
|
|
|
|
|
|
By: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Participant |
|
|
- 3 -
exv10w8
Exhibit 10.8
MISTRAS GROUP, INC.
RESTRICTED STOCK AGREEMENT
AGREEMENT
made as of the ___ day of , 20___, by and between MISTRAS GROUP, INC.
(the Company), and (the Participant).
1. Award. In accordance with the Mistras Group, Inc. 2009 Long-Term Incentive Plan
(the Plan), the Company has made a restricted stock award to the Participant for
shares of
the Companys common stock (the Shares). The award and the Shares are subject to the provisions
of the Plan and, to the extent not inconsistent with the Plan, the terms and conditions of this
Agreement. Capitalized terms that are used but not defined in this Agreement shall have the
meanings ascribed to them by the Plan.
2. Vesting of Shares. Except as otherwise provided herein or the Plan, the Shares will
become vested in equal annual installments commencing on the first anniversary of the
date hereof, subject to the Participants continuous employment or other service with the Company
or a Subsidiary on the applicable vesting date.
3. Termination of EmploymentForfeiture of Unvested Shares. Unless the Committee,
acting in its sole and absolute discretion, determines otherwise, upon the termination of the
Participants employment and other service with the Company and its Subsidiaries (Termination of
Employment), the Participant will forfeit all right, title and interest in the unvested Shares. If
unvested Shares are forfeited, any certificate or book entry for such Shares will be automatically
canceled on the books and records of the Company without further action by the Participant.
4. Transfer Restrictions. The Participant may not sell, assign, transfer, pledge,
hedge, hypothecate, encumber or dispose of in any way (whether by operation of law or otherwise)
any unvested Shares, and unvested Shares shall not be subject to execution, attachment or similar
process. Any attempt by the Participant or any other person claiming against, through or under the
Participant to cause unvested Shares to be transferred or assigned in any manner and for any
purpose not permitted hereunder or under the Plan shall be null and void and without effect upon
the Company, the Participant or any other person.
5. Dividends and Voting Rights. [No dividends will be payable on unvested Shares;
however, the Participant will be credited with dividend equivalents equal to the amount or value of
the dividends that would have been paid on the unvested Shares if they were vested. The dividend
equivalents, if any, will be credited to a bookkeeping account in the name of the Participant. The
dividend equivalent amounts will be subject to substantially the same vesting, forfeiture and
other terms and conditions applicable to the corresponding unvested Shares. Dividend equivalent
amounts credited with respect to unvested Shares that become vested will be payable to the
Participant within 90 days after the date the corresponding unvested Shares become vested.] The
Participant will be entitled to exercise voting rights with respect to the unvested Shares.
6. Issuance of Shares; Removal of Restrictions and Conditions. The Participant is the
record owner of the Shares on the Companys books, subject to the restrictions and
- 1 -
conditions set forth in this Agreement. By executing this Agreement, the Participant expressly
authorizes the Company to cancel, reacquire, retire or retain, at its election, any unvested Shares
if and when they are forfeited in accordance with this Agreement. The Participant will execute and
deliver such other documents and take such other actions, if any, as the Company may reasonably
request in order to evidence such action with respect to any unvested Shares that are forfeited.
If, as and when Shares become vested, and subject to the satisfaction of applicable withholding and
other legal requirements, the vested Shares will no longer be subject to the transfer restrictions
and other conditions contained in this Agreement and the Companys books and, as applicable, stock
certificates representing the Shares will be updated accordingly.
7. Withholding. Notwithstanding anything to the contrary contained herein, the vesting
of Shares covered by this Agreement shall be subject to and conditioned upon the satisfaction by
the Participant of applicable tax withholding obligations. The Company and its Subsidiaries may
require the Participant to remit an amount sufficient to satisfy applicable withholding taxes or
deduct or withhold such amount from any payments otherwise owed the Participant (whether or not
under this Agreement or the Plan). The Participant expressly authorizes the Company to deduct from
any compensation or any other payment of any kind due to the Participant, including withholding
otherwise vested Shares, for the amount of any federal, state, local or foreign taxes required by
law to be withheld in connection with the vesting of Shares; provided, however, that the value of
the shares withheld may not exceed the statutory minimum withholding amount required by law.
8. Provisions of the Plan Control. This Agreement is subject to all the terms,
conditions and provisions of the Plan and to such rules, regulations and interpretations as may be
established or made by the Committee acting within the scope of its authority and responsibility
under the Plan. The Participant acknowledges receipt of a copy of the Plan prior to execution of
this Agreement. The applicable provisions of the Plan shall govern in any situation where this
Agreement is silent or where the applicable provisions of this Agreement are contrary to or not
reconcilable with such Plan provisions.
9. No Employment Rights. Nothing contained herein or in the Plan shall confer upon the
Participant any right with respect to the continuation of the Participants employment or other
service with the Company or a Subsidiary or interfere in any way with the right of the Company and
its Subsidiaries at any time to terminate such employment or other service or to increase or
decrease, or otherwise adjust, the Participants compensation and any other terms and conditions of
the Participants employment or other service.
10. Committee Authority. The Committee under the Plan shall have complete discretion
in the exercise of its rights, powers, and duties under this Agreement. Any interpretation or
construction of any provision of, and the determination of any question arising under, this
Agreement shall be made by the Committee in its discretion and such exercise shall be final,
conclusive, and binding. The Committee may designate any individual or individuals to perform any
of its functions hereunder.
11. Successors. This Agreement shall be binding upon, and inure to the benefit of, any
successor or successors of the Company, the Participant and any beneficiary of the Participant.
- 2 -
12. Entire Agreement. This Agreement constitutes the entire agreement between the
parties with respect to the subject matter hereof and may not be amended, except as provided in the
Plan, other than by a written instrument executed by the parties hereto.
13. Governing Law. All rights and obligations under this Agreement and the Plan shall
be governed by and construed in accordance with the laws of the State of Delaware, without regard
to its principles of conflict of laws.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above
written.
|
|
|
|
|
|
|
|
|
MISTRAS GROUP, INC. |
|
|
|
|
|
|
|
|
|
|
|
By: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Participant |
|
|
- 3 -
exv23w2
Exhibit 23.2
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the use in this Registration Statement on Form S-1 of our report dated
August 24, 2009, relating to the financial statements and financial statement schedules of Mistras
Group, Inc. which appears in such Registration Statement. We also consent to the references to us
under the headings Experts and Selected Financial
Data in such Registration Statement.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Florham Park, NJ
September 21, 2009
corresp
Fulbright & Jaworski L.L.P.
A Registered Limited Liability Partnership
666 Fifth Avenue, 31st Floor
New York, New York 10103-3198
www.fulbright.com
|
|
|
|
|
|
jdaniels@fulbright.com
|
|
telephone: (212) 318-3000 |
direct dial: (212) 318-3322
|
|
facsimile: (212) 318-3400 |
September 21, 2009
VIA EDGAR AND FEDERAL EXPRESS
Ms. Pamela A. Long
Assistant Director
U.S. Securities and Exchange Commission
Division of Corporation Finance
100 F Street, N.E.
Mail Stop 4631
Washington, D.C. 20549-7010
|
Re: |
|
Mistras Group, Inc.
Registration Statement on Form S-1
Filed June 10, 2008
File No. 333-151559 |
Dear Ms. Long:
On behalf of Mistras Group, Inc. (the Registrant), we hereby submit to you Amendment No. 4
(Amendment No. 4) to the Registrants above-referenced Registration Statement on Form S-1
(the Registration Statement), reflecting changes made in response to the comments of the staff
(the Staff) of the Securities and Exchange Commission (the Commission) contained in the letter
of Pamela A. Long dated September 17, 2009 to Sotirios J. Vahaviolos, Ph.D., pertaining to
Amendment No. 3 to the Registration Statement, and our
conversations with Craig Slivka, Staff Attorney, and Mindy Hooker,
Staff Accountant, on Friday, September 18, 2009.
All responses to the Staffs comments set forth in this letter are submitted on behalf of the
Registrant at its request. All responses to the accounting comments were prepared by the
Registrant in consultation with its independent auditors. To facilitate your review, we have set
forth in this letter each of the Staffs comments with the Registrants corresponding response
below. We have marked the enclosed Amendment No. 4 to show changes and all references to page
numbers below pertain to the page numbers in the marked version of Amendment No. 4 submitted
herewith.
FN(2) to Summary historical consolidated financial data, page 12
1. |
|
We note your disclosure that stock compensation expense is a non-cash expense that
management does not use in assessing operational performance because it does not affect [your]
ability to generate free cash flow or invest in [your] business. It is unclear from this
disclosure whether you are implying that Adjusted EBITDA is a liquidity measure. |
Austin Beijing Dallas Denver Dubai Hong Kong Houston London Los Angeles Minneapolis
Munich New York Riyadh San Antonio St. Louis Washington DC
Ms. Pamela A. Long
U.S. Securities and Exchange Commission
Division of Corporation Finance
September 21, 2009
Page 2
|
|
Please revise your disclosures to clarify. In this regard, it does not appear that your
2009 Adjusted EBITDA measure is an appropriate liquidity measure given that the legal
settlement adjustment relates to an actual cash expenditure. Refer to Item 10(e)A of
Regulation S-K. |
|
|
|
Response: The Registrant has revised the disclosure in accordance with the Staffs
comment. Please see pages 12, 42 and 65 of Amendment No. 4. |
|
2. |
|
We also note that some financial covenants in your credit agreement require you to maintain
financial ratios calculated based upon a measure with adjustment to EBITDA of a type
substantially similar to the adjustments incorporated into adjusted EBITDA. If this is a
material debt covenant this discussion should more appropriately be included in your liquidity
disclosures. See our comment below. |
|
|
|
Response: The Registrant has revised the disclosure in accordance with the Staffs
comment. Please see page 12, 42 and 65 of Amendment No. 4. |
Managements discussion and analysis of financial condition and results of operations
Overview, page 44
3. |
|
We note your disclosure on page 45 suggesting that despite the global economic downturns
impact on your revenue and profitability in 2009, you may not be as negatively affected in the
future. Please expand upon this discussion. |
|
|
|
Response: The Registrant has revised the disclosure in accordance with the Staffs
comment. Please see page 45 of Amendment No. 4. |
Liquidity and Capital Resources
Cash Balance and Credit Facility Borrowings, page 64
4. |
|
We note your disclosure that your credit facility contains financial covenants. If it is
reasonably likely that you may not comply with a material covenant, please present actual
ratios and other actual amounts versus minimum/maximum ratios/amounts required as of each
reporting date. Such presentation will allow investors to more easily understand your current
ability to meet your financial covenants. It may also be necessary to show specific
computations used to arrive at the actual ratios with corresponding reconciliations to US GAAP
amounts, if applicable. See Sections I.D and IV.C of the SEC Interpretive Release No. 33-8350
and Question 10 of our FAQ Regarding the Use of Non-GAAP Financial Measures dated June 13,
2003. |
|
|
|
Response: The Registrant supplementally
advises the Staff that because the Registrant does
not believe it is reasonably likely that it may not comply with a material covenant during
the term of its credit facility, it has not added the additional disclosure
requested by the Staff. |
Ms. Pamela A. Long
U.S. Securities and Exchange Commission
Division of Corporation Finance
September 21, 2009
Page 3
Critical Accounting Estimates, page 68
5. |
|
We note that you have identified accounts receivable, foreign currency translation, goodwill
and intangible assets, impairment of long-lived assets, derivative financial instruments, and
income taxes as those accounting policies which involve a greater degree of judgment and
complexity. Please revise your critical accounting policy disclosures where appropriate to
provide quantitative and qualitative disclosure of each estimates specific sensitivity to
change, based on other outcomes that are reasonably likely to occur and would have a material
effect on your financial statements. Refer to Section V of the Commissions Guidance
Regarding Managements Discussion and Analysis of Financial Condition and Results of
Operations (Release 33-8350/34-48960) issued December 19, 2003. |
|
|
|
Response: The Registrant has revised the disclosure in accordance with the Staffs
comment. Please see pages 69, 70 and 71 of Amendment No. 4. |
|
6. |
|
In the interest of providing readers with better insight into managements judgments in
accounting for goodwill, ensure your expanded disclosures include the following: |
|
|
|
Identify the reporting unit level at which you test goodwill for impairment and
your basis for that determination; |
|
|
|
|
Provide a quantitative discussion of each of the material assumptions used and
a sensitivity analysis of those assumptions based upon reasonably likely changes; |
|
|
|
|
Provide a qualitative and quantitative discussion of any reporting units that
are at risk for impairment, including the amount of goodwill allocated to those units; |
|
|
|
|
Address whether the assumptions and methodologies used for valuing goodwill in
the current year have changed since the prior year highlighting the impact of any
changes; |
|
|
|
|
Provide quantitative information regarding any significant known trends, and; |
|
|
|
|
Any material and useful information that you gather and analyze regarding the
risks of recoverability of your assets. |
Response: The Registrant has revised the disclosure in accordance with the Staffs
comment. Please see page 70 of Amendment No. 4. Based on the Registrants internal
projections the value of the Registrants reporting units materially exceeds its carrying
value. The Registrant believes that a significant modification to the key assumptions used
in building the discounted cash flow model would need to occur for the reporting units to be
as risk of impairment. The Registrant used a third party valuation firm to assist with its
analysis.
Ms. Pamela A. Long
U.S. Securities and Exchange Commission
Division of Corporation Finance
September 21, 2009
Page 4
7. |
|
With regard to your assessment of long-lived assets for impairment, ensure your expanded
disclosures address the following: |
|
|
|
Identify the nature of your asset groups and provide a more comprehensive
discussion of how you estimate the undiscounted cash flow of your asset groups. Refer
to paragraphs 16-21 of SFAS 144; |
|
|
|
|
For those asset groups for which their undiscounted cash flows are not
materially in excess of their carrying amount, quantify the carrying amount of those
asset groups. In addition, you should also disclose the following: |
|
|
|
Clearly communicate to investors the amount of your property,
plant and equipment that is at-risk for impairment; |
|
|
|
|
Quantify the material assumptions (ranges and/or weighted
averages) underlying your undiscounted cash flow analysis and quantify the
potential impact of changes in each material assumption by providing
sensitivity analysis; and |
|
|
|
|
Discuss quantitative information regarding any significant
known trends. |
Response: The Registrant evaluates its long lived assets for impairment in accordance with SFAS No. 144
Accounting for the Impairment or Disposal of Long-Lived Assets. In accordance with paragraph 8 of
this statement, long-lived assets should be tested for recoverability whenever events or changes in
circumstances indicate that its carrying amount may not be recoverable. The Registrant has revised
the disclosure to more clearly describe managements assessment process and to disclose the fact
that management concluded that there were no events or changes in circumstances that indicate
long-lived assets may not be recoverable in fiscal 2008 and 2009. Please see page 70 of Amendment
No. 4.
8. |
|
We note your disclosures on page F-31 and F-32 indicate that the fair market value of Class B
and Class A shares were determined using market comparables and multiple averages of various
peer groups. Given the significant impact this valuation has on the carrying value of your
preferred stock and your net (loss) income available to common stockholders, please expand
your discussion to include an explanation of the methods you used, how you weighted those
methods and provide a quantitative and qualitative discussion of the factors and assumptions
used in each method. To the extent that there have been changes in the factors and assumptions
used in the periods presented please discuss the impacts from period to period. |
|
|
|
Response: The Registrant has revised the disclosure in accordance with the Staffs
comment. Please see page F-32 of Amendment No. 4. |
Report of Independent Registered Public Accounting Firm, page F-2
9. |
|
Please provide a revised auditors report which covers all periods presented. In this regard,
we note that the audit report does not cover your consolidated statements of operations,
stockholders equity (deficit) and cash flows for the year ended May 31, 2007. |
|
|
|
Response: The Registrant has revised the disclosure in accordance with the Staffs |
Ms. Pamela A. Long
U.S. Securities and Exchange Commission
Division of Corporation Finance
September 21, 2009
Page 5
|
comment. |
|
Please see page F-2 of Amendment No. 4. |
Notes to the consolidated financial statements
Goodwill page F-19
10. |
|
Revise your column headings to reflect the appropriate dates. |
|
|
|
Response: The Registrant has revised the disclosure in accordance with the Staffs
comment. Please see page F-19 of Amendment No. 4. |
Long-term Debt, page F-22
11. |
|
We note your disclosures that the credit agreement contains financial covenants that require
you to maintain compliance with specified financial ratios and your disclosure on page 64
indicating that two covenants in your credit agreement were amended retroactive to prior
periods. Please revise your disclosure to clearly state whether you were in compliance with
these covenants at the end of the period presented and to disclose the terms of the new
covenants. |
|
|
|
Response: The Registrant has revised the disclosure in accordance with the Staffs
comment. Please see page F-23 of Amendment No. 4. |
18. Stock Options, page F-34
12. |
|
We note your disclosure that the fair market value of the common stock was determined by the
Companys Board of Directors. Please expand your disclosure to clearly explain how your Board
has determined this value. Additionally, please clarify whether the Boards determination of
the fair market value was consistent with the fair market value used in the determination of
preferred stock accretion. If these approaches were not similar, please explain the
differences and also explain why differing approaches were used. |
|
|
|
Response: The Registrant has revised the disclosure in accordance with the Staffs
comment. Please see page F-34 of Amendment No. 4. |
Ms. Pamela A. Long
U.S. Securities and Exchange Commission
Division of Corporation Finance
September 21, 2009
Page 6
If you have any comments or questions to the foregoing responses or referenced revisions,
please feel free to contact the undersigned at (212) 318-3322
or Don Ainscow at (212) 318-3358.
Very truly yours,
/S/
Joseph F. Daniels
Joseph F. Daniels
Enclosure
cc: |
|
Melinda Hooker, Staff Accountant
Anne McConnell, Staff Accountant
Craig Slivka, Staff Attorney
Sotirios J. Vahaviolos, Ph.D., Mistras Group, Inc.
Pete Peterik, Mistras Group, Inc.
Andrew C. Freedman, Esq., Fulbright & Jaworski L.L.P.
Sheldon G. Nussbaum, Esq., Fulbright & Jaworski L.L.P.
Donald G. Ainscow, Esq., Fulbright & Jaworski L.L.P. |