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April 25, 1996
Mr. Robert J. Cresci
Chairman of the Board
Serv-Tech, Inc.
5200 Cedar Crest Blvd.
Houston, Texas 77087
Dear Mr. Cresci:
This letter outlines a proposal under the terms of which Serv-Tech,
Inc., a Texas corporation ("Serv-Tech"), and HydroChem Holding, Inc., a
Delaware corporation ("HydroChem"), will combine their business operations.
1. Form of Transaction. The combination of the businesses of Serv-Tech
and HydroChem will be effected through a merger or series of mergers
pursuant to which the Stockholders of Serv-Tech will own 45%, in the
aggregate, and the Stockholders of HydroChem will own 55%, in the
aggregate, of the total issued and outstanding shares of capital stock
of the surviving entity (the "Surviving Entity"). The term
"Stockholders" as used in this paragraph means the holders of all of
the issued and outstanding shares of capital stock of the issuer and
the holders of all existing rights, options, warrants, subscriptions,
agreements or commitments to sell shares of capital stock of the
issuer (the latter being collectively referred to herein as
"Options"). The foregoing percentages are calculated pursuant to the
following example: Serv-Tech currently has 6,671,278 shares of common
stock, $0.50 par value per share ("Common Stock"), outstanding and
1,152,650 Options outstanding. The combined amount of shares of
Common Stock and Options represent 7,823,928 shares, and will
constitute 45% of the total number of issued and outstanding shares of
capital stock and Options of the Surviving Entity. Stockholders of
HydroChem will receive 9,562,579 shares of stock of the Surviving
Entity, constituting 55% of the total number of issued and outstanding
shares of capital stock and Options of the Surviving Entity. If the
sum of the issued and outstanding shares of Common Stock and Options
of Serv-Tech increases or decreases for any reason prior to the
closing, the total number of shares and Options to be issued by the
Surviving Entity pursuant to the transaction, and the actual number of
shares to be received by the Stockholders of HydroChem, shall be
adjusted at the closing so that the shares issued to the Stockholders
of HydroChem constitute 55% of the sum of the total outstanding shares
and the total Options of the Surviving Entity immediately after the
transaction. The attached Exhibit "A" illustrates calculations of the
numbers of shares to be issued and the percentages of ownership based
upon the assumptions set forth therein.
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Mr. Robert J. Cresci
April 25, 1996
Page 2
The above percentages are based upon 6,671,278 shares of Common Stock
being outstanding and a price per share of Common Stock of $5.93,
which price is the average closing price per share of Common Stock for
the last ten trading days prior to the date of this letter. The
percentages will not be subject to adjustment based on fluctuations in
the closing prices of the Common Stock between the date of this letter
and the closing of the transaction contemplated hereby. A mutually
acceptable definitive combination agreement will be prepared and
executed by and between Serv-Tech and HydroChem as soon as reasonably
practical following the date of this letter.
2. Securities Filings. The parties agree to take all actions reasonably
necessary to prepare, file and diligently pursue the effectiveness of
a Registration Statement on Form S-4 with the Securities and Exchange
Commission, containing a combined proxy statement and prospectus
providing for the approval of the transaction by the stockholders of
Serv-Tech and the issuance of the shares of the Surviving Entity's
stock upon consummation of the combination. The parties also agree to
take all such actions as are reasonably necessary under state blue sky
or securities laws to permit the issuance of such shares. Application
will be made to the NASDAQ National Market System for listing of the
shares of the Surviving Entity to be issued in the transaction.
3. Hart-Scott-Rodino Filings. Each of the parties will promptly file, or
cause its controlling stockholder to file, a premerger notification
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, and
will diligently seek an early termination of the waiting period
provided for thereunder.
4. Effective Date. The effective date of the transaction will be the
date the certificate or certificates of merger or consolidation are
filed with the appropriate state authorities.
5. Board of Directors and Officers. The initial Board of Directors of
the Surviving Entity will consist of seven directors, including three
directors designated by Serv-Tech and four directors designated by
HydroChem. The initial officers of the Surviving Entity will be as
determined by the Board of Directors. It is contemplated that one
Serv-Tech designated director will be Robert J. Cresci, who will serve
as Vice Chairman of the Board, and that B. Tom Carter, Jr. will be a
HydroChem designated director and will serve as Chairman of the Board
and Chief Executive Officer.
6. Corporate Names. Upon completion of the business combination, the
business operations of Serv-Tech and HydroChem will be conducted
through separate corporate entities which will continue to use the
names "Serv-Tech, Inc." and "HydroChem Industrial Services, Inc.",
respectively. Such entities will be wholly-owned subsidiaries of a
Delaware holding company
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Mr. Robert J. Cresci
April 25, 1996
Page 3
to be created for such purpose, the name of which will be established at a
later date. The corporate names, trade names, trademarks and service marks
currently used by the various operating divisions and subsidiaries of
Serv-Tech and HydroChem will continue to be used as division or subsidiary
names to the extent use of such names continues to have value to the
business and operations of the respective business units utilizing such
names and marks.
7. Conditions to Closing. The closing of the transactions contemplated
hereby will be subject, among other things, to the following:
a. Each party having afforded to the officers, employees, accountants,
counsel and other authorized representatives of the other, reasonable
access to its plants, properties, books and records and having used its
best efforts to cause its representatives to furnish to the other such
additional financial and operating data and other information as the
other may from time to time reasonably request for the purpose of
conducting a due diligence investigation, and the results of each
party's due diligence investigation having been satisfactory to such
party. Each of the parties and their respective principal officers and
agents have executed and delivered or will execute and deliver a
separate confidentiality agreement relating to the disclosure of such
information.
b. Receipt by Serv-Tech of an opinion satisfactory in form and substance
to Serv-Tech from an investment banking firm retained by Serv-Tech for
such purpose, to the effect that in such investment banking firm's
opinion, the transaction is fair to the stockholders of Serv-Tech from
a financial point of view.
c. Approval of the transaction by the boards of directors and stockholders
of each of Serv-Tech and HydroChem.
d. Receipt by each party of a tax opinion in form and substance
satisfactory to such party that the transaction will constitute a "tax
free reorganization" pursuant to section 368(a) of the Internal Revenue
Code of 1986, as amended.
e. Preparation of a mutually acceptable definitive agreement containing
such representations, warranties and covenants as are customary for
transactions of this nature.
f. Receipt by each party of all necessary third party consents and such
legal opinions as such party may require pursuant to the terms of the
definitive agreement.
g. The Registration Statement on Form S-4 having been declared effective
by the
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Mr. Robert J. Cresci
April 25, 1996
Page 4
Securities and Exchange Commission and all necessary action
having been taken under state blue sky or securities laws in
connection with the issuance of the Surviving Entity shares.
h. The waiting period under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 having expired and there being in
effect no order, judgment or decree by any court or
governmental body in the United States directing that the
transaction not be consummated.
8. Ordinary Course. From the date hereof until the closing of the
transaction contemplated hereby, neither party will, (i) make any
change in the conduct of its business, (ii) enter into any transaction
other than in the ordinary course of business, (iii) except in the
ordinary course of business, dispose of any of its assets, (iv)
subject any of its assets to a lien or other encumbrance, except in
the ordinary course of business, (v) waive any right of substantial
value, (vi) make any changes in any key employment arrangements or
(vii) make any changes in its capital structure or issue any
additional shares (other than pursuant to the exercise of outstanding
Options), rights, options (except an employee stock option granted to
Tricia Burns for 3,000 shares of HydroChem common stock), warrants,
subscriptions, agreements or commitments giving anyone the right to
acquire shares of capital stock.
9. No Solicitation. Until the earlier of July 1, 1996 or the date upon
which the parties hereto mutually agree to terminate discussions
regarding the subject matter of this letter, neither party will
directly or indirectly (i) solicit, initiate or encourage submission
of proposals or offers from any third party relating to any
acquisition or purchase of all or a material portion of the assets of,
or any equity interest in, such party, or any merger, consolidation or
business combination with such third party or its designee, or (ii)
except to the extent required by fiduciary obligations under
applicable law as advised in writing by counsel, participate in any
discussions or negotiations regarding, or furnish to any third party
any information with respect to any of the foregoing. Each
party shall promptly notify the other party if any such proposal,
offer or inquiry is made, providing reasonable detail of the identity
of the third party and the terms and conditions of the proposal or
offer.
10. Expenses and Brokers. Each of the parties hereto agrees to pay its
own expenses in connection with the matters contemplated hereby,
without regard to whether a transaction is consummated. In addition,
each party represents and warrants to the other that it has not
retained a finder or broker in connection with the transactions
contemplated hereby and that no brokers or finders fee is or shall
become due to any third party upon consummation of a business
transaction between the parties. The parties acknowledge that
HydroChem has
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Mr. Robert J. Cresci
April 25, 1996
Page 5
retained Donaldson, Lufkin & Jenrette as a financial advisor in
connection with this transaction.
If the above proposal is acceptable to you, please so indicate in the
space provided below and return one executed copy to the undersigned. Except
as required by law, no public announcement of the matters contemplated herein
shall be made by either party without the prior consent of the other.
Sincerely,
HydroChem Holding, Inc.
By: /s/ B. TOM CARTER, JR.
--------------------------------
B. Tom Carter, Jr.
Chairman of the Board and
Chief Executive Officer
AGREED AND ACCEPTED:
Serv-Tech, Inc.
By: /s/ ROBERT J. CRESCI
----------------------------------
Robert J. Cresci
Chairman of the Board
4-26-96
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Date
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EXHIBIT "A"
I. Computation of HydroChem shares assuming that Serv-Tech shares of Common
Stock are unchanged and that no Serv-Tech Options are exercised.
Issued and outstanding shares of Common Stock: 6,671,278
Plus: Outstanding Options 1,152,650
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Serv-Tech shares of Surviving Entity 7,823,928
Divided by 45% 7,823,928/.45
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Total shares of Surviving Entity 17,386,507
Less: Serv-Tech allocated shares 7,823,928
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HydroChem shares of Surviving Entity (55%) 9,562,579
Percent of outstanding shares:
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HydroChem Percentage 9,562,579(58.9%)
Serv-Tech Percentage 6,671,278(41.1%)
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Total 16,233,857
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II. Computation of HydroChem shares assuming that between the date of this
letter of intent and the closing of the transaction, 200,000 Serv-Tech
Options are exercised.
Issued and outstanding shares of Common Stock: 6,871,278
Plus: Outstanding Options 952,650
-----------
Serv-Tech shares of Surviving Entity 7,823,928
Divided by 45% 7,823,928/.45
-----------
Total shares of Surviving Entity 17,386,507
Less: Serv-Tech allocated shares 7,823,928
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HydroChem shares of Surviving Entity (55%) 9,562,579
Percent of outstanding shares:
-----------------------------
HydroChem Percentage 9,562,579(58.2%)
Serv-Tech Percentage 6,871,278(41.8%)
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Total 16,433,857
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III. Computation of HydroChem shares assuming that between the date of this
letter of intent and the closing of the transaction 200,000 shares of
Common Stock are acquired by Serv-Tech from a current shareholder (with
HydroChem's advance approval):
Issued and outstanding shares of Common Stock: 6,471,278
Plus: Outstanding Options 1,152,650
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Serv-Tech shares of Surviving Entity 7,623,928
Divided by 45% 7,623,928/.45
-----------
Total shares of Surviving Entity 16,942,062
Less: Serv-Tech allocated shares 7,623,928
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HydroChem shares of Surviving Entity (55%) 9,318,134
Percent of outstanding shares:
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HydroChem Percentage 9,318,134(59.0%)
Serv-Tech Percentage 6,471,278(41.0%)
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Total 15,789,412