<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _____________ TO _______________
COMMISSION FILE NO. 001-13037
SERVICE EXPERTS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 62-1639453
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
SIX CADILLAC DRIVE - SUITE 400, BRENTWOOD, TENNESSEE 37027
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (615) 371-9990
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
CLASS OUTSTANDING AT AUGUST 12, 1998
COMMON STOCK, $.01 PAR VALUE 16,629,085
1
<PAGE> 2
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
SERVICE EXPERTS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1997 1998
---- ----
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 11,192 $ 5,962
Accounts receivable:
Trade, net of allowance for doubtful accounts
of $1,550 in 1997 and $1,764 in 1998 29,129 42,407
Related party 202 370
Employee 365 495
Other, including federal income tax receivable 2,099 4,325
-------- --------
31,795 47,597
Inventories 11,570 22,035
Costs and estimated earnings in excess of billings 1,805 2,348
Prepaid expenses and other current assets 2,458 4,595
Current portion of notes receivable - related parties 14 14
Current portion of notes receivable - other 284 277
Deferred income taxes 3,896 3,945
-------- --------
Total current assets 63,014 86,773
Property, buildings and equipment:
Land 1,365 1,559
Buildings 3,252 3,539
Furniture and fixtures 5,900 10,773
Machinery and equipment 5,718 5,642
Vehicles 14,754 18,829
Leasehold improvements 2,477 3,282
-------- --------
33,466 43,624
Less accumulated depreciation and amortization (8,986) (12,163)
-------- --------
24,480 31,461
Notes receivable - related parties, net of
current portion 338 334
Notes receivable - other, net of current portion 591 610
Unallocated purchase price -- 5,383
Goodwill 105,158 148,695
Other assets 1,229 2,000
-------- --------
Total assets $194,810 $275,256
======== ========
</TABLE>
See accompanying notes.
2
<PAGE> 3
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1997 1998
---- ----
(UNAUDITED)
(IN THOUSANDS,
EXCEPT SHARE DATA)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable and accrued liabilities $ 17,821 $ 15,271
Accrued compensation 6,129 5,546
Accrued warranties 2,139 2,993
Income taxes payable 608 --
Deferred revenue 6,816 8,697
Billings in excess of costs and estimated earnings 1,282 1,640
Current portion of long-term debt and capital
lease obligations 274 274
-------- --------
Total current liabilities 35,069 34,421
Long-term debt and capital lease obligations, net
of current portion 15,663 61,606
Deferred income taxes 1,676 1,785
Commitments and contingencies (see note 8)
Stockholders' equity:
Preferred stock, $.01 par value; 10,000,000
shares authorized, no shares issued and
outstanding -- --
Common stock, $.01 par value; 30,000,000
shares authorized, 15,422,269 shares
issued and outstanding at December 31, 1997
and 16,386,387 shares issued and outstanding
at June 30, 1998 154 164
Additional paid-in-capital 122,673 147,852
Retained earnings 19,575 29,428
-------- --------
Total stockholders' equity 142,402 177,444
-------- --------
Total liabilities and stockholders' equity $194,810 $275,256
======== ========
</TABLE>
See accompanying notes.
3
<PAGE> 4
SERVICE EXPERTS, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1997 1998 1997 1998
---- ---- ---- ----
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net revenue $60,140 $100,101 $102,103 $168,761
Cost of goods sold 39,553 64,289 67,072 109,447
------- -------- -------- --------
Gross margin 20,587 35,812 35,031 59,314
Selling, general and
administrative expenses 13,396 23,943 24,590 42,121
------- -------- -------- --------
Income from operations 7,191 11,869 10,441 17,193
Other income (expense):
Interest expense (319) (920) (409) (1,180)
Interest income 324 188 453 285
Other income 108 165 213 285
------- -------- -------- --------
113 (567) 257 (610)
Income before income taxes 7,304 11,302 10,698 16,583
Provision (benefit) for income taxes:
Current 2,648 4,593 4,433 6,670
Deferred 67 (27) (501) 60
------- -------- -------- --------
2,715 4,566 3,932 6,730
------- -------- -------- --------
Net income $ 4,589 $ 6,736 $ 6,766 $ 9,853
======= ======== ======== ========
Net income per share:
Basic $ 0.32 $ 0.41 $ 0.50 $ 0.62
======= ======== ======== ========
Diluted $ 0.31 $ 0.41 $ 0.49 $ 0.61
======= ======== ======== ========
Weighted average shares outstanding:
Basic 14,558 16,270 13,602 16,003
======= ======== ========= =========
Diluted 14,683 16,518 13,724 16,258
======= ======== ========= =========
</TABLE>
See accompanying notes.
4
<PAGE> 5
SERVICE EXPERTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
1997 1998
---- ----
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
NET CASH FLOW PROVIDED BY (USED IN) OPERATING ACTIVITIES $ 2,582 ($13,651)
INVESTING ACTIVITIES:
Advances on notes receivable (2) (8)
Purchase of property, buildings, and equipment (5,135) (6,488)
Cash acquired through purchase of business 1,979 2,365
Payment of cash for acquired companies (25,914) (31,917)
(Increase) decrease in other assets 117 (721)
-------- ---------
Net cash used in
investing activities (28,955) (36,769)
FINANCING ACTIVITIES:
Issuance of stock, net of issuance costs 38,220 --
Proceeds of long-term debt 185 64,082
Payments of long-term debt and capital leases (2,084) (18,892)
Payments on notes payable to related parties (1,508) --
-------- --------
Net cash provided by
financing activities 34,813 45,190
Increase (decrease) in cash and cash equivalents 8,440 (5,230)
Cash and cash equivalents at beginning of period 10,806 11,192
-------- --------
Cash and cash equivalents at end of period $ 19,246 $ 5,962
======== ========
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid $ 319 $ 1,340
======== ========
Income taxes paid $ 2,648 $ 7,772
======== ========
</TABLE>
See accompanying notes.
5
<PAGE> 6
SERVICE EXPERTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED
JUNE 30, 1998 (UNAUDITED)
1 - BASIS OF PRESENTATION
OVERVIEW
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the six months ended June 30, 1998 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1998.
2 - NEWLY ISSUED ACCOUNTING STANDARDS
Service Experts, Inc. ("the Company") adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" on January 1, 1998 which had
no impact on the Company's financial statements.
In June 1997, the Financial Accounting Standards Board ("the FASB") issued
Statement No. 131, "Disclosures about Segments of an Enterprise and Related
Information" ("Statement 131"). Statement 131 establishes standards for the way
public business enterprises are to report information about operating segments
in annual financial statements and requires those enterprises to report selected
information about operating segments in interim financial reports issued to
shareholders. It also establishes standards for related disclosures about
products and services, geographic areas and major customers. The Company will
adopt Statement 131 beginning with its year ending December 31, 1998. Management
of the Company is presently evaluating the new standard in order to determine
its effect, if any, on the way the Company might report its operations in the
future.
In June 1998, the FASB issued Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("Statement 133"). Statement 133 establishes
accounting and reporting standards for derivative instruments and for hedging
activities. Adoption of Statement 133 is required for all quarters of all years
beginning after June 15, 1999, although earlier adoption is encouraged. The
Company is currently evaluating the potential impact of Statement 133.
3 - SECONDARY STOCK OFFERING
On March 18, 1997, the Company completed a secondary public stock offering,
which involved a sale to the public of 1,850,000 shares of Common Stock at
$22.00 per share which resulted in $38.0 million in net proceeds to the Company.
A portion of the net proceeds was used to pay the cash portion of the
consideration for acquisitions and to repay certain indebtedness arising from
acquisitions. The remaining proceeds were used to fund the Company's capital
expenditures, acquisitions and for general corporate purposes.
4 - SENIOR NOTES PAYABLE
On June 23, 1998, the Company issued $32.5 million of 6.97% senior unsecured
notes, due June 15, 2003, and $17.5 million of 7.13% senior unsecured notes,
due June 15, 2005 (collectively, the "Notes"), in a private placement to a group
of institutional investors. The notes call for interest to be paid on December
15 and June 15 of each year, with principal due at maturity. All of the
Company's subsidiaries have guaranteed the repayment of the Notes. The Notes
contain covenants with respect to the maintenance of certain financial ratios
and specified net worth and limiting the incurrence of additional indebtedness
and the sale of substantial assets, consolidations or mergers by the Company.
5 - ACQUISITIONS
The following table sets forth certain information regarding acquisitions in
1997 and 1998:
<TABLE>
<CAPTION>
Service Total Total
Centers Companies Shares Cash Total
Acquired Acquired Issued Consideration Consideration
-------- -------- ------ ------------- -------------
(in thousands)
<S> <C> <C> <C> <C> <C>
1997
First Quarter 7 13 772,000 $15,126 $28,287
Second Quarter 9 18 470,000 10,788 21,625
Third Quarter 10 20 717,000 10,252 30,254
Fourth Quarter 12 20 540,000 6,949 22,612
1998
First Quarter 10 19 389,000 8,626 19,242
Second Quarter 12 34 485,000 25,375 40,996
</TABLE>
6
<PAGE> 7
OTHER INFORMATION REGARDING ACQUISITIONS
All of the foregoing acquisitions were accounted for using the purchase method
of accounting, except for five acquisitions in 1997 which were accounted for as
poolings of interests. The allocation of the purchase price associated with the
acquisitions has been determined by the Company based upon available information
and is subject to further refinement. In computing the purchase price for
accounting purposes, the value of shares is determined using the value of shares
set forth in the acquisition agreement, less a discount ranging from 0% to 20%
(as determined by an independent investment banking firm), due to restrictions
on the sale and transferability of the shares issued. The discount to the
purchase price on acquisitions from January 1, 1998 through June 30, 1998 is
$2.7 million. Asset and equity balances have been reduced accordingly, with no
impact on net income. This reduction in goodwill will impact amortization
expense in future periods. The operating results of the acquisitions, except for
the five pooled companies, have been included in the accompanying consolidated
statements of income from the respective dates of acquisition. The following
unaudited pro forma results of operations give effect to the operations of these
entities as if the respective transactions had occurred as of the beginning of
the periods presented. The pro forma results of operations have been adjusted
for additional corporate support expenses, as well as for additional income tax
provisions for state and federal taxes as certain of the acquired companies
previously were taxed as subchapter S corporations. The pro forma results of
operations neither purport to represent what the Company's results of operations
would have been had such transactions in fact occurred at the beginning of the
periods presented nor purport to project the Company's results of operations in
any future period.
PRO FORMA RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30,
--------
1997 1998
---- ----
(IN THOUSANDS,
EXCEPT PER
SHARE DATA)
<S> <C> <C>
Net revenue $162,216 $176,891
Net income 9,576 10,270
Net income per common share:
Basic $ 0.62 $ 0.63
Diluted $ 0.61 $ 0.62
</TABLE>
6 - INCOME TAXES
The income tax provisions recorded for the three and six months ended June 30,
1997 and 1998 differ from the expected income tax provision due primarily to
goodwill amortization, a portion of which is not deductible for federal income
tax purposes, and the provision for state taxes.
7 - NET INCOME PER SHARE
The following table sets forth the computation of basic and diluted income per
share:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
1997 1998
---- ----
(IN THOUSANDS,
EXCEPT PER
SHARE DATA)
<S> <C> <C>
Numerator:
Net income $ 6,766 $ 9,853
------- -------
Numerator for basic income per share - income available
</TABLE>
7
<PAGE> 8
<TABLE>
<S> <C> <C>
to common stockholders 6,766 9,853
------- -------
Numerator for diluted income per share - income available
to common stockholders after assumed conversions 6,766 9,853
------- -------
Denominator:
Denominator for basic income per share - weighted average
shares 13,602 16,003
Effect of dilutive securities:
Employee stock options 97 144
Warrants 25 56
Contingent stock-acquisitions -- 55
------- -------
Dilutive potential common shares 122 255
Denominator for diluted income per share - adjusted
weighted-average shares and assumed conversions 13,724 16,258
======= =======
Basic income per share $ 0.50 $ 0.62
======= =======
Diluted income per share $ 0.49 $ 0.61
======= =======
</TABLE>
8 - COMMITMENTS AND CONTINGENCIES
The Company currently, and from time to time, is expected to be subject to
claims and suits arising in the ordinary course of business. Management
continually evaluates contingencies based on the best available evidence and
believes that adequate provision for losses has been provided to the extent
necessary.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
OVERVIEW
In 1997, the Company acquired 71 heating, ventilating and air conditioning
("HVAC") businesses and one consulting business (the "1997 Acquired Companies"),
of which 38 are Service Centers. The consideration paid by the Company for the
1997 Acquired Companies was approximately $102.8 million, consisting of
approximately 2.5 million shares of Common Stock, warrants to purchase 200,000
shares of Common Stock and approximately $43.1 million in cash. Five of the
transactions were accounted for using the pooling of interests method of
accounting, and the remainder were accounted for using the purchase method.
Approximately $73.9 million of the consideration paid by the Company was
allocated to intangible assets which are amortized over a 40-year period.
From January 1, 1998 through March 31, 1998, the Company acquired 19 HVAC
businesses, of which 10 are Service Centers. The consideration paid by the
Company for these businesses was approximately $19.2 million, consisting of
approximately 389,000 shares of Common Stock and approximately $8.6 million in
cash. All of these acquisitions were accounted for using the purchase method.
Approximately $15.0 million of the consideration paid by the Company was
allocated to intangible assets which are amortized over a 40-year period.
From April 1, 1998 through June 30, 1998, the Company acquired 34 HVAC
businesses (collectively, with the above businesses, the "1998 Acquired
Companies"), of which 12 are Service Centers. The consideration paid by the
Company for these businesses was approximately $41.0 million, consisting of
approximately 485,000 shares of Common Stock, warrants to purchase 100,000
shares of Common Stock and approximately $25.4 million in cash. All of these
acquisitions were accounted for using the purchase method. Approximately $27.5
million of the consideration paid by the Company was allocated to intangible
assets which are amortized over a 40-year period.
The 1997 and 1998 Acquired Companies (collectively, the "Acquired Companies")
historically have been managed as independent private companies and, as such,
their results of operations reflect different tax structures which have
influenced, among
8
<PAGE> 9
other things, their historical levels of owner's compensation. Certain owners
and key employees of the Acquired Companies have agreed to certain reductions in
their compensation in connection with the acquisitions.
COMPONENTS OF INCOME
Net revenue of the Acquired Companies has been derived primarily from the
installation, service and maintenance of central air conditioners, furnaces and
heat pumps in existing homes. Net revenue and associated income from operations
are subject to seasonal fluctuations resulting from increased demand for the
Company's services during warmer weather in the summer months and during colder
weather in winter months, particularly in the beginning of each season. Cost of
goods sold primarily consists of purchased materials such as replacement air
conditioning units and heat pumps and the labor associated with both
installations and repair orders. The main components of selling, general and
administrative expenses include administrative salaries, insurance expense,
promotion and advertising expenses and goodwill amortization.
RESULTS OF OPERATIONS
Because of the significant effect of the acquisitions of the Acquired Companies
and the anticipated effect of pending acquisitions on the Company's results of
operations, the Company's historical results of operations and period-to-period
comparisons will not be indicative of future results and may not be meaningful.
The Company plans to continue acquiring HVAC businesses in the future. The
integration of acquired HVAC businesses and the addition of management personnel
to support existing and future acquisitions may positively or negatively affect
the Company's results of operations during the period immediately following
acquisition.
THREE MONTHS ENDED JUNE 30, 1998 COMPARED TO THREE MONTHS ENDED JUNE 30, 1997
Net Revenue. Net revenue increased $40.0 million, or 66.4%, from $60.1
million for the three months ended June 30, 1997 to $100.1 million for the three
months ended June 30, 1998. Approximately $36.7 million of the increase is
attributable to the acquisition of new Service Centers between July 1997 and
June 1998.
Cost of Goods Sold. Cost of goods sold increased $24.7 million, or
62.5%, from $39.6 million for the three months ended June 30, 1997 to $64.3
million for the three months ended June 30, 1998. Approximately $24.1 million of
this increase is attributable to the acquisition of new Service Centers between
July 1997 and June 1998. As a percentage of net revenue, cost of goods sold
decreased 1.6% from 65.8% for the three months ended June 30, 1997 to 64.2% for
the three months ended June 30, 1998.
Gross Margin. Gross margin increased $15.2 million, or 74.0%, from
$20.6 million for the three months ended June 30, 1997 to $35.8 million for the
three months ended June 30, 1998. Approximately $12.5 million of this increase
is attributable to the acquisition of new Service Centers between July 1997 and
June 1998. As a percentage of net revenue, gross margin increased 1.6% from
34.2% for the three months ended June 30, 1997 to 35.8% for the three months
ended June 30, 1998. This percentage increase is attributable to an increased
demand for higher margin products and services in 1998.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $10.5 million, or 78.7%, from $13.4 million
for the three months ended June 30, 1997 to $23.9 million for the three months
ended June 30, 1998. Approximately $7.2 million of this increase is attributable
to the acquisition of new Service Centers between July 1997 and June 1998. The
remaining increase is primarily attributable to an increase in goodwill
amortization and additional administrative expenses. As a percentage of net
revenue, selling, general and administrative expenses increased from 22.3% for
the three months ended June 30, 1997 to 23.9% for the three months ended June
30, 1998.
Income from Operations. Income from operations increased from $7.2
million for the three months ended June 30, 1997 to $11.9 million for the three
months ended June 30, 1998, an increase of 65.1%. Income from operations as a
percentage of net revenue
9
<PAGE> 10
decreased from 12.0% for the three months ended June 30, 1997 to 11.9% for the
three months ended June 30, 1998.
Other Income (Expense). Other income decreased $680,000 from $113,000
for the three months ended June 30, 1997 to ($567,000) for the three months
ended June 30, 1998. Other income as a percentage of net revenue decreased from
0.2% for the three months ended June 30, 1997 to (0.6%) for the three months
ended June 30, 1998. This decrease is primarily due to interest costs incurred
on debt used to fund acquisitions.
Provision (Benefit) for Income Taxes. Income tax expense increased to
$4.6 million for the three months ended June 30, 1998 from $2.7 million for the
three months ended June 30, 1997. This increase is primarily attributable to
growth in earnings and the increase in goodwill amortization, a portion of which
is not deductible for federal income tax purposes.
SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO SIX MONTHS ENDED JUNE 30, 1997
Net Revenue. Net revenue increased $66.7 million, or 65.3%, from $102.1
million for the six months ended June 30, 1997 to $168.8 million for the six
months ended June 30, 1998. Approximately $58.2 million of the increase is
attributable to the acquisition of new Service Centers between July 1997 and
June 1998.
Cost of Goods Sold. Cost of goods sold increased $42.4 million, or
63.2%, from $67.1 million for the six months ended June 30, 1997 to $109.4
million for the six months ended June 30, 1998. Approximately $38.5 million of
this increase is attributable to the acquisition of new Service Centers between
July 1997 and June 1998. As a percentage of net revenue, cost of goods sold
decreased 0.8% from 65.7% for the six months ended June 30, 1997 to 64.9% for
the six months ended June 30, 1998.
Gross Margin. Gross margin increased $24.3 million, or 69.3%, from
$35.0 million for the six months ended June 30, 1997 to $59.3 million for the
six months ended June 30, 1998. Approximately $19.7 million of this increase is
attributable to the acquisition of new Service Centers between July 1997 and
June 1998. As a percentage of net revenue, gross margin increased 0.8% from
34.3% for the six months ended June 30, 1997 to 35.1% for the six months ended
June 30, 1998. This percentage increase is attributable to an increased demand
for higher margin products and services during the second quarter of 1998.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $17.5 million, or 71.3%, from $24.6 million
for the six months ended June 30, 1997 to $42.1 million for the six months ended
June 30, 1998. Approximately $12.4 million of this increase is attributable to
the acquisition of new Service Centers between July 1997 and June 1998. As a
percentage of net revenue, selling, general and administrative expenses
increased from 24.1% for the six months ended June 30, 1997 to 25.0% for the six
months ended June 30, 1998.
Income from Operations. Income from operations increased from $10.4
million for the six months ended June 30, 1997 to $17.2 million for the six
months ended June 30, 1998, an increase of 64.7%. Income from operations as a
percentage of net revenue remained unchanged at 10.2% for the six months ended
June 30, 1997 and 1998.
Other Income (Expense). Other income decreased $867,000 from $257,000
for the six months ended June 30, 1997 to ($610,000) for the six months ended
June 30, 1998. Other income as a percentage of net revenue decreased from 0.3%
for the six months ended June 30, 1997 to (0.4%) for the six months ended June
30, 1998. This decrease is primarily due to interest costs incurred on debt used
to fund acquisitions.
Provision (Benefit) for Income Taxes. Income tax expense increased to
$6.7 million for the six months ended June 30, 1998 from $3.9 million for the
six months ended June 30, 1997. This increase is primarily attributable to
growth in earnings and the increase in goodwill amortization, a portion of
which is not deductible for federal income tax purposes.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1998, the Company had working capital of $52.4 million including
cash and cash equivalents of $6.0 million. The ratio of current assets to
current liabilities was 2.5 to 1.0 at June 30, 1998 and 1.8 to 1.0 at December
31, 1997.
The Company's principal capital needs arise from the acquisition of new HVAC
businesses and the costs associated with such expansion. Net cash flow provided
by (used in) operating activities decreased from $2.6 million for the six months
ended June 30, 1997 to ($13.7) million for the six months ended June 30, 1998.
This use of funds in 1998 is primarily the net of cash provided from net income
of $14.7 million, as adjusted for depreciation and amortization, and cash used
for an $8.6 million increase in inventory, an $11.8 million increase in
receivables, and a $5.7 million decrease in trade payables and accrued
liabilities.
10
<PAGE> 11
investing activities was primarily attributable to the acquisition of HVAC
businesses.
The Company's ability to acquire new HVAC businesses will depend on a number of
factors, including the ability of management of the Company to identify
favorable target businesses and to negotiate favorable acquisition terms, the
availability of adequate financing and other factors, many of which are beyond
the control of the Company. In addition, there can be no assurance that the
Company will be successful in identifying and acquiring Service Centers, that
the Company can integrate such new Service Centers into the Company's operations
or that the Company's new Service Centers will generate sales revenue or profit
margins consistent with those of the Company's existing Service Centers.
On March 18, 1997, the Company completed a secondary offering of 1,850,000
shares of its Common Stock at $22.00 per share. The proceeds to the Company, net
of expenses and underwriters' discounts and commissions, were approximately
$38.0 million. The Company used the proceeds for planned capital expenditures,
acquisitions and general corporate purposes.
The Company currently has a $100.0 million unsecured revolving credit facility
with a banking syndication available through April 30, 2001 (the "Credit
Facility"). Borrowings under the Credit Facility bear interest at either (i) the
higher of the agent's base lending rate or the federal funds rate plus one-half
of one percent per annum or (ii) a variable rate equal to the 30, 60, 90 or
180-day LIBOR, as such rate changes from time to time, plus a variable margin of
from 62.5 to 150 basis points depending on the Company's funded debt to EBITDA
ratio determined on a quarterly basis, at the election of the Company. All of
the Company's subsidiaries have guaranteed the repayment of indebtedness under
the Credit Facility. The Credit Facility contains covenants with respect to the
maintenance of certain financial ratios and specified net worth and limiting the
incurrence of additional indebtedness, the sale of substantial assets,
consolidations or mergers by the Company and the payment of dividends.
On June 23, 1998, the Company issued $32.5 million of 6.97% senior unsecured
notes, due June 15, 2003, and $17.5 million of 7.13% senior unsecured notes, due
June 15, 2005 (collectively, the "Notes"), in a private placement to a group of
institutional investors. The Notes provide for interest to be paid on December
15 and June 15 of each year, with principal due at maturity. All of the
Company's subsidiaries have guaranteed the repayment of the Notes. The Note
Purchase Agreement pursuant to which the Notes were issued contains covenants
with respect to the maintenance of certain financial ratios and specified net
worth and limiting the incurrence of additional indebtedness and the sale of
substantial assets, consolidations or mergers by the Company.
The Company currently has on file with the Securities and Exchange Commission a
shelf Registration Statement on Form S-4 (Registration No. 333-12319) (the
"Shelf Registration Statement") covering securities with a collective aggregate
offering price of $50.0 million for use in future acquisitions of HVAC
businesses. Under the Shelf Registration Statement, the Company may issue shares
of Common Stock, warrants to purchase Common Stock and debt securities in
connection with acquisitions.
Management believes that the Company's existing cash balances and available
lines of credit will be sufficient to fund the Company's operating needs,
planned capital expenditures and debt service requirements for the next 12
months. Management continually evaluates potential strategic acquisitions as
part of the Company's growth strategy. To date, such acquisitions have been
predominantly funded by issuing shares of Common Stock, although future
acquisitions could be effected using greater amounts of cash. Although the
Company believes that its financial resources will enable it to consider
potential acquisitions, should the Company's actual results of operations fall
short of, or its rate of expansion significantly exceed, its plans, or should
its costs or capital expenditures exceed expectations, the Company may need to
seek additional financing in the future. In negotiating such financing, there
can be no assurance that the Company will be able to raise additional capital on
terms satisfactory to the Company. Failure to obtain
11
<PAGE> 12
additional financing on reasonable terms could have a negative effect on the
Company's plans to acquire additional HVAC businesses.
YEAR 2000
The Company is utilizing both internal and external resources to reprogram, or
replace, and test its software for Year 2000 modifications. The Company
anticipates completing the Year 2000 project no later than June 30, 1999, which
is prior to any anticipated impact on its operating systems. The total cost of
the Year 2000 project is estimated at $600,000 and is being funded through
operating cash flows. Of the total project cost, approximately $400,000 is
attributable to the purchase of new software, which will be capitalized. The
remaining $200,000, which will be expensed as incurred, is not expected to have
a material effect on the results of operations. To date, the Company has
incurred approximately $100,000 related to the assessment of, and preliminary
efforts on, its Year 2000 project and the development of a modification plan,
purchase of new systems and systems modifications.
The Company expects, but cannot provide assurance, that its Year 2000
modifications will be successfully completed on a timely basis. The ability of
third parties with whom the Company transacts business to address adequately
their Year 2000 issues is outside of the Company's control. There can be no
assurance that the failure of the Company, or such third parties, to address
adequately their respective Year 2000 issues will not have a material adverse
effect on the Company's financial condition or results of operations.
The Company has initiated formal communications with its significant suppliers
to determine the extent to which the Company's interface systems are vulnerable
to those third parties' failure to remediate their own Year 2000 issues. The
Company's estimated total Year 2000 project cost includes the estimated costs
and time associated with the impact of third party Year 2000 issues based on
currently available information. However, there can be no guarantee that the
systems of other companies on which the Company's systems rely will be timely
converted and would not have an adverse effect on the Company's systems. The
Company has determined it has no exposure to contingencies related to the Year
2000 issue for the products it has sold.
INFLATION
The HVAC industry is labor intensive. Wages and other expenses increase during
periods of inflation and when shortages in marketplaces occur. In addition,
suppliers pass along rising costs to the Company in the form of higher prices.
The Company has generally been able to offset increases in operating costs by
increasing charges, expanding services and implementing cost control measures to
curb such increases. The Company can not predict its ability to offset or
control future cost increases.
FORWARD LOOKING STATEMENTS
This discussion contains certain forward-looking statements, including those
relating to the acquisition of additional HVAC service and replacement
businesses, each of which is accompanied by specific, cautionary language that
could cause different results than expected by the Company.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
No disclosure is required.
12
<PAGE> 13
PART II
OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The annual meeting of stockholders of the Company was held on Friday,
May 1, 1998. At this meeting, the following matters were voted upon by the
Company's stockholders:
(a) AMENDMENT TO THE COMPANY'S 1996 EMPLOYEE STOCK PURCHASE PLAN
The Company's stockholders approved the amendment to the Company's 1996
Employee Stock Purchase Plan to increase from 200,000 to 350,000 the number of
shares authorized thereunder by the following vote:
VOTES CAST IN FAVOR VOTES CAST AGAINST ABSTENTIONS
11,106,278 64,634 34,713
(b) ELECTION OF CLASS II DIRECTORS
Allen L. Hovious and William G. Roth were elected to serve as
Class II directors of the Company. The vote was as follows:
<TABLE>
<CAPTION>
VOTES CAST VOTES CAST
NAME IN FAVOR AGAINST OR WITHHELD
<S> <C> <C>
Allen L. Hovious 11,197,940 7,685
William G. Roth 11,198,667 6,958
</TABLE>
(c) SELECTION OF AUDITORS
The stockholders of the Company ratified the appointment of Ernst &
Young LLP as the Company's independent auditors for the fiscal year ended
December 31, 1998, by the following vote:
VOTES CAST IN FAVOR VOTES CAST AGAINST ABSTENTIONS
11,160,421 3,879 41,325
ITEM 5. OTHER INFORMATION.
The deadline for delivering to the Company notice of stockholder
proposals, other than proposals to be included in the proxy statement, for the
1999 Annual Meeting of Stockholders will be February 20, 1999, pursuant to Rule
14a-4. The persons named as proxies in the proxy statement may exercise
discretionary authority to vote on any proposals received after such date.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------ -----------------------
<S> <C> <C>
3.1 -- Restated Certificate of Incorporation of the Registrant(a)
3.2 -- Bylaws of the Registrant(a)
4.1 -- Form of Common Stock Certificate(b)
4.2 -- Note Purchase Agreement, dated as of June 1, 1998, among the
Registrant and the Purchasers named therein (including a form of
Senior Note and form of Subsidiary Guaranty)
10.1 -- Form of Agreement and Plan of Merger among certain of the Registrant's
subsidiaries, a wholly-owned subsidiary of the Registrant and the
Registrant(c)
10.2 -- Form of Stock Purchase Agreement between the former stockholders
of certain of the Registrant's subsidiaries and the Registrant(d)
10.3 -- Second Amended and Restated Credit Agreement, dated as of April
28, 1998, between the Registrant and SunTrust Bank, Nashville,
N.A., as agent for the lenders
10.4 -- Amendment No. 2 to 1996 Employee Stock Purchase Plan(e)
10.5 -- Amendment No. 1 to 1997 Nonqualified Stock Purchase Plan(e)
27.1 -- Financial Data Schedule June 30, 1998 (for SEC use only)
27.2 -- Restated Financial Data Schedule June 30, 1997 (for SEC use only)
- ---------
(a) Incorporated by reference to the exhibits filed with the Registrant's
Registration Statement on Form S-1, File No. 333-07037.
(b) Incorporated by reference to the exhibits filed with the Registrant's
Registration Statement on Form 8-A, File No. 000-21173.
(c) Incorporated by reference to the exhibits filed with the Registrant's
Registration Statement on Form S-4, File No. 333-12319.
(d) Incorporated by reference to the exhibits filed with the Registrant's
annual report on Form 10-K for the fiscal year ended December 31, 1997,
File No. 001-13037.
(e) Incorporated by reference to the exhibits filed with the Registrant's
Registration Statement on Form S-8, File No. 333-59711.
</TABLE>
(b) Reports on Form 8-K.
The Company did not file any Current Reports on Form 8-K during the
quarter ended June 30, 1998.
13
<PAGE> 14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SERVICE EXPERTS, INC.
By: /s/ Anthony M. Schofield
-----------------------------------
Anthony M. Schofield
Chief Financial Officer
Date: August 14, 1998
14
<PAGE> 1
Exhibit 4.2
================================================================================
SERVICE EXPERTS, INC.
$200,000,000
Senior Notes Issuable In Series
$32,500,000
6.97% Senior Notes, Series 1998-A,
due June 15, 2003
$17,500,000
7.13% Senior Notes, Series 1998-B,
due June 15, 2005
---------
NOTE PURCHASE AGREEMENT
---------
Dated as of June 1, 1998
================================================================================
Series 1998-A PPN: 817567 A* 1
Series 1998-B PPN: 817567 A@ 9
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C> <C>
1. AUTHORIZATION OF NOTES...........................................................1
1.1. Amount; Establishment of Series.........................................1
1.2. The Series 1998 Notes...................................................2
2. SALE AND PURCHASE OF SERIES 1998 NOTES...........................................2
3. CLOSING..........................................................................3
4. CONDITIONS TO CLOSING............................................................3
4.1. Representations and Warranties..........................................3
4.2. Performance; No Default.................................................3
4.3. Compliance Certificates.................................................4
4.4. Opinions of Counsel.....................................................4
4.5. Purchase Permitted By Applicable Law, etc...............................4
4.6. Sale of Other Notes.....................................................4
4.7. Payment of Special Counsel Fees.........................................4
4.8. Private Placement Number................................................5
4.9. Changes in Corporate Structure..........................................5
4.10. Subsidiary Guaranty.....................................................5
4.11. Proceedings and Documents...............................................5
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY....................................5
5.1. Organization; Power and Authority.......................................5
5.2. Authorization, etc......................................................6
5.3. Disclosure..............................................................6
5.4. Organization and Ownership of Shares of Subsidiaries; Affiliates........7
5.5. Financial Statements....................................................7
5.6. Compliance with Laws, Other Instruments, etc............................8
5.7. Governmental Authorizations, etc........................................8
5.8. Litigation; Observance of Agreements, Statutes and Orders...............8
5.9. Taxes...................................................................9
5.10. Title to Property; Leases...............................................9
5.11. Licenses, Permits, etc..................................................9
5.12. Compliance with ERISA..................................................10
5.13. Private Offering by the Company........................................11
5.14. Use of Proceeds; Margin Regulations....................................11
5.15. Existing Indebtedness; Future Liens....................................11
5.16. Foreign Assets Control Regulations, etc................................12
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
5.17. Status under Certain Statutes..........................................12
5.18. Environmental Matters..................................................12
5.19. Solvency of Subsidiary Guarantors......................................13
5.20. Year 2000 Compliant....................................................13
6. REPRESENTATIONS OF THE PURCHASERS...............................................13
6.1. Purchase for Investment................................................13
6.2. Source of Funds........................................................13
7. INFORMATION AS TO COMPANY.......................................................15
7.1. Financial and Business Information.....................................15
7.2. Officer's Certificate..................................................17
7.3. Inspection.............................................................18
8. PREPAYMENT OF THE NOTES.........................................................19
8.1. Required Prepayments...................................................19
8.2. Optional Prepayments with Make-Whole Amount............................19
8.3. Allocation of Partial Prepayments......................................20
8.4. Maturity; Surrender, etc...............................................20
8.5. Purchase of Notes......................................................20
8.6. Make-Whole Amount......................................................21
9. AFFIRMATIVE COVENANTS...........................................................22
9.1. Compliance with Law....................................................22
9.2. Insurance..............................................................22
9.3. Maintenance of Properties..............................................23
9.4. Payment of Taxes and Claims............................................23
9.5. Corporate Existence, etc...............................................23
10. NEGATIVE COVENANTS..............................................................23
10.1. Fixed Charge Coverage Ratio............................................24
10.2. Consolidated Funded Debt...............................................24
10.3. Current Debt...........................................................24
10.4. Priority Debt..........................................................24
10.5. Adjusted Consolidated Net Worth........................................24
10.6. Liens..................................................................24
10.7. Sale of Assets.........................................................26
10.8. Mergers, Consolidations, etc...........................................27
10.9. Disposition of Stock of Restricted Subsidiaries........................28
10.10. Designation of Unrestricted and Restricted Subsidiaries................28
10.12. Nature of Business.....................................................28
10.13. Transactions with Affiliates...........................................29
11. EVENTS OF DEFAULT...............................................................29
12. REMEDIES ON DEFAULT, ETC........................................................31
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C> <C>
12.1. Acceleration...........................................................31
12.2. Other Remedies.........................................................32
12.3. Rescission.............................................................32
12.4. No Waivers or Election of Remedies, Expenses, etc......................32
13. REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES...................................33
13.1. Registration of Notes..................................................33
13.2. Transfer and Exchange of Notes.........................................33
13.3. Replacement of Notes...................................................33
14. PAYMENTS ON NOTES...............................................................34
14.1. Place of Payment.......................................................34
14.2. Home Office Payment....................................................34
15. EXPENSES, ETC...................................................................35
15.1. Transaction Expenses...................................................35
15.2. Survival...............................................................35
16. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT....................35
17. AMENDMENT AND WAIVER............................................................36
17.1. Requirements...........................................................36
17.2. Solicitation of Holders of Notes.......................................36
17.3. Binding Effect, etc....................................................36
17.4. Notes held by Company, etc............................................37
18. NOTICES.........................................................................37
19. REPRODUCTION OF DOCUMENTS.......................................................37
20. CONFIDENTIAL INFORMATION........................................................38
21. SUBSTITUTION OF PURCHASER.......................................................39
22. RELEASE OF SUBSIDIARY GUARANTY AND PLEDGES OF STOCK.............................39
23. MISCELLANEOUS...................................................................39
23.1. Modifications of GAAP..................................................39
23.2. Successors and Assigns.................................................39
23.3. Payments Due on Non-Business Days......................................40
23.4. Severability...........................................................40
23.5. Construction...........................................................40
23.6. Counterparts...........................................................40
23.7. Governing Law..........................................................40
</TABLE>
iii
<PAGE> 5
SCHEDULE A -- Information Relating to Purchasers
SCHEDULE B -- Defined Terms
SCHEDULE B-1 -- Existing Investments
SCHEDULE 5.3 -- Disclosure Materials
SCHEDULE 5.4 -- Subsidiaries of the Company and Ownership of
Subsidiary Stock
SCHEDULE 5.5 -- Financial Statements
SCHEDULE 5.8 -- Certain Litigation
SCHEDULE 5.11 -- Licenses, Permits, etc.
SCHEDULE 5.14 -- Use of Proceeds
SCHEDULE 5.15 -- Existing Indebtedness
SCHEDULE 10.6 -- Existing Liens
EXHIBIT 1.1-A -- Form of Senior Note
EXHIBIT 1.1-B -- Form of Subsidiary Guaranty
EXHIBIT 1.1-C -- Form of Supplement
EXHIBIT 1.2(a) -- Form of Series 1998-A Senior Note
EXHIBIT 1.2(b) -- Form of Series 1998-B Senior Note
EXHIBIT 4.4(a) -- Form of Opinion of Counsel for the Company
EXHIBIT 4.4(b) -- Form of Opinion of Special Counsel to the Purchasers
iv
<PAGE> 6
SERVICE EXPERTS, INC.
6 Cadillac Drive
Suite 400
Brentwood, Tennessee 37027
(615) 371-9990
Fax: (615) 221-9881
$200,000,000
Senior Notes Issuable In Series
$32,500,000
6.97% Senior Notes, Series 1998-A,
due June 15, 2003
$17,500,000
7.13% Senior Notes, Series 1998-B,
due June 15, 2005
Dated as of June 1, 1998
TO EACH OF THE PURCHASERS LISTED IN
THE ATTACHED SCHEDULE A:
Ladies and Gentlemen:
SERVICE EXPERTS, INC., a Delaware corporation (the "COMPANY"),
agrees with you as follows:
1. AUTHORIZATION OF NOTES.
1.1. AMOUNT; ESTABLISHMENT OF SERIES.
The Company is contemplating the issue and sale of up to
$200,000,000 aggregate principal amount of its Senior Notes issuable in series
(THE "NOTES", such term to include any such Notes issued in substitution
therefor pursuant to Section 13 of this Agreement). The Notes will be
substantially in the form set out in Exhibit 1.1-A, with such changes therefrom,
if any, as may be approved by the purchasers of such Notes, or series thereof,
and the Company. Certain capitalized terms used in this Agreement are defined in
Schedule B; references to a "SCHEDULE" or an "EXHIBIT" are, unless otherwise
specified, to a Schedule or an Exhibit attached to this Agreement. The Notes may
be issued in one or more series. Subject to
<PAGE> 7
Section 22, each series of Notes will be guaranteed by each Subsidiary that is
now or in the future becomes a signatory to the Bank Guaranty (individually, a
"SUBSIDIARY GUARANTOR" and collectively, the "SUBSIDIARY GUARANTORS") pursuant
to a guaranty in substantially the form of Exhibit 1.1-B (the "SUBSIDIARY
GUARANTY"), with such changes as may be necessary to describe therein the series
of Notes being guaranteed (such guaranty with respect to the Series 1998 Notes
is herein referred to as the "1998 SUBSIDIARY GUARANTY."). Each series of Notes,
other than the initial series, shall be issued pursuant to a supplement to this
Agreement (a "SUPPLEMENT") in substantially the form of Exhibit 1.1-C, and shall
be subject to the following terms and conditions:
(a) the designation of each series of Notes shall distinguish
the Notes of one series from the Notes of all other series;
(b) the Notes of each series shall rank pari passu with the
Notes of all other series, the Credit Agreement and the Company's other
outstanding unsecured senior Indebtedness;
(c) each series of Notes shall be dated the date of issue,
bear interest at such rate or rates, mature on such date or dates, be
subject to such mandatory prepayments on the dates and with the
Make-Whole Amounts, if any, as are provided in the Supplement under
which such Notes are issued, and shall have such additional or
different conditions precedent to closing and such additional or
different representations and warranties or other terms and provisions
as shall be specified in such Supplement; and
(d) except to the extent provided in foregoing clauses (a)
through (c), all of the provisions of this Agreement shall apply to the
Notes of each series.
The Purchasers of the Series 1998 Notes need not purchase subsequent series of
Notes.
1.2. THE SERIES 1998 NOTES.
The Company has authorized, as the initial series of Notes
hereunder, the issue and sale of $32,500,000 aggregate principal amount of Notes
to be designated as its 6.97% Senior Notes, Series 1998-A, due June 15, 2003
(the "SERIES 1998-A NOTES") and $17,500,000 aggregate principal amount of Notes
to be designated as its 7.13% Senior Notes, Series 1998-B, due June 15, 2005
(the "SERIES 1998-B NOTES") (the Series 1998-A Notes and the Series 1998-B Notes
are collectively referred to as the "SERIES 1998 NOTES", such term to include
any such Notes issued in substitution therefor pursuant to Section 13 of this
Agreement). The Series 1998 Notes shall be substantially in the forms set out in
Exhibits 1.2(a) and (b), respectively, with such changes therefrom, if any, as
may be approved by you and the Company.
2. SALE AND PURCHASE OF SERIES 1998 NOTES.
Subject to the terms and conditions of this Agreement, the
Company will issue and sell to you and each of the other purchasers named in
Schedule A (the "OTHER PURCHASERS"), and you and the Other Purchasers will
purchase from the Company, at the
2
<PAGE> 8
Closing provided for in Section 3, Series 1998 Notes in the principal amount
specified opposite your names in Schedule A at the purchase price of 100% of the
principal amount thereof. Your obligation hereunder and the obligations of the
Other Purchasers are several and not joint obligations and you shall have no
liability to any Person for the performance or non-performance by any Other
Purchaser hereunder.
3. CLOSING.
The sale and purchase of the Series 1998 Notes to be purchased
by you and the Other Purchasers shall occur at the offices of Gardner, Carton &
Douglas, Quaker Tower, Suite 3400, 321 North Clark Street, Chicago, Illinois
60610 at 9:00 a.m., Chicago time, at a closing (the "CLOSING") on June
23, 1998 or on such other Business Day thereafter on or prior to June 31, 1998
as may be agreed upon by the Company and you and the Other Purchasers. At the
Closing the Company will deliver to you the Series 1998 Notes to be purchased by
you in the form of a single Series 1998 Note (or such greater number of Series
1998 Notes in denominations of at least $500,000 as you may request) dated the
date of the Closing and registered in your name (or in the name of your
nominee), against delivery by you to the Company or its order of immediately
available funds in the amount of the purchase price therefor by wire transfer of
immediately available funds for the account of the Company to account number
7020176082 at SunTrust Bank Nashville, N.A., Nashville, TN, ABA No. 064000046.
If at the Closing the Company shall fail to tender such Series 1998 Notes to you
as provided above in this Section 3, or any of the conditions specified in
Section 4 shall not have been fulfilled to your satisfaction, you shall, at your
election, be relieved of all further obligations under this Agreement, without
thereby waiving any rights you may have by reason of such failure or such
nonfulfillment.
4. CONDITIONS TO CLOSING.
Your obligation to purchase and pay for the Series 1998 Notes
to be sold to you at the Closing is subject to the fulfillment to your
satisfaction, prior to or at the Closing, of the following conditions:
4.1. REPRESENTATIONS AND WARRANTIES.
The representations and warranties of the Company in this
Agreement shall be correct when made and at the time of the Closing.
4.2. PERFORMANCE; NO DEFAULT.
The Company shall have performed and complied with all
agreements and conditions contained in this Agreement required to be performed
or complied with by it prior to or at the Closing and after giving effect to the
issue and sale of the Series 1998 Notes (and the application of the proceeds
thereof as contemplated by Schedule 5.14) no Default or Event of Default shall
have occurred and be continuing. Neither the Company nor any Subsidiary shall
have entered into any transaction since the date of the Memorandum that would
have been prohibited by Sections 10.1 through 10.8 had such Sections applied
since such date.
3
<PAGE> 9
4.3. COMPLIANCE CERTIFICATES.
(a) Officer's Certificate. The Company shall have delivered to
you an Officer's Certificate, dated the date of the Closing, certifying
that the conditions specified in Sections 4.1, 4.2, 4.9 and 4.10 have
been fulfilled.
(b) Secretary's Certificate. The Company shall have delivered
to you a certificate certifying as to the resolutions attached thereto
and other corporate proceedings relating to the authorization,
execution and delivery of the Series 1998 Notes, the Agreement and the
1998 Subsidiary Guaranty.
4.4. OPINIONS OF COUNSEL.
You shall have received opinions in form and substance
reasonably satisfactory to you, dated the date of the Closing (a) from Waller,
Lansden, Dortch and Davis, counsel for the Company, covering the matters set
forth in Exhibit 4.4(a) and covering such other matters incident to the
transactions contemplated hereby as you or your counsel may reasonably request
(and the Company instructs its counsel to deliver such opinion to you) and (b)
from Gardner, Carton & Douglas, your special counsel in connection with such
transactions, substantially in the form set forth in Exhibit 4.4(b) and covering
such other matters incident to such transactions as you may reasonably request.
4.5. PURCHASE PERMITTED BY APPLICABLE LAW, ETC.
On the date of the Closing your purchase of Series 1998 Notes
shall (i) be permitted by the laws and regulations of each jurisdiction to which
you are subject, without recourse to provisions (such as Section 1405(a)(8) of
the New York Insurance Law) permitting limited investments by insurance
companies without restriction as to the character of the particular investment,
(ii) not violate any applicable law or regulation (including, without
limitation, Regulation U, T or X of the Board of Governors of the Federal
Reserve System) and (iii) not subject you to any tax, penalty or liability under
or pursuant to any applicable law or regulation, which law or regulation was not
in effect on the date hereof. If requested by you, you shall have received an
Officer's Certificate certifying as to such matters of fact as you may
reasonably specify to enable you to determine whether such purchase is so
permitted.
4.6. SALE OF OTHER NOTES.
Contemporaneously with the Closing the Company shall sell to
the Other Purchasers and the Other Purchasers shall purchase the Series 1998
Notes to be purchased by them at the Closing as specified in Schedule A.
4.7. PAYMENT OF SPECIAL COUNSEL FEES.
Without limiting the provisions of Section 15.1, the Company
shall have paid on or before the Closing the fees, charges and disbursements of
your special counsel referred to in
4
<PAGE> 10
Section 4.4, to the extent reflected in a statement of such counsel rendered to
the Company at least one Business Day prior to the Closing.
4.8. PRIVATE PLACEMENT NUMBER.
Private Placement numbers issued by Standard & Poor's CUSIP
Service Bureau (in cooperation with the Securities Valuation Office of the
National Association of Insurance Commissioners) shall have been obtained for
the Series 1998 Notes.
4.9. CHANGES IN CORPORATE STRUCTURE.
The Company shall not have changed its jurisdiction of
incorporation or been a party to any merger or consolidation and shall not have
succeeded to all or any substantial part of the liabilities of any other entity,
at any time following the date of the most recent financial statements referred
to in Schedule 5.5.
4.10. SUBSIDIARY GUARANTY.
Each Subsidiary Guarantor so designated in Schedule 5.4 shall
have executed and delivered the 1998 Subsidiary Guaranty in favor or you and the
Other Purchasers.
4.11. PROCEEDINGS AND DOCUMENTS.
All corporate and other proceedings in connection with the
transactions contemplated by this Agreement and all documents and instruments
incident to such transactions shall be satisfactory to you and your special
counsel, and you and your special counsel shall have received all such
counterpart originals or certified or other copies of such documents as you or
they may reasonably request.
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to you that:
5.1. ORGANIZATION; POWER AND AUTHORITY.
The Company is a corporation duly organized, validly existing
and in good standing under the laws of its jurisdiction of incorporation, and is
duly qualified as a foreign corporation and is in good standing in each
jurisdiction in which such qualification is required by law, other than those
jurisdictions as to which the failure to be so qualified or in good standing
could not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect. The Company has the corporate power and authority to
own or hold under lease the properties it purports to own or hold under lease,
to transact the business it transacts and proposes to transact, to execute and
deliver this Agreement and the Series 1998 Notes and to perform the provisions
hereof and thereof.
5
<PAGE> 11
5.2. AUTHORIZATION, ETC.
This Agreement and the Series 1998 Notes have been duly
authorized by all necessary corporate action on the part of the Company, and
this Agreement constitutes, and upon execution and delivery thereof each Series
1998 Note will constitute, a legal, valid and binding obligation of the Company
enforceable against the Company in accordance with its terms, except as such
enforceability may be limited by (i) applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforcement of
creditors' rights generally and (ii) general principles of equity (regardless of
whether such enforceability is considered in a proceeding in equity or at law).
The 1998 Subsidiary Guaranty has been duly authorized by all
necessary corporate action on the part of each Subsidiary Guarantor and upon
execution and delivery thereof will constitute the legal, valid and binding
obligation of each Subsidiary Guarantor, enforceable against each Subsidiary
Guarantor in accordance with its terms, except as such enforceability may be
limited by (i) applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws affecting the enforcement of creditors' rights generally and
(ii) general principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law).
5.3. DISCLOSURE.
The Company, through its agent, BancAmerica Robertson
Stephens, has delivered to you and each Other Purchaser a copy of a Private
Placement Memorandum, dated April 1998 (the "MEMORANDUM"), relating to the
transactions contemplated hereby. The Memorandum fairly describes, in all
material respects, the general nature of the business and principal properties
of the Company and its Subsidiaries. Except as disclosed in Schedule 5.3, the
Memorandum (other than the projections), the documents, certificates or other
writings delivered to you by or on behalf of the Company in connection with the
transactions contemplated hereby and the financial statements listed in Schedule
5.5, taken as a whole, do not contain any untrue statement of a material fact or
omit to state any material fact necessary to make the statements therein not
misleading in light of the circumstances under which they were made. The
financial projections were based on good faith estimates and assumptions
believed by the Company to be reasonable at the time such projections were
delivered to you. Except as disclosed in the Memorandum or as expressly
described in Schedule 5.3, or in one of the documents, certificates or other
writings identified therein, or in the financial statements listed in Schedule
5.5, since December 31, 1997, there has been no change in the financial
condition, operations, business or properties of the Company or any Subsidiary
except changes that individually or in the aggregate could not reasonably be
expected to have a Material Adverse Effect. There is no fact known to the
Company that could reasonably be expected to have a Material Adverse Effect that
has not been set forth herein or in the Memorandum or in the other documents,
certificates and other writings delivered to you by or on behalf of the Company
specifically for use in connection with the transactions contemplated hereby.
6
<PAGE> 12
5.4. ORGANIZATION AND OWNERSHIP OF SHARES OF SUBSIDIARIES; AFFILIATES.
(a) Schedule 5.4 contains (except as noted therein) complete
and correct lists (i) of the Company's Subsidiaries, showing, as to
each Subsidiary, the correct name thereof, the jurisdiction of its
organization, the percentage of shares of each class of its capital
stock or similar equity interests outstanding owned by the Company and
each other Subsidiary and whether such Subsidiary is a Subsidiary
Guarantor or a Restricted Subsidiary or both, (ii) to the Company's
knowledge, of the Company's Affiliates, other than Subsidiaries, and
(iii) of the Company's directors and senior officers.
(b) All of the outstanding shares of capital stock or similar
equity interests of each Subsidiary shown in Schedule 5.4 as being
owned by the Company and its Subsidiaries have been validly issued, are
fully paid and nonassessable and are owned by the Company or another
Subsidiary free and clear of any Lien (except as otherwise disclosed in
Schedule 5.4).
(c) Each Subsidiary identified in Schedule 5.4 is a
corporation or other legal entity duly organized, validly existing and
in good standing under the laws of its jurisdiction of organization,
and is duly qualified as a foreign corporation or other legal entity
and is in good standing in each jurisdiction in which such
qualification is required by law, other than those jurisdictions as to
which the failure to be so qualified or in good standing could not,
individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect. Each such Subsidiary has the corporate or
other power and authority to own or hold under lease the properties it
purports to own or hold under lease and to transact the business it
transacts and proposes to transact.
(d) No Subsidiary is a party to, or otherwise subject to any
legal restriction or any agreement (other than this Agreement, the
agreements listed on Schedule 5.4 and customary limitations imposed by
corporate law statutes) restricting the ability of such Subsidiary to
pay dividends out of profits or make any other similar distributions of
profits to the Company or any of its Subsidiaries that owns outstanding
shares of capital stock or similar equity interests of such Subsidiary.
5.5. FINANCIAL STATEMENTS.
The Company has delivered to you and each Other Purchaser
copies of the financial statements of the Company and its Subsidiaries listed on
Schedule 5.5. All of said financial statements (including in each case the
related schedules and notes) fairly present in all material respects the
consolidated financial condition of the Company and its Subsidiaries as of the
respective dates specified in such Schedule and the consolidated results of
their operations and cash flows for the respective periods so specified and have
been prepared in accordance with GAAP consistently applied throughout the
periods involved except as set forth in the notes thereto (subject, in the case
of any interim financial statements, to normal year-end adjustments and the
absence of such notes as may be required under GAAP).
7
<PAGE> 13
5.6. COMPLIANCE WITH LAWS, OTHER INSTRUMENTS, ETC.
The execution, delivery and performance by the Company of this
Agreement and the Series 1998 Notes will not (i) contravene, result in any
breach of, or constitute a default under, or result in the creation of any Lien
in respect of any property of the Company or any Subsidiary under, any
agreement, or corporate charter or by-laws, to which the Company or any
Subsidiary is bound or by which the Company or any Subsidiary or any of their
respective properties may be bound or affected, (ii) conflict with or result in
a breach of any of the terms, conditions or provisions of any order, judgment,
decree, or ruling of any court, arbitrator or Governmental Authority applicable
to the Company or any Subsidiary or (iii) violate any provision of any statute
or other rule or regulation of any Governmental Authority applicable to the
Company or any Subsidiary.
The execution, delivery and performance by each Subsidiary
Guarantor of the 1998 Subsidiary Guaranty will not (i) contravene, result in any
breach of, or constitute a default under, or result in the creation of any Lien
in respect of any property of such Subsidiary Guarantor under, any agreement, or
corporate charter or by-laws, to which such Subsidiary Guarantor is bound or by
which such Subsidiary Guarantor or any of its properties may be bound or
affected, (ii) conflict with or result in a breach of any of the terms,
conditions or provisions of any order, judgment, decree, or ruling of any court,
arbitrator or Governmental Authority applicable to such Subsidiary Guarantor or
(iii) violate any provision of any statute or other rule or regulation of any
Governmental Authority applicable to such Subsidiary Guarantor.
5.7. GOVERNMENTAL AUTHORIZATIONS, ETC.
No consent, approval or authorization of, or registration,
filing or declaration with, any Governmental Authority is required in connection
with the execution, delivery or performance by the Company of this Agreement or
the Series 1998 Notes or the execution, delivery or performance by each
Subsidiary Guarantor of the 1998 Subsidiary Guaranty.
5.8. LITIGATION; OBSERVANCE OF AGREEMENTS, STATUTES AND ORDERS.
(a) There are no actions, suits or proceedings pending or, to
the knowledge of the Company, threatened against or affecting the
Company or any Subsidiary or any property of the Company or any
Subsidiary in any court or before any arbitrator of any kind or before
or by any Governmental Authority that, individually or in the
aggregate, could reasonably be expected to have a Material Adverse
Effect.
(b) Neither the Company nor any Subsidiary is in default under
any term of any agreement or instrument to which it is a party or by
which it is bound, or any order, judgment, decree or ruling of any
court, arbitrator or Governmental Authority or is in violation of any
applicable law, ordinance, rule or regulation (including without
limitation Environmental Laws) of any Governmental Authority, which
default or violation, individually or in the aggregate, could
reasonably be expected to have a Material Adverse Effect.
8
<PAGE> 14
5.9. TAXES.
The Company and its Subsidiaries have filed all tax returns
that are required to have been filed in any jurisdiction, and have paid all
taxes shown to be due and payable on such returns and all other taxes and
assessments levied upon them or their properties, assets, income or franchises,
to the extent such taxes and assessments have become due and payable and before
they have become delinquent, except for any taxes and assessments (i) the amount
of which is not individually or in the aggregate Material or (ii) the amount,
applicability or validity of which is currently being contested in good faith by
appropriate proceedings and with respect to which the Company or a Subsidiary,
as the case may be, has established adequate reserves in accordance with GAAP.
The Company knows of no basis for any other tax or assessment that could
reasonably be expected to have a Material Adverse Effect. The charges, accruals
and reserves on the books of the Company and its Subsidiaries in respect of
Federal, state or other taxes for all fiscal periods are adequate under GAAP.
5.10. TITLE TO PROPERTY; LEASES.
The Company and its Subsidiaries have good and sufficient
title to the properties that they own or purport to own and that individually or
in the aggregate are Material, including all such properties reflected in the
most recent audited balance sheet referred to in Section 5.5 or purported to
have been acquired by the Company or any Subsidiary after said date (except as
sold or otherwise disposed of in the ordinary course of business), in each case
free and clear of Liens prohibited by this Agreement. All leases that
individually or in the aggregate are Material are valid and subsisting and are
in full force and effect in all material respects.
5.11. LICENSES, PERMITS, ETC.
Except as disclosed in Schedule 5.11,
(a) the Company and its Subsidiaries own or possess all
licenses, permits, franchises, authorizations, patents, copyrights,
service marks, trademarks and trade names, or rights thereto, that
individually or in the aggregate are Material, without known Material
conflict with the rights of others;
(b) to the best knowledge of the Company, no product of the
Company infringes in any Material respect on any license, permit,
franchise, authorization, patent, copyright, service mark, trademark,
trade name or other right owned by any other Person; and
(c) to the best knowledge of the Company, there is no Material
violation by any Person of any right of the Company or any of its
Subsidiaries with respect to any patent, copyright, service mark,
trademark, trade name or other right owned or used by the Company or
any of its Subsidiaries.
9
<PAGE> 15
5.12. COMPLIANCE WITH ERISA.
(a) The Company and each ERISA Affiliate have operated and
administered each Plan in compliance with all applicable laws except
for such instances of noncompliance as have not resulted in and could
not reasonably be expected to result in a Material Adverse Effect.
Neither the Company nor any ERISA Affiliate has incurred any liability
pursuant to Title I or IV of ERISA or the penalty or excise tax
provisions of the Code relating to employee benefit plans (as defined
in Section 3 of ERISA), and no event, transaction or condition has
occurred or exists that could reasonably be expected to result in the
incurrence of any such liability by the Company or any ERISA Affiliate,
or in the imposition of any Lien on any of the rights, properties or
assets of the Company or any ERISA Affiliate, in either case pursuant
to Title I or IV of ERISA or to such penalty or excise tax provisions
or to Section 401(a)(29) or 412 of the Code, other than such
liabilities or Liens as would not be individually or in the aggregate
Material.
(b) The present value of the aggregate benefit liabilities
under each of the Plans (other than Multiemployer Plans), determined as
of the end of such Plan's most recently ended plan year on the basis of
the actuarial assumptions specified for funding purposes in such Plan's
most recent actuarial valuation report, did not exceed the aggregate
current value of the assets of such Plan allocable to such benefit
liabilities by more than $3,000,000 in the case of any single Plan and
by more than $6,000,000 in the aggregate for all Plans. The term
"BENEFIT LIABILITIES" has the meaning specified in section 4001 of
ERISA and the terms "CURRENT VALUE" and "PRESENT VALUE" have the
meaning specified in section 3 of ERISA.
(c) The Company and its ERISA Affiliates have not incurred
withdrawal liabilities (and are not subject to contingent withdrawal
liabilities) under section 4201 or 4204 of ERISA in respect of
Multiemployer Plans that individually or in the aggregate are Material.
(d) The expected postretirement benefit obligation (determined
as of the last day of the Company's most recently ended fiscal year in
accordance with Financial Accounting Standards Board Statement No. 106,
without regard to liabilities attributable to continuation coverage
mandated by section 4980B of the Code) of the Company and its
Subsidiaries is not Material or has been disclosed in the most recent
audited consolidated financial statements of the Company and its
Subsidiaries.
(e) The execution and delivery of this Agreement and the
issuance and sale of the Notes hereunder will not involve any
transaction that is subject to the prohibitions of section 406 of ERISA
or in connection with which a tax could be imposed pursuant to section
4975(c)(1)(A)-(D) of the Code. The representation by the Company in the
first sentence of this Section 5.12(e) is made in reliance upon and
subject to the accuracy of your representation in Section 6.2 as to the
sources of the funds used to pay the purchase price of the Notes to be
purchased by you.
10
<PAGE> 16
5.13. PRIVATE OFFERING BY THE COMPANY.
Neither the Company nor anyone acting on its behalf has
offered the Series 1998 Notes or the Subsidiary Guaranty or any similar
securities for sale to, or solicited any offer to buy any of the same from, or
otherwise approached or negotiated in respect thereof with, any Person other
than you, the Other Purchasers and not more than [ ] other Institutional
Investors, each of which has been offered the Series 1998 Notes at a private
sale for investment. Neither the Company nor anyone acting on its behalf has
taken, or will take, any action that would subject the issuance or sale of the
Series 1998 Notes or the execution and delivery of the Subsidiary Guaranty to
the registration requirements of Section 5 of the Securities Act.
5.14. USE OF PROCEEDS; MARGIN REGULATIONS.
The Company will apply the proceeds of the sale of the Series
1998 Notes as set forth in Schedule 5.14. No part of the proceeds from the sale
of the Series 1998 Notes hereunder will be used, directly or indirectly, for the
purpose of buying or carrying any margin stock within the meaning of Regulation
U of the Board of Governors of the Federal Reserve System (12 CFR 221), or for
the purpose of buying or carrying or trading in any securities under such
circumstances as to involve the Company in a violation of Regulation X of said
Board (12 CFR 224) or to involve any broker or dealer in a violation of
Regulation T of said Board (12 CFR 220). Margin stock does not constitute more
than 1% of the value of the consolidated assets of the Company and its
Subsidiaries and the Company does not have any present intention that margin
stock will constitute more than 1% of the value of such assets. As used in this
Section, the terms "MARGIN STOCK" and "PURPOSE OF BUYING OR CARRYING" shall have
the meanings assigned to them in said Regulation U. For purposes of the
foregoing, margin stock shall not include common stock of the Company held in
its treasury.
5.15. EXISTING INDEBTEDNESS; FUTURE LIENS.
(a) Except as described therein, Schedule 5.15 sets forth a
complete and correct list of all outstanding Indebtedness of the
Company and its Subsidiaries as of March 31, 1998, since which date
there has been no Material change in the amounts, interest rates,
sinking funds, installment payments or maturities of the Indebtedness
of the Company or its Subsidiaries. Neither the Company nor any
Subsidiary is in default and no waiver of default is currently in
effect, in the payment of any principal or interest on any Indebtedness
of the Company or such Subsidiary and no event or condition exists with
respect to any Indebtedness of the Company or any Subsidiary and that
would permit (or that with notice or the lapse of time, or both, would
permit) one or more Persons to cause such Indebtedness to become due
and payable before its stated maturity or before its regularly
scheduled dates of payment.
(b) Except as disclosed in Schedule 5.15, neither the Company
nor any Restricted Subsidiary has agreed or consented to cause or
permit in the future (upon the happening of a contingency or otherwise)
any of its property, whether now owned or hereafter acquired, to be
subject to a Lien not permitted by Section 10.6.
11
<PAGE> 17
5.16. FOREIGN ASSETS CONTROL REGULATIONS, ETC.
Neither the sale of the Notes by the Company hereunder nor its
use of the proceeds thereof will violate the Trading with the Enemy Act, as
amended, or any of the foreign assets control regulations of the United States
Treasury Department (31 CFR, Subtitle B, Chapter V, as amended) or any enabling
legislation or executive order relating thereto.
5.17. STATUS UNDER CERTAIN STATUTES.
Neither the Company nor any Subsidiary is subject to
regulation under the Investment Company Act of 1940, as amended, the Public
Utility Holding Company Act of 1935, as amended, the Interstate Commerce Act, as
amended by the ICC Termination Act, as amended, or the Federal Power Act, as
amended.
5.18. ENVIRONMENTAL MATTERS.
(a) Neither the Company nor any Subsidiary has knowledge of
any liability or has received any notice of any claim, and no
proceeding has been instituted asserting any claim against the Company
or any of its Subsidiaries or any of their respective real properties
now owned, leased or operated by any of them or other assets nor, to
the knowledge of the Company or any Subsidiary, has any such proceeding
been instituted against any of their respective real properties
formerly owned, for damage to the environment or violation of any
Environmental Laws, except, in each case, such as could not reasonably
be expected to result in a Material Adverse Effect.
(b) Neither the Company nor any Subsidiary has knowledge of
any facts that would give rise to any claim for violation of
Environmental Laws or damage to the environment emanating from,
occurring on or in any way related to real properties now or formerly
owned, leased or operated by any of them or to other assets or their
use, except, in each case, such as could not reasonably be expected to
result in a Material Adverse Effect;
(c) Neither the Company nor any Subsidiary has stored any
Hazardous Materials on real properties now or formerly owned, leased or
operated by any of them and has not disposed of any Hazardous Materials
in a manner contrary to any Environmental Laws in each case in any
manner that could reasonably be expected to result in a Material
Adverse Effect; and
(d) All buildings on all real properties now owned, leased or
operated by the Company or any Subsidiary are, to the Company's
knowledge, in compliance with applicable Environmental Laws, except
where failure to comply could not reasonably be expected to result in a
Material Adverse Effect.
12
<PAGE> 18
5.19. SOLVENCY OF SUBSIDIARY GUARANTORS.
After giving effect to the transactions contemplated herein,
(i) the present fair salable value of the assets of each Subsidiary Guarantor is
in excess of the amount that will be required to pay its probable liability on
its existing debts as said debts become absolute and matured, (ii) each
Subsidiary Guarantor has received reasonably equivalent value for executing and
delivering the Subsidiary Guaranty, (iii) the property remaining in the hands of
each Subsidiary Guarantor is not an unreasonably small capital, and (iv) each
Subsidiary Guarantor is able to pay its debts as they mature.
5.20. YEAR 2000 COMPLIANT.
The Company and its Subsidiaries' internal computer systems will be
year 2000 compliant in a timely manner and the advent of the year 2000 and its
impact on such computer systems is not expected to have a Material Adverse
Effect.
6. REPRESENTATIONS OF THE PURCHASERS.
6.1. PURCHASE FOR INVESTMENT.
You represent that you are purchasing the Series 1998 Notes
for your own account or for one or more separate accounts maintained by you or
for the account of one or more pension or trust funds and not with a view to the
distribution thereof, provided that the disposition of your or their property
shall at all times be within your or their control. You understand that the
Series 1998 Notes have not been registered under the Securities Act and may be
resold only if registered pursuant to the provisions of the Securities Act or if
an exemption from registration is available, except under circumstances where
neither such registration nor such an exemption is required by law, and that the
Company is not required to register the Notes.
6.2. SOURCE OF FUNDS.
You represent that at least one of the following statements is
an accurate representation as to each source of funds (a "SOURCE") to be used by
you to pay the purchase price of the Series 1998 Notes to be purchased by you
hereunder:
(a) if you are an insurance company, the Source does not
include assets allocated to any separate account maintained by you in
which any employee benefit plan (or its related trust) has any
interest, other than a separate account that is maintained solely in
connection with your fixed contractual obligations under which the
amounts payable, or credited, to such plan and to any participant or
beneficiary of such plan (including any annuitant) are not affected in
any manner by the investment performance of the separate account; or
(b) the Source is either (i) an insurance company pooled
separate account, within the meaning of Prohibited Transaction
Exemption ("PTE") 90-1 (issued January 29, 1990), or (ii) a bank
collective investment fund, within the meaning of the PTE 91-38
13
<PAGE> 19
(issued July 12, 1991) and, except as you have disclosed to the
Company in writing pursuant to this paragraph (b), no employee benefit
plan or group of plans maintained by the same employer or employee
organization beneficially owns more than 10% of all assets allocated
to such pooled separate account or collective investment fund; or
(c) the Source constitutes assets of an "investment fund"
(within the meaning of Part V of the QPAM Exemption) managed by a
"qualified professional asset manager" or "QPAM" (within the meaning of
Part V of the QPAM Exemption), no employee benefit plan's assets that
are included in such investment fund, when combined with the assets of
all other employee benefit plans established or maintained by the same
employer or by an affiliate (within the meaning of Section V(c)(1) of
the QPAM Exemption) of such employer or by the same employee
organization and managed by such QPAM, exceed 20% of the total client
assets managed by such QPAM, the conditions of Part I(c) and (g) of the
QPAM Exemption are satisfied, neither the QPAM nor a person controlling
or controlled by the QPAM (applying the definition of "control" in
Section V(e) of the QPAM Exemption) owns a 5% or more interest in the
Company and (i) the identity of such QPAM and (ii) the names of all
employee benefit plans whose assets are included in such investment
fund have been disclosed to the Company in writing pursuant to this
paragraph (c); or
(d) the Source is a governmental plan; or
(e) the Source is one or more employee benefit plans, or a
separate account or trust fund comprised of one or more employee
benefit plans, each of which has been identified to the Company in
writing pursuant to this paragraph (e); or
(f) the Source does not include assets of any employee benefit
plan, other than a plan exempt from the coverage of ERISA; or
(g) the Source is an "insurance company general account" as
such term is defined in the Department of Labor Prohibited Transaction
Class Exemption 95-60 (issued July 12, 1995) ("PTE 95-60") and there is
no "employee benefit plan" with respect to which the aggregate amount
of such general account's reserves and liabilities for the contracts
held by or on behalf of such employee benefit plan and all other
employee benefit plans maintained by the same employer (and affiliates
thereof as defined in Section V(a)(1) of PTE 95-60) or by the same
employee organization (in each case determined in accordance with the
provisions of PTE 95-60) exceeds 10% of the total reserves and
liabilities of such general account (as determined under PTE 95-60)
(exclusive of separate account liabilities) plus surplus as set forth
in the National Association of Insurance Commissioners Annual Statement
filed with the state of domicile of such Purchaser.
As used in this Section 6.2, the terms "EMPLOYEE BENEFIT PLAN", "GOVERNMENTAL
PLAN", "PARTY IN INTEREST" and "SEPARATE ACCOUNT" shall have the respective
meanings assigned to such terms in Section 3 of ERISA.
14
<PAGE> 20
7. INFORMATION AS TO COMPANY.
7.1. FINANCIAL AND BUSINESS INFORMATION
The Company shall deliver to each holder of Notes that is an
Institutional Investor:
(a) Quarterly Statements -- within 50 days after the end of
each quarterly fiscal period in each fiscal year of the Company (other
than the last quarterly fiscal period of each such fiscal year),
duplicate copies of,
(i) a consolidated balance sheet of the Company and
its Subsidiaries as at the end of such quarter, and
(ii) consolidated statements of income, changes in
stockholders' equity and cash flows of the Company and its
Subsidiaries, for such quarter and (in the case of the second
and third quarters) for the portion of the fiscal year ending
with such quarter,
setting forth in each case in comparative form the figures for the
corresponding periods in the previous fiscal year, all in reasonable
detail, prepared in accordance with GAAP applicable to quarterly
financial statements generally, and certified by a Senior Financial
Officer as fairly presenting, in all material respects, the financial
condition of the companies being reported on and their results of
operations and cash flows, subject to changes resulting from year-end
adjustments, provided that delivery within the time period specified
above of copies of the Company's Quarterly Report on Form 10-Q prepared
in compliance with the requirements therefor and filed with the
Securities and Exchange Commission shall be deemed to satisfy the
requirements of this Section 7.1(a);
(b) Annual Statements -- within 100 days after the end of
each fiscal year of the Company, duplicate copies of,
(i) a consolidated balance sheet of the Company and
its Subsidiaries, as at the end of such year, and
(ii) consolidated statements of income, changes in
stockholders' equity and cash flows of the Company and its
Subsidiaries, for such year,
setting forth in each case in comparative form the figures for the
previous fiscal year, all in reasonable detail, prepared in accordance
with GAAP, and accompanied by an opinion thereon of independent
certified public accountants of recognized national standing, which
opinion shall state that such financial statements present fairly, in
all material respects, the financial condition of the companies being
reported upon and their results of operations and cash flows and have
been prepared in conformity with GAAP, and that the examination of such
accountants in connection with such financial statements has been made
in accordance with generally accepted auditing standards, and that such
audit
15
<PAGE> 21
provides a reasonable basis for such opinion in the circumstances,
provided that the delivery within the time period specified above of
the Company's Annual Report on Form 10-K for such fiscal year
(together with the Company's annual report to shareholders, if any,
prepared pursuant to Rule 14a-3 under the Exchange Act) prepared in
accordance with the requirements therefor and filed with the
Securities and Exchange Commission shall be deemed to satisfy the
requirements of this Section 7.1(b);
(c) Unrestricted Subsidiaries -- if, at the time of delivery
of any financial statements pursuant to Section 7.1(a) or (b),
Unrestricted Subsidiaries account for more than 10% of (i) the
consolidated total assets of the Company and its Subsidiaries reflected
in the balance sheet included in such financial statements or (ii) the
consolidated revenues of the Company and its Subsidiaries reflected in
the consolidated statement of income included in such financial
statements, an unaudited balance sheet for all Unrestricted
Subsidiaries taken as whole as at the end of the fiscal period included
in such financial statements and the related unaudited statements of
income, stockholders' equity and cash flows for such Unrestricted
Subsidiaries for such period, together with consolidating statements
reflecting all eliminations or adjustments necessary to reconcile such
group financial statements to the consolidated financial statements of
the Company and its Subsidiaries;
(d) SEC and Other Reports -- promptly upon their becoming
available, one copy of (i) each financial statement, report, notice or
proxy statement sent by the Company or any Restricted Subsidiary to
public securities holders generally, and (ii) each regular or periodic
report, each registration statement (without exhibits except as
expressly requested by such holder), and each prospectus and all
amendments thereto filed by the Company or any Restricted Subsidiary
with the Securities and Exchange Commission and of all press releases
and other statements made available generally by the Company or any
Restricted Subsidiary to the public concerning developments that are
Material;
(e) Notice of Default or Event of Default -- promptly, and in
any event within five days after a Responsible Officer obtains actual
knowledge of the existence of any Default or Event of Default or that
any Person has given any notice or taken any action with respect to a
claimed default hereunder or that any Person has given any notice or
taken any action with respect to a claimed default of the type referred
to in Section 11(f), a written notice specifying the nature and period
of existence thereof and what action the Company is taking or proposes
to take with respect thereto;
(f) ERISA Matters -- promptly, and in any event within five
days after a Responsible Officer becoming aware of any of the
following, a written notice setting forth the nature thereof and the
action, if any, that the Company or an ERISA Affiliate proposes to take
with respect thereto:
(i) with respect to any Plan, any reportable event,
as defined in section 4043(b) of ERISA and the regulations
thereunder, for which notice thereof
16
<PAGE> 22
has not been waived pursuant to such regulations as in effect
on the date hereof; or
(ii) the taking by the PBGC of steps to institute, or
the threatening by the PBGC of the institution of, proceedings
under section 4042 of ERISA for the termination of, or the
appointment of a trustee to administer, any Plan, or the
receipt by the Company or any ERISA Affiliate of a notice from
a Multiemployer Plan that such action has been taken by the
PBGC with respect to such Multiemployer Plan; or
(iii) any event, transaction or condition that could
result in the incurrence of any liability by the Company or
any ERISA Affiliate pursuant to Title I or IV of ERISA or the
penalty or excise tax provisions of the Code relating to
employee benefit plans, or in the imposition of any Lien on
any of the rights, properties or assets of the Company or any
ERISA Affiliate pursuant to Title I or IV of ERISA or such
penalty or excise tax provisions, if such liability or Lien,
taken together with any other such liabilities or Liens then
existing, could reasonably be expected to have a Material
Adverse Effect;
(g) Notices from Governmental Authority -- promptly, and in
any event within 30 days of receipt thereof, copies of any notice to
the Company or any Restricted Subsidiary from any Federal or state
Governmental Authority relating to any order, ruling, statute or other
law or regulation that could reasonably be expected to have a Material
Adverse Effect;
(h) Requested Information -- with reasonable promptness, such
other data and information relating to the business, operations,
affairs, financial condition, assets or properties of the Company or
any of its Subsidiaries or relating to the ability of the Company to
perform its obligations hereunder and under the Notes as from time to
time may be reasonably requested by any such holder of Notes, so long
as the gathering of such data does not unreasonably interfere with the
Company's or any Subsidiary's ordinary course of business; and
(i) Supplements to Agreement -- in the event an additional
series of Notes is, or is proposed to be, issued under this Agreement,
promptly, and in any event within 10 Business Days after execution and
delivery thereof, a true copy of the Supplement pursuant to which such
Notes are to be, or were, issued.
7.2. OFFICER'S CERTIFICATE.
Each set of financial statements delivered to a holder of
Notes pursuant to Section 7.1(a) or (b) shall be accompanied by a certificate of
a Senior Financial Officer setting forth:
(a) Covenant Compliance -- the information (including
supporting calculations) required in order to establish whether the
Company was in compliance with
17
<PAGE> 23
the requirements of Section 10.1 through Section 10.5, inclusive,
during the quarterly or annual period covered by the statements then
being furnished (including with respect to each such Section, where
applicable, the calculations of the maximum or minimum amount, ratio
or percentage, as the case may be, permissible under the terms of such
Sections, and the calculation of the amount, ratio or percentage then
in existence); and
(b) Event of Default -- a statement that such officer has
reviewed the relevant terms hereof and has made, or caused to be made,
under his or her supervision, a review of the transactions and
conditions of the Company and its Restricted Subsidiaries from the
beginning of the quarterly or annual period covered by the statements
then being furnished to the date of the certificate and that such
review shall not have disclosed the existence during such period of any
condition or event that constitutes a Default or an Event of Default
or, if any such condition or event existed or exists (including any
such event or condition resulting from the failure of the Company or
any Restricted Subsidiary to comply with any Environmental Law),
specifying the nature and period of existence thereof and what action
the Company shall have taken or proposes to take with respect thereto.
7.3. INSPECTION.
The Company will permit the representatives of each holder of
Notes that is an Institutional Investor:
(a) No Default -- if no Default or Event of Default then
exists, at the expense of such holder and upon reasonable prior notice
to the Company, to visit the principal executive office of the Company,
to discuss the affairs, finances and accounts of the Company and its
Subsidiaries with the Company's officers, and (with the consent of the
Company, which consent will not be unreasonably withheld) its
independent public accountants, and (with the consent of the Company,
which consent will not be unreasonably withheld) to visit the other
offices and properties of the Company and each Subsidiary, all at such
reasonable times and as often as may be reasonably requested in
writing, but not more often than once a quarter; and
(b) Default -- if a Default or Event of Default then exists,
at the expense of the Company (provided that such expense is reasonably
incurred) and upon reasonable prior notice to the Company, to visit the
principal executive office of the Company, to discuss the affairs,
finances and accounts of the Company and its Subsidiaries with the
Company's officers, and (with the consent of the Company, which consent
will not be unreasonably withheld) its independent public accountants,
and (with the consent of the Company, which consent will not be
unreasonably withheld) to visit the other offices and properties of the
Company and each Subsidiary, all at such reasonable times and as often
as may be reasonably requested in writing.
18
<PAGE> 24
8. PREPAYMENT OF THE NOTES.
8.1. REQUIRED PREPAYMENTS.
(a) No Scheduled Prepayments. No regularly scheduled
prepayments are due on the Series 1998 Notes prior to their stated
maturity.
(b) Change of Control Prepayments. Upon the occurrence of a
Change of Control Event, the Company, upon notice as provided below,
shall offer to prepay the entire principal amount of the Notes at 100%
of the principal amount thereof, plus the Make-Whole Amount determined
for the prepayment date with respect to such principal amount. The
Company shall give notice of any offer to prepay the Notes to each
holder of the Notes within three Business Days after any Responsible
Officer has knowledge of a Change of Control Event. Such notice shall
specify (i) the nature of the Change of Control Event, (ii) the date
fixed for prepayment which, to the extent practicable, shall be not
less than 30 or more than 60 calendar days after the date of such
notice, but in any event shall not be later than the Effective Date of
the Change of Control if it has not occurred or 15 Business Days
thereafter if it has occurred, (iii) the estimated Effective Date of
the Change of Control if it has not occurred, (iv) the interest to be
paid on the prepayment date with respect to such principal amount being
prepaid and (v) the date by which any holder of a Note that wishes to
accept such offer must deliver notice thereof to the Company which
shall not be later than 10 Business Days prior to the date fixed for
prepayment. The notice shall be accompanied by a certificate of a
Senior Financial Officer as to the estimated Make-Whole Amount due in
connection with such prepayment (calculated as if the date of such
notice were the date of the prepayment), setting forth the details of
such computation. Failure by a holder of Notes to respond to an offer
made pursuant to this Section 8.1(b) shall be deemed to constitute
acceptance of such offer by such holder. Not earlier than 7 Business
Days prior to the date fixed for prepayment, the Company shall give
written notice to each holder of the Notes of those holders who have
given notices of acceptance of, or are deemed to have accepted, the
Company's offer, and the principal amount of Notes held by each, and
thereafter any holder may change its response to the Company's offer by
written notice to such effect delivered to the Company not less than
three Business Days prior to the date fixed for prepayment. Two
Business Days prior to such prepayment, the Company shall deliver to
each holder of Notes a certificate of a Senior Financial Officer
specifying the calculation of the Make-Whole Amount as of the specified
prepayment date. If any holder of Notes objects to such calculation by
written notice to the Company, the Make-Whole Amount calculated by such
holder and specified in such notice shall be final and binding on the
Company, absent demonstrable error, with respect to the prepayment of
the Notes held by all holders.
The obligation of the Company to prepay Notes pursuant to the
offers required by, and accepted in accordance with, this paragraph (b)
is subject to the effectiveness of the Change of Control Event in
respect of which such offers and acceptances shall have been made. In
the event that the Effective Date of the Change of Control does not
occur on the
19
<PAGE> 25
proposed prepayment date in respect thereof, the prepayment shall be
deferred until and shall be made on the Effective Date of the Change
of Control. The Company shall keep each holder of Notes reasonably and
timely informed of (i) any such deferral of the date of prepayment,
(ii) the expected Effective Date of the Change of Control and (iii)
any determination by the Company that efforts to consummate the change
of control constituting the Change of Control Event have ceased or
been abandoned (in which case the offers and acceptances made pursuant
to this Section 8.1(b) shall be deemed rescinded).
8.2. OPTIONAL PREPAYMENTS WITH MAKE-WHOLE AMOUNT.
The Company may, at its option, upon notice as provided below,
prepay at any time all, or from time to time any part of, the Notes of any
series, including the Series 1998 Notes, in an amount not less than $2,000,000
in the aggregate in the case of a partial prepayment, at 100% of the principal
amount so prepaid, plus the Make-Whole Amount determined for the prepayment date
with respect to such principal amount. The Company will give each holder of
Notes of the series to be prepaid written notice of each optional prepayment
under this Section 8.2 not less than 15 days and not more than 60 days prior to
the date fixed for such prepayment. Each such notice shall specify such date,
the aggregate principal amount of the Notes to be prepaid on such date, the
principal amount of each Note held by such holder to be prepaid (determined in
accordance with Section 8.3), and the interest to be paid on the prepayment date
with respect to such principal amount being prepaid, and shall be accompanied by
a certificate of a Senior Financial Officer as to the estimated Make-Whole
Amount due in connection with such prepayment (calculated as if the date of such
notice were the date of the prepayment), setting forth the details of such
computation. Two Business Days prior to such prepayment, the Company shall
deliver to each holder of Notes a certificate of a Senior Financial Officer
specifying the calculation of such Make-Whole Amount as of the specified
prepayment date.
8.3. ALLOCATION OF PARTIAL PREPAYMENTS.
In the case of each partial prepayment of the Notes of a
series, the principal amount of the Notes of such series to be prepaid shall be
allocated among all of the Notes of such series at the time outstanding in
proportion, as nearly as practicable, to the respective unpaid principal amounts
thereof not theretofore called for prepayment. Each such partial prepayment
pursuant to Section 8.2 shall, in respect of the Notes of a series, be applied
first to the payment due on such Notes at final maturity and thereafter to any
required prepayments on such Notes, in inverse order of maturity.
8.4. MATURITY; SURRENDER, ETC.
In the case of each prepayment of Notes pursuant to this
Section 8, the principal amount of each Note to be prepaid shall mature and
become due and payable on the date fixed for such prepayment, together with
interest on such principal amount accrued to such date and the applicable
Make-Whole Amount, if any. From and after such date, unless the Company shall
20
<PAGE> 26
fail to pay such principal amount when so due and payable, together with the
interest and Make-Whole Amount, if any, as aforesaid, interest on such principal
amount shall cease to accrue. Any Note paid or prepaid in full shall be
surrendered to the Company and canceled and shall not be reissued, and no Note
shall be issued in lieu of any prepaid principal amount of any Note.
8.5. PURCHASE OF NOTES.
The Company will not, and will not permit any Affiliate to,
purchase, redeem, prepay or otherwise acquire, directly or indirectly, any of
the outstanding Notes except upon the payment or prepayment of the Notes in
accordance with the terms of this Agreement and the Notes. The Company will
promptly cancel all Notes acquired by it or any Affiliate pursuant to any
payment, prepayment or purchase of Notes pursuant to any provision of this
Agreement and no Notes may be issued in substitution or exchange for any such
Notes.
8.6. MAKE-WHOLE AMOUNT.
The term "MAKE-WHOLE AMOUNT" means, with respect to any Note,
an amount equal to the excess, if any, of the Discounted Value of the Remaining
Scheduled Payments with respect to the Called Principal of such Note over the
amount of such Called Principal, provided that the Make-Whole Amount may in no
event be less than zero. For the purposes of determining the Make-Whole Amount,
the following terms have the following meanings:
"CALLED PRINCIPAL" means, with respect to any Note, the
principal of such Note that is to be prepaid pursuant to Section 8.2 or
has become or is declared to be immediately due and payable pursuant to
Section 12.1, as the context requires.
"DISCOUNTED VALUE" means, with respect to the Called Principal
of any Note, the amount obtained by discounting all Remaining Scheduled
Payments with respect to such Called Principal from their respective
scheduled due dates to the Settlement Date with respect to such Called
Principal, in accordance with accepted financial practice and at a
discount factor (applied on the same periodic basis as that on which
interest on the Notes is payable) equal to the Reinvestment Yield with
respect to such Called Principal.
"REINVESTMENT YIELD" means, with respect to the Called
Principal of any Note, .50% over the yield to maturity implied by (i)
the yields reported, as of 10:00 A.M. (New York City time) on the
second Business Day preceding the Settlement Date with respect to such
Called Principal, on the display designated as the "PX Screen" on the
Bloomberg Financial Market Service (or such other display as may
replace the PX Screen on Bloomberg Financial Market Service) for
actively traded U.S. Treasury securities having a maturity equal to the
Remaining Average Life of such Called Principal as of such Settlement
Date, or (ii) if such yields are not reported as of such time or the
yields reported as of such time are not ascertainable, the Treasury
Constant Maturity Series Yields reported, for the latest day for which
such yields have been so reported as of the second Business Day
preceding the Settlement Date with respect to such Called Principal, in
Federal Reserve Statistical Release H.15 (519) (or any comparable
successor
21
<PAGE> 27
publication) for actively traded U.S. Treasury securities having a
constant maturity equal to the Remaining Average Life of such Called
Principal as of such Settlement Date. Such implied yield will be
determined, if necessary, by (a) converting U.S. Treasury bill
quotations to bond-equivalent yields in accordance with accepted
financial practice and (b) interpolating linearly between (1) the
actively traded U.S. Treasury security with the duration closest to
and greater than the Remaining Average Life and (2) the actively
traded U.S. Treasury security with the duration closest to and less
than the Remaining Average Life.
"REMAINING AVERAGE LIFE" means, with respect to any Called
Principal, the number of years (calculated to the nearest one-twelfth
year) obtained by dividing (i) such Called Principal into (ii) the sum
of the products obtained by multiplying (a) the principal component of
each Remaining Scheduled Payment with respect to such Called Principal
by (b) the number of years (calculated to the nearest one-twelfth year)
that will elapse between the Settlement Date with respect to such
Called Principal and the scheduled due date of such Remaining Scheduled
Payment.
"REMAINING SCHEDULED PAYMENTS" means, with respect to the
Called Principal of any Note, all payments of such Called Principal and
interest thereon that would be due after the Settlement Date with
respect to such Called Principal if no payment of such Called Principal
were made prior to its scheduled due date, provided that if such
Settlement Date is not a date on which interest payments are due to be
made under the terms of the Notes, then the amount of the next
succeeding scheduled interest payment will be reduced by the amount of
interest accrued to such Settlement Date and required to be paid on
such Settlement Date pursuant to Section 8.2 or 12.1.
"SETTLEMENT DATE" means, with respect to the Called Principal
of any Note, the date on which such Called Principal is to be prepaid
pursuant to Section 8.2 or has become or is declared to be immediately
due and payable pursuant to Section 12.1, as the context requires.
9. AFFIRMATIVE COVENANTS.
The Company covenants that so long as any of the Notes are
outstanding:
9.1. COMPLIANCE WITH LAW.
The Company will, and will cause each Subsidiary to, comply
with all laws, ordinances or governmental rules or regulations to which each of
them is subject, including, without limitation, Environmental Laws, and will
obtain and maintain in effect all licenses, certificates, permits, franchises
and other governmental authorizations necessary to the ownership of their
respective properties or to the conduct of their respective businesses, in each
case to the extent necessary to ensure that non-compliance with such laws,
ordinances or governmental rules or regulations or failures to obtain or
maintain in effect such licenses,
22
<PAGE> 28
certificates, permits, franchises and other governmental authorizations could
not, individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect.
9.2. INSURANCE.
The Company will, and will cause each Restricted Subsidiary
to, maintain, with financially sound and reputable insurers, insurance with
respect to their respective properties and businesses against such casualties
and contingencies, of such types, on such terms and in such amounts (including
deductibles, co-insurance and self-insurance, if adequate reserves are
maintained with respect thereto) as is customary in the case of entities of
established reputations engaged in the same or a similar business and similarly
situated.
9.3. MAINTENANCE OF PROPERTIES.
The Company will and will cause each Restricted Subsidiary to
maintain and keep, or cause to be maintained and kept, their respective
properties in good repair, working order and condition (other than ordinary wear
and tear), so that the business carried on in connection therewith may be
properly conducted at all times, provided that this Section shall not prevent
the Company or any Restricted Subsidiary from discontinuing the operation and
the maintenance of any of its properties if such discontinuance is desirable in
the conduct of its business and the Company has concluded that such
discontinuance could not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect.
9.4. PAYMENT OF TAXES AND CLAIMS.
The Company will, and will cause each Subsidiary to, file all
tax returns required to be filed in any jurisdiction and to pay and discharge
all taxes shown to be due and payable on such returns and all other taxes,
assessments, governmental charges, or levies imposed on them or any of their
properties, assets, income or franchises, to the extent such taxes and
assessments have become due and payable and before they have become delinquent
and all claims for which sums have become due and payable that have or might
become a Lien on properties or assets of the Company or any Restricted
Subsidiary, provided that neither the Company nor any Subsidiary need pay any
such tax or assessment or claims if (i) the amount, applicability or validity
thereof is contested by the Company or such Subsidiary on a timely basis in good
faith and in appropriate proceedings, and the Company or a Subsidiary has
established adequate reserves therefor in accordance with GAAP on the books of
the Company or such Subsidiary or (ii) the nonpayment of all such taxes and
assessments in the aggregate could not reasonably be expected to have a Material
Adverse Effect.
9.5. CORPORATE EXISTENCE, ETC.
Subject to Section 10.8, the Company will at all times
preserve and keep in full force and effect its corporate existence. Subject to
Sections 10.7 and 10.8, the Company will at all times preserve and keep in full
force and effect the corporate existence of each Restricted Subsidiary (unless
merged into the Company or a Wholly-Owned Restricted Subsidiary) and all
23
<PAGE> 29
rights and franchises of the Company and its Restricted Subsidiaries unless, in
the good faith judgment of the Company, the termination of or failure to
preserve and keep in full force and effect such corporate existence, right or
franchise could not, individually or in the aggregate, have a Material Adverse
Effect.
10. NEGATIVE COVENANTS.
The Company covenants that so long as any of the Notes are
outstanding:
10.1. FIXED CHARGE COVERAGE RATIO.
The Company will not permit the ratio (calculated as of the
end of each fiscal quarter) of Consolidated Income Available for Fixed Charges
to Consolidated Fixed Charges for the period of four quarters ending as of each
fiscal quarter to be less than 1.75 to 1.00.
10.2. CONSOLIDATED FUNDED DEBT.
The Company will not permit the ratio of (i) Consolidated
Funded Debt as of the end of each fiscal quarter of the Company to (ii) EBITDA
for the four fiscal quarters ending as of the end of such fiscal quarter to
exceed 3.25 to 1.0. If, during the period over which EBITDA is being calculated,
the Company or a Restricted Subsidiary has acquired one or more Persons (or the
assets thereof) resulting in such Persons becoming, or otherwise resulting in,
Restricted Subsidiaries, compliance with this Section 10.2 may, at the Company's
sole option and discretion, be determined by calculating EBITDA on a pro forma
basis as if all (but not less than all) of such Restricted Subsidiaries had
become such at the beginning of the four fiscal quarters.
10.3. CURRENT DEBT.
The Company will not, and will not permit any Restricted
Subsidiary to, incur any Current Debt (other than Current Debt of a Restricted
Subsidiary owing to the Company or another Wholly-Owned Restricted Subsidiary),
unless during the 12 calendar months immediately preceding the incurrence
thereof there shall have been a period of at least 30 consecutive days on each
of which the Company would have been in compliance with Section 10.2 if all
Consolidated Indebtedness outstanding on each such day were deemed to be
Consolidated Funded Debt.
10.4. PRIORITY DEBT.
The Company will not permit Priority Debt to exceed 15% of
Adjusted Consolidated Net Worth at any time.
10.5. ADJUSTED CONSOLIDATED NET WORTH.
The Company will not permit Adjusted Consolidated Net Worth at
any time to be less than $125,000,000 plus (i) the cumulative sum of 50% of
Consolidated Net Income, (but only if a positive number) for each completed
fiscal quarter, or portion thereof, ended after June
24
<PAGE> 30
30, 1998, and (ii) 50% of the net proceeds from any issuance by the Company of
any equity securities.
10.6. LIENS.
The Company will not, and will not permit any Restricted
Subsidiary to, permit to exist, create, assume or incur, directly or indirectly,
any Lien on its properties or assets, whether now owned or hereafter acquired,
except:
(a) Liens existing on property or assets of the Company or any
Restricted Subsidiary as of the date of this Agreement that are
described in Schedule 10.6;
(b) Liens for taxes, assessments or governmental charges not
then due and delinquent or the nonpayment of which is permitted by
Section 9.4;
(c) encumbrances in the nature of leases, subleases, zoning
restrictions, easements, rights of way and other rights and
restrictions of record on the use of real property and defects in title
arising or incurred in the ordinary course of business, which,
individually and in the aggregate, do not materially impair the use or
value of the property or assets subject thereto;
(d) Liens incidental to the conduct of business or the
ownership of properties and assets (including landlords', lessors',
carriers', warehousemen's, mechanics', materialmen's and other similar
liens) and Liens to secure the performance of bids, tenders, leases or
trade contracts, or to secure statutory obligations (including
obligations under workers compensation, unemployment insurance and
other social security legislation), surety or appeal bonds or other
Liens of like general nature incurred in the ordinary course of
business and not in connection with the borrowing of money;
(e) any attachment or judgment Lien, unless the judgment it
secures has not, within 60 days after the entry thereof, been
discharged or execution thereof stayed pending appeal, or has not been
discharged within 60 days after the expiration of any such stay;
(f) Liens securing Indebtedness of a Restricted Subsidiary to
the Company or to another Wholly-Owned Restricted Subsidiary and Liens
securing Indebtedness of the Company to a Wholly-Owned Restricted
Subsidiary;
(g) Liens (i) existing on property at the time of its
acquisition by the Company or a Restricted Subsidiary and not created
in contemplation thereof, whether or not the Indebtedness secured by
such Lien is assumed by the Company or a Restricted Subsidiary; or (ii)
on property created contemporaneously with its acquisition or within
180 days of the acquisition or completion of construction thereof to
secure or provide for all or a portion of the purchase price or cost of
construction of such property after the date of Closing; or (iii)
existing on property of a Person at the time such Person is merged or
consolidated with, or becomes a Restricted Subsidiary of, or
substantially all of its assets
25
<PAGE> 31
are acquired by, the Company or a Restricted Subsidiary and not
created in contemplation thereof; provided that in the case of clauses
(i), (ii) and (iii) such Liens do not extend to additional property of
the Company or any Restricted Subsidiary (other than property that is
an improvement to or is acquired for specific use in connection with
the subject property) and, in the case of clause (ii) only, that the
aggregate principal amount of Indebtedness secured by each such Lien
does not exceed the lesser of the fair market value (determined in
good faith by the board of directors of the Company) or cost of
acquisition or construction of the property subject thereto;
(h) Liens resulting from extensions, renewals or replacements
of Liens permitted by paragraphs (a), (f) and (g), provided that (i)
there is no increase in the principal amount or decrease in maturity of
the Indebtedness secured thereby at the time of such extension, renewal
or replacement, (ii) any new Lien attaches only to the same property
theretofore subject to such earlier Lien and (iii) immediately after
such extension, renewal or replacement no Default or Event of Default
would exist;
(i) Liens in the form of a pledge of not more than 65% of the
capital stock of one or more Foreign Subsidiaries securing Indebtedness
of the Company under the Credit Agreement, provided that, concurrently
with the incurrence of any such Lien, the Notes are equally and ratably
secured pursuant to documentation, including an intercreditor
agreement, reasonably acceptable to the Required Holders; and
(j) Additional Liens securing Indebtedness not otherwise
permitted by paragraphs (a) through (i) above, provided that, at the
time of creation, assumption or incurrence thereof and immediately
after giving effect thereto and to the application of the proceeds
therefrom, Priority Debt outstanding does not exceed 15% of Adjusted
Consolidated Net Worth.
10.7. SALE OF ASSETS.
Except as permitted by Section 10.4, the Company will not, and
will not permit any Restricted Subsidiary to, sell, lease, transfer or otherwise
dispose of, including by way of merger (collectively a "DISPOSITION"), any
assets, including capital stock of Restricted Subsidiaries, in one or a series
of transactions, to any Person, other than (a) Dispositions in the ordinary
course of business, (b) Dispositions by the Company to a Restricted Subsidiary
or by a Restricted Subsidiary to the Company or another Restricted Subsidiary or
(c) other Dispositions not otherwise permitted by this Section 10.7, provided
that (i) each such Disposition is for a consideration at least equal to the fair
market value of the property subject thereto and (ii) the aggregate net book
value of all assets so disposed of in any fiscal year pursuant to this Section
10.7(c) does not exceed 15% of Consolidated Total Assets as of the end of the
immediately preceding fiscal year. Notwithstanding the foregoing, the Company
may, or may permit any Restricted Subsidiary to, make a Disposition and the
assets subject to such Disposition shall not be subject to or included in the
foregoing limitation and computation contained in clause (c) of the preceding
sentence to the extent that, within 180 days of such Disposition, (x) such
assets are leased back by the Company or any Restricted Subsidiary, as
26
<PAGE> 32
lessee, or (y) the net proceeds from such Disposition are (A) reinvested in
productive assets by the Company or a Restricted Subsidiary or (B) applied to
the payment or prepayment of any outstanding Indebtedness of the Company or any
Restricted Subsidiary that is not subordinated to the Notes. Any prepayment of
Notes pursuant to this Section 10.7 shall be in accordance with Sections 8.2 and
8.3, without regard to the minimum prepayment requirements of Section 8.2.
10.8. MERGERS, CONSOLIDATIONS, ETC.
The Company will not, and will not permit any Restricted
Subsidiary to, consolidate with or merge with any other Person or convey,
transfer, sell or lease all or substantially all of its assets in a single
transaction or series of transactions to any Person except that:
(a) the Company may consolidate or merge with any other Person
or convey, transfer, sell or lease all or substantially all of its
assets in a single transaction or series of transactions to any Person,
provided that:
(i) the successor formed by such consolidation or the
survivor of such merger or the Person that acquires by
conveyance, transfer, sale or lease all or substantially all
of the assets of the Company as an entirety, as the case may
be, shall be a solvent corporation organized and existing
under the laws of the United States or any State thereof
(including the District of Columbia), and, if the Company is
not such corporation, such corporation (y) shall have executed
and delivered to each holder of any Notes its assumption of
the due and punctual performance and observance of each
covenant and condition of this Agreement and the Notes and (z)
shall have caused to be delivered to each holder of any Notes
an opinion of independent counsel reasonably satisfactory to
the Required Holders, to the effect that all agreements or
instruments effecting such assumption are enforceable in
accordance with their terms and comply with the terms hereof;
and
(ii) immediately before and after giving effect to
such transaction, no Default or Event of Default shall exist;
and
(b) Any Restricted Subsidiary may (x) merge into the Company
(provided that the Company is the surviving corporation) or another
Wholly-Owned Restricted Subsidiary or (y) sell, transfer or lease all
or any part of its assets to the Company or another Wholly-Owned
Restricted Subsidiary, or (z) merge or consolidate with, or sell,
transfer or lease all or substantially all of its assets to, any Person
in a transaction that is permitted by Section 10.7 or, as a result of
which, such Person becomes a Restricted Subsidiary; provided in each
instance set forth in clauses (x) through (z) that, immediately before
and after giving effect thereto, there shall exist no Default or Event
of Default;
27
<PAGE> 33
No such conveyance, transfer, sale or lease of all or substantially all of the
assets of the Company shall have the effect of releasing the Company or any
successor corporation that shall theretofore have become such in the manner
prescribed in this Section 10.8 from its liability under this Agreement or the
Notes.
10.9. DISPOSITION OF STOCK OF RESTRICTED SUBSIDIARIES.
The Company (i) will not permit any Restricted Subsidiary that
is organized under the laws of the United States or any state thereof (including
the District of Columbia) to issue its capital stock, or any warrants, rights or
options to purchase, or securities convertible into or exchangeable for, such
capital stock, to any Person other than the Company or another Restricted
Subsidiary, and (ii) will not, and will not permit any Restricted Subsidiary to,
sell, transfer or otherwise dispose of any shares of capital stock of a
Restricted Subsidiary if such sale would be prohibited by Section 10.7. If a
Restricted Subsidiary at any time ceases to be such as a result of a sale or
issuance of its capital stock, any Liens on property of the Company or any other
Restricted Subsidiary securing Indebtedness owed to such Restricted Subsidiary,
which is not contemporaneously repaid, together with such Indebtedness, shall be
deemed to have been incurred by the Company or such other Restricted Subsidiary,
as the case may be, at the time such Restricted Subsidiary ceases to be a
Restricted Subsidiary.
10.10. DESIGNATION OF UNRESTRICTED AND RESTRICTED SUBSIDIARIES.
The Company may designate any Restricted Subsidiary as an
Unrestricted Subsidiary and any Unrestricted Subsidiary as a Restricted
Subsidiary; provided that, (a) if such Subsidiary initially is a Restricted
Subsidiary, then such Restricted Subsidiary may be subsequently designated as an
Unrestricted Subsidiary and such Unrestricted Subsidiary may be subsequently
designated as a Restricted Subsidiary, but no further changes in designation may
be made, (b) if such Subsidiary initially is an Unrestricted Subsidiary, then
such Unrestricted Subsidiary may be subsequently designated as a Restricted
Subsidiary and such Restricted Subsidiary may be subsequently designated as an
Unrestricted Subsidiary, but no further changes in designation may be made, (c)
immediately before and after designation of a Restricted Subsidiary as an
Unrestricted Subsidiary there exists no Default or Event of Default and (d) a
Subsidiary Guarantor may not be designated an Unrestricted Subsidiary.
10.11. GUARANTIES BY RESTRICTED SUBSIDIARIES; PLEDGES OF STOCK OF RESTRICTED
SUBSIDIARIES.
The Company will not, and will not permit any Restricted
Subsidiary to become a party to the Bank Guaranty or to directly or indirectly
guarantee any of the Company's Indebtedness or other obligations under the
Credit Agreement unless such Restricted Subsidiary is, or concurrently therewith
becomes, a party to the 1998 Subsidiary Guaranty.
10.12. NATURE OF BUSINESS.
The Company will not, and will not permit any Restricted
Subsidiary to, engage in any business if, as a result, the general nature of the
business in which the Company and its
28
<PAGE> 34
Restricted Subsidiaries, taken as a whole, would then be engaged would be
substantially changed from the general nature of the business in which the
Company and its Restricted Subsidiaries, taken as a whole, are engaged on the
date of this Agreement as described in the Memorandum.
10.13. TRANSACTIONS WITH AFFILIATES.
The Company will not and will not permit any Restricted
Subsidiary to enter into directly or indirectly any Material transaction or
Material group of related transactions (including without limitation the
purchase, lease, sale or exchange of properties of any kind or the rendering of
any service) with any Affiliate (other than the Company or another Restricted
Subsidiary), except upon fair and reasonable terms no less favorable to the
Company or such Restricted Subsidiary than would be obtainable in a comparable
arm's-length transaction with a Person not an Affiliate.
11. EVENTS OF DEFAULT.
An "EVENT OF DEFAULT" shall exist if any of the following
conditions or events shall occur and be continuing:
(a) the Company defaults in the payment of any principal or
Make-Whole Amount, if any, on any Note when the same becomes due and
payable, whether at maturity or at a date fixed for prepayment or by
declaration or otherwise; or
(b) the Company defaults in the payment of any interest on any
Note for more than five Business Days after the same becomes due and
payable; or
(c) the Company defaults in the performance of or compliance
with any term contained in Section 7.1(e) or Sections 10.1 through
10.13; or
(d) the Company defaults in the performance of or compliance
with any term contained herein (other than those referred to in
paragraphs (a), (b) and (c) of this Section 11) and such default is not
remedied within 30 days after the earlier of (i) a Responsible Officer
obtaining actual knowledge of such default and (ii) the Company
receiving written notice of such default from any holder of a Note; or
(e) any representation or warranty made in writing by or on
behalf of the Company or any Subsidiary Guarantor or by any officer of
the Company or any Subsidiary Guarantor in this Agreement or the
Subsidiary Guaranty or in any writing furnished in connection with the
transactions contemplated hereby proves to have been false or incorrect
in any material respect on the date as of which made; or
(f) (i) the Company or any Restricted Subsidiary is in default
(as principal or as guarantor or other surety) in the payment of any
principal of or premium or make-whole amount or interest on any
Indebtedness that is outstanding in an aggregate principal amount in
excess of $10,000,000 beyond any period of grace provided with respect
thereto, or (ii) the Company or any Restricted Subsidiary is in default
in the
29
<PAGE> 35
performance of or compliance with any term of any evidence of any
Indebtedness that is outstanding in an aggregate principal amount
in excess of $10,000,000 or of any mortgage, indenture or other
agreement relating thereto or any other condition exists, and as a
consequence of such default or condition such Indebtedness has become,
or has been declared, due and payable before its stated maturity or
before its regularly scheduled dates of payment, or (iii) as a
consequence of the occurrence or continuation of any event or condition
(other than the giving of notice of optional redemption, the passage of
time or the right of the holder of Indebtedness to convert such
Indebtedness into equity interests), the Company or any Restricted
Subsidiary has become obligated to purchase or repay Indebtedness
before its regular maturity or before its regularly scheduled dates of
payment in an aggregate outstanding principal amount in excess of
$10,000,000; or
(g) the Company or any Restricted Subsidiary (i) is generally
not paying, or admits in writing its inability to pay, its debts as
they become due, (ii) files, or consents by answer or otherwise to the
filing against it of, a petition for relief or reorganization or
arrangement or any other petition in bankruptcy, for liquidation or to
take advantage of any bankruptcy, insolvency, reorganization,
moratorium or other similar law of any jurisdiction, (iii) makes an
assignment for the benefit of its creditors, (iv) consents to the
appointment of a custodian, receiver, trustee or other officer with
similar powers with respect to it or with respect to any substantial
part of its property, (v) is adjudicated as insolvent or to be
liquidated, or (vi) takes corporate action for the purpose of any of
the foregoing; or
(h) a court or governmental authority of competent
jurisdiction enters an order appointing, without consent by the Company
or any Restricted Subsidiary, a custodian, receiver, trustee or other
officer with similar powers with respect to it or with respect to any
substantial part of its property, or constituting an order for relief
or approving a petition for relief or reorganization or any other
petition in bankruptcy or for liquidation or to take advantage of any
bankruptcy or insolvency law of any jurisdiction, or ordering the
dissolution, winding-up or liquidation of the Company or any Restricted
Subsidiary, or any such petition shall be filed against the Company or
any Restricted Subsidiary and such petition shall not be dismissed
within 60 days; or
(i) a final judgment or judgments for the payment of money
aggregating in excess of $10,000,000 are rendered against one or more
of the Company and its Restricted Subsidiaries, which judgments are
not, within 60 days after entry thereof, bonded, discharged or stayed
pending appeal, or are not discharged within 60 days after the
expiration of such stay; or
(j) if (i) any Plan shall fail to satisfy the minimum funding
standards of ERISA or the Code for any plan year or part thereof or a
waiver of such standards or extension of any amortization period is
sought or granted under section 412 of the Code, (ii) a notice of
intent to terminate any Plan shall have been or is reasonably expected
to be filed with the PBGC or the PBGC shall have instituted proceedings
under ERISA section 4042 to terminate or appoint a trustee to
administer any Plan or the PBGC shall have
30
<PAGE> 36
notified the Company or any ERISA Affiliate that a Plan may become a
subject of any such proceedings, (iii) the aggregate "amount of
unfunded benefit liabilities" (within the meaning of section
4001(a)(18) of ERISA) under all Plans, determined in accordance with
Title IV of ERISA, shall exceed $10,000,000 (iv) the Company or any
ERISA Affiliate shall have incurred or is reasonably expected to incur
any liability pursuant to Title I or IV of ERISA or the penalty or
excise tax provisions of the Code relating to employee benefit plans,
(v) the Company or any ERISA Affiliate withdraws from any
Multiemployer Plan, or (vi) the Company or any Subsidiary establishes
or amends any employee welfare benefit plan that provides
post-employment welfare benefits in a manner that would increase the
liability of the Company or any Subsidiary thereunder; and any such
event or events described in clauses (i) through (vi) above, either
individually or together with any other such event or events, could
reasonably be expected to have a Material Adverse Effect; or
(k) any Guarantor defaults in the performance of or compliance
with any term contained in the Subsidiary Guaranty or the Subsidiary
Guaranty ceases to be in full force and effect as a result of acts
taken by the Company or any Subsidiary Guarantor, except as provided in
Section 22, or is declared to be null and void in whole or in Material
part by a court or other governmental or regulatory authority having
jurisdiction or the validity or enforceability thereof shall be
contested by any of the Company or any Subsidiary Guarantor or any of
them renounces any of the same or denies that it has any or further
liability thereunder.
As used in Section 11(j), the terms "EMPLOYEE BENEFIT PLAN" and "EMPLOYEE
WELFARE BENEFIT PLAN" shall have the respective meanings assigned to such terms
in Section 3 of ERISA.
12. REMEDIES ON DEFAULT, ETC.
12.1. ACCELERATION.
(a) If an Event of Default with respect to the Company
described in paragraph (g) or (h) of Section 11 (other than an Event of
Default described in clause (i) of paragraph (g) or described in clause
(vi) of paragraph (g) by virtue of the fact that such clause
encompasses clause (i) of paragraph (g)) has occurred, all the Notes
then outstanding shall automatically become immediately due and
payable.
(b) If any other Event of Default has occurred and is
continuing, any holder or holders of more than 34% in principal amount
of the Notes of any series at the time outstanding (treating as a
single series Notes, regardless of designation, originally issued at
the same time or pursuant to a single Supplement) may at any time at
its or their option, by notice or notices to the Company, declare all
the Notes then outstanding to be immediately due and payable.
(c) If any Event of Default described in paragraph (a) or (b)
of Section 11 has occurred and is continuing, any holder or holders of
Notes at the time outstanding affected by such Event of Default may at
any time, at its or their option, by notice or
31
<PAGE> 37
notices to the Company, declare all the Notes held by it or them to be
immediately due and payable.
Upon any Notes becoming due and payable under this Section
12.1, whether automatically or by declaration, such Notes will forthwith mature
and the entire unpaid principal amount of such Notes, plus (x) all accrued and
unpaid interest thereon and (y) the Make-Whole Amount determined in respect of
such principal amount (to the full extent permitted by applicable law), shall
all be immediately due and payable, in each and every case without presentment,
demand, protest or further notice, all of which are hereby waived. The Company
acknowledges, and the parties hereto agree, that each holder of a Note has the
right to maintain its investment in the Notes free from repayment by the Company
(except as herein specifically provided for) and that the provision for payment
of a Make-Whole Amount by the Company in the event that the Notes are prepaid or
are accelerated as a result of an Event of Default, is intended to provide
compensation for the deprivation of such right under such circumstances.
12.2. OTHER REMEDIES.
If any Default or Event of Default has occurred and is
continuing, and irrespective of whether any Notes have become or have been
declared immediately due and payable under Section 12.1, the holder of any Note
at the time outstanding may proceed to protect and enforce the rights of such
holder by an action at law, suit in equity or other appropriate proceeding,
whether for the specific performance of any agreement contained herein or in any
Note, or for an injunction against a violation of any of the terms hereof or
thereof, or in aid of the exercise of any power granted hereby or thereby or by
law or otherwise.
12.3. RESCISSION.
At any time after any Notes have been declared due and payable
pursuant to clause (b) or (c) of Section 12.1, the holders of not less than 67%
in principal amount of the Notes of each series then outstanding, by written
notice to the Company, may rescind and annul any such declaration and its
consequences if (a) the Company has paid all overdue interest on the Notes, all
principal of and Make-Whole Amount, if any, on any Notes that are due and
payable and are unpaid other than by reason of such declaration, and all
interest on such overdue principal and Make-Whole Amount, if any, and (to the
extent permitted by applicable law) any overdue interest in respect of the
Notes, at the Default Rate, (b) all Events of Default and Defaults, other than
non-payment of amounts that have become due solely by reason of such
declaration, have been cured or have been waived pursuant to Section 17, and (c)
no judgment or decree has been entered for the payment of any monies due
pursuant hereto or to the Notes. No rescission and annulment under this Section
12.3 will extend to or affect any subsequent Event of Default or Default or
impair any right consequent thereon.
12.4. NO WAIVERS OR ELECTION OF REMEDIES, EXPENSES, ETC.
No course of dealing and no delay on the part of any holder of
any Note in exercising any right, power or remedy shall operate as a waiver
thereof or otherwise prejudice
32
<PAGE> 38
such holder's rights, powers or remedies. No right, power or remedy conferred by
this Agreement or by any Note upon any holder thereof shall be exclusive of any
other right, power or remedy referred to herein or therein or now or hereafter
available at law, in equity, by statute or otherwise. Without limiting the
obligations of the Company under Section 15, the Company will pay to the holder
of each Note on demand such further amount as shall be sufficient to cover all
costs and expenses of such holder incurred in any enforcement or collection
under this Section 12, including, without limitation, reasonable attorneys'
fees, expenses and disbursements.
13. REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES.
13.1. REGISTRATION OF NOTES.
The Company shall keep at its principal executive office a
register for the registration and registration of transfers of Notes. The name
and address of each holder of one or more Notes, each transfer thereof and the
name and address of each transferee of one or more Notes shall be registered in
such register. Prior to due presentment for registration of transfer, the Person
in whose name any Note shall be registered shall be deemed and treated as the
owner and holder thereof for all purposes hereof, and the Company shall not be
affected by any notice or knowledge to the contrary. The Company shall give to
any holder of a Note that is an Institutional Investor, promptly upon request
therefor, a complete and correct copy of the names and addresses of all
registered holders of Notes.
13.2. TRANSFER AND EXCHANGE OF NOTES.
Upon surrender of any Note at the principal executive office
of the Company for registration of transfer or exchange (and in the case of a
surrender for registration of transfer, duly endorsed or accompanied by a
written instrument of transfer duly executed by the registered holder of such
Note or his attorney duly authorized in writing and accompanied by the address
for notices of each transferee of such Note or part thereof), the Company shall
execute and deliver, at the Company's expense (except as provided below), one or
more new Notes (as requested by the holder thereof) of the same series in
exchange therefor, in an aggregate principal amount equal to the unpaid
principal amount of the surrendered Note. Each such new Note shall be payable to
such Person as such holder may request and shall be substantially in the form of
Note established for such series. Each such new Note shall be dated and bear
interest from the date to which interest shall have been paid on the surrendered
Note or dated the date of the surrendered Note if no interest shall have been
paid thereon. The Company may require payment of a sum sufficient to cover any
stamp tax or governmental charge imposed in respect of any such transfer of
Notes. Notes shall not be transferred in denominations of less than $500,000,
provided that if necessary to enable the registration of transfer by a holder of
its entire holding of Notes, one Note may be in a denomination of less than
$500,000. Any transferee, by its acceptance of a Note registered in its name (or
the name of its nominee), shall be deemed to have made the representation set
forth in Section 6.2.
33
<PAGE> 39
13.3. REPLACEMENT OF NOTES.
Upon receipt by the Company of evidence reasonably
satisfactory to it of the ownership of and the loss, theft, destruction or
mutilation of any Note (which evidence shall be, in the case of an Institutional
Investor, notice from such Institutional Investor of such ownership and such
loss, theft, destruction or mutilation), and
(a) in the case of loss, theft or destruction, of indemnity
reasonably satisfactory to it (provided that if the holder of such Note
is, or is a nominee for, an original Purchaser or another Institutional
Investor holder of a Note with a minimum net worth of at least
$50,000,000, such Person's own unsecured agreement of indemnity shall
be deemed to be satisfactory), or
(b) in the case of mutilation, upon surrender and cancellation
thereof,
the Company at its own expense shall execute and deliver, in lieu thereof, a new
Note of the same series, dated and bearing interest from the date to which
interest shall have been paid on such lost, stolen, destroyed or mutilated Note
or dated the date of such lost, stolen, destroyed or mutilated Note if no
interest shall have been paid thereon.
14. PAYMENTS ON NOTES.
14.1. PLACE OF PAYMENT.
Subject to Section 14.2, payments of principal, Make-Whole
Amount, if any, and interest becoming due and payable on the Notes shall be made
in Chicago, Illinois at the principal office of Bank of America National Trust &
Savings Association in such jurisdiction. The Company may at any time, by notice
to each holder of a Note, change the place of payment of the Notes so long as
such place of payment shall be either the principal office of the Company in
such jurisdiction or the principal office of a bank or trust company in such
jurisdiction.
14.2. HOME OFFICE PAYMENT.
So long as you or your nominee shall be the holder of any
Note, and notwithstanding anything contained in Section 14.1 or in such Note to
the contrary, the Company will pay all sums becoming due on such Note for
principal, Make-Whole Amount, if any, and interest by the method and at the
address specified for such purpose below your name in Schedule A, or by such
other method or at such other address as you shall have from time to time
specified to the Company in writing for such purpose, without the presentation
or surrender of such Note or the making of any notation thereon, except that
upon written request of the Company made concurrently with or reasonably
promptly after payment or prepayment in full of any Note, you shall surrender
such Note for cancellation, reasonably promptly after any such request, to the
Company at its principal executive office or at the place of payment most
recently designated by the Company pursuant to Section 14.1. Prior to any sale
or other disposition of any Note held by you or your nominee you will, at your
election, either endorse thereon the amount of principal paid thereon and the
last date to which interest has been paid thereon or
34
<PAGE> 40
surrender such Note to the Company in exchange for a new Note or Notes pursuant
to Section 13.2. The Company will afford the benefits of this Section 14.2 to
any Institutional Investor that is the direct or indirect transferee of any Note
purchased by you under this Agreement and that has made the same agreement
relating to such Note as you have made in this Section 14.2.
15. EXPENSES, ETC.
15.1. TRANSACTION EXPENSES.
Whether or not the transactions contemplated hereby are
consummated, the Company will pay all costs and expenses (including reasonable
attorneys' fees of one special counsel for you and the Other Purchasers
collectively and, if reasonably required, local or other counsel) incurred by
you and each Other Purchaser or holder of a Note in connection with such
transactions and in connection with any amendments, waivers or consents under or
in respect of this Agreement or the Notes (whether or not such amendment, waiver
or consent becomes effective), including, without limitation: (a) the reasonable
costs and expenses incurred in enforcing or defending (or determining whether or
how to enforce or defend) any rights under this Agreement or the Notes or in
responding to any subpoena or other legal process or informal investigative
demand issued in connection with this Agreement or the Notes, or by reason of
being a holder of any Note, and (b) the costs and expenses, including financial
advisors' fees, incurred in connection with the insolvency or bankruptcy of the
Company or any Subsidiary or in connection with any work-out or restructuring of
the transactions contemplated hereby and by the Notes. The Company will pay, and
will save you and each other holder of a Note harmless from, all claims in
respect of any fees, costs or expenses if any, of brokers and finders (other
than those retained by you).
15.2. SURVIVAL.
The obligations of the Company under this Section 15 will
survive the payment or transfer of any Note, the enforcement, amendment or
waiver of any provision of this Agreement or the Notes, and the termination of
this Agreement.
16. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT.
All representations and warranties contained herein shall
survive the execution and delivery of this Agreement and the Notes, the purchase
or transfer by you of any Note or portion thereof or interest therein and the
payment of any Note, and may be relied upon by any subsequent holder of a Note,
regardless of any investigation made at any time by or on behalf of you or any
other holder of a Note. All statements contained in any certificate or other
instrument delivered by or on behalf of the Company pursuant to this Agreement
shall be deemed representations and warranties of the Company under this
Agreement. Subject to the preceding sentence, this Agreement and the Notes
embody the entire agreement and understanding between you and the Company and
supersede all prior agreements and understandings relating to the subject matter
hereof.
35
<PAGE> 41
17. AMENDMENT AND WAIVER.
17.1. REQUIREMENTS.
This Agreement and the Notes may be amended, and the
observance of any term hereof or of the Notes may be waived (either
retroactively or prospectively), with (and only with) the written consent of the
Company and the Required Holders, except that (a) no amendment or waiver of any
of the provisions of Section 1, 2, 3, 4, 5, 6 or 21 hereof, or any defined term
(as it is used therein), will be effective as to you unless consented to by you
in writing, and (b) no such amendment or waiver may, without the written consent
of the holder of each Note at the time outstanding affected thereby, (i) subject
to the provisions of Section 12 relating to acceleration or rescission, change
the amount or time of any prepayment or payment of principal of, or reduce the
rate or change the time of payment or method of computation of interest or of
the Make-Whole Amount on, the Notes, (ii) change the percentage of the principal
amount of the Notes the holders of which are required to consent to any such
amendment or waiver, or (iii) amend any of Sections 8, 11(a), 11(b), 12, 17 or
20.
17.2. SOLICITATION OF HOLDERS OF NOTES.
(a) Solicitation. The Company will provide each holder of the
Notes (irrespective of the amount of Notes then owned by it) with
sufficient information, sufficiently far in advance of the date a
decision is required, to enable such holder to make an informed and
considered decision with respect to any proposed amendment, waiver or
consent in respect of any of the provisions hereof or of the Notes. The
Company will deliver executed or true and correct copies of each
amendment, waiver or consent effected pursuant to the provisions of
this Section 17 to each holder of outstanding Notes promptly following
the date on which it is executed and delivered by, or receives the
consent or approval of, the requisite holders of Notes.
(b) Payment. The Company will not directly or indirectly pay
or cause to be paid any remuneration, whether by way of supplemental or
additional interest, fee or otherwise, or grant any security, to any
holder of Notes as consideration for or as an inducement to the
entering into by any holder of Notes or any waiver or amendment of any
of the terms and provisions hereof unless such remuneration is
concurrently paid, or security is concurrently granted, on the same
terms, ratably to each holder of Notes then outstanding even if such
holder did not consent to such waiver or amendment.
17.3. BINDING EFFECT, ETC.
Any amendment or waiver consented to as provided in this
Section 17 applies equally to all holders of Notes and is binding upon them and
upon each future holder of any Note and upon the Company without regard to
whether such Note has been marked to indicate such amendment or waiver. No such
amendment or waiver will extend to or affect any obligation, covenant,
agreement, Default or Event of Default not expressly amended or waived or impair
any right consequent thereon. No course of dealing between the Company and the
holder of any Note nor any delay in exercising any rights hereunder or under any
Note shall operate as a waiver
36
<PAGE> 42
of any rights of any holder of such Note. As used herein, the term "THIS
AGREEMENT" or "THE AGREEMENT" and references thereto shall mean this Agreement
as it may from time to time be amended or supplemented.
17.4. NOTES HELD BY COMPANY, ETC.
Solely for the purpose of determining whether the holders of
the requisite percentage of the aggregate principal amount of Notes then
outstanding approved or consented to any amendment, waiver or consent to be
given under this Agreement or the Notes, or have directed the taking of any
action provided herein or in the Notes to be taken upon the direction of the
holders of a specified percentage of the aggregate principal amount of Notes
then outstanding, Notes directly or indirectly owned by the Company or any of
its Affiliates shall be deemed not to be outstanding.
18. NOTICES.
All notices and communications provided for hereunder shall be
in writing and sent (a) by telecopy if the sender on the same day sends a
confirming copy of such notice by a recognized overnight delivery service
(charges prepaid), or (b) by a recognized overnight delivery service (with
charges prepaid). Any such notice must be sent:
(i) if to you or your nominee, to you or it at the
address specified for such communications in Schedule A, or at
such other address as you or it shall have specified to the
Company in writing,
(ii) if to any other holder of any Note, to such
holder at such address as such other holder shall have
specified to the Company in writing, or
(iii) if to the Company, to the Company at its
address set forth at the beginning hereof to the attention of
Chief Financial Officer, or at such other address as the
Company shall have specified to the holder of each Note in
writing.
Notices under this Section 18 will be deemed given only when actually received.
19. REPRODUCTION OF DOCUMENTS.
This Agreement and all documents relating thereto, including,
without limitation, (a) consents, waivers and modifications that may hereafter
be executed, (b) documents received by you at the Closing (except the Notes
themselves), and (c) financial statements, certificates and other information
previously or hereafter furnished to you, may be reproduced by you by any
photographic, photostatic, microfilm, microcard, miniature photographic or other
similar process and you may destroy any original document so reproduced. The
Company agrees and stipulates that, to the extent permitted by applicable law,
any such reproduction shall be admissible in evidence as the original itself in
any judicial or administrative proceeding (whether or not the original is in
existence and whether or not such reproduction was made by you in the regular
course of business) and any enlargement, facsimile or further reproduction of
such reproduction
37
<PAGE> 43
shall likewise be admissible in evidence. This Section 19 shall not prohibit the
Company or any other holder of Notes from contesting any such reproduction to
the same extent that it could contest the original, or from introducing evidence
to demonstrate the inaccuracy of any such reproduction.
20. CONFIDENTIAL INFORMATION.
For the purposes of this Section 20, "CONFIDENTIAL
INFORMATION" means information delivered to you by or on behalf of the Company
or any Subsidiary in connection with the transactions contemplated by or
otherwise pursuant to this Agreement that is proprietary in nature and that was
clearly marked or labeled or otherwise adequately identified in writing when
received by you as being confidential information of the Company or such
Subsidiary, provided that such term does not include information that (a) was
publicly known or otherwise known to you prior to the time of such disclosure,
(b) subsequently becomes publicly known through no act or omission by you or any
person acting on your behalf, (c) otherwise becomes known to you other than
through disclosure by the Company or any Subsidiary or (d) constitutes financial
statements delivered to you under Section 7.1 that are otherwise publicly
available. You will maintain the confidentiality of such Confidential
Information in accordance with procedures adopted by you in good faith to
protect confidential information of third parties delivered to you, provided
that you may deliver or disclose Confidential Information to (i) your directors,
trustees, officers, employees, agents, attorneys and affiliates (to the extent
such disclosure reasonably relates to the administration of the investment
represented by your Notes), (ii) your financial advisors and other professional
advisors who agree to hold confidential the Confidential Information
substantially in accordance with the terms of this Section 20, (iii) any other
holder of any Note, (iv) any Institutional Investor to which you sell or offer
to sell such Note or any part thereof or any participation therein (if such
Person has agreed in writing prior to its receipt of such Confidential
Information to be bound by the provisions of this Section 20), (v) any Person
from which you offer to purchase any security of the Company (if such Person has
agreed in writing prior to its receipt of such Confidential Information to be
bound by the provisions of this Section 20), (vi) any federal or state
regulatory authority having jurisdiction over you, (vii) the National
Association of Insurance Commissioners or any similar organization, or any
nationally recognized rating agency that requires access to information about
your investment portfolio or (viii) any other Person to which such delivery or
disclosure may be necessary or appropriate (w) to effect compliance with any
law, rule, regulation or order applicable to you, (x) in response to any
subpoena or other legal process, (y) in connection with any litigation to which
you are a party or (z) if an Event of Default has occurred and is continuing, to
the extent you may reasonably determine such delivery and disclosure to be
necessary or appropriate in the enforcement or for the protection of the rights
and remedies under your Notes and this Agreement. Each holder of a Note, by its
acceptance of a Note, will be deemed to have agreed to be bound by and to be
entitled to the benefits of this Section 20 as though it were a party to this
Agreement. On reasonable request by the Company in connection with the delivery
to any holder of a Note of information required to be delivered to such holder
under this Agreement or requested by such holder (other than a holder that is a
party to this Agreement or its nominee), such holder will enter into an
agreement with the Company embodying the provisions of this Section 20.
38
<PAGE> 44
21. SUBSTITUTION OF PURCHASER.
You shall have the right to substitute any one of your
Affiliates as the purchaser of the Notes that you have agreed to purchase
hereunder, by written notice to the Company, which notice shall be signed by
both you and such Affiliate, shall contain such Affiliate's agreement to be
bound by this Agreement and shall contain a confirmation by such Affiliate of
the accuracy with respect to it of the representations set forth in Section 6.
Upon receipt of such notice, wherever the word "you" is used in this Agreement
(other than in this Section 21), such word shall be deemed to refer to such
Affiliate in lieu of you. In the event that such Affiliate is so substituted as
a purchaser hereunder and such Affiliate thereafter transfers to you all of the
Notes then held by such Affiliate, upon receipt by the Company of notice of such
transfer, wherever the word "you" is used in this Agreement (other than in this
Section 21), such word shall no longer be deemed to refer to such Affiliate, but
shall refer to you, and you shall have all the rights of an original holder of
the Notes under this Agreement.
22. RELEASE OF SUBSIDIARY GUARANTY AND PLEDGES OF STOCK
You and each subsequent holder of a Note agree to release (i)
any Subsidiary Guarantor from the Subsidiary Guaranty and (ii) any stock pledged
by the Company to secure the Notes at such time as the banks party to the Credit
Agreement release such Subsidiary from the Bank Guaranty and or release such
stock from the Company's pledge to them.
23. MISCELLANEOUS.
23.1. MODIFICATIONS OF GAAP.
If, following the Closing, there is any modification of GAAP
(whether such modification is adopted or imposed the Financial Accounting
Services Board, the American Institute of Certified Public Accountants or other
professional body) that materially changes the method of calculating the
covenants contained in Section 9 or the defined terms used therein, the Company
and you (and any subsequent holder of a Note) agree promptly to enter into
negotiations to amend such financial covenants or definitions so as to equitably
reflect such changes in GAAP to ensure as nearly as practicable that evaluations
of the Company's financial condition after such change are conducted in the same
manner they were conducted prior to such change; provided, however, that until
so amended in accordance with the terms of this Agreement, the provisions of
Section 9 shall continue to apply.
23.2. SUCCESSORS AND ASSIGNS.
All covenants and other agreements contained in this Agreement
by or on behalf of any of the parties hereto bind and inure to the benefit of
their respective successors and assigns (including, without limitation, any
subsequent holder of a Note) whether so expressed or not.
39
<PAGE> 45
23.3. PAYMENTS DUE ON NON-BUSINESS DAYS.
Anything in this Agreement or the Notes to the contrary
notwithstanding, any payment of principal of or Make-whole Amount or interest on
any Note that is due on a date other than a Business Day shall be made on the
next succeeding Business Day without including the additional days elapsed in
the computation of the interest payable on such next succeeding Business Day.
23.4. SEVERABILITY.
Any provision of this Agreement that is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall (to the full extent permitted by law) not invalidate or
render unenforceable such provision in any other jurisdiction.
23.5. CONSTRUCTION.
Each covenant contained herein shall be construed (absent
express provision to the contrary) as being independent of each other covenant
contained herein, so that compliance with any one covenant shall not (absent
such an express contrary provision) be deemed to excuse compliance with any
other covenant. Where any provision herein refers to action to be taken by any
Person, or which such Person is prohibited from taking, such provision shall be
applicable whether such action is taken directly or indirectly by such Person.
23.6. COUNTERPARTS.
This Agreement may be executed in any number of counterparts,
each of which shall be an original but all of which together shall constitute
one instrument. Each counterpart may consist of a number of copies hereof, each
signed by less than all, but together signed by all, of the parties hereto.
23.7. GOVERNING LAW.
This Agreement shall be construed and enforced in accordance
with, and the rights of the parties shall be governed by, the law of the State
of Illinois excluding choice-of-law principles of the law of such State that
would require the application of the laws of a jurisdiction other than such
State.
* * * * *
40
<PAGE> 46
If you are in agreement with the foregoing, please sign the
form of agreement on the accompanying counterpart of this Agreement and return
it to the Company, whereupon the foregoing shall become a binding agreement
between you and the Company.
Very truly yours,
SERVICE EXPERTS, INC.
/s/ Anthony Schofield
Name: Anthony Schofield
Title: Chief Financial Officer
41
<PAGE> 47
The foregoing is agreed
to as of the date thereof.
PEOPLES SECURITY LIFE INSURANCE
COMPANY
/s/ Michael S. Smith
Name: Michael S. Smith
Title: Second Vice President- Investments
ACADEMY LIFE INSURANCE COMPANY
/s/ Michael S. Smith
Name: Michael S. Smith
Title: Second Vice President- Investments
LIFE INVESTORS INSURANCE COMPANY
OF AMERICA
/s/ Gregory W. Theobold
Name: Gregory W. Theobold
Title:
AUSA LIFE INSURANCE COMPANY, INC.
/s/ Gregory W. Theobold
Name: Gregory W. Theobold
Title:
NEW YORK LIFE INSURANCE COMPANY
/s/ S. Thomas Knoff
Name: S. Thomas Knoff
Title: Investment Manager
42
<PAGE> 48
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
By: NEW YORK LIFE INSURANCE COMPANY
/s/ S. Thomas Knoff
Name: S. Thomas Knoff
Title: Investment Manager
THE GUARDIAN LIFE INSURANCE
COMPANY OF AMERICA
/s/ Thomas M. Donohue
Name: Thomas M. Donohue
Title: Vice President
THE GUARDIAN INSURANCE & ANNUITY
COMPANY, INC.
/s/ Raymond O. Henry
Name: Raymond O. Henry
Title: Second Vice President
43
<PAGE> 49
EXHIBIT 1.1-A
[FORM OF SENIOR NOTE]
SERVICE EXPERTS, INC.
[____]% SENIOR NOTE DUE [__________, ____]
No. [_____] [Date]
$[_______] PPN[______________]
FOR VALUE RECEIVED, the undersigned, SERVICE EXPERTS, INC.
(herein called the "Company"), a corporation organized and existing under the
laws of the State of Delaware, promises to pay to [ ], or registered assigns,
the principal sum of $[ ] on [ ], [ ], with interest (computed on the basis of a
360-day year of twelve 30-day months) (a) on the unpaid balance thereof at the
rate of [____]% per annum from the date hereof, payable semiannually, on
[______] [____] and [______][____] in each year, commencing with the [______]
[____] or [______] [____] next succeeding the date hereof, until the principal
hereof shall have become due and payable, and (b) to the extent permitted by law
on any overdue payment (including any overdue prepayment) of principal, any
overdue payment of interest and any overdue payment of any Make-Whole Amount (as
defined in the Note Purchase Agreement referred to below), payable semiannually
as aforesaid (or, at the option of the registered holder hereof, on demand), at
a rate per annum from time to time equal to the greater of (i) [_____]% or (ii)
2% over the rate of interest publicly announced by Bank of America National
Trust & Savings Association or its successor from time to time in Chicago,
Illinois as its "base" or "prime" rate.
Payments of principal of, interest on and any Make-Whole
Amount with respect to this Note are to be made in lawful money of the United
States of America at the principal office of Bank of America National Trust &
Savings Association in Chicago, Illinois or at such other place as the Company
shall have designated by written notice to the holder of this Note as provided
in the Note Purchase Agreement referred to below.
This Note is one of a series of Senior Notes (herein called
the "Notes") issued pursuant to a Note Purchase Agreement dated as of June 1,
1998 [and a Supplement thereto dated as of [ ], [ ]](as from time to time
further amended and supplemented, the "Note Purchase Agreement"), between the
Company and the respective Purchasers named therein and is entitled to the
benefits thereof. Each holder of this Note will be deemed, by its acceptance
hereof, (i) to have agreed to the confidentiality provisions set forth in
Section 20 of the Note Purchase Agreement and (ii) to have made the
representation set forth in Section 6.2 of the Note Purchase Agreement.
Exhibit 1.1-A
<PAGE> 50
This Note is a registered Note and, as provided in the Note
Purchase Agreement, upon surrender of this Note for registration of transfer,
duly endorsed, or accompanied by a written instrument of transfer duly executed,
by the registered holder hereof or such holder's attorney duly authorized in
writing, a new Note for a like principal amount will be issued to, and
registered in the name of, the transferee. Prior to due presentment for
registration of transfer, the Company may treat the person in whose name this
Note is registered as the owner hereof for the purpose of receiving payment and
for all other purposes, and the Company will not be affected by any notice to
the contrary.
[The Company will make required prepayments of principal on
the dates and in the amounts specified in the Note Purchase Agreement.] This
Note is [also] subject to optional prepayment, in whole or from time to time in
part, at the times and on the terms specified in the Note Purchase Agreements
but not otherwise.
If an Event of Default, as defined in the Note Purchase
Agreement, occurs and is continuing, the principal of this Note may be declared
or otherwise become due and payable in the manner, at the price (including any
applicable Make-Whole Amount) and with the effect provided in the Note Purchase
Agreement.
This Note shall be construed and enforced in accordance with,
and the rights of the parties shall be governed by, the law of the State of
Illinois excluding choice-of-law principles of the law of such State that would
require the application of the laws of a jurisdiction other than such State.
SERVICE EXPERTS, INC.
By:
-----------------------------------
Title:
--------------------------------
GUARANTY ENDORSEMENT
Payment of the principal of, and interest and Make-Whole Amount, if
any, on this Note, and all other amounts due under the Note Purchase Agreement,
is guaranteed pursuant to the terms of a Guaranty dated [ ], 1998 of certain
Subsidiaries of the Company(1).
- -------------
(1) This Guaranty Endorsement must be removed at such time as there are no
Subsidiary Guarantors.
2
Exhibit 1.1-A
<PAGE> 51
EXHIBIT 1.1-B
[FORM OF SUBSIDIARY GUARANTY]
SERIES [ ] GUARANTY
THIS GUARANTY (this "GUARANTY") dated [ ], 1998 is made by the
undersigned (each, a "GUARANTOR"), in favor of the holders from time to time of
the Series [ ] Notes hereinafter referred to, including each purchaser named in
the Note Purchase Agreement [or supplement thereto] hereinafter referred to, and
their respective successors and assigns (collectively, the "HOLDERS" and each
individually, a "HOLDER").
W I T N E S S E T H:
WHEREAS, SERVICE EXPERTS, INC., a Delaware corporation (the "COMPANY"),
and the initial Holders have entered into a [Supplement dated _________, ____
to] [Note Purchase Agreement dated as of June 1, 1998] (the Note Purchase
Agreement [as so supplemented and] as [further] amended, supplemented, restated
or otherwise modified from time to time in accordance with its terms and in
effect, the "NOTE PURCHASE AGREEMENT");
WHEREAS, the Note Purchase Agreement contemplates the issuance by the
Company of up to $200,000,000 aggregate principal amount of Notes (as defined in
the Note Purchase Agreement) in series [of which $ have heretofore been issued]
and the Company has authorized the issuance and sale of $[______] aggregate
principal amount of Series [ ] Notes to the Purchasers;
WHEREAS, the Company owns all of the issued and outstanding capital
stock of the Guarantor and, by virtue of such ownership and otherwise, the
Guarantor will derive substantial benefits from the purchase by the Holders of
the Company's Series [ ] Notes;
WHEREAS, it is a condition precedent to the obligation of the Holders
to purchase the Series [ ] Notes that the Guarantor shall have executed and
delivered this Guaranty to the Holders and it is and will be a condition to the
sale of subsequent series of the Notes that a substantially identical Guaranty
run in favor of the holders of such subsequent series of Notes; and
WHEREAS, the Guarantor desires to execute and deliver this Guaranty to
satisfy the conditions described in the preceding paragraph;
Exhibit 1.1-B
<PAGE> 52
NOW, THEREFORE, in consideration of the premises and other benefits to
the Guarantor, and of the purchase of the Company's Series [ ] Notes by the
Holders, and for other good and valuable consideration, the receipt and
sufficiency of which are acknowledged, the Guarantor makes this Guaranty as
follows:
SECTION 1. Definitions. Any capitalized terms not otherwise herein
defined shall have the meanings attributed to them in the Note Purchase
Agreement.
SECTION 2. Guaranty. The Guarantor unconditionally and irrevocably
guarantees to the Holders the due, prompt and complete payment by the Company of
the principal of, Make-Whole Amount, if any, and interest on, and each other
amount due under, the Series [ ] Notes or the Note Purchase Agreement, when and
as the same shall become due and payable (whether at stated maturity or by
required or optional prepayment or by declaration or otherwise) in accordance
with the terms of the Series [ ] Notes and the Note Purchase Agreement (the
Series [ ] Notes and the Note Purchase Agreement being sometimes hereinafter
collectively referred to as the "NOTE DOCUMENTS" and the amounts payable by the
Company under the Note Documents, and all other monetary obligations of the
Company thereunder, being sometimes collectively hereinafter referred to as the
"OBLIGATIONS"). This Guaranty is a guaranty of payment and not just of
collectibility and is in no way conditioned or contingent upon any attempt to
collect from the Company or upon any other event, contingency or circumstance
whatsoever. If for any reason whatsoever the Company shall fail or be unable
duly, punctually and fully to pay such amounts as and when the same shall become
due and payable and any Holder shall notify the Guarantor that all Series [ ]
Notes held by such Holder or all outstanding Series [ ] Notes are subject to
acceleration under Section 12.1 of the Note Purchase Agreement, the Guarantor,
without demand, presentment, protest or notice of any kind, will forthwith pay
or cause to be paid such amounts to the Holders under the terms of such Note
Documents, in lawful money of the United States, at the place specified in the
Note Purchase Agreement, or perform or comply with the same or cause the same to
be performed or complied with, together with interest (to the extent provided
for under such Note Documents) on any amount due and owing from the Company. The
Guarantor, promptly after demand, will pay to the Holders the reasonable costs
and expenses of collecting such amounts or otherwise enforcing this Guaranty,
including, without limitation, the reasonable fees and expenses of counsel. The
right of recovery against the Guarantor under this Guaranty is, however, limited
to the Fair Net Worth of the Guarantor, as of the date of any determination
thereof, less $20,000. For purposes of this Guaranty, the "Fair Net Worth" of
the Guarantor shall mean an amount equal to the fair saleable value of the
Guarantor's assets, net of all obligations of the Guarantor owed to third
parties (other than the Guarantor's liabilities under this Guaranty), including
all liabilities, whether fixed or contingent, direct or indirect, disputed or
undisputed, secured or unsecured, and whether or not required to be reflected on
a balance sheet prepared in accordance with generally accepted accounting
principles.
SECTION 3. Guarantor's Obligations Unconditional. The obligations of
the Guarantor under this Guaranty shall be primary, absolute and unconditional
obligations of the Guarantor,
2
Exhibit 1.1-B
<PAGE> 53
shall not be subject to any counterclaim, set-off, deduction, diminution,
abatement, recoupment, suspension, deferment, reduction or defense based upon
any claim the Guarantor or any other person may have against the Company or any
other person, and to the full extent permitted by applicable law shall remain in
full force and effect without regard to, and shall not be released, discharged
or in any way affected by, any circumstance or condition whatsoever (whether or
not the Guarantor or the Company shall have any knowledge or notice thereof),
including:
(a) any termination, amendment or modification of or deletion
from or addition or supplement to or other change in any of the Note
Documents or any other instrument or agreement applicable to any of the
parties to any of the Note Documents;
(b) any furnishing or acceptance of any security, or any
release of any security, for the Obligations, or the failure of any
security or the failure of any person to perfect any interest in any
collateral;
(c) any failure, omission or delay on the part of the Company
to conform or comply with any term of any of the Note Documents or any
other instrument or agreement referred to in paragraph (a) above,
including, without limitation, failure to give notice to the Guarantor
of the occurrence of a "Default" or an "Event of Default" under any
Note Document;
(d) any waiver of the payment, performance or observance of
any of the obligations, conditions, covenants or agreements contained
in any Note Document, or any other waiver, consent, extension,
indulgence, compromise, settlement, release or other action or inaction
under or in respect of any of the Note Documents or any other
instrument or agreement referred to in paragraph (a) above or any
obligation or liability of the Company, or any exercise or non-exercise
of any right, remedy, power or privilege under or in respect of any
such instrument or agreement or any such obligation or liability;
(e) any failure, omission or delay on the part of any of the
Holders to enforce, assert or exercise any right, power or remedy
conferred on such Holder in this Guaranty, or any such failure,
omission or delay on the part of such Holder in connection with any
Note Document, or any other action on the part of such Holder;
(f) any voluntary or involuntary bankruptcy, insolvency,
reorganization, arrangement, readjustment, assignment for the benefit
of creditors, composition, receivership, conservatorship,
custodianship, liquidation, marshaling of assets and liabilities or
similar proceedings with respect to the Company, the Guarantor or to
any other person or any of their respective properties or creditors, or
any action taken by any trustee or receiver or by any court in any such
proceeding;
3
Exhibit 1.1-B
<PAGE> 54
(g) any discharge, termination, cancellation, frustration,
irregularity, invalidity or unenforceability, in whole or in part, of
any of the Note Documents or any other agreement or instrument referred
to in paragraph (a) above or any term hereof;
(h) any merger or consolidation of the Company or the
Guarantor into or with any other corporation, or any sale, lease or
transfer of any of the assets of the Company or the Guarantor to any
other person;
(i) any change in the ownership of any shares of capital stock
of the Company or any change in the corporate relationship between the
Company and the Guarantor, or any termination of such relationship;
(j) any release or discharge, by operation of law, of the
Guarantor from the performance or observance of any obligation,
covenant or agreement contained in this Guaranty; or
(k) any other occurrence, circumstance, happening or event
whatsoever, whether similar or dissimilar to the foregoing, whether
foreseen or unforeseen, and any other circumstance which might
otherwise constitute a legal or equitable defense or discharge of the
liabilities of a guarantor or surety or which might otherwise limit
recourse against the Guarantor.
Notwithstanding any other provision contained in this Guaranty, the Guarantor's
liability with respect to the principal amount of the Series [ ] Notes shall be
no greater than the liability of the Company with respect thereto.
SECTION 4. Full Recourse Obligations. The obligations of the Guarantor
set forth herein constitute the full recourse obligations of the Guarantor
enforceable against it to the full extent of all its assets and properties.
SECTION 5. Waiver. The Guarantor unconditionally waives, to the extent
permitted by applicable law, (a) notice of any of the matters referred to in
Section 3, (b) notice to the Guarantor of the incurrence of any of the
Obligations, notice to the Guarantor or the Company of any breach or default by
the Company with respect to any of the Obligations or any other notice that may
be required, by statute, rule of law or otherwise, to preserve any rights of the
Holders against the Guarantor, (c) presentment to or demand of payment from the
Company or the Guarantor with respect to any amount due under any Note Document
or protest for nonpayment or dishonor, (d) any right to the enforcement,
assertion or exercise by any of the Holders of any right, power, privilege or
remedy conferred in the Note Purchase Agreement or any other Note Document or
otherwise, (e) any requirement of diligence on the part of any of the Holders,
(f) any requirement to exhaust any remedies or to mitigate the damages resulting
from any default under any Note Document, (g) any notice of any sale, transfer
or other disposition by any of the Holders of any right, title to or interest in
the Note Purchase Agreement or in any other
4
Exhibit 1.1-B
<PAGE> 55
Note Document and (h) any other circumstance whatsoever which might otherwise
constitute a legal or equitable discharge, release or defense of a guarantor or
surety or which might otherwise limit recourse against the Guarantor.
SECTION 6. Subrogation, Contribution, Reimbursement or Indemnity. Until
one year and one day after all Obligations have been indefeasibly paid in full,
the Guarantor agrees not to take any action pursuant to any rights which may
have arisen in connection with this Guaranty to be subrogated to any of the
rights (whether contractual, under the United States Bankruptcy Code, as
amended, including Section 509 thereof, under common law or otherwise) of any of
the Holders against the Company or against any collateral security or guaranty
or right of offset held by the Holders for the payment of the Obligations. Until
one year and one day after all Obligations have been indefeasibly paid in full,
the Guarantor agrees not to take any action pursuant to any contractual, common
law, statutory or other rights of reimbursement, contribution, exoneration or
indemnity (or any similar right) from or against the Company which may have
arisen in connection with this Guaranty. So long as the Obligations remain, if
any amount shall be paid by or on behalf of the Company to the Guarantor on
account of any of the rights waived in this paragraph, such amount shall be held
by the Guarantor in trust, segregated from other funds of the Guarantor, and
shall, forthwith upon receipt by the Guarantor, be turned over to the Holders
(duly endorsed by such Guarantor to the Holders, if required), to be applied
against the Obligations, whether matured or unmatured, in such order as the
Holders may determine. The provisions of this paragraph shall survive the term
of this Guaranty and the payment in full of the Obligations.
SECTION 7. Effect of Bankruptcy Proceedings, etc. This Guaranty shall
continue to be effective or be automatically reinstated, as the case may be, if
at any time payment, in whole or in part, of any of the sums due to any of the
Holders pursuant to the terms of the Note Purchase Agreement or any other Note
Document is rescinded or must otherwise be restored or returned by such Holder
upon the insolvency, bankruptcy, dissolution, liquidation or reorganization of
the Company or any other person, or upon or as a result of the appointment of a
custodian, receiver, trustee or other officer with similar powers with respect
to the Company or other person or any substantial part of its property, or
otherwise, all as though such payment had not been made. If an event permitting
the acceleration of the maturity of the principal amount of the Series [ ] Notes
shall at any time have occurred and be continuing, and such acceleration shall
at such time be prevented by reason of the pendency against the Company or any
other person of a case or proceeding under a bankruptcy or insolvency law, the
Guarantor agrees that, for purposes of this Guaranty and its obligations
hereunder, the maturity of the principal amount of the Series [ ] Notes and all
other Obligations shall be deemed to have been accelerated with the same effect
as if any Holder had accelerated the same in accordance with the terms of the
Note Purchase Agreement or other applicable Note Document, and the Guarantor
shall forthwith pay such principal amount, Make-Whole Amount, if any, and
interest thereon and any other amounts guaranteed hereunder without further
notice or demand.
5
Exhibit 1.1-B
<PAGE> 56
SECTION 8. Term of Agreement. This Guaranty and all guaranties,
covenants and agreements of the Guarantor contained herein shall continue in
full force and effect and shall not be discharged until such time as all of the
Obligations shall be paid and performed in full and all of the agreements of the
Guarantor hereunder shall be duly paid and performed in full.
SECTION 9. Representations and Warranties. Each Guarantor represents
and warrants to each Holder that:
(a) the Guarantor is a corporation duly organized, validly
existing and in good standing under the laws of its jurisdiction of
organization and has the corporate power and authority to own and
operate its property, to lease the property it operates as lessee and
to conduct the business in which it is currently engaged;
(b) the Guarantor has the corporate power and authority and
the legal right to execute and deliver, and to perform its obligations
under, this Guaranty, and has taken all necessary corporate action to
authorize its execution, delivery and performance of this Guaranty;
(c) this Guaranty constitutes a legal, valid and binding
obligation of the Guarantor enforceable in accordance with its terms,
except as enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights generally and by general equitable principles
(regardless of whether such enforceability is considered in a
proceeding in equity or at law);
(d) the execution, delivery and performance of this Guaranty
will not violate any provision of any requirement of law or material
contractual obligation of the Guarantor and will not result in or
require the creation or imposition of any Lien on any of the
properties, revenues or assets of the Guarantor pursuant to the
provisions of any material contractual obligation of such Guarantor or
any requirement of law;
(e) no consent or authorization of, filing with, or other act
by or in respect of, any arbitrator or governmental authority is
required in connection with the execution, delivery, performance,
validity or enforceability of this Guaranty;
(f) no litigation, investigation or proceeding of or before
any arbitrator or governmental authority is pending or, to the
knowledge of the Guarantor, threatened by or against the Guarantor or
any of its properties or revenues (i) with respect to this Guaranty or
any of the transactions contemplated hereby or (ii) which could
reasonably be expected to have a material adverse effect upon the
business, operations or financial condition of the Guarantor and its
Subsidiaries taken as a whole;
6
Exhibit 1.1-B
<PAGE> 57
(g) the execution, delivery and performance of this Guaranty
will not violate any provision of any order, judgment, writ, award or
decree of any court, arbitrator or Governmental Authority, domestic or
foreign, or of the charter or by-laws of the Guarantor or of any
securities issued by the Guarantor; and
(h) after giving effect to the transactions contemplated
herein, (i) the present fair salable value of the assets of the
Guarantor is in excess of the amount that will be required to pay its
probable liability on its existing debts as said debts become absolute
and matured, (ii) the Guarantor has received reasonably equivalent
value for executing and delivering this Guaranty, (iii) the property
remaining in the hands of the Guarantor is not an unreasonably small
capital, and (iv) the Guarantor is able to pay its debts as they
mature.
SECTION 10. Notices. All notices under the terms and provisions hereof
shall be in writing, and shall be delivered or sent by telex or telecopy or
mailed by first-class mail, postage prepaid, addressed (a) if to the Company or
any Holder at the address set forth in, the Note Purchase Agreement or (b) if to
the Guarantor, in care of the Company at the Company's address set forth in the
Note Purchase Agreement, or in each case at such other address as the Company,
any Holder or the Guarantor shall from time to time designate in writing to the
other parties. Any notice so addressed shall be deemed to be given when actually
received.
SECTION 11. Survival. All warranties, representations and covenants
made by the Guarantor herein or in any certificate or other instrument delivered
by it or on its behalf hereunder shall be considered to have been relied upon by
the Holders and shall survive the execution and delivery of this Guaranty,
regardless of any investigation made by any of the Holders. All statements in
any such certificate or other instrument shall constitute warranties and
representations by the Guarantor hereunder.
SECTION 12. Provisions Applicable to Foreign Guarantors. For each
Guarantor that is not organized under the laws of the United States of America
or any state thereof (or the District of Columbia), the following provisions
shall apply:
(a) Each payment hereunder shall be made in United States
currency. Any obligation to make payments under this Guaranty in United
States currency will not be discharged or satisfied by any tender in
any currency other than United States currency, except to the extent
such tender results in the actual receipt (after deduction of all
reasonable fees and expenses relating to any conversion) by the party
to which payment is owed, acting in a reasonable manner and in good
faith in converting the currency so tendered into United States
currency, of the full amount in United States currency of all amounts
due in respect of this Guaranty. If for any reason the amount in United
States currency so received falls short of the amount in United States
currency due in respect of this Guaranty, the Guarantor will, to the
extent permitted by law, immediately pay such
7
Exhibit 1.1-B
<PAGE> 58
additional amount in United States currency as may be necessary to
compensate for the shortfall.
(b) If, for the purposes of obtaining judgment in any court,
it is necessary to convert a sum due hereunder in one currency into
another currency, the rate of exchange used shall be that at which in
accordance with normal procedures the Holders could purchase the first
currency with such other currency on the Business Day preceding that on
which final judgment is given. The obligation of the Guarantor in
respect of any such sum due from it hereunder shall, notwithstanding
any judgment in a currency (the "Judgment Currency") other than that in
which such sum is denominated in accordance with the applicable
provisions of the Note Purchase Agreement (the "Agreement Currency"),
be discharged only to the extent that on the Business Day following
receipt by any Holder of any sum adjudged to be so due in the Judgment
Currency, such Holder may in accordance with normal procedures purchase
the Agreement Currency with the Judgment Currency. If the amount of the
Agreement Currency so purchased is less than the sum originally due in
the Agreement Currency, the Guarantor agrees, as a separate obligation
and notwithstanding any such judgment, to indemnify such Holder against
such loss. If the amount of the Agreement Currency so purchased is
greater than the sum originally due in such currency, such Holder
agrees to return the amount of any excess to the Guarantor (or to any
other Person who may be entitled thereto under applicable law).
(c) Any and all payments by the Guarantor to any Holder under
this Guaranty shall be made free and clear of, and without deduction or
withholding for, any Taxes. In addition, the Guarantor shall pay all
Other Taxes.
(d) Each Guarantor agrees to indemnify and hold harmless each
Holder for the full amount of Taxes or Other Taxes (including any Taxes
or Other Taxes imposed by any jurisdiction on amounts payable under
this Section 11) paid by such Holder as a result of the execution and
delivery of this Guaranty or any payment made hereunder and any
liability (including penalties, interest, additions to tax and
expenses) arising therefrom or with respect thereto, whether or not
such Taxes or Other Taxes were correctly or legally asserted; provided
that if such Holder determines in its reasonable discretion and in good
faith that it has received a refund or credit of such Taxes or such
Other Taxes (or of any liability, including penalties, interest,
additions to tax and expenses, arising therefrom or with respect
thereto), then such Holder shall promptly repay the Guarantor to the
extent of such refund or credit; provided, further, that if, due to any
adjustment of such Taxes or Other Taxes (or of any liability, including
penalties, interest, additions to tax and expenses, arising therefrom
or with respect thereto) such Holder loses the benefit of all or any
portion of such refund or credit, the Guarantor will indemnify and hold
harmless such Holder in accordance with this subsection. Payment under
this indemnification shall be made within 30 days after the date such
Holder makes written demand therefor.
8
Exhibit 1.1-B
<PAGE> 59
(e) If the Guarantor shall be required by law to deduct or
withhold any Taxes or Other Taxes from or in respect of any sum payable
hereunder to any Holder , then:
(i) the sum payable shall be increased as necessary
so that after making all required deductions and withholdings
(including deductions and withholdings applicable to
additional sums payable under this subsection) such Holder, as
the case may be, receives an amount equal to the sum it would
have received had no such deductions or withholdings been
made;
(ii) the Guarantor shall make such deductions and
withholdings; and
(iii) the Guarantor shall pay the full amount deducted
or withheld to the relevant taxing authority or other
authority in accordance with applicable law.
(f) Within 30 days after the date of any payment by the
Guarantor of Taxes or Other Taxes, the Guarantor shall furnish such
Holder the original or a certified copy of a receipt evidencing payment
thereof, or other evidence of payment satisfactory to the Holder.
(g) As used in this Section 12, "TAXES" means any and all
present or future taxes, levies, imposts, deductions, charges or
withholdings, and all liabilities with respect thereto, excluding, in
the case of each Holder, such taxes (including income taxes or
franchise taxes) as are imposed on or measured by such Holder's net
income by the jurisdiction (or any political subdivision thereof) under
the laws of which such Holder is organized or maintains an office or,
if the transactions under this Guaranty were disregarded, would
otherwise be subject to the imposition of such taxes; and "OTHER TAXES"
means any present or future stamp or documentary taxes or any other
excise or property taxes, charges or similar levies which arise from
any payment hereunder.
SECTION 13. Submission to Jurisdiction. Each Guarantor irrevocably
submits to the jurisdiction of the courts of the State of Illinois and of the
courts of the United States of America having jurisdiction in the State of
Illinois for the purpose of any legal action or proceeding in any such court
with respect to, or arising out of, this Guaranty, the Note Purchase Agreement
or the Notes, the Security Agreements, the Subsidiary Guaranty or the Notes. The
Guarantor consents to process being served in any suit, action or proceeding by
mailing a copy thereof by registered or certified mail, postage prepaid, return
receipt requested, to the address of the Guarantor specified in or designated
pursuant to the Note Purchase Agreement. The Guarantor agrees that such service
upon receipt (i) shall be deemed in every respect effective service of process
upon it in any such suit, action or proceeding and (ii) shall, to the fullest
extent permitted by law, betaken and held to be valid personal service upon and
personal delivery to such Obligor.
SECTION 14. Miscellaneous. Any provision of this Guaranty which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such
9
Exhibit 1.1-B
<PAGE> 60
prohibition or unenforceability without invalidating the remaining provisions
hereof, and any such prohibition or unenforceability in any jurisdiction shall
not invalidate or render unenforceable such provision in any other jurisdiction.
To the extent permitted by applicable law, the Guarantor hereby waives any
provision of law that renders any provisions hereof prohibited or unenforceable
in any respect. The terms of this Guaranty shall be binding upon, and inure to
the benefit of, the Guarantor and the Holders and their respective successors
and assigns. No term or provision of this Guaranty may be changed, waived,
discharged or terminated orally, but only by an instrument in writing signed by
the Guarantor and the Holders. The section and paragraph headings in this
Guaranty and the table of contents are for convenience of reference only and
shall not modify, define, expand or limit any of the terms or provisions hereof,
and all references herein to numbered sections, unless otherwise indicated, are
to sections in this Guaranty. This Guaranty shall in all respects be governed
by, and construed in accordance with, the laws of the State of Illinois,
including all matters of construction, validity and performance.
10
Exhibit 1.1-B
<PAGE> 61
IN WITNESS WHEREOF, the Guarantor has caused this Guaranty to
be duly executed as of the day and year first above written.
[ ]
By:
-------------------------------
Title:
----------------------------
[Add Signature Block of each Subsidiary Guarantor]
11
Exhibit 1.1-B
<PAGE> 1
Exhibit 10.3
SECOND AMENDED AND RESTATED
CREDIT AGREEMENT
dated as of April 28, 1998
by and among
SERVICE EXPERTS, INC.
AND
SUNTRUST BANK, NASHVILLE, N.A.
AGENT AND AS A LENDER
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I. DEFINITIONS........................................................ 7
ARTICLE II. THE CREDIT........................................................ 21
Section 2.01 The Revolving Credit Loan.................................... 21
Section 2.02 Letters of Credit Subcommitment.............................. 22
Section 2.03 Swing Line Commitment.
(a) Availability................................................. 23
(b) Borrowing Procedure Under Swing Line Commitment.............. 23
(c) Use of Proceeds.............................................. 24
(d) Refunding Swing Line Loans With Proceeds of Mandatory
Revolving Loans.............................................. 24
Section 2.05 Interest Rate................................................ 27
Section 2.06 Borrowing Procedure.......................................... 27
Section 2.07 Use of Proceeds.............................................. 29
Section 2.08 Participation................................................ 29
Section 2.09 Term of This Agreement....................................... 29
Section 2.10 Payments to Principal Office; Debit Authority................ 29
Section 2.11 ............................................................. 32
(a) Required Prepayment........................................... 32
(c) Permanent Reductions.......................................... 33
(d) Interest Payments............................................. 34
Section 2.12 Funding Losses.............................................. 34
Section 2.13 Apportionment of Payments................................... 35
Section 2.14 Sharing of Payments, Etc.................................... 35
Section 2.15 Right of Offset, Etc........................................ 35
Section 2.16 Commitment Fee.............................................. 35
Section 2.17 Usury....................................................... 36
Section 2.18 Interest Rate Not Ascertainable, Etc........................ 36
Section 2.19 Illegality.................................................. 37
Section 2.20 Increased Costs............................................. 37
ARTICLE III. GUARANTORS....................................................... 39
Section 3.01 Guarantors.................................................. 39
ARTICLE IV. REPRESENTATIONS AND WARRANTIES................................... 39
Section 4.01 Corporate Existence......................................... 39
Section 4.02 Power and Authorization..................................... 39
Section 4.03 Binding Obligations......................................... 40
Section 4.04 No Legal Bar or Resultant Lien.............................. 40
Section 4.05 No Consent.................................................. 40
Section 4.06 Financial Condition......................................... 40
Section 4.07 Investments, Advances, and Guaranties....................... 40
Section 4.08 Liabilities and Litigation.................................. 40
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
Section 4.09 Taxes; Governmental Charges................................. 40
Section 4.10 No Default.................................................. 41
Section 4.11 Compliance with Laws, Etc................................... 41
Section 4.12 ERISA....................................................... 41
Section 4.13 Consolidated Entities....................................... 41
Section 4.14 No Material Misstatements................................... 41
Section 4.15 Solvency.................................................... 42
Section 4.16 Regulation U................................................ 42
Section 4.17 Filings..................................................... 42
Section 4.18 Title, Etc.................................................. 42
Section 4.19 Investment Company Act...................................... 42
Section 4.20 Personal Holding Company.................................... 43
Section 4.21 Burdensome Agreements....................................... 43
Section 4.22 Insurance................................................... 43
Section 4.23 Subsidiaries................................................ 43
ARTICLE V. CONDITIONS PRECEDENT............................................... 43
Section 5.01 Initial Conditions.......................................... 43
(a) Notes and Loan Documents..................................... 43
(b) Resolutions.................................................. 43
(c) Certificate of Existence..................................... 43
(d) Consents, Etc................................................ 44
(e) Incumbency Certificate....................................... 44
(f) Charter and By-Laws and Organizational Documents............. 44
(g) Attorneys Opinion Letter..................................... 44
(h) Payment of Fees, Etc......................................... 44
(i) No Default Certificate....................................... 44
(j) Other........................................................ 44
Section 5.02 All Borrowings.............................................. 44
ARTICLE VI. AFFIRMATIVE COVENANTS............................................. 45
Section 6.01 Financial Statements and Reports............................ 45
(a) Annual Reports............................................... 45
(b) Quarterly and Year-to-Date Reports........................... 45
(c) Compliance Reports........................................... 46
(d) SEC Filings and Public Information........................... 46
(g) Other Information............................................ 46
Section 6.02 Annual Certificates of Compliance........................... 46
Section 6.03 Taxes and Other Liens....................................... 47
Section 6.04 Maintenance................................................. 47
Section 6.05 Further Assurances.......................................... 47
Section 6.06 Performance of Obligations.................................. 48
Section 6.07 Insurance................................................... 48
Section 6.08 Accounts and Records........................................ 48
</TABLE>
<PAGE> 4
<TABLE>
<S> <C>
Section 6.09 Right of Inspection......................................... 48
Section 6.10 Notice of Certain Events.................................... 48
Section 6.11 ERISA Information and Compliance............................ 49
Section 6.12 Management.................................................. 49
Section 6.13 Additional Guaranties....................................... 49
Section 6.14 Equity Proceeds............................................. 50
ARTICLE VII. NEGATIVE COVENANTS............................................... 50
Section 7.01 Debts, Guarantees, and Other Obligations.................... 50
Section 7.02 Liens....................................................... 51
Section 7.03 Investments, Loans, and Advances............................ 51
Section 7.04 Distributions, and Redemptions; Issuance of Stock........... 52
Section 7.05 Sales and Leasebacks........................................ 52
Section 7.06 Nature of Business.......................................... 52
Section 7.07 Mergers, Consolidations, Etc................................ 52
Section 7.08 Proceeds of Loan............................................ 53
Section 7.09 Disposition of Assets....................................... 53
Section 7.10 Limitation on Business...................................... 53
Section 7.11 Inconsistent Agreements..................................... 53
Section 7.12 Acquisitions................................................ 53
ARTICLE VII.A. FINANCIAL COVENANTS............................................ 54
Section 7A.01 Financial Covenants........................................ 54
(a) Minimum Net Worth............................................ 54
(b) Total Funded Debt to EBITDA.................................. 54
(c) Total Funded Debt to Capitalization.......................... 54
(d) Fixed Charge Coverage Ratio.................................. 54
ARTICLE VIII. EVENTS OF DEFAULT............................................... 54
Section 8.01 Events of Default........................................... 54
(a) Principal and Interest Payments.............................. 54
(b) Representations and Warranties............................... 54
(c) Obligations.................................................. 55
(d) Involuntary Bankruptcy or Receivership Proceedings........... 55
(e) Voluntary Petitions.......................................... 55
(f) Assignments for Benefit of Creditors, Etc.................... 55
(g) Undischarged Judgments....................................... 55
(h) Violation of Laws, Etc....................................... 56
(i) Execution of Guaranty by a Consolidated Entity............... 56
(j) ERISA Liability.............................................. 56
(k) Change of Ownership.......................................... 56
(l) Executive Committee.......................................... 56
(m) Default to Other Persons..................................... 56
Section 8.02 Remedies.................................................... 56
</TABLE>
<PAGE> 5
<TABLE>
<S> <C>
Section 8.03 Default Conditions.......................................... 57
ARTICLE IX. GENERAL PROVISIONS................................................ 57
Section 9.01 Notices..................................................... 57
Section 9.02 Invalidity.................................................. 58
Section 9.03 Survival of Agreements...................................... 59
Section 9.04 Successors and Assigns...................................... 59
Section 9.05 Waivers..................................................... 59
Section 9.06 Cumulative Rights........................................... 59
Section 9.07 Governing Law............................................... 59
Section 9.08 Time of Essence............................................. 59
Section 9.09 Costs, Expenses, and Taxes.................................. 59
Section 9.10 Entire Agreement; No Oral Representations Limiting
Enforcement................................................. 59
Section 9.11 Amendments.................................................. 60
Section 9.12 Distribution of Information................................. 60
ARTICLE X. JURY WAIVER........................................................ 60
Section 10.01 Jury Waiver................................................ 60
ARTICLE XI. HAZARDOUS SUBSTANCES.............................................. 60
Section 11.01 Representation and Indemnity Regarding Hazardous
Substances................................................. 60
ARTICLE XII. THE AGENT........................................................ 61
Section 12.01 Appointment of Agent....................................... 61
Section 12.02 Authorization of Agent with Respect to the Loan Documents.. 62
Section 12.03 Agent's Duties Limited; No Fiduciary Duty.................. 64
Section 12.04 NO RELIANCE ON THE AGENT................................... 64
Section 12.05 Certain Rights of Agent.................................... 65
Section 12.06 Reliance by Agent.......................................... 65
Section 12.07 Indemnification of Agent................................... 66
Section 12.08 The Agent in its Individual Capacity....................... 66
Section 12.09 Holders of Notes........................................... 66
Section 12.10 Successor Agent............................................ 66
Section 12.11 Notice of Default or Event of Default...................... 67
Section 12.12 Benefit of Agreement....................................... 67
</TABLE>
<PAGE> 6
EXHIBITS
EXHIBIT A: form of Revolving Credit Note
EXHIBIT B: form of Application and Agreement for Issuance of a Letter of Credit
EXHIBIT C: form of Foreign Currency Note
EXHIBIT D: form of Competitive Bid Note
EXHIBIT E: form of Competitive Bid Request
EXHIBIT F: form of Competitive Bid
EXHIBIT G: form of Borrowing Request
EXHIBIT H: form of Continuation/Conversion Notice
EXHIBIT I: list of current Guarantors
EXHIBIT J: list of current Consolidated Entities
EXHIBIT K: format for calculations (Section 6.01(c))
<PAGE> 7
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
THIS SECOND AMENDED AND RESTATED CREDIT AGREEMENT is made and entered
into as of this 28th day of April, 1998 by and between SERVICE EXPERTS, INC., a
Delaware corporation (the "Borrower"), SUNTRUST BANK, NASHVILLE, N.A. ("STB"),
and the other banks and lending institutions who become Lenders pursuant to
Section 12.12 herein (STB and such other banks and lending institutions are
referred to collectively as the "Lenders"), and SUNTRUST BANK, NASHVILLE, N.A.,
in its capacity as agent for the Lenders and each successive agent for such
Lenders as may be appointed from time to time pursuant to Article XII herein
(the "Agent").
RECITALS
1. The Borrower, Agent, and the Lenders entered into an Amended and
Restated Credit Agreement dated as of September 18, 1997 (the "Credit
Agreement").
2. The parties to the Credit Agreement desire to amend and restate the
Credit Agreement as provided herein.
3. This Second Amended and Restated Credit Agreement shall govern the
terms and conditions under which the Lenders have agreed to extend credit to the
Borrower.
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the parties hereto agree as follows:
ARTICLE I. DEFINITIONS.
As used in this Agreement, the following terms shall have the following
meanings, unless the context expressly otherwise requires:
The terms defined in this article have the meanings attributed to them
in this article. Singular terms shall include the plural as well as the
singular, and vice versa. Words of masculine, feminine or neuter gender shall
mean and include the correlative words of other genders.
All references herein to a separate instrument are to such separate
instrument as the same may be amended or supplemented from time to time pursuant
to the applicable provisions thereof.
All accounting terms not otherwise defined herein have the meanings
assigned to them, and all computations herein provided for shall be made, in
accordance with generally accepted accounting principles applied on a consistent
basis. All references herein to "generally accepted accounting principles" refer
to such principles as they exist at the date of application thereof.
<PAGE> 8
If, after the date hereof, there shall be any modification in GAAP used
in the preparation of the Financial Statements delivered pursuant to Section
4.06 (whether such modification is adopted or imposed by FASB, the American
Institute of Certified Public Accountants or other professional body) which
changes result in a change in the method of calculation of financial covenants,
standards or terms found in this Agreement, the parties hereto agree promptly to
enter into negotiations in order to amend such financial covenants, standards,
or terms so as to reflect equitably such changes, with the desired result that
the evaluations of Borrower's financial condition shall be the same after such
changes as if such changes had not been made; provided, however, that until the
parties hereto have reached a definitive agreement on such amendments, the
Borrower's financial condition shall continue to be evaluated on the same
principles as those used in the preparation of the Financial Statements
delivered pursuant to Section 4.06.
All references herein to designated "Articles", "Sections" and other
subdivisions or to lettered Exhibits are to the designated Articles, Sections
and other subdivisions hereof and the Exhibits annexed hereto unless the context
otherwise clearly indicates. All Article, Section, other subdivision and Exhibit
captions herein are used for reference only and in no way limit or describe the
scope or intent of, or in any way affect, this Agreement.
"Acquisition" means the acquisition by any Consolidated Entity
of any of the following: (a) the controlling interest in any Person,
(b) a Consolidated Entity, or (c) all or substantially all of the
Property of any Person.
"Advance" or "Advances" means any and all amounts advanced by
Lenders to or for the account of the Borrower hereunder or under the
Revolving Credit Loan, the Letter of Credit Subcommitment, and the
Competitive Bid Loan, and all amounts advanced by the Swing Line Lender
under the Swing Line Loan, including, without limitation, advances of
loan proceeds, payments in overdraft, and amounts evidenced by Letters
of Credit. The terms "Advance" and "Loan" are used interchangeably in
this Agreement.
"Affiliate" of any specified Person means any other Person
which directly or indirectly through one or more intermediaries
controls, or is controlled by, or is under common control with such
specified Person. For purposes of this definition, "control" when used
with respect to any specified Person means the power to direct or cause
the direction of the management and policies of such Person, directly
or indirectly, whether through the ownership of voting securities, by
contract or otherwise; and the terms "controls" and "controlled" have
meanings correlative to the foregoing.
"Agent" means SunTrust Bank, Nashville, N.A. or its successor
as appointed pursuant to the provisions of Article XII herein.
2
<PAGE> 9
"Agreement" means this Second Amended and Restated Credit
Agreement (including all exhibits hereto) as the same may be modified,
amended, or supplemented from time to time.
"Applicable Margin" means the number of basis points per annum
determined on the Determination Date in accordance with the following
table for the purpose of calculating the Commitment Fee, the LIBOR
Option, and the Letter of Credit Fee:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
RATIO OF TOTAL FUNDED DEBT TO EBITDA
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Purpose <=1.0x >1.0x but >1.5x but >2.0 x but >2.5x
<=1.5x <=2.0x <=2.5x
- --------------------------------------------------------------------------------------
Commitment 17.5 basis 20 basis 25 basis 37.5 basis 45 basis
Fee points per points per points per points per points per
Calculation annum annum annum annum annum
- --------------------------------------------------------------------------------------
Calculation 62.5 basis 87.5 basis 100 basis 125 basis 150 basis
of LIBOR points per points per points per points per points per
Option, and annum annum annum annum annum
Letter of
Credit Fee
======================================================================================
</TABLE>
"Applicable Rate" means (i) with respect to the Revolving
Credit Loan either the Base Rate Option or the LIBOR Option, as elected
by Borrower; (ii) with respect to the Competitive Bid Loan, the
Competitive Bid Rate; and (iii) with respect to the Swing Line Loan,
the Swing Line Rate.
"Assignment and Acceptance" means an Assignment and Acceptance
form executed by a Lender assigning its interest in the Revolving
Credit Loan, or any portion therein (other than as a participation), to
an Eligible Assignee in a form reasonably satisfactory to Agent.
"Bankruptcy Code" means the Bankruptcy Code, as set forth in
11 U.S.C. ss. 101 et seq., as such may be amended from time to time.
"Base Rate" means the rate of interest equal to the higher of
(i) the rate of interest most recently announced by Agent as its "base"
or "prime" lending rate, as the case may be, for dollar loans in the
United States; and (ii) the Federal Funds Rate (as in effect from time
to time) plus one-half of one percent (1/2%) per annum. The Base Rate
is determined daily. The "base" or "prime" lending rate is a reference
rate and does not necessarily represent the lowest or best interest
rate actually charged to any customer. Each change in the "base" or
"prime" lending rate announced by Agent shall take effect at the
opening of business on the day such announcement is made. The Agent may
make
3
<PAGE> 10
commercial loans or other loans at rates of interest at, above, or
below such "base" or "prime" lending rate.
"Base Rate Option" shall mean that rate of interest equal to
the Base Rate.
"Borrower" shall have the same meaning attributed to that term
in the preamble to this Agreement.
"Borrowing Date" means that date on which the Advances are to
be funded and which must be a day other than a Saturday, Sunday, or day
on which commercial banks are authorized to close for business in New
York City or the State of Tennessee.
"Borrowing Request" means a request in the form of Exhibit G
hereto submitted by the Borrower to Agent for an Advance as described
in Section 2.06(b) of this Agreement.
"Business Day" means any day other than a Saturday, Sunday or
day on which commercial banks are authorized to close for business in
New York City or the State of Tennessee; provided, however, when used
with reference to LIBOR Advances (including the making, continuing,
prepaying, or repaying of any LIBOR Advances), the term "Business Day"
shall also exclude any day on which banks are not open for dealings in
deposits of U.S. dollars in the London interbank market.
"Business Sweep System" means the procedure and policies
established from time to time by the Swing Line Lender and which may
change without notice to Borrower by which: (i) the Swing Line Lender
causes funds to be deposited into and removed from the Funding Account
to meet certain operational requirements of Borrower, and (ii)
automatic payments, to the extent funds are available, are applied to
the Swing Line Loan.
"Capitalization" means an amount as measured on a consolidated
basis equal to the sum of Total Funded Debt of the Consolidated
Entities plus Consolidated Net Worth.
"Closing Date" means the 28th day of April, 1998.
"Code" means the Internal Revenue Code of 1986, as amended
from time to time, and any successor statute.
"Commitment Fee" has the same meaning as set forth in Section
2.16 herein.
"Competitive Bid" shall mean an offer to make a Competitive
Bid Loan to Borrower substantially in the form of Exhibit F.
4
<PAGE> 11
"Competitive Bid Facility" shall mean the facility established
pursuant to Section 2.05.
"Competitive Bid Loan" shall mean a Loan made up of Advances
by all of those Lenders whose Competitive Bids have been accepted by
the Borrower pursuant to the same Competitive Bid Request under the
bidding procedure described in Section 2.04 for the same Interest Rate
Period and interest rate (with the understanding that two Competitive
Bid Loans may be made pursuant to a single Competitive Bid Request).
"Competitive Bid Note" shall mean a promissory note of the
Borrower payable to the order of any Lender, in substantially the form
of Exhibit D hereto, evidencing the indebtedness of the Borrower to
such Lender with respect to outstanding Competitive Bid Rate Advances
made by such Lender pursuant to this Agreement either as originally
executed or as it may be from time to time supplemented, modified,
amended, renewed or extended.
"Competitive Bid Rate Advance" shall mean an Advance made by a
Lender to the Borrower pursuant to the bidding procedure described in
Section 2.04.
"Competitive Bid Rate" shall mean, as to any Competitive Bid
made by a Lender pursuant to Section 2.04, the fixed rate of interest
per annum offered by the Lender making the Competitive Bid for the
relevant Interest Rate Period.
"Competitive Bid Request" shall mean a request made by the
Borrower pursuant to Section 2.04 substantially in the form of Exhibit
E.
"Conditions Precedent" means those matters or events that must
be completed or must occur or exist prior to the Lenders' being
obligated to fund any Advance, including, but not limited to, those
matters described in Article V hereof.
"Consolidated Entity" or "Consolidated Entities" means: (a)
the Borrower, (b) all present and future Subsidiaries, Controlled
Partnerships, and Controlled LLC's of the Borrower, and (c) any Person
the financial statements of which are consolidated with any other
Consolidated Entity identified in subparts (a) and (b) hereof. (The
current Consolidated Entities are depicted on Exhibit J hereto.)
"Consolidated Interest Expense" means the aggregate interest
expense and amortization of deferred loan costs of the Consolidated
Entities, on a consolidated basis for such period (calculated without
regard to any limitations on the payment thereof), imputed interest on
capitalized lease obligations of the Consolidated Entities, and net
costs under interest rate protection agreements for the Consolidated
Entities, all as determined in conformity with GAAP.
5
<PAGE> 12
"Consolidated Net Income" shall mean for any fiscal period the
consolidated net income of the Consolidated Entities, as calculated in
accordance with GAAP.
"Consolidated Net Worth" means on a consolidated basis the
excess of (A) total assets over (B) total liabilities, for the
Consolidated Entities, as determined in accordance with GAAP.
"Continuation/Conversion Notice" means the notice delivered on
behalf of the Borrower to Agent in the form of Exhibit H hereto.
"Control Group" means any Person and all Affiliates of such
Person.
"Controlled LLC" means a limited liability company, the
ownership and management of which is held by and/or controlled by any
Consolidated Entity.
"Controlled Partnership" means a general partnership or joint
venture of which any Consolidated Entity is a general partner or joint
venturer, or a limited partnership which has any Consolidated Entity as
a general partner and with respect to which general partnership, joint
venture, or limited partnership, any Consolidated Entity serving as
general partner or joint venturer is entitled to receive not less than
51% of any distributions of cash or other Property made to the partners
or joint venturers thereof.
"Conversion Date" means that date on which Advances on which
interest accrues at the Base Rate Option are converted to LIBOR
Advances and that date on which LIBOR Advances are converted to
Advances on which interest accrues at the Base Rate Option.
"Debt" means, with respect to any Consolidated Entity, without
duplication, on a consolidated basis, the sum of (i) Total Funded Debt,
and (ii) all other liabilities contingent or otherwise, which in
accordance with GAAP would be classified on a balance sheet of such
Consolidated Entity as a liability, but in any event including (a)
liabilities secured by any mortgage, pledge or lien existing on
Property owned by such Consolidated Entity and subject to such
mortgage, pledge or lien, whether or not the liability secured thereby
shall have been assumed by any Consolidated Entity, (b) endorsements
(other than endorsements of negotiable instruments for purposes of
collection in the ordinary course of business) and obligations to
supply funds for the purchase or payment of Debt of others, and (c) all
outstanding indemnities.
"Default" or "Event of Default" means the occurrence of any of
the events specified in Section 8.01 hereof, whether or not any
requirement for notice or lapse of time or other condition precedent
has been satisfied.
"Default Conditions" or "Default Condition" means the
occurrence of any of the events specified in Section 8.03 hereof.
6
<PAGE> 13
"Default Rate" means interest rate equal to two percent (2%)
per annum above the Base Rate.
"Determination Date" means that date which is ten (10)
Business Days subsequent to Agent's receipt of the Borrower's most
recent consolidated Financial Statements and most recent quarterly
calculations of Borrower's ratio of Total Funded Debt to EBITDA.
"Dollar" and the sign "$" means the lawful money of the United
States of America.
"Dollar Amount" means, at any date:
(a) with respect to an amount denominated in Dollars, such
amount as at such date; and
(b) with respect to an amount denominated in a Foreign
Currency, the amount of Dollars into which such Foreign Currency is
convertible into Dollars, as at such date and on the terms herein
provided.
"EBITAR" means, as measured on a consolidated basis in
accordance with GAAP, over a trailing four Fiscal Quarter period, the
sum of (i) Consolidated Net Income (excluding any gains related to
asset sales), plus (ii) Consolidated Interest Expense, plus (iii)
Income Tax Expense, plus (iv) amortization expense, plus (v) Rental and
Lease Expense.
"EBITDA" means, as measured on a consolidated basis in
accordance with GAAP, over a trailing four Fiscal Quarter period, the
sum of (i) Consolidated Net Income (excluding any gains related to
asset sales), plus (ii) Consolidated Interest Expense, plus (iii)
Income Tax Expense, plus (iv) depreciation and amortization expense, as
calculated on either an historical or Pro Forma basis, at the
Borrower's option, for the most recent four Fiscal Quarters.
"Eligible Assignee" means: (i) a financial institution
organized under the laws of the United States or any state thereof
having total assets in excess of $1,000,000,000, which has been
approved by Borrower and Agent as an Eligible Assignee, provided that
neither Borrower nor Agent shall unreasonably withhold its approval of
any financial institution seeking to become an Eligible Assignee, and
provided that, the approval of the Borrower and the Agent shall not be
required if an Event of Default exists hereunder; (ii) any Lender.
"Environmental Law" means any federal, state, or local law,
statute, ordinance, or regulation applicable or pertaining to health,
industrial hygiene, waste materials, removal of waste materials, oil,
gas, underground storage tanks, Hazardous Substances,
7
<PAGE> 14
other environmental conditions on, under, or affecting any of the
Property of any Consolidated Entity.
"Equity Proceeds" means the net proceeds obtained by any
Consolidated Entity through the public or private placement of shares
of stock of any Consolidated Entity or the issuance of subordinated
debt of any Consolidated Entity (the form, substance, and terms of
which subordinated debt shall first be determined to be acceptable to
Lenders).
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time, including (unless the context
otherwise requires) any rules or regulations promulgated thereunder.
"Facing Fee" means the fee as stipulated in a letter agreement
between Borrower and Agent dated April 13, 1998, referred to therein as
the "Fee Letter."
"Federal Funds Rate" means for any period, a fluctuating
interest rate per annum equal for each day during such period to the
weighted average of the rates on overnight Federal funds transactions
with member banks of the Federal Reserve System arranged by Federal
funds brokers for such day, as published on the next succeeding
Business Day by the Federal Reserve Bank of Atlanta, or, if such rate
is not so published for any day that is a Business Day, the average of
the quotations for such day on such transactions received by the Agent
from three (3) Federal funds brokers of recognized standing selected by
the Agent.
"Financial Statements" means (i) the consolidated financial
statement or statements of the Consolidated Entities, described or
referenced in Section 4.06 hereof and delivered with this Agreement to
Agent for distribution to Lenders, and (ii) subsequent financial
statements as described or referenced in Section 6.01 and required to
be provided pursuant to this Agreement.
"Fiscal Quarter" means each of the quarters of the Fiscal Year
ending on the last day of each March, June, September, and December.
"Fiscal Year" or "Annually" means the twelve-month accounting
period ending December 31st of each year and presently used by the
Borrower as its fiscal year for accounting purposes, or such other
twelve (12) month accounting period adopted by Borrower as its fiscal
year and ending on the last day of March, June, or September.
"Fixed Charges" means the sum of Consolidated Interest
Expense, plus Rental and Lease Expense paid by the Consolidated
Entities, as determined on a consolidated basis for the Consolidated
Entities in accordance with GAAP.
"Foreign Currencies" or "Foreign Currency" means individually
and collectively, as the context shall require, each of the following
currencies: (i) Canadian Dollars; and
8
<PAGE> 15
(ii) at the option of any Lender accepting a Foreign Currency Note, any
other currency mutually agreed upon between Borrower and such Lender,
which is freely transferrable and convertible into United States
Dollars.
"Foreign Currency Note" or "Foreign Currency Notes" means any
Foreign Currency Note executed by the Borrower payable to the order of
any Lender, substantially in the form of Exhibit C hereto, as each such
Foreign Currency Note may from time to time be amended, increased,
decreased, extended, renewed, restated and/or changed in any way.
"Funding Account" shall mean the account maintained by the
Borrower with Agent into which Advances are deposited.
"GAAP" means generally accepted accounting principles in the
United States.
"Guarantor" and "Guarantors" mean each and all of the Persons
described on Exhibit I herein, as well as all future Persons executing
or required to execute a Guaranty pursuant to Section 6.13 herein.
"Guaranty" and "Guaranties" mean the guaranty agreements
executed by each of the Guarantors in form and substance approved by
Agent.
"Hazardous Substances" means those substances included within
the definition of hazardous substances, hazardous materials, toxic
substances, or solid waste under the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended, 42 U.S.C.
ss. 9601, et seq.; the Resource Conservation and Recovery Act of 1976,
42 U.S.C. ss. 6901, et seq.; the Hazardous Materials Transportation
Act, 49 U.S.C. ss. 1801, et seq.; any applicable state law and in the
regulations promulgated pursuant to such acts and laws, and such other
substances, materials, and waste which are or become regulated under
any Environmental Law.
"Income Tax Expense" means the amount shown as "provision for
income taxes" (or such other similar designation) on Borrower's
consolidated income statement.
"Interest Rate Period" means:
(a) with respect to any LIBOR Advances:
(i) initially, the period commencing on any Borrowing Date
or on any Conversion Date, as the case may be, and ending
one, two, three, or six months thereafter, as designated by
Borrower on its Borrowing Request or on its
Continuation/Conversion Notice, as the case may be, given
with respect thereto, or as otherwise provided herein; and
9
<PAGE> 16
(ii) thereafter each period commencing on the last
day of the next preceding Interest Rate Period and ending one,
two, three, or six months thereafter as selected by Borrower
on the applicable Continuation/Conversion Notice given with
respect thereto, or as otherwise provided herein;
provided that all foregoing provisions relating to Interest Rate
Periods are subject to the following:
(1) if any Interest Rate Period would
otherwise end on a day that is not a Business Day,
such Interest Rate Period shall be extended to the
next succeeding Business Day unless the result of
such extension would be to carry such Interest Rate
Period into another calendar month, in which event
such Interest Rate Period shall end on the
immediately preceding Business Day;
(2) any Interest Rate Period that would
otherwise extend beyond the Maturity Date shall end
on the Maturity Date; and
(3) any Interest Rate 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
Rate Period) shall end on the last Business Day of a
calendar month.
(b) with respect to any Advance at a Competitive Bid Rate, the
interest period requested by the Borrower and agreed to by the
participating Lenders pursuant to Section 2.05 hereof.
"Lender" or "Lenders" means STB, the other financial
institutions listed on the signature pages hereof and each permitted
assignee thereof, if any, pursuant to Section 12.12, but shall not
include any participant.
"Letter of Credit Application Agreement" means that certain
Application and Agreement for Issuance of a Letter of Credit in the
form of Exhibit B hereto or any other similar form required by the
Agent appropriately completed by the Borrower pursuant to Section
2.02(a) herein.
"Letter of Credit Subcommitment" means the commitment of Agent
on behalf of Lenders to issue Letters of Credit on Borrower's account
up to the aggregate face amount of $10,000,000 pursuant to and in
accordance with the provisions of Section 2.02 herein.
"Letter of Credit Fee", as set forth in Section 2.02(b)
herein, means an amount equal to the product of: (a) the Applicable
Margin relating to the Letter of Credit Fee calculation in effect for
each period of calculation multiplied by (b) the face amount of the
Letter of Credit.
10
<PAGE> 17
"Letters of Credit" has the same meaning as set forth in
Section 2.02(a) herein.
"LIBOR" shall mean, for any Interest Rate Period, the offered
rates for deposits in U.S. Dollars for a period comparable to the
selected Interest Rate Period appearing on the Telerate Screen Page
3750 as of 11:00 a.m. London time, on the day that is two (2) Business
Days prior to the first day of the applicable Interest Rate Period. If
any of the Interest Rate Periods is unavailable on Telerate Screen Page
3750, then such rate shall be determined by and based on any other
interest rate reporting service of generally recognized standing
designated by the Agent to the Borrower.
"LIBOR Advances" means Advances made hereunder calculated at
the LIBOR Option.
"LIBOR Loans" shall have the same meaning as set forth in
Section 2.21 herein.
"LIBOR Option" means that rate of interest equal to LIBOR,
plus the Applicable Margin, as such may be adjusted for applicable
reserve requirements, if any.
"Lien" means any interest in Property securing an obligation
owed to, or a claim by, a Person, other than the owner of the Property,
whether such interest is based on the common law, statute, or contract,
and including, but not limited to, the lien or security interest
arising from a mortgage, encumbrance, pledge, security agreement,
conditional sale, or trust receipt or a lease, consignment, or bailment
for security purposes. The term "Lien" shall include reservations,
exceptions, encroachments, easements, rights-of-way, covenants,
conditions, restrictions, leases, and other title exceptions and
encumbrances affecting the Property. For the purposes of this
Agreement, a Consolidated Entity shall be deemed to be the owner of any
Property that such Consolidated Entity has acquired or holds subject to
a conditional sale agreement, financing lease, or other arrangement
pursuant to which title to the Property has been retained by or vested
in some other Person for security purposes.
"Loan" or "Loans" means any borrowing by the Borrower under
this Agreement, and/or any extension of credit by Lenders or Swing Line
Lender to or for the Borrower pursuant to this Agreement, the Revolving
Credit Loan, the Letter of Credit Subcommitment, the Competitive Bid
Loan, the Swing Line Loan, or any other Loan Document, including any
renewal, amendment, extension, or modification thereof.
"Loan Documents" means, collectively, each document, paper or
certificate executed, furnished or delivered in connection with this
Agreement (whether before, at, or after the Closing Date), including,
without limitation, this Agreement, the Revolving Credit Notes, the
Foreign Currency Notes, the Competitive Bid Notes, the Swing Line Note,
the Guaranties, the Security Documents, and all other documents,
certificates, reports, and instruments that this Agreement requires or
that were executed or delivered (or both) at Agent's request.
11
<PAGE> 18
"Majority Lenders" means those Lenders with an aggregate Pro
Rata Share equal to or greater than 66 2/3%.
"Maturity Date" for the Revolving Credit Loan (including the
Letter of Credit Subcommitment), the Competitive Bid Loan, and the
Swing Line Loan shall mean the earlier of (i) April 30, 2001, and (ii)
with regard to Competitive Bid Loans, any earlier date agreed upon by
Borrower and any Lender, and (iii) the date the repayment of any of the
Loans or the Swing Line Loan is accelerated pursuant to Article VIII
herein.
"Maximum Total Amount" means the principal amount of
$100,000,000, or such lesser amount which may result from the Borrower
permanently reducing the maximum principal amount that may be borrowed
under the Revolving Credit Loan pursuant to Section 2.12(c).
"PBGC" means the Pension Benefit Guaranty Corporation and any
entity succeeding to any or all of its functions under ERISA.
"Permitted Encumbrances" means: (i) taxes, assessments, and
other governmental charges that are not delinquent or that are being
contested in good faith by appropriate proceedings duly pursued and
subject to maintenance of adequate reserves as required by GAAP; (ii)
mechanic's, materialmen's, contractors', landlords', warehousemen, or
other similar Liens imposed by law and arising in the ordinary course
of business, securing obligations that are not delinquent or that are
being contested in good faith by appropriate proceedings duly pursued
and subject to maintenance of adequate reserves as required by GAAP;
(iii) zoning restrictions, easements, and restrictions on the use of
any of the Consolidated Entities' real property which do not materially
impair the use of such real property; (iv) Liens disclosed on the
consolidated Financial Statement of Borrower dated December 31, 1997;
(v) Liens securing purchase money Debt of the Consolidated Entities
which in the aggregate does not exceed at any one time the lesser of
(A) an amount equal to five percent (5%) of Consolidated Net Worth, or
(B) $20,000,000; (vi) customary Liens incurred or deposits made in the
ordinary course of business in connection with workers' compensation,
unemployment insurance, ERISA, or social security; (vii) customary
Liens to secure the performance of tenders, statutory obligations,
surety and appeal bonds, and similar obligations, and (viii) rights
reserved or vested in governmental agencies and affecting the Property
of any of the Consolidated Entities, but which does not materially
impair the use of such Property.
"Person" means any individual, corporation, partnership, joint
venture, association, joint stock company, trust, unincorporated
organization, government, or any agency or political subdivision
thereof, or any other form of entity.
"Plan" means any employee benefit or other plan established or
maintained, or to which contributions have been made, by any
Consolidated Entity and covered by Title IV of ERISA or to which
Section 412 of the Code applies.
12
<PAGE> 19
"Principal Office" means the principal office of the Agent
located at 201 Fourth Avenue North, Nashville, Tennessee 37219.
"Private Placement Debt" means such Debt designated as "Series
1998-A Senior Notes."
"Pro Forma" means, as it relates to the measurement of EBITDA
on a consolidated Pro Forma basis (if and when determined at the option
of the Borrower, without duplication, at the end of each Fiscal
Quarter, the sum of (i) the Borrower's EBITDA over a trailing four
Fiscal Quarter period (as stipulated in the definition of "EBITDA"),
plus (ii) the EBITDA over such trailing four Fiscal Quarter period of
any Consolidated Entity purchased during such trailing four Fiscal
Quarter period.
"Pro Rata Share" means the percentage of Maximum Total Amount
committed to by each of the Lenders as set forth opposite their
respective signature hereto, as such percentage may be adjusted from
time to time as a result of assignments or amendments made pursuant to
this Agreement.
"Property" or "Properties" means any interest in any kind of
property or asset, whether real, personal, or mixed, or tangible or
intangible.
"Rental and Lease Expense" means all such amounts included in
the consolidated income statement of the Consolidated Entities as rent,
lease charges, or other payments under any lease, excluding imputed
interest on capital leases of the Consolidated Entities, to which any
Consolidated Entity is a party during any measuring period.
"Revolving Credit Loan" means the aggregate principal amount
evidenced by the Revolving Credit Notes.
"Revolving Credit Loan Commitment" means, relative to any
Lender, such Lender's obligation to make Advances pursuant to Section
2.01 of this Agreement.
"Revolving Credit Note" and "Revolving Credit Notes" means, as
the context may require: (a) any of the revolving credit notes executed
by the Borrower, payable to the order of any Lender, substantially in
the form of Exhibit A hereto, originally in the principal amounts each
such Lender's Pro Rata Share bears to the Maximum Total Amount,
evidencing the aggregate indebtedness of the Borrower to such Lender
resulting from the outstanding Revolving Credit Loan, as each such
Revolving Credit Note may from time to time be amended, increased,
decreased, extended, renewed, restated, and/or changed in any way, and
all other promissory notes accepted from time to time in amendment,
renewal, payment and/or substitution thereof and/or therefor, and/or
(b) collectively, all of the foregoing.
13
<PAGE> 20
"Security Documents" means any stock pledge agreement,
security agreement, Reg U, stock power, any other agreement required by
Agent in form and substance satisfactory to Agent that enables Agent to
obtain a perfected security interest for the benefit of Lender and
certain shares of stock of certain Guarantors, all as specified in
Section 6.13 hereof.
"Seller Notes" means any promissory note issued by any
Consolidated Entity in connection with an Acquisition by such
Consolidated Entity, which promissory notes and the payment thereunder
has been subordinated to the obligations of the Borrower and the
Guarantors arising under this Agreement and all other Loan Documents
pursuant to such subordination agreement(s) satisfactory to Agent.
"Subsidiary" means, with respect to any Person, any
corporation or other entity of which more than fifty percent (50%) of
the issued and outstanding Voting Stock is owned or controlled by such
Person at the time as of which any determination is being made either
directly or indirectly through one or more other Subsidiaries.
"Swing Line Commitment" means, at any time for the Swing Line
Lender, the principal amount of up to $5,000,000.00, as evidenced by
the Swing Line Note. The Swing Line Commitment shall be part of,
subsumed within, and not in addition to, the Revolving Credit Loan
Commitment of the Swing Line Lender.
"Swing Line Lender" means the Agent and any successor thereto
or assign thereof.
"Swing Line Loan" means all Advances made under the Swing Line
Note up to the Swing Line Commitment.
"Swing Line Note" means the Swing Line Note of the Borrower
payable to the order of the Swing Line Lender in a form approved by the
Swing Line Lender in the principal amount of up to $5,000,000.00, as
such may be from time to time supplemented, modified, amended, renewed,
or extended.
"Swing Line Rate" means a rate of interest equal to one-half
of one percent (.50%) per annum below the Base Rate, calculated on a
360-day year for actual number of days elapsed.
"Total Funded Debt" means, with respect to any Consolidated
Entity on a consolidated basis, without duplication, the sum of (i) all
indebtedness for money borrowed; (ii) purchase money debt; (iii) the
aggregate principal amount of Seller Notes outstanding; (iv)
capitalized leases; (v) amounts evidenced by the aggregate face amount
of all outstanding letters of credit; (vi) outstanding amounts under
asset securitization vehicles, conditional sales contracts and similar
title retention debt instruments; (vii) all indebtedness guaranteed by
any Consolidated Entity; and (viii) the redemption amount
14
<PAGE> 21
with respect to any redeemable preferred stock to be redeemed within
the next twelve (12) months.
"Voting Stock" means securities of any class of a corporation,
the holders of which are ordinarily, in the absence of contingencies,
entitled to elect a majority of the corporate directors (or persons
performing similar functions).
ARTICLE II. THE CREDIT.
SECTION 2.01 THE REVOLVING CREDIT LOAN.
(a) Availability. Subject to the conditions and pursuant to
the terms of the Loan Documents and in reliance upon the
representations, warranties, and covenants set forth in the Loan
Documents, each Lender severally agrees to make Advances (relative to
such Lender) to the Borrower under the Revolving Credit Loan equal to
such Lender's Pro Rata Share of the aggregate amount of the borrowing
of total Advances (excluding Advances requested under the Swing Line
Loan) requested by the Borrower to be made on such day.
(b) Calculation of Maximum Total Amount. The Maximum Total
Amount available to be advanced under the Revolving Credit Loans shall
be reduced dollar-for-dollar by the sum of: (i) the face amount of any
outstanding Letters of Credit, (ii) the principal amount outstanding
from time to time under the Competitive Bid Loans, including any
Foreign Currency Notes issued thereunder, and (iii) the principal
amount outstanding from time to time under the Swing Line Loan. In no
event shall the Borrower permit the sum of (w) the face amount of
outstanding Letters of Credit, plus (x) the outstanding principal
amount of the Competitive Bid Loans, including any Foreign Currency
Notes issued thereunder, plus (y) the outstanding principal amount of
the Swing Line Loans, plus (z) the outstanding principal amount of the
Revolving Credit Loans to exceed the Maximum Total Amount. For purposes
of calculating the principal amount outstanding from time to time of
Foreign Currency Notes (issued under the Competitive Bid Loans), the
Dollar Amount of such Foreign Currency Notes shall be calculated based
upon the exchange rate on such date as reported in The Wall Street
Journal under the heading "Cross Currency Rates" (or, if such newspaper
is not published on such date, at such exchange rate as is reasonably
agreed to between the Borrower and the Agent).
(c) Revolving Feature. On the terms and subject to the
conditions hereof and the Revolving Credit Notes, and provided no Event
of Default or Default Condition shall have occurred, the Borrower, may
borrow, repay, and reborrow under the Revolving Credit Loan.
(d) Funding by Lenders. The failure of any Lender to make an
Advance under its Revolving Credit Loan Commitment shall not relieve
any other Lender of its
15
<PAGE> 22
obligations, if any, hereunder to make Advances under such Lender's
Revolving Credit Loan Commitment, but no Lender shall be responsible
for the failure of any other Lender to make an Advance to be made by
such other Lender on the date of any requested borrowing.
(e) Foreign Currency Notes. In the event that the Borrower
issues Foreign Currency Notes as part of a Competitive Bid Loan, the
Borrower shall make all payments of principal and interest under any
such Foreign Currency Notes in the Foreign Currency reflected in the
applicable Foreign Currency Note.
SECTION 2.02 LETTERS OF CREDIT SUBCOMMITMENT.
(a) Availability. Provided no Event of Default or Default
Condition exists, and subject to the terms and conditions of the Loan
Documents, the Lenders have agreed that the Agent on behalf of the
Lenders will issue to third party beneficiaries on the Borrower's
account, standby letters of credit ("Letters of Credit") in the face
amount of up to $10,000,000 in the aggregate. In connection with the
issuance of each Letter of Credit, the Borrower shall complete and
execute a Letter of Credit Application Agreement in form and substance
satisfactory to Agent.
(b) Letter of Credit Fee. In connection with the issuance of
any Letter of Credit, and on the first Business Day following the
conclusion of each Fiscal Quarter, the Borrower shall pay to Agent a
Letter of Credit Fee quarterly in arrears calculated as of the last day
of each Fiscal Quarter, or on the expiration date of the Letter of
Credit, whichever is sooner, calculated on the basis of a year of 360
days for the actual number of days elapsed and to be apportioned and
paid by Agent to each of the Lenders pursuant to the Pro Rata Share of
each Lender. If the term of any Letter of Credit is less than thirty
(30) days, the Letter of Credit Fee shall be calculated as if the term
of the Letter of Credit was equal to thirty (30) days.
(c) Facing Fee. In connection with the issuance of any Letter
of Credit, and on the first Business Day of each Fiscal Quarter, the
Borrower shall pay to Agent a Facing Fee quarterly in arrears
calculated as of the last day of each Fiscal Quarter, or on the
expiration date of the Letter of Credit, whichever is sooner,
calculated on the basis of a year of 360 days for the actual number of
days elapsed and to be retained by Agent. None of the Lenders, except
for the Agent, shall share in the Facing Fee.
(d) Delivery of Letter of Credit. The Agent agrees to use its
best efforts to issue and deliver to the Borrower each requested Letter
of Credit within three (3) Business Days following submission by the
Borrower of a properly completed Letter of Credit Application
Agreement.
(e) Term. No Letter of Credit shall be issued for a term in
excess of twelve (12) months, and no Letter of Credit shall be issued
for a term that extends beyond the
16
<PAGE> 23
Maturity Date. The language of each Letter of Credit, including the
requirements for a draw thereunder, shall be subject to the reasonable
approval of the Agent.
(f) Reduction of Advances. The issuance of any Letter of
Credit shall reduce the Borrower's ability to receive Advances under
the Revolving Credit Loan by an amount equal to the face amount of the
Letter of Credit and for so long as the Letter of Credit is
outstanding. Additionally, any payment by the Agent under a Letter of
Credit shall be treated as an Advance (with interest calculated at the
Base Rate Option) under the Revolving Credit Loan, and the terms and
provisions of repayment shall be treated as an Advance under the
Revolving Credit Loan.
(g) Participation of Lenders. The Lenders shall participate in
all Letters of Credit requested by the Borrower. Each Lender, upon
issuance of a Letter of Credit by the Agent, shall be promptly notified
by Agent and shall be deemed to have purchased without recourse a risk
participation from the Agent in such Letter of Credit and the
obligations arising thereunder, in each case in an amount equal to its
Pro Rata Share of all obligations under such Letter of Credit and shall
absolutely, unconditionally, and irrevocably assume, as primary obligor
and not as surety, and be obligated to pay to the Agent therefor and
discharge when due, its Pro Rata Share of all obligations arising under
such Letter of Credit. Without limiting the scope and nature of each
Lender's participation in any Letter of Credit, to the extent that the
Agent has not been reimbursed as required hereunder or under any such
Letter of Credit, each such Lender shall pay to the Agent its Pro Rata
Share of such unreimbursed drawing in same day funds on the day of
notification by the Agent if so notified by Noon (Nashville, Tennessee
time) on such day, otherwise by the next succeeding Business Day, of an
unreimbursed drawing. The obligation of each Lender to so reimburse the
Agent shall be absolute and unconditional and shall not be affected by
the occurrence of a Default Condition or an Event of Default or any
other occurrence or event.
Section 2.03 Swing Line Commitment.
(a) Availability. Subject to and upon the terms and conditions
herein set forth, the Swing Line Lender, from and after the Closing
Date through Business Day next preceding the Maturity Date, hereby
agrees to make available to the Borrower from time to time, Swing Line
Loans which shall not exceed in aggregate the principal amount at any
time outstanding under the Swing Line Commitment.
(b) Borrowing Procedure Under Swing Line Commitment. The
Borrower may borrow under the Swing Line Commitment from the date
hereof until the Maturity Date pursuant to the following procedure:
(i) the Borrower, acting through either its (A) Chief
Executive Officer, (B) Chief Financial Officer, or (C) any
Person designated in writing by its Chief Executive Officer or
its Chief Financial Officer to request Advances under the
17
<PAGE> 24
Swing Line Loan (which designation shall be delivered by the
Borrower to the Agent), may request an Advance under the Swing
Line Loan no later than on or before 1:00 p.m. (Nashville,
Tennessee time) on the date an Advance under the Swing Line
Loan is desired; provided that any request for an Advance
under the Swing Line Loan received by Agent after 1:00 p.m.
(Nashville, Tennessee time) will be deemed given on the next
succeeding Business Day;
(ii) in addition to the procedure specified in
subpart (i) above, Advances under the Swing Line Loan may be
automatically funded by the Swing Line Lender pursuant to the
procedure specified in the Business Sweep System;
(iii) the Borrower authorizes the Agent to cause all
Advances to be deposited into the Funding Account; and
(iv) the giving of notice by the Borrower that it is
requesting an Advance under the Swing Line Loan and the
acceptance by the Borrower of Advances pursuant to such
request or pursuant to the procedure comprising the Business
Sweep System shall constitute a warranty by the Borrower that
as of the date of the request and as of the date the Advance:
(A) no Event of Default or Default Condition has occurred; and
(B) the representations and warranties contained in Article IV
of this Agreement remain true, correct, and accurate, except
that the representation contained in the first sentence of
Section 4.13 herein shall not be deemed to be a continuing
representation.
(c) Use of Proceeds. The proceeds of Swing Line Loans shall be
used by the Borrower for acquisitions, capital expenditures, working
capital, and other general corporate purposes.
(d) Refunding Swing Line Loans With Proceeds of Mandatory
Revolving Loans. If (i) any Swing Line Loan shall be outstanding upon
the occurrence of an Event of Default, or (ii) after giving effect to
any request for a Swing Line Loan or a Revolving Credit Loan, the
aggregate principal amount of the Revolving Credit Loans and Swing Line
Loans outstanding to the Swing Line Lender would exceed the Swing Line
Lender's Revolving Credit Loan Commitment, then each Lender hereby
agrees, upon request from the Swing Line Lender, to make a Revolving
Credit Loan (which shall be initially funded as a Base Rate Option) in
an amount equal to such Lender's Pro Rata Share of the outstanding
principal amount of the Swing Line Loans (the "Refunded Swing Line
Loans") outstanding on the date such notice is given. On or before
11:00 a.m. (Nashville, Tennessee time) on the first Business Day
following receipt by each Lender of a request to make Revolving Credit
Loans as provided in the preceding sentence, each such Lender (other
than the Swing Line Lender) shall deposit in an account specified by
the Agent to the Lenders from time to time the amount so requested in
same day funds, whereupon such funds shall be immediately delivered to
the Swing Line Lender (and not the Borrower) and applied to repay the
Refunded Swing Line Loans. On the day such
18
<PAGE> 25
Revolving Credit Loans are made, the Swing Line Lender's pro rata share
of the Refunded Swing Line Loans shall be deemed to be paid with the
proceeds of the Revolving Credit Loans made by the Swing Line Lender.
Upon the making of any Revolving Credit Loan pursuant to this clause,
the amount so funded shall become due under such Lender's Revolving
Credit Note and shall no longer be owed under the Swing Line Note. Each
Lender's obligation to make the Revolving Credit Loans referred to in
this clause shall be absolute and unconditional and shall not be
affected by any circumstance, including, without limitation, (i) any
setoff, counterclaim, recoupment, defense or other right which such
Lender may have against the Swing Line Lender, the Borrower or any
other Person for any reason whatsoever; (ii) the occurrence or
continuance of any Default Condition or Event of Default; (iii) any
adverse change in the condition (financial or otherwise) of the
Borrower or any other Consolidated Entity; (iv) the acceleration or
maturity of any Loans or the termination of the Revolving Credit Loan
Commitments after the making of any Swing Line Loan; (v) any breach of
this Agreement by the Borrower or any other Lender; or (vi) any other
circumstance, happening or event whatsoever, whether or not similar to
any of the foregoing.
SECTION 2.04 COMPETITIVE BID LOANS.
(a) In addition to making Revolving Loans pursuant to the
Revolving Credit Commitments pursuant to Section 2.01 above, the
Borrower may on the terms and conditions set forth herein request the
Lenders to make offers to make Competitive Bid Loans. The Lenders may,
but shall have no obligation to, make such offers, and the Borrower
may, but shall have no obligations to, accept any such offers in the
manner set forth herein.
(b) In order to request Competitive Bids, the Borrower shall
telecopy to the Lenders a duly completed Competitive Bid Request in the
form of Exhibit E attached hereto to be received no later than 10:00
a.m. (Nashville, Tennessee time) on the day of the proposed Competitive
Bid Loan or Loans. The Borrower may request offers to make Competitive
Bid Loans for up to five different Interest Rate Periods in a single
notice; provided, however, that the request for each separate Interest
Rate Period shall be deemed to be a separate Competitive Bid Request.
The Competitive Bid Request shall in each case refer to this Agreement
and specify (i) the date of such Loan or Loans (which shall be a
Business Day) and (ii) the aggregate principal amount thereof and
whether the requested Loan is in Dollars or in a Foreign Currency (and
if in a Foreign Currency, the applicable Foreign Currency) and (iii)
subject to Section 2.05 herein, the Interest Rate Period requested with
respect thereto.
(c) Each Lender may, in its sole discretion, make one or more
Competitive Bids to the Borrower responsive to each Competitive Bid
Request. Each Competitive Bid by a Lender must be received by the
Borrower via telecopy, substantially in the form of Exhibit F attached
hereto, not later than 11:00 a.m. (Nashville, Tennessee time) on the
Business Day of the proposed Competitive Bid Loan. Competitive Bids
that do not
19
<PAGE> 26
conform substantially to the format of Exhibit E may be rejected by the
Borrower, and the Borrower shall notify the Lender making such
nonconforming bid of such rejection as soon as practicable. Each
Competitive Bid shall refer to this Agreement and specify (i) the
principal amount, designating whether the bid is in Dollars or in a
Foreign Currency, (ii) the Competitive Bid Rate or Rates at which the
Lender is prepared to make the Competitive Bid Rate Advance or
Advances, and (iii) the Interest Rate Period and the last day thereof.
If any Lender shall elect not to make a Competitive Bid, such Lender
shall so notify the Borrower via telecopy by the time specified above
for submitting a Competitive Bid; provided, however, that failure by
any Lender to give such notice shall not cause such Lender to be
obligated to make any Competitive Bid Rate Advance as part of such
Competitive Bid Loan. A Competitive Bid submitted by a Lender pursuant
to this paragraph (c) shall be irrevocable (absent manifest error). No
Competitive Bid submitted by a Lender may be conditioned upon
acceptance by the Borrower of all (or some specified minimum) of the
principal amount of the Competitive Bid Loan for which such Competitive
Bid Request is being made.
(d) The Borrower may, in its sole and absolute discretion,
subject only to the provisions of this paragraph (d), accept or reject
any Competitive Bid referred to in paragraph (c) above. The Borrower
shall notify each Lender by telephone, confirmed by telecopy, whether
and to what extent it has decided to accept or reject any of or all the
bids referred to in paragraph (c) above not later than 12:00 p.m.
(Nashville, Tennessee time) on the Business Day of the proposed
Competitive Bid Loan; provided, however, that (i) the failure by the
Borrower to give such notice shall be deemed to be a rejection of all
the bids referred to in paragraph (c) above, (ii) the aggregate amount
of the Competitive Bids accepted by the Borrower shall not exceed the
principal amount specified in the Competitive Bid Request. A notice
given by the Borrower pursuant to this paragraph (d) shall be
irrevocable.
(e) Any Lender whose offer to make a Competitive Bid has been
accepted shall, not later than 2:00 p.m. (Nashville, Tennessee time) on
the proposed date of the Competitive Bid Loan borrowing, make the
amount of such Competitive Bid Loan available to the Borrower in
immediately available funds on the terms and conditions agreed to
between the Borrower and the relevant Lender, provided, however, that
the obligations of the Borrower with respect to all Competitive Bid
Loans shall rank pari passu with the obligations of the Borrower to
Lenders under any of the Loans.
(f) Each Competitive Bid Loan shall be repaid on the earlier
of (i) a date agreed upon between Borrower and Lender, and (ii) the
Maturity Date.
(g) The proceeds of each of the Competitive Bid Loans shall be
used by the Borrower for acquisitions, capital expenditures and as
working capital, and for other general corporate purposes of the
Borrower and other Consolidated Companies.
20
<PAGE> 27
(h) Any Lender's Competitive Bid Rate Advance shall not reduce
such Lender's obligation to lend its Pro Rata Share of the remaining
unused Commitments.
(i) The Borrower's obligations to pay the principal of, and
interest on, the Competitive Bid Loans to each Lender shall be
evidenced by the records of each Lender and by the Competitive Bid Note
payable to such Lender (or the assignor of such Lender). On each
occasion that the Borrower shall submit a request for a Revolving
Credit Loan or a request for a Letter of Credit, the Borrower shall
certify to Agent the total outstanding principal amount of all
Competitive Bid Loans and the respective Lenders holding such
Competitive Bid Loans (designating the amount held by each such
Lender).
SECTION 2.05 INTEREST RATE.
(a) The Applicable Rate for Advances under the Revolving
Credit Loan shall either be the Base Rate Option or the LIBOR Option,
as selected by the Borrower pursuant to the procedure specified in
parts (b) and (c) below. The Applicable Rate for the Swing Line Loan
shall be the Swing Line Rate. The Applicable Rate for Advances under
the Competitive Bid Loan shall be the Competitive Bid Rate.
(b) So long as the Borrower complies with Section 2.06(a) and
(b) herein, the Borrower may elect that any Advance under the Revolving
Credit Loan shall bear interest at either the Base Rate Option or the
LIBOR Option. In the event that the Borrower fails to designate an
Applicable Rate, or in the event the Borrower fails to make an interest
rate election in strict compliance herewith, then it shall be
conclusively presumed that the Borrower has selected the Base Rate
Option.
(c) In no event shall there be more than ten (10) different
Interest Rate Periods applicable to LIBOR Advances outstanding at any
one time.
(d) Upon the occurrence of an Event of Default, the
indebtedness described herein and all obligations hereunder immediately
shall bear interest at the Default Rate.
(e) All interest and fees shall be calculated on the basis of
a 360-day year for the actual number of days elapsed.
SECTION 2.06 BORROWING PROCEDURE.
(a) In General. The Borrower authorizes the Agent to cause all
Advances to be deposited into the Funding Account. Any one of the
Persons who holds the following titles with Borrower is authorized to
request an Advance: (i) Chief Executive Officer, (ii) Chief Financial
Officer, or (iii) any Person designated in writing by the Chief
Executive Officer or Chief Financial Officer to request Advances (which
designation shall be delivered by the Borrower to the Agent). When a
request for an Advance is made by
21
<PAGE> 28
an authorized officer of the Borrower accompanied with written
instructions to fund the Advance by a method other than depositing such
Advance into the Funding Account, the Borrower also authorizes Agent to
follow such instructions.
(b) Requests for Advances Under the Revolving Credit Loan.
Borrower shall give the Agent at least three (3) Business Days' notice
of a proposed Advance at the LIBOR Option (including conversions to a
LIBOR Option and rollovers of existing Advances at the LIBOR Option)
and same Business Day prior notice by 11:00 a.m. (Nashville, Tennessee
time) of a proposed Advance at the Base Rate Option, under the
Revolving Credit Loan by presentation of the applicable Borrowing
Request. Any notice received by Agent after 11:00 a.m. (Nashville,
Tennessee time) shall be deemed given on the next Business Day. Any
telephonic notices shall be promptly confirmed in writing delivered to
Agent. All Borrowing Requests for Advances under the Revolving Credit
Loan shall specify (i) the amount of the requested Advance, (ii) the
requested date of borrowing, so long as it conforms to the required
notification period, (iii) whether the borrowing is to be (A) a new
Advance at the LIBOR Option or Base Rate Option or a combination
thereof, or (B) a conversion from a LIBOR Option to a Base Rate Option
or a conversion from a Base Rate Option to a LIBOR Option, or (C) a
rollover of an existing Advance at the LIBOR Option, and (iv) if the
Advance is to be entirely or partly made as a LIBOR Advance, the chosen
Interest Rate Period. At least three (3) Business Days prior to the
expiration of any applicable Interest Rate Period for an Advance at the
LIBOR Option, the Borrower shall designate a new Applicable Rate. In
the event that the Borrower fails to make such designation, then it
shall be conclusively presumed that the Borrower has selected the Base
Rate Option until designated otherwise. With regard to requests for
Advances under the Revolving Credit Loan, the following shall apply:
(i) in the event that the Borrower designates the Base Rate Option as
the Applicable Rate, the requested Advance must be in a minimum amount
of $200,000 and in integral multiples of $50,000; and (ii) in the event
the Borrower designates the LIBOR Option as the Applicable Rate, the
requested Advance must be in a minimum amount of $2,500,000 and in
integral multiples of $500,000. Agent shall give prompt notice to
Lenders of a request for an Advance on the date of such request, and
each Lender shall wire immediately available funds to Agent by 1:00
p.m. (Nashville, Tennessee time) the date of the requested Advance.
(c) Requests for Competitive Bid Loans. Whenever the Borrower
desires to receive Competitive Bids it shall follow the procedure set
forth in Section 2.04 herein.
(d) Requests for Swing Line Loans. Whenever the Borrower
desires to receive a Swing Line Loan, it shall follow the procedure set
forth in Section 2.03(b) herein.
(e) No Liability. The Agent and the Lenders (including the
Swing Line Lender) shall have no liability to Borrower arising out of
their compliance with the
22
<PAGE> 29
borrowing procedure specified in this Agreement, except for acts of
gross negligence or willful misconduct.
(f) Warranty. The request by the Borrower for an Advance shall
constitute a warranty by the Borrower that as of the date of the
request and as of the date the Advance is made: (i) no Event of Default
or Default Condition has occurred; and (ii) the representations and
warranties contained in Article IV of this Agreement remain true,
correct, and accurate, except that the representation contained in the
first sentence of Section 4.13 herein shall not be deemed to be a
continuing representation.
SECTION 2.07 USE OF PROCEEDS. Proceeds of the Advances shall be used to
fund Borrower's working capital, for Acquisitions and capital expenditures
needs, and for Borrower's general corporate purposes.
SECTION 2.08 PARTICIPATION. Subject to Section 12.11(d), any Lender
shall have the right to enter into one or more participation agreements with one
or more Affiliates, banks, or financial institutions on such terms and
conditions as such Lender shall deem advisable.
SECTION 2.09 TERM OF THIS AGREEMENT. This Agreement shall be binding on
the Borrower so long as any portion of the indebtedness described herein remains
outstanding, provided and except, the Borrower's representations, warranties,
and indemnity agreements shall survive the payment in full of such indebtedness.
SECTION 2.10 PAYMENTS TO PRINCIPAL OFFICE; DEBIT AUTHORITY.
(a) Each payment under the Revolving Credit Loan, the
Competitive Bid Loan, and the Swing Line Loan shall be made without
defense, setoff, or counterclaim to Agent at its Principal Office in
U.S. dollars for the account of Lenders and in immediately available
funds no later than on or before 1:00 p.m. (Nashville, Tennessee time)
on the date such payment is due. The Agent may, but shall not be
obligated to, debit the amount of any such payment which is not made by
such time to any deposit account of the Borrower with the Agent.
Additionally, payments under the Swing Line Loan shall be made pursuant
to the procedure specified in the Business Sweep Agreement.
(b)(i) All such payments shall be made free and clear of and
without deduction or withholding for any taxes in respect of this
Agreement or any other Credit Documents, or any payments of principal,
interest, fees or other amounts payable hereunder or thereunder (but
excluding, except as provided in paragraph (iii) hereof, in the case of
each Lender, taxes imposed on or measured by its net income, and
franchise taxes and branch profit taxes imposed on it (A) by the
jurisdiction under the laws of which such Lender is organized or any
political subdivision thereof, and in the case of each Lender, taxes
imposed on or measured by its net income, and franchise taxes and
branch profit taxes imposed on it, by the jurisdiction of such Lender's
appropriate
23
<PAGE> 30
Lending Office or any political subdivision thereof, and (B) by a
jurisdiction in which any payments are to be made by any Borrower
hereunder, other than the United States of America, or any political
subdivision thereof, and that would not have been imposed but for the
existence of a connection between such Lender and the jurisdiction
imposing such taxes (other than a connection arising as a result of
this Agreement or the transactions contemplated by this Agreement),
except in the case of taxes described in this clause (B), to the extent
such taxes are imposed as a result of a change in the law or
regulations of any jurisdiction or any applicable treaty or regulations
or in the official interpretation of any such law, treaty or
regulations by any government authority charged with the interpretation
or administration thereof after the date of this Agreement). If any
such taxes are so levied or imposed, Borrower agrees (A) to pay the
full amount of such taxes, and such additional amounts as may be
necessary so that every net payment of all amounts due hereunder and
under the other Credit Documents, after withholding or deduction for or
on account of any such taxes (including additional sums payable under
this Section 2.10), will not be less than the full amount provided for
herein had no such deduction or withholding been required, (B) to make
such withholding or deduction and (C) to pay the full amount deducted
to the relevant authority in accordance with applicable law. Borrower
will furnish to the Agent and each Lender, within 30 days after the
date the payment of any taxes is due pursuant to applicable law,
certified copies of tax receipts evidencing such payment by Borrower.
Borrower will indemnify and hold harmless the Agent and each Lender and
reimburse the Agent and each Lender upon written request for the amount
of any such taxes so levied or imposed and paid by the Agent or Lender
and any liability (including penalties, interest and expenses) arising
therefrom or with respect thereto, whether or not such taxes were
correctly or illegally asserted. A certificate as to the amount of such
payment by such Lender or the Agent, absent manifest error, shall be
final, conclusive and binding for all purposes.
(ii) Each Lender that is organized under the laws of
any jurisdiction other than the United States of America or
any State thereof (including the District of Columbia) agrees
to furnish to Borrower and the Agent, prior to the time it
becomes a Lender hereunder, two copies of either U.S. Internal
Revenue Service Form 4224 or U.S. Internal Revenue Service
Form 1001 or any successor forms thereto (wherein such Lender
claims entitlement to complete exemption from U.S. Federal
withholding tax on interest paid by Borrower hereunder) and to
provide to Borrower and the Agent a new Form 4224 or Form 1001
or any successor forms thereto if any previously delivered
form is found to be incomplete or incorrect in any material
respect or upon the obsolescence of any previously delivered
form; provided, however, that no Lender shall be required to
furnish a form under this paragraph (ii) after the date that
it becomes a Lender hereunder if it is not entitled to claim
an exemption from withholding under applicable law.
(iii) Borrower shall also reimburse the Agent and
each Lender, upon written request, for any taxes imposed
(including, without limitation, taxes
24
<PAGE> 31
imposed on the overall net income of the Agent or Lender
pursuant to the laws of the jurisdiction in which the
principal executive office of the Agent or Lender is located)
as the Agent or Lender shall determine are payable by the
Agent or Lender in respect of amounts paid by or on behalf of
Borrower to or on behalf of the Agent or Lender pursuant to
paragraph (i) hereof.
(iv) In addition to the documents to be furnished
pursuant to Section 2.10(b)(ii) each Lender shall, promptly
upon the reasonable written request of the Borrower to that
effect, deliver to the Borrower such other accurate and
complete forms or similar documentation as such Lender is
legally able to provide and as may be required from time to
time by any applicable law, treaty, rule or regulation or any
jurisdiction in order to establish such Lender's tax status
for withholding purposes or as may otherwise be appropriate to
eliminate or minimize any taxes on payments under this
Agreement or any under Credit Documents.
(v) The Borrower shall not be required to pay any
amounts pursuant to Section 2.10(b)(i), or (iii) to any Lender
in respect of any United States withholding taxes payable
hereunder (and the Borrower, if required by law to do so,
shall be entitled to withhold such amounts and pays such
amounts to the United States Government) if the obligation to
pay such additional amounts would not have arisen but for a
failure by such Lender to comply with its obligations under
Section 2.10(b)(ii), and such Lender shall not be entitled to
an exemption from deduction or withholding of United Stated
Federal income tax in respect of the payment of such sum by
the Borrower hereunder for, in each case, any reason other
than a change in United States law or regulations by any
governmental authority charged with the interpretation or
administration thereof (whether or not having the force of
law) after the date such Lender became a Lender hereunder.
(vi) Within sixty (60) days of the written request of
the Borrower, each Lender shall execute and deliver such
certificates, forms or other documents, which can be
reasonably furnished consistent with the facts and which are
reasonably necessary to assist in applying for refunds of
taxes remitted hereunder.
(vii) To the extent that the payment of any Lender's
taxes by the Borrower gives rise from time to time to a Tax
Benefit (as hereinafter defined) to such Lender in any
jurisdiction other than the jurisdiction which imposed such
taxes, such Lender shall pay to the Borrower the amount of
each such Tax Benefit so recognized or received. The amount of
each Tax Benefit and, therefore, payment to the Borrower will
be determined from time to time by the relevant Lender in its
sole discretion, which determination shall be binding and
conclusive on all parties hereto. Each such payment will be
due and payable by such Lender to the Borrower within a
reasonable time after the filing of the income tax return in
which such Tax Benefit is recognized or, in the case of any
tax refund, after the refund is received; provided, however if
at any time thereafter such Lender
25
<PAGE> 32
is required to rescind such Tax Benefit or such Tax Benefit is
otherwise disallowed or nullified, the Borrower shall
promptly, after notice thereof from such Lender, repay to
Lender the amount of such Tax Benefit previously paid to the
Borrower and rescinded, disallowed or nullified. For purposed
of this section, "Tax Benefit" shall mean the amount by which
any Lender's income tax liability for the taxable period in
question is reduced below what would have been payable had the
Borrower not been required to pay the Lender's taxes. In case
of any dispute with respect to the amount of any payment the
Borrower shall have no right to any offset or withholding of
payments with respect to future payments due to any Lender
under this Agreement or the other Credit Documents.
(c) Payment by the Borrower to the Agent in accordance with
the terms of this Agreement shall, as to the Borrower, constitute
payment to the Lenders under this Agreement.
SECTION 2.11 PAYMENTS.
(a) Required Prepayment. Whenever the aggregate amount of
outstanding Advances exceeds the Maximum Total Amount, the Borrower
shall immediately pay such amounts as may be necessary to cause the
aggregate principal amount of outstanding Advances to be equal to or
less than the Maximum Total Amount in accordance with Section 2.01(b).
Whenever the amount outstanding under any individual Revolving Credit
Note exceeds the maximum amount permitted to be outstanding under such
Revolving Credit Note, the Borrower shall immediately pay to Agent for
the account of the respective Lender such amounts as may be necessary
to cause the principal amount outstanding under such Revolving Credit
Note to be equal to or less than the maximum permitted amount. Whenever
the amount outstanding under the Swing Line Note exceeds the maximum
amount permitted to be outstanding under the Swing Line Loan, the
Borrower shall immediately pay to the Agent such amounts as may be
necessary to cause the principal amount outstanding under the Swing
Line Note to be equal to or less than the maximum amount permitted to
be outstanding under the Swing Line Loan. Whenever the issuance of any
Letter of Credit exceeds the Letter of Credit Subcommitment, the
Borrower shall immediately take such action as required by Agent to
reduce the face amount of outstanding Letters of Credit to an amount
equal to or less than the Letter of Credit Subcommitment.
(b) Optional Prepayment. The Borrower may prepay the Revolving
Credit Loan, the Swing Line Loan, and the Competitive Bid Loan only as
follows:
(i) The Borrower may prepay the Swing Line Loan by
written or oral notice to Agent no later than 1:00 p.m.
(Nashville, Tennessee time) on the date of such prepayment,
(if notice is oral, to be promptly thereafter confirmed in
writing);
26
<PAGE> 33
(ii) Borrower may prepay Advances under the Revolving
Credit Loan which bear interest at the Base Rate Option
(provided that such reduction shall be in a principal amount
of at least $200,000 and integral multiples of $50,000 in
excess thereof) by written notice delivered to Agent no later
than 11:00 a.m. (Nashville, Tennessee time) on the date of
such prepayment and Agent shall promptly give notice to
Lenders on the date of such prepayment;
(iii) Borrower shall have the right and option
(without penalty or premium) to prepay Advances under the
Revolving Credit Loan bearing interest at the LIBOR Option at
the expiration of the applicable Interest Rate Period for such
Advance. Any such reduction shall be in a principal amount of
at least $1,000,000 and integral multiples of $100,000 in
excess thereof. Borrower shall have the right and option to
prepay Advances under the Revolving Credit Loan bearing
interest at the LIBOR Option on a Business Day other than at
the end of an Interest Rate Period provided that: (A) the
Borrower must give Agent at least three (3) Business Days'
prior written notice of the amount and time of such
prepayment; (B) Borrower agrees to immediately pay breakage
costs determined by Agent and/or the Lenders to apply to such
prepayment; and (C) any such reduction shall be in a principal
amount of at least $1,000,000 and integral multiples of
$100,000 in excess thereof.
(iv) Borrower shall have the right and option to
prepay Advances under a Competitive Bid Loan prior to the
expiration of the applicable Interest Rate Period for such
Advance, subject to Borrower's paying to such Lender or
Lenders an amount equal to all losses, additional costs,
expenses, and liabilities (including, without limitation, any
interest paid by such Lender or Lenders to lenders of funds
borrowed by it to make or carry loans on which interest is
calculated at LIBOR or the Competitive Bid Rate to the extent
not recovered by such Lender in connection with the
reemployment of such funds), which such Lender may sustain
because a repayment (including mandatory prepayments) of
amounts to which LIBOR or the Competitive Bid Rate applies
occurs on a date that is not the last Business Day of an
applicable Interest Rate Period.
All prepayments will be applied first to unpaid expenses (if any), then to
accrued interest, then to principal.
(c) Permanent Reductions. Upon three (3) Business Days prior
written notice delivered from the Borrower to Agent, the Borrower may
permanently reduce the Maximum Total Amount; provided that such
permanent principal reduction shall be in a principal amount of at
least $5,000,000 and in integral amounts of $1,000,000, and provided
that such permanent principal reduction shall not reduce the Maximum
Total Amount below an amount equal to the sum of all outstanding
Advances. In the event that a permanent reduction is made hereunder,
then the Maximum Total Amount shall
27
<PAGE> 34
permanently be reduced on a pro rata basis. Any amounts so reduced may
not be reinstated.
(d) Interest Payments. Interest on the Revolving Credit Loan,
Competitive Bid Loan, and Swing Line Loan shall be paid as follows:
(i) Interest shall be paid on the Revolving Credit
Loan no later than on or before 1:00 p.m. (Nashville,
Tennessee time) as follows: (A) on Advances calculated at the
Base Rate Option, all accrued interest shall be paid on a
quarterly basis in arrears by Borrower to Agent, with such
payment to be made on the first Business Day following the end
of each Fiscal Quarter, or if such day is not a Business Day,
then on the next succeeding Business Day; (B) on Advances
calculated at the LIBOR Option, all accrued interest shall be
paid in arrears by Borrower to Agent on the last day of each
Interest Rate Period, provided that for all Advances at the
LIBOR Option that have an Interest Rate Period in excess of
three (3) months, accrued interest on such Advances shall also
be paid on the last day of each three (3) month period
calculated from the initiation of such Interest Rate Period;
and (C) on the Maturity Date, the Borrower shall pay to the
Agent an amount equal to all accrued interest.
(ii) All accrued interest on Advances under the
Competitive Bid Loan shall be paid by Borrower to such
Competitive Bid Lender on the last day of each Interest Rate
Period, provided that for all Advances at the Competitive Bid
Rate that have an Interest Rate Period in excess of three (3)
months, accrued interest on such Advances shall also be paid
on the last day of each three (3) month period calculated from
the initiation of such Interest Rate Period.
(iii) All accrued interest on Advances under the
Swing Line Loan shall be paid on a quarterly basis in arrears
by Borrower to Agent for the benefit of the Swing Line Lender,
with such payment to be made on the first Business Day
following the end of each Fiscal Quarter, or if such day is
not a Business Day, then on the next succeeding Business Day.
SECTION 2.12 FUNDING LOSSES. The Borrower shall compensate each Lender,
upon any Lender's written request to the Borrower, copied to Agent (which
request shall set forth the basis for requesting such amounts in reasonable
detail and which request shall be made by Lender in good faith) for all losses,
additional costs, expenses, and liabilities (including, without limitation, any
interest paid by such Lender to lenders of funds borrowed by it to make or carry
loans on which interest is calculated at LIBOR or the Competitive Bid Rate to
the extent not recovered by such Lender in connection with the reemployment of
such funds), which such Lender may sustain because a repayment (including
mandatory prepayments) of any amounts to which LIBOR or the Competitive Bid Rate
applies occurs on a date that is not the last Business Day of an applicable
Interest Rate Period.
28
<PAGE> 35
SECTION 2.13 APPORTIONMENT OF PAYMENTS. Aggregate principal and
interest payments in respect of Advances under the Revolving Credit Loan shall
be apportioned among all outstanding Revolving Credit Loan Commitments to which
such payments relate proportionately to the Lenders' respective Pro Rata Share
of such Revolving Credit Loan Commitments. In the event the Agent receives
payment under the Revolving Credit Loan on or before 1:00 p.m. (Nashville,
Tennessee time), then the Agent shall promptly thereafter distribute to each
Lender its share of all such payments received by the Agent on such Business
Day. Payments received by Agent subsequent to 1:00 p.m. (Nashville, Tennessee
time) shall be treated as received on the next succeeding Business Day. Payments
received by Agent for any Competitive Bid Loan shall not be apportioned, but
shall be delivered to the respective Lender on whose account payment is made.
Payments received by Agent for the Swing Line Loan shall not be apportioned but
shall be delivered to the Swing Line Lender.
SECTION 2.14 SHARING OF PAYMENTS, ETC. If any Lender shall obtain any
payment or reduction (including, without limitation, any amounts received as
adequate protection of a deposit treated as cash collateral under the Bankruptcy
Code) of the indebtedness relating to Advances under the Revolving Credit Loan
(whether voluntary, involuntary, through the exercise of any right of set-off or
otherwise) in excess of its Pro Rata Share of payments or reductions of the
Revolving Credit Loan (other than payments with respect to Competitive Bid Loans
which are payable solely to the Lenders participating therein and other than
payments with respect to the Swing Line Loan), such Lender shall forthwith (a)
notify the Agent, upon which the Agent shall promptly thereafter notify each of
the other Lenders of such receipt, and (b) purchase from the other Lenders such
participations in the Revolving Credit Loan as shall be necessary to cause such
purchasing Lender to share the excess payment or reduction, net of costs
incurred in connection therewith, ratably with each of them, provided that if
all or any portion shall be rescinded and the purchase price restored to the
extent of such recovery or such additional costs, but without interest unless
the Lender obligated to return such funds is required to pay interest on such
funds. The Borrower agrees that any Lender so purchasing a participation from
another Lender pursuant to this Section 2.14 may, to the fullest extent
permitted by law, exercise all its rights to receive payment (including the
right of set-off) with respect to such participation as fully as if such Lender
were the direct creditor of the Borrower in the amount of such participation.
SECTION 2.15 RIGHT OF OFFSET, ETC. The Borrower hereby agrees that, in
addition to (and without limitation of) any right of set-off, banker's lien or
counterclaim the Lenders may otherwise have, the Lenders shall be entitled, at
their option, to offset balances held by any of them at any of their offices
against any principal of or interest on the indebtedness described herein which
is not paid when due by reason of a failure by the Borrower to make any payment
when due to such Lender (regardless whether such balances are then due to the
Borrower), in which case such offsetting Lender shall promptly notify the
Borrower, provided that its failure to give such notice shall not affect the
validity thereof.
SECTION 2.16 COMMITMENT FEE. On the first Business Day following the
end of each Fiscal Quarter thereafter (or if such day is not a Business Day,
then on the next succeeding
29
<PAGE> 36
Business Day) and on the Maturity Date, the Borrower shall pay to the Agent on
or before 1:00 p.m. (Nashville, Tennessee time) for distribution upon receipt
promptly thereafter to the Lenders based on their Pro Rata Share a Commitment
Fee equal to the average unused portion of the Loans (less the face amount of
Letters of Credit outstanding during such time period issued by Agent pursuant
to Section 2.02 herein) for the Fiscal Quarter (or portion thereof) then ended,
multiplied by the Applicable Margin then in effect relating to the Commitment
Fee calculation. For the purpose of calculating the average unused portion of
the Loans, the principal amount outstanding under any Competitive Bid Notes
during any measuring period shall not be counted as usage. The Commitment Fee
shall be calculated based on a year of 360 days for the actual number of days
elapsed.
SECTION 2.17 USURY. The parties to this Agreement intend to conform
strictly to applicable usury laws as presently in effect. Accordingly, if the
transactions contemplated hereby would be usurious under applicable law
(including the laws of the United States of America and the State of Tennessee),
then, in that event, notwithstanding anything to the contrary in any Loan
Document or agreement executed in connection with the indebtedness described
herein, Borrower, Agent, and Lenders agree as follows: (i) the aggregate of all
consideration that constitutes interest under applicable law which is contracted
for, charged, or received under any of the Loan Documents or agreements, or
otherwise in connection with the indebtedness described herein, shall under no
circumstance exceed the maximum lawful rate of interest permitted by applicable
law, and any excess shall be credited on the indebtedness by the holder thereof
(or, if the indebtedness described herein shall have been paid in full, refunded
to the Borrower); and (ii) in the event that the maturity of the indebtedness
described herein is accelerated as a result of any Event of Default or
otherwise, or in the event of any required or permitted prepayment, then such
consideration that constitutes interest may never include more than the maximum
amount of interest permitted by applicable law, and excess interest, if any, for
which this Agreement provides, or otherwise, shall be cancelled automatically as
of the date of such acceleration or prepayment and, if previously paid, shall be
credited on the indebtedness described herein (or, if the indebtedness shall
have been paid in full, refunded to the Borrower).
SECTION 2.18 INTEREST RATE NOT ASCERTAINABLE, ETC. In the event that
the Agent shall in good faith have determined that on any date for determining
LIBOR, by reason of any changes arising after the date of this Agreement
affecting the London interbank market or the Agent's position in such market,
adequate and fair means do not exist for ascertaining the applicable interest
rate on the basis provided for in the definition of LIBOR, then, and in any such
event, the Agent shall forthwith give notice (by telephone confirmed in writing)
to the Borrower of such determination and a summary of the basis for such
determination. At the expiration of any Interest Rate Period then in effect and
until the Agent notifies the Borrower that the circumstances giving rise to the
suspension described herein no longer exist (which notice shall be given
forthwith after such determination is made by the Agent), all Loans shall bear
interest at the Base Rate Option.
30
<PAGE> 37
SECTION 2.19 ILLEGALITY.
(a) In the event that the Agent or any Lender shall have
determined any time that the making or continuance of any Advance
bearing interest at the LIBOR Option or the Competitive Bid Rate has
become unlawful by compliance by any Lender (an "Affected Lender") in
good faith with any applicable law, governmental rule, regulation,
guideline or order (whether or not having the force of law and whether
or not failure to comply therewith would be unlawful), then, in any
such event, the Agent or such Affected Lender shall give prompt notice
(by telephone confirmed in writing) to the Borrower of such
determination and a summary of the basis for such determination.
(b) Upon the giving of the notice to the Borrower referred to
in Section 2.19(a), the Borrower's right to elect a LIBOR Option or a
Competitive Bid Rate shall be immediately suspended, and all
outstanding Advances made by the Affected Lender shall be under the
Revolving Credit Loan and shall bear interest at the Base Rate Option
after the current Interest Rate Period has expired.
SECTION 2.20 INCREASED COSTS.
(a) If by reason of (i) after the date hereof, the
introduction of or any change (including, without limitation, any
change by way of imposition or increase of reserve requirements) in or
in the interpretation of any law or regulation, or (ii) the compliance
with any guideline or request from any central bank or other
governmental authority or quasi-governmental authority exercising
control over banks or financial institutions generally (whether or not
having the force of law):
(A) the Agent or any Lender shall be subject to any
tax (including a foreign withholding tax), duty or other
charge with respect to any Advances bearing interest at the
LIBOR Option or at the Competitive Bid Rate (all such Advances
being collectively referred to as the "LIBOR/Competitive Bid
Loans") or its obligation to make LIBOR/Competitive Bid Loans,
or the basis of taxation of payments to the Agent or any
Lender of the principal of or interest on its
LIBOR/Competitive Bid Loans or its obligation to make
LIBOR/Competitive Bid Loans shall have changed (except for
changes in the tax on the overall net income of the Agent or
such Lender, or similar taxes, pursuant to the laws of
jurisdictions with taxing authority over the Agent or such
Lender); or
(B) any reserve (including, without limitation, any
reserve imposed by the Board of Governors of the Federal
Reserve System), special deposit or similar requirement
against assets of, deposits with or for the account of, or
credit extended by, the Agent or any Lender shall be imposed
or deemed applicable or any other condition affecting its
LIBOR/Competitive Bid Loans or its obligation to make
LIBOR/Competitive Bid Loans shall be imposed on the Agent, any
Lender, the London interbank market;
31
<PAGE> 38
and as a result thereof there shall be any increase in the cost to the Agent or
such Lender (a "LIBOR/Competitive Bid Affected Lender") of agreeing to make or
making, funding or maintaining LIBOR/Competitive Bid Loans (except to the extent
already included in the determination of the interest rate for LIBOR/Competitive
Bid Loans), or there shall be a reduction in the amount received or receivable
by the Agent or any LIBOR/Competitive Bid Affected Lender, then the Borrower
shall from time to time, upon written notice from and demand in good faith by
the Agent, pay to the Agent for the account of the Lenders (or any
LIBOR/Competitive Bid Affected Lender) within five (5) Business Days after the
date of such notice and demand, additional amounts sufficient to indemnify the
Agent or such LIBOR/ Competitive Bid Affected Lender against such increased
cost; provided, however, that nothing in this section shall require Borrower to
indemnify the Agent or any Lender for withholding taxes imposed by the United
States.
(b) If the Agent or any LIBOR/Competitive Bid Rate Affected
Lender shall in good faith determine that at any time, because of the
circumstances described in Section 2.19(a)(i) or (ii) arising after the
date of this Agreement affecting the Agent or any Lender, the London
interbank market, or the Agent or any Lender's position in such market,
the calculations for the interest rates for LIBOR/Competitive Bid Loans
as determined by the Agent or any Lender will not adequately and fairly
reflect the cost to the Agent or any Lender of funding such
LIBOR/Competitive Bid Loans, the Agent or any LIBOR/Competitive Bid
Rate Affected Lender shall forthwith give notice (by telephone
confirmed in writing) to the Borrower of such advice, and a summary of
the basis for such determination, and then, and in any such event and
until Agent or any LIBOR/Competitive Bid Rate Affected Lender notifies
the Borrower that such circumstances no longer exist (which notice
shall be given forthwith after such determination is made by the Agent
or any LIBOR/Competitive Bid Rate Affected Lender):
(i) The Borrower's right to request, and the Agent's
and any Lender's obligation to make or permit portions of the
indebtedness described herein to remain outstanding past the
last day of the then current Interest Rate Period as
LIBOR/Competitive Bid Loans shall be immediately suspended;
and
(ii) After the last day of the then-current Interest
Rate Period, all such indebtedness described in this Section
shall be converted to a Revolving Credit Loan and bear
interest at the Base Rate Option.
SECTION 2.21 CAPITAL ADEQUACY.
Without limiting any other provision of this Agreement, in the event
that any Lender shall have determined that any law, treaty, governmental (or
quasi-governmental) rule, regulation, guideline or order regarding capital
adequacy not currently in effect or fully applicable as of the Closing Date, or
any change therein or in the interpretation or application thereof after the
Closing Date, or compliance by such Lender with any request or directive
32
<PAGE> 39
regarding capital adequacy not currently in effect or fully applicable as of the
Closing Date (whether or not having the force of law and whether or not failure
to comply therewith would be unlawful) from a central bank or governmental
authority or body having jurisdiction, does or shall have the effect of reducing
the rate of return on such Lender's capital as a consequence of its obligations
hereunder to a level below that which such Lender could have achieved but for
such law, treaty, rule, regulation, guideline or order, or such change or
compliance (taking into consideration such Lender's policies with respect to
capital adequacy) by an amount deemed by such Lender to be material, then within
ten (10) Business Days after written notice and demand by such Lender (with
copies thereof to the Agent), Borrower shall from time to time pay to such
Lender additional amounts sufficient to compensate such Lender for such
reduction (but, in the case of outstanding Advances calculated at the Base Rate
Option, without duplication of any amounts already recovered by such Lender by
reason of an adjustment in the applicable Base Rate). Each certificate as to the
amount payable under this Section 2.21. (which certificate shall set forth the
basis for requesting such amounts in reasonable detail), submitted to Borrower
by any Lender in good faith, shall, absent manifest error, be final, conclusive
and binding for all purposes.
ARTICLE III. GUARANTORS.
SECTION 3.01 GUARANTORS. Subject to the provisions of Section 6.13, the
obligations of the Borrower under the Loan Documents shall be guaranteed jointly
and severally by each of the Guarantors pursuant to the Guaranties.
ARTICLE IV. REPRESENTATIONS AND WARRANTIES.
To induce Lenders to enter this Agreement and extend credit under this
Agreement, the Borrower covenants, represents and warrants to Agent and to
Lenders as follows:
SECTION 4.01 CORPORATE EXISTENCE. The Borrower is a corporation duly
organized, legally existing, and in good standing under the laws of the State of
Tennessee, and it is duly qualified as a foreign corporation in all
jurisdictions in which the Property owned or the business transacted by it makes
such qualification necessary, except where failure to so qualify does not have a
material adverse effect on the Borrower, its respective business, or its
respective Properties. The Borrower will not commence doing business in any
state unless and until the Borrower shall have qualified to do business in such
state.
SECTION 4.02 POWER AND AUTHORIZATION. The Borrower is duly authorized
and empowered to execute, deliver, and perform under all Loan Documents; the
board of directors of the Borrower has authorized the Borrower to execute and
perform under the Loan Documents; and all other corporate and shareholder action
on Borrower's part required for the due execution, delivery, and performance of
the Loan Documents has been duly and effectively taken.
33
<PAGE> 40
SECTION 4.03 BINDING OBLIGATIONS. This Agreement is, and the Loan
Documents when executed and delivered in accordance with this Agreement will be,
legal, valid and binding upon and against the Borrower and its respective
Properties, and this Agreement and the Loan Documents are enforceable in
accordance with their respective terms, subject to no defense, counterclaim,
set-off, or objection of any kind.
SECTION 4.04 NO LEGAL BAR OR RESULTANT LIEN. The Borrower's execution,
delivery and performance of the Loan Documents does not constitute a default
under, and will not violate any provisions of the articles of incorporation (or
charter), bylaws, articles of organization, and/or operating agreement of the
Borrower, any contract, agreement, law, regulation, order, injunction, judgment,
decree, or writ to which the Borrower is subject, or result in the creation or
imposition of any Lien upon any Properties of the Borrower.
SECTION 4.05 NO CONSENT. The Borrower's execution, delivery, and
performance of the Loan Documents do not require the consent or approval of any
other Person.
SECTION 4.06 FINANCIAL CONDITION. The consolidated Financial Statements
which have been delivered to Agent and to Lenders for the Consolidated Entities
dated December 31, 1997 have been prepared in accordance with GAAP consistently
applied, and such consolidated Financial Statements present fairly the financial
condition of the Consolidated Entities as of the date or dates and for the
period or periods stated therein. No material adverse change in the financial
condition of the Consolidated Entities taken as a whole has occurred since the
date of such Financial Statements.
SECTION 4.07 INVESTMENTS, ADVANCES, AND GUARANTIES. None of the
Consolidated Entities has made investments in, advances to, or guaranties of the
obligations of any Person, or committed or agreed to undertake any of these
actions or obligations, except as referred to or reflected in the Financial
Statements.
SECTION 4.08 LIABILITIES AND LITIGATION. None of the Consolidated
Entities has any material liabilities (individually or in the aggregate) direct
or contingent, except as referred to or reflected in the Financial Statements.
Except as disclosed in writing to Agent by Borrower from time to time, there is
no litigation, legal or administrative proceeding, investigation, or other
action of any nature pending or, to the knowledge of the Borrower, threatened
against or affecting any of the Consolidated Entities that involves the
possibility of any judgment or liability not fully covered by insurance and that
may materially and adversely affect the business or the Properties of any of the
Consolidated Entities or their respective ability to carry on their business as
now conducted.
SECTION 4.09 TAXES; GOVERNMENTAL CHARGES. Each of the Consolidated
Entities has filed or caused to be filed all tax returns and reports required to
be filed and has paid all taxes, assessments, fees, and other governmental
charges levied upon each of them or upon any of their respective Properties or
income, which are due and payable, including interest and penalties, except
where being contested in good faith by appropriate proceedings and subject to
34
<PAGE> 41
maintenance of adequate reserves as required by GAAP by the Borrower or the
affected Consolidated Entity. Each of the Consolidated Entities has made all
required withholding deposits.
SECTION 4.10 NO DEFAULT. None of the Consolidated Entities is in
default in any respect that materially and adversely affects its business,
Properties, operations, or condition, financial or otherwise, under any
indenture, mortgage, deed of trust, credit agreement, note, agreement, or other
instrument to which any of the Consolidated Entities is a party or by which any
of them or their Properties are bound. None of the Consolidated Entities is in
violation of its respective Articles of Incorporation (or Charter), Bylaws,
Articles of Organization, or operating agreements. No Default Conditions
hereunder have occurred or are continuing as of the date hereof.
SECTION 4.11 COMPLIANCE WITH LAWS, ETC. None of the Consolidated
Entities is in violation of any law, judgment, decree, order, ordinance, or
governmental rule or regulation to which any of the Consolidated Entities, or
any of their respective Properties is subject in any respect that materially and
adversely affects their respective business, Properties, or financial condition.
None of the Consolidated Entities has failed to obtain any license, permit,
franchise, or other governmental authorization necessary to the ownership of any
of their respective Properties or to the conduct of their business, which if not
obtained would have or has a material adverse effect on any of the Consolidated
Entities. All improvements on the real estate owned by, leased to, or used by
the Consolidated Entities conform in all material respects to all applicable
state and local laws, zoning and building ordinances and health and safety
ordinances, and such real estate is zoned for the various purposes for which
such real estate and improvements thereon are presently being used.
SECTION 4.12 ERISA. Each of the Consolidated Entities is in compliance
in all material respects with the applicable provisions of ERISA. None of the
Consolidated Entities has incurred any "accumulated funding deficiency" within
the meaning of ERISA which is material to the financial condition of the
Consolidated Entities taken as a whole, and none of the Consolidated Entities
has incurred any liability to PBGC in connection with any Plan which liability
is adverse and material to financial condition of the Consolidated Entities
taken as a whole.
SECTION 4.13 CONSOLIDATED ENTITIES. Each of the Consolidated Entities
is duly organized, validly existing, and in good standing under the laws of the
jurisdiction of its incorporation or formation, has all requisite power and
authority, licenses, permits, and authorizations necessary to own Property and
to carry on its business as now being conducted, and is qualified to do business
in every jurisdiction required by law, except in those instances where the
failure to be so qualified or to obtain such licenses, permits, and
authorizations does not have a material adverse effect on such Consolidated
Entity.
SECTION 4.14 NO MATERIAL MISSTATEMENTS. No information, exhibit, or
report furnished or to be furnished by the Consolidated Entities to Agent or to
Lenders in connection with this
35
<PAGE> 42
Agreement, contain any material misstatement of fact or fail to state any
material fact, the omission of which would render the statements therein
materially false or misleading.
SECTION 4.15 SOLVENCY. The Borrower is solvent. The Borrower is
generally paying its debts as they mature and the fair value of the Borrower's
assets substantially exceeds the sum total of its respective liabilities.
SECTION 4.16 REGULATION U. None of the Consolidated Entities is engaged
principally, nor as one of its important activities, in the business of
extending credit for the purpose of purchasing or carrying margin stock within
the meaning of Regulation U of the Board of Governors of the Federal Reserve
System. No part of the indebtedness described herein shall be used at any time
to purchase or to carry margin stock within the meaning of Regulation U or to
extend credit to others for the purpose of purchasing or carrying any margin
stock if to do so would cause the Lenders to violate the provisions of
Regulation U. Each Consolidated Entity is in full compliance with, and has not
violated or allowed to be violated any provision of, any of the regulations G,
T, U or X, any laws and regulations to employee benefit plans, and/or applicable
environmental laws, rules, or regulations.
SECTION 4.17 FILINGS. The Borrower has filed all reports and statements
required to be filed with the Securities and Exchange Commission. As of their
respective dates, the reports and statements referred to above complied in all
material respects with all rules and regulations promulgated by the Securities
and Exchange Commission and did not contain any untrue statement of a material
fact or omit to state 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.
SECTION 4.18 TITLE, ETC. Each of the Consolidated Entities has good and
marketable title to and ownership of its respective Properties, free and clear
of all Liens except those permitted by Section 7.02 herein, and except for any
defects in title which would not have a material adverse effect on the business,
Properties, financial condition or operations of any of the Consolidated
Entities or on the ability of the Borrower to perform its respective obligations
under this Agreement or any of the other Loan Documents. The Consolidated
Entities possess all trademarks, copyrights, trade names, patents, licenses, and
rights therein, free from burdensome restrictions, which are adequate for the
conduct of their respective business as now conducted and presently proposed to
be conducted, except for such that would not have a material adverse effect on
the business, Properties, financial condition or operations of any of the
Consolidated Entities or on the ability of the Borrower to perform its
respective obligations under this Agreement or any of the other Loan Documents.
SECTION 4.19 INVESTMENT COMPANY ACT. None of the Consolidated Entities
is an "investment company" or a company "controlled" by an "investment company"
within the meaning of the Investment Company Act of 1940, as amended.
36
<PAGE> 43
SECTION 4.20 PERSONAL HOLDING COMPANY. The Borrower is not a "personal
holding company" as defined in Section 542 of the Code.
SECTION 4.21 BURDENSOME AGREEMENTS. The Consolidated Entities are not
parties to any agreements that materially restrict their ability to conduct
their business as presently conducted or that may be expected to have a
material, adverse effect on the financial condition of any of the Consolidated
Entities.
SECTION 4.22 INSURANCE. Schedule 4.22 attached hereto depicts the type
and amount of insurance coverage maintained by each of the Consolidated Entities
with respect to their respective Properties and businesses. The Consolidated
Entities have paid all material amounts of insurance premiums now due and owing
with respect to such insurance policies and coverages, and such policies and
coverages are in full force and effect. The Consolidated Entities shall continue
to maintain substantially similar insurance coverage on their respective
Properties and businesses throughout the term of this Agreement.
SECTION 4.23 SUBSIDIARIES. Schedule 4.23 sets forth all Subsidiaries
existing as of the Closing Date, the jurisdiction of their incorporation, and
the direct or indirect ownership interest of the Borrower therein.
ARTICLE V. CONDITIONS PRECEDENT.
SECTION 5.01 INITIAL CONDITIONS. Lenders' obligation to extend credit
hereunder (and to issue any Letter of Credit hereunder) and the Swing Line
Lender's obligation to extend credit is subject to the Conditions Precedent that
Agent shall have received (or agreed in writing to waive or defer receipt of)
all of the following, each duly executed, dated and delivered as of the date
hereof, in form and substance satisfactory to Agent and its counsel:
(a) Notes and Loan Documents. This Agreement, the Revolving
Credit Notes, Swing Line Notes, the Competitive Bid Notes (including
Foreign Currency Notes issued under the Competitive Bid Loan), the
Guaranties of each of the Guarantors, delivery and execution of any
applicable Security Documents, any Letter of Credit Application
Agreements, and other documents executed in connection with this
Agreement (the "Loan Documents").
(b) Resolutions. Certified copies of resolutions of the Board
of Directors of the corporate Borrower and each of the Guarantors
authorizing or ratifying the execution, delivery, and performance,
respectively, of Loan Documents to which each is a party.
(c) Certificate of Existence. A certificate of existence of
the Borrower and each of the Guarantors from the state or commonwealth
in which the Borrower and the Guarantors are incorporated or organized,
which certificate shall contain no facts objectionable to Agent.
37
<PAGE> 44
(d) Consents, Etc. Certified copies of all documents
evidencing any necessary corporate action, consents, and governmental
approvals (if any) with respect to this Agreement and the Loan
Documents.
(e) Incumbency Certificate. A certificate of the secretary or
any assistant secretary of the Borrower and each of the Guarantors
certifying: (i) the names of the officer or officers of the Borrower
and each of the Guarantors authorized to sign the respective Loan
Documents, together with a sample of the true signature of such
officer(s), and (ii) as to representations and warranties of, and
litigation involving, the Borrower and each of the Guarantors.
(f) Charter and By-Laws and Organizational Documents. A copy
of the Borrower's and the Guarantors' respective by-laws and charter or
articles of incorporation and/or articles of organization and operating
agreement, if applicable, (including all amendments thereto) certified
by the secretary or any assistant secretary of the Borrower and
Guarantors, as applicable, and in the case of the charter or articles
of incorporation, by the Secretary of State of the state or
commonwealth in which the Borrower and the Guarantors are incorporated,
as being true and complete copies of the current charter or articles of
incorporation and by-laws of each.
(g) Attorneys Opinion Letter. An opinion letter from counsel
to the Borrower and the Guarantors favorably opining as to such matters
as required by Agent.
(h) Payment of Fees, Etc. Payment of all outstanding fees and
expenses to Agent, and to any Lender, including all of Agent's
reasonable legal fees.
(i) No Default Certificate. Delivery of a certificate dated as
of the Closing Date executed by the Chief Executive Officer or the
Chief Financial Officer of the Borrower certifying to Agent and to
Lenders that no Default Condition or Event of Default exists.
(j) Other. Such other documents as Agent may reasonably
request.
SECTION 5.02 ALL BORROWINGS. The Lenders' obligation to extend credit
pursuant to this Agreement and to issue any Letter of Credit and the Swing Line
Lender's obligation to extend credit pursuant to this Agreement is subject to
the following additional Conditions Precedent which shall be met each time an
Advance under the Revolving Credit Loan (including the request for the issuance
of a Letter of Credit) and Advance under the Swing Line Loan is made:
(a) The representations of the Borrower contained in Article
IV are true and correct as of the date of the requested Advance, with
the same effect as though made on the date additional funds are
advanced; (b) There has been no material adverse change in the
Borrower's consolidated financial condition or other condition since
the date of the last borrowing hereunder; (c) No Default Conditions and
no Event of Default have
38
<PAGE> 45
occurred and continue to exist; (d) No material litigation (including,
without limitation, derivative actions), arbitration proceedings or
governmental proceedings not disclosed in writing by the Borrower to
the Agent prior to the date of the execution and delivery of this
Agreement is pending or known to be threatened against any of the
Consolidated Entities and no material development not so disclosed has
occurred in any litigation, arbitration proceedings or governmental
proceedings so disclosed, which could reasonably be expected to
adversely affect the financial position or business of the Consolidated
Entities taken as a whole or impair the ability of the Borrower to
perform its respective obligations under this Agreement or any other
Loan Documents.
ARTICLE VI. AFFIRMATIVE COVENANTS.
The Borrower covenants that, during the term of this Agreement
(including any extensions hereof) and until all indebtedness described herein
shall have been finally paid in full, unless the Required Lenders shall
otherwise first consent in writing, the Borrower shall:
SECTION 6.01 FINANCIAL STATEMENTS AND REPORTS. Promptly furnish to
Agent (with sufficient copies for distribution by Agent to each Lender):
(a) Annual Reports. As soon as available, and in any event
within one hundred (100) days after the close of each Fiscal Year of
the Borrower, the audited consolidated Financial Statements of the
Consolidated Entities setting forth the audited consolidated balance
sheets of the Consolidated Entities as at the end of such year, and the
audited consolidated statements of income, statements of cash flows,
and statements of retained earnings, along with supporting notes to
such consolidated Financial Statements, of the Consolidated Entities
for such year, setting forth in each case in comparative form
(beginning when comparative data are available) the corresponding
figures for the preceding Fiscal Year accompanied by the report of the
Borrower's certified public accountants and duly certified by the
Borrower's Chief Financial Officer as being correct reflections of the
information used for the audited consolidated Financial Statements. The
audit opinion in respect of the consolidated Financial Statements of
the Consolidated Entities shall be the unqualified opinion of one of
the nationally recognized firms of independent certified public
accountants acceptable to Agent and shall be accompanied by such
certificates as reasonably required by Agent;
(b) Quarterly and Year-to-Date Reports. As soon as available
and in any event within fifty (50) days after the end of each Fiscal
Quarter, the consolidated balance sheets of the Borrower as of the end
of such Fiscal Quarter, and the consolidated balance sheets and
consolidated statements of income and statements of cash flow of the
Borrower for such quarter and for a period from the beginning of the
Fiscal Year to the close of such Fiscal Quarter, all certified by the
chief financial officer or chief accounting officer of the Borrower as
being true and correct to the best of his or her knowledge;
39
<PAGE> 46
(c) Compliance Reports. As soon as available and in any event
within one hundred days (100) after the end of a Fiscal Year or within
fifty (50) days after the end of each Fiscal Quarter that is not the
end of a Fiscal Year, the calculations with supporting details by the
Borrower of the financial covenants contained in Article VII A herein,
all in a format similar to that described on Exhibit K hereto, along
with a certificate of compliance certified by the chief executive
officer or chief financial officer of the Borrower stating that such
officer has no knowledge of any Event of Default or Default Condition,
or if such officer has obtained such knowledge, disclosing the nature,
details, and period of existence of such event;
(d) SEC Filings and Public Information. Within ten (10) days
after such are filed with the Securities and Exchange Commission,
copies of all filings made (including Borrower's 8-K reports),
including the Borrower's 10-Q and 10-K reports; and
(e) Pro Forma Calculations. In the event that the Borrower
elects to calculate EBITDA on a Pro Forma basis, as permitted
hereunder, the Borrower shall provide to Agent and to each Lender at
the time it requests such calculation to be made on a Pro Forma basis,
the pro forma financial statements on which such calculations are
based.
(f) Consolidating Statements. As reasonably requested by Agent
or any Lender, the Borrower shall make available at its premises for
review to the Agent or any such Lender the Borrower's consolidating
balance sheets, statement of income, and statements of retained
earnings.
(g) Other Information. Promptly upon its becoming available,
such other material information, including, but not limited to,
material violations of environmental laws or regulations and important
matters relating to funding of employee benefit plans, about the
Consolidated Entities as a whole or the indebtedness described herein,
or such other information that any Lender through the Agent may
reasonably request from time to time.
All such balance sheets and other Financial Statements referred to in Sections
6.01(a) and (b) hereof shall conform to GAAP.
SECTION 6.02 ANNUAL CERTIFICATES OF COMPLIANCE. Concurrently with the
furnishing of the annual audited consolidated Financial Statements pursuant to
Section 6.01(a) hereof, furnish or cause to be furnished to Agent (with
sufficient copies for distribution to each Lender) a certificate of compliance
in a form reasonably satisfactory to Agent prepared by one of the nationally
recognized accounting firms stating that in making the examination necessary for
their audit they have obtained no knowledge of any Default Condition or Event of
Default, or event which, after notice or lapse of time (or both), would
constitute a Default Condition or Event of Default or, if they have obtained
such knowledge, disclosing the nature, details, and period of existence of such
event.
40
<PAGE> 47
SECTION 6.03 TAXES AND OTHER LIENS. Pay and discharge promptly all
taxes, assessments, and governmental charges or levies imposed upon any of the
Consolidated Entities or upon any of their respective income or Property as well
as all claims of any kind (including claims for labor, materials, supplies, and
rent) which, if unpaid, might become a Lien upon any Consolidated Entity's
Property; provided, however, that none of the Consolidated Entities shall be
required to pay any such tax, assessment, charge, levy, or claim if the amount,
applicability, or validity thereof shall currently be contested in good faith by
appropriate proceedings diligently conducted and if such of the Consolidated
Entities, as applicable, shall establish reserves therefor adequate under GAAP.
SECTION 6.04 MAINTENANCE.
(a) Except as otherwise provided herein, (i) continue to
engage in business of the same general type as conducted on the Closing
Date by the Consolidated Entities, taken as a whole, and (ii) maintain
and cause each Consolidated Entity to maintain its corporate,
partnership, joint venture, limited partnership, and/or limited
liability company existence, name, rights, and franchises;
(b) observe and comply and cause each Consolidated Entity to
observe and comply (to the extent necessary so that any failure will
not materially and adversely affect the business or Property of any of
the Consolidated Entities) with all applicable laws, environmental laws
and regulations, statutes, codes, acts, ordinances, orders, judgments,
decrees, injunctions, rules, regulations, certificates, franchises,
permits, licenses, authorizations, and requirements of all federal,
state, county, municipal, and other governments;
(c) maintain and cause each Consolidated Entity to maintain
its Property (and any Property leased by or consigned to it or held
under title retention or conditional sales contracts) in good and
workable condition at all times and make all repairs, replacements,
additions, and improvements to its Property reasonably necessary and
proper to ensure that the business carried on in connection with its
Property may be conducted properly and efficiently at all times; and
(d) maintain and cause each Consolidated Entity to maintain
ownership of, and all presently existing benefits and rights arising
from, their respective patents, trademarks, franchises, and other
intellectual property.
SECTION 6.05 FURTHER ASSURANCES. Promptly cure any defects in the
creation, issuance, and delivery of the Loan Documents. The Borrower at its
expense promptly will execute and deliver to Agent upon request all such other
and further documents, agreements, and instruments in compliance with or
accomplishment of the covenants and agreements of the Borrower in the Loan
Documents, or to correct any omissions in the Loan Documents, all as may be
reasonably necessary or appropriate in connection therewith.
41
<PAGE> 48
SECTION 6.06 PERFORMANCE OF OBLIGATIONS.
(a) Pay the indebtedness described herein according to the
terms of the Loan Documents; and
(b) do and perform, and cause to be done and to be performed,
every act and discharge all of the obligations provided to be performed
and discharged by the Borrower under the Loan Documents, at the time or
times and in the manner specified.
SECTION 6.07 INSURANCE. Maintain and continue to maintain, and cause
each Consolidated Entity to maintain and continue to maintain, with financially
sound and reputable insurers, insurance satisfactory in type, coverage and
amount to Agent against such liabilities, casualties, risks, and contingencies
and in such types and amounts as is customary in the case of corporations
engaged in the same or similar businesses and similarly situated. Upon request
of any Lender, through the Agent, the Borrower will furnish or cause to be
furnished to Agent from time to time a summary of the insurance coverage of the
Consolidated Entities in form and substance satisfactory to Agent and if
requested will furnish each Lender copies of the applicable policies.
SECTION 6.08 ACCOUNTS AND RECORDS. Keep books of record and account, in
which full, true, and correct entries will be made of all dealings or
transactions in accordance with GAAP, except only for changes in accounting
principles or practices with which the Borrower's certified public accountants
concur and which changes have been reported to Agent in writing and with an
explanation thereof.
SECTION 6.09 RIGHT OF INSPECTION. Permit and cause each Consolidated
Entity to permit any officer, employee, or agent of Agent or any Lender as may
be designated by Agent to visit and inspect any of the Property of any of the
Consolidated Entities, to examine the books of record and accounts of any of the
Consolidated Entities (including consolidating statements of the Borrower), and
to discuss the affairs, finances, and accounts of any of the Consolidated
Entities with the respective officers, accountants, and auditors of any of the
Consolidated Entities, all at such reasonable times and as often as Agent may
reasonably desire.
SECTION 6.10 NOTICE OF CERTAIN EVENTS. Promptly notify Agent if the
Borrower learns of the occurrence of (i) any event that constitutes a Default
Condition or Event of Default together with a detailed statement by a
responsible officer of the steps being taken as a result thereof; or (ii) the
receipt of any notice from, or the taking of any other action by, the holder of
any promissory note, debenture, or other evidence of Debt of any of the
Consolidated Entities with respect to a claimed default, together with a
detailed statement by a responsible officer of the respective Consolidated
Entity specifying the notice given or other action taken by such holder and the
nature of the claimed default and what action the affected Consolidated Entity
is taking or proposes to take with respect thereto; or (iii) any legal,
judicial, or regulatory proceedings, including, but not limited to,
environmental matters, affecting any of the Consolidated Entities in which the
amount involved is material and is not adequately covered by
42
<PAGE> 49
insurance or which, if adversely determined, would have a material and adverse
effect on the business or the financial condition of the Consolidated Entities
taken as a whole; or (iv) any dispute between any of the Consolidated Entities
and any governmental or regulatory authority or any other Person, entity, or
agency which, if adversely determined, might interfere with the normal business
operations of the Consolidated Entities taken as a whole; or (v) any material
adverse changes, either individually or in the aggregate, in the assets,
liabilities, financial condition, business, operations, affairs, or
circumstances of any of the Consolidated Entities from those reflected in the
Financial Statements or from the facts warranted or represented in any Loan
Document.
SECTION 6.11 ERISA INFORMATION AND COMPLIANCE. Comply and cause each of
the Consolidated Entities to comply with ERISA and all other applicable laws
governing any pension or profit sharing plan or arrangement to which any of the
Consolidated Entities is a party, provided that no Event of Default or Default
Condition shall be deemed to have occurred unless the failure to comply with
ERISA or such other laws governing any pension or profit sharing plan or
arrangement has a material, adverse impact on the financial condition of the
Consolidated Entities taken as a whole. The Borrower shall provide and shall
cause each of the Consolidated Entities to provide Agent with notice of any
"reportable event" or "prohibited transaction" or the imposition of a
"withdrawal liability" within the meaning of ERISA.
SECTION 6.12 MANAGEMENT. Give immediate notice to Agent of any material
change in the composition of Persons comprising the senior management or the
executive committee of the Borrower.
SECTION 6.13 ADDITIONAL GUARANTIES. At the same time that any of the
Consolidated Entities acquires any Person that is or becomes a Consolidated
Entity, the Borrower shall cause such new Consolidated Entity to execute a
Guaranty in the form of the Guaranties executed by the Guarantors, and to
deliver to Agent such Guaranties and other documents, instruments and items with
respect thereto that are similar to those documents, instruments and items
delivered by the Guarantors with regard to their Guaranties; provided that if
the Borrower or any Consolidated Entity acquires a foreign Consolidated Entity
that is prohibited by law from executing a Guaranty, then and in such event, the
Borrower shall cause 65% of the outstanding common, voting stock of such foreign
Consolidated Entity to be pledged and delivered to Agent for the benefit of
Lenders pursuant to the Security Documents. Additionally, in such case upon
Agent's request, the Borrower shall cause the Agent to receive a counsel's
opinion letter issued by counsel acceptable to Agent regarding such matters
involving such Consolidated Entity as may be required by Agent. Immediately upon
any Person becoming a Consolidated Entity, the Borrower shall give notice
thereof to Agent. The Borrower shall pay the costs and expenses, including
without limitation, the Agent's legal fees and expenses, in connection with the
preparation, negotiation, execution and review of the Guaranty of such
Consolidated Entity and the other items described in this Section.
The provisions of this Section 6.13 shall not apply to Future
University, Inc. in the event that it becomes a Consolidated Entity until and
unless: (i) the Borrower or any other
43
<PAGE> 50
Consolidated Entity acquires one hundred percent (100%) ownership of the common
stock of Future University, Inc., or (ii) any Consolidated Entity makes loans or
advances to Future University, Inc.
SECTION 6.14 EQUITY PROCEEDS. Give to Agent five (5) Business Days
prior notice of any proposed transaction intended to raise Equity Proceeds.
ARTICLE VII. NEGATIVE COVENANTS.
The Borrower covenants and agrees that, during the term of this
Agreement and any extensions hereof and until the indebtedness described herein
has been paid and satisfied in full, unless Required Lenders shall otherwise
first consent in writing, the Borrower will not, either directly or indirectly,
and will not allow any of the Consolidated Entities to:
SECTION 7.01 DEBTS, GUARANTEES, AND OTHER OBLIGATIONS. Except as
otherwise set forth in this Agreement, incur, create, assume, or in any manner
become or be liable with respect to any Debt; provided that subject to all other
provisions of this Article VII, the foregoing prohibitions shall not apply to:
(a) any indebtedness owed to Lenders and to the Swing Line
Lender as set forth in this Agreement;
(b) endorsements of negotiable or similar instruments for
collection or deposit in the ordinary course of business;
(c) trade payables, accruals, deferrals or similar obligations
and liabilities (other than for borrowed money or purchase money
obligations) from time to time incurred or accrued in the ordinary
course of business not to exceed amounts historically and customarily
incurred or accrued by any Consolidated Entity;
(d) taxes, assessments, or other governmental charges that are
not yet assessed or are being contested in good faith by appropriate
action promptly initiated and diligently conducted, if the appropriate
Consolidated Entity shall have made any reserve therefor required by
GAAP;
(e) indebtedness owed or guaranties provided by the Guarantors
to the Borrower, or indebtedness owed or guaranties provided by the
Guarantors to each other, or indebtedness owed or guaranties provided
by the Borrower to the Guarantors;
(f) Seller Notes not to exceed $20,000,000 in the aggregate
outstanding principal balance at any one time;
(g) Private Placement Debt up to $75,000,000 in the aggregate;
and
44
<PAGE> 51
(h) Total Funded Debt to others, excluding Seller Notes and
Private Placement Debt, that does not exceed the lesser of (i) five
percent (5%) of Consolidated Net Worth, or (ii) $20,000,000 in the
aggregate for all Consolidated Entities.
SECTION 7.02 LIENS. Create, incur, assume, or permit to exist any Lien
on any of their respective Property (real, personal, or mixed now owned or
hereafter acquired) except, subject to all other provisions of this Article, the
foregoing restrictions shall not apply to:
(a) Liens securing the payment of any of the indebtedness
described in this Agreement; and
(b) Permitted Encumbrances.
SECTION 7.03 INVESTMENTS, LOANS, AND ADVANCES. Make or permit to remain
outstanding any loans or advances to or investments in any Person in an
aggregate amount in excess of $2,000,000, except that, subject to all other
provisions of this Article, the foregoing restriction shall not apply to:
(a) investments in direct obligations of the United States of
America or any agency thereof having maturities of less than one year;
(b) investments in direct obligations of any political
subdivisions of the United States of America or any State of the United
States of America having a senior unsecured senior debt rating from
Standard and Poor's Corporation or Moody's Investors Services, Inc. of
AA or better and having maturities of less than one year;
(c) investments in commercial paper rated A-2 or higher by
Standard and Poor's Corporation or P-2 or higher by Moody's Investors
Services, Inc., or upon the discontinuance or either or both of such
services, the highest credit of any other nationally recognized rating
service;
(d) investments in bankers' acceptances and certificates of
deposit having maturities of less than one year, or repurchase
agreements issued by commercial banks in the United States of America
having capital and surplus in excess of $50,000,000, or commercial
paper of the highest quality;
(e) investments in money market funds so long as the fund is
rated or so long the fund is a fund operated by a commercial bank of
the type specified in (d) above;
(f) tax exempt cash equivalents secured by a standby letter of
credit (issued by a bank with single "A" or better rating by Standard &
Poor's Corporation or A2 or better rating by Moody's Investors
Services, Inc.) or by credit insurance sufficient to obtain a "AAA"
rating by Standard & Poor's Corporation or Aaa by Moody Investors
Services, Inc. or having an underlying credit rating of single "A" or
better rating by
45
<PAGE> 52
Standard & Poor's Corporation or A2 or better rating by Moody's
Investors Services, Inc.;
(g) advances to officers and employees of Borrower made in the
ordinary course of business and not in excess of amounts customarily
and historically loaned to such officers and employees;
(h) the endorsement of negotiable or similar instruments in
the ordinary course of business;
(i) investments in stock of any existing Subsidiary;
(j) investments in the form of stock purchases incurred in
Acquisitions permitted by Section 7.12 herein;
(k) investments received in settlement of debt owed to any
Consolidated Entity and incurred in the ordinary course of business;
and
(l) investments in, and loans or advances to, all Consolidated
Entities.
SECTION 7.04 DISTRIBUTIONS, AND REDEMPTIONS; ISSUANCE OF STOCK. (a)
Purchase, redeem, or otherwise acquire for value any of its stock now or
hereafter outstanding, provided that the Borrower may be permitted to redeem up
to 2% of its outstanding Voting Stock in any Fiscal Year, (b) return any capital
to its stockholders, or (c) make any distribution of its assets to its
stockholders as such; provided that these restrictions shall not be deemed to
restrict the Borrower's ability to issue dividends in the ordinary course of
business so long as no Event of Default or Default Condition exists or would
exist immediately after such dividends have been made.
SECTION 7.05 SALES AND LEASEBACKS. If such transaction has a reasonable
likelihood of causing a material, adverse effect on the financial condition of
the Consolidated Entities, enter into any arrangement, directly or indirectly,
with any Person by which any Consolidated Entity shall sell or transfer any
material portion of its Property, whether now owned or hereafter acquired, and
by which any Consolidated Entity shall then or thereafter rent or lease as
lessee such Property or any part thereof or other Property that such
Consolidated Entity intends to use for substantially the same purpose or
purposes as the Property sold or transferred.
SECTION 7.06 NATURE OF BUSINESS. Suffer or permit any material change
to be made in the character of the business in which the Consolidated Entities
are presently engaged in as a whole.
SECTION 7.07 MERGERS, CONSOLIDATIONS, ETC. Merge, consolidate or
reorganize with or into, or sell, assign, lease, transfer, or otherwise dispose
of (whether in one transaction or in a series of transactions) all or
substantially all of its Property (whether now owned or hereafter
46
<PAGE> 53
acquired) to, or become an Affiliate of, any Person; provided, however, so long
as no Event of Default and no Default Condition has occurred or will occur
immediately thereafter as a result of such: (a) any Consolidated Entity other
than the Borrower may transfer assets to the Borrower or to any other
Consolidated Entity; (b) the Borrower may merge, reorganize or consolidate with
any Person as long as, after giving effect to any such merger, reorganization or
consolidation the Borrower is the surviving corporation; and (c) excluding the
Borrower, any other Consolidated Entity may merge into another Consolidated
Entity.
SECTION 7.08 PROCEEDS OF LOAN. Permit the proceeds of the Advances to
be used for any purpose other than those permitted under this Agreement.
SECTION 7.09 DISPOSITION OF ASSETS. Dispose of any of the assets of any
of the Consolidated Entities other than in the ordinary course of such of the
Consolidated Entities' (as applicable) present business upon terms standard in
such of the Consolidated Entities' (as applicable) industry; provided that this
restriction shall not prohibit any of the Consolidated Entities from disposing
of any portion of its assets if such disposition does not have a material,
adverse effect on the financial or other condition of the Consolidated Entities
taken as a whole, and provided that this restriction shall not prohibit any
Consolidated Entity from transferring its assets to the Borrower or to another
Consolidated Entity (excluding Future University, Inc. until such time as Future
University, Inc. becomes a Guarantor).
SECTION 7.10 LIMITATION ON BUSINESS. Engage in any business other than
the business in which the Consolidated Entities are currently primarily engaged
as a whole as of this Agreement, nor transact business between Borrower and/or
any other Consolidated Entity except on an arm's length basis for fair
consideration.
SECTION 7.11 INCONSISTENT AGREEMENTS. Enter into any agreement
containing any provision which would be violated or breached by the performance
by the Borrower of its obligations.
SECTION 7.12 ACQUISITIONS. Make any Acquisition in which consideration
paid or given exceeds $15,000,000, provided that the consideration paid or given
by one Consolidated Entity in the acquisition of another Consolidated Entity
shall not be included in the calculation of this covenant.
SECTION 7.13 ADVANCES TO FUTURE UNIVERSITY, INC. Make any loans or
advances of monies funded under the Revolving Credit Loans to Future University,
Inc. until Future University, Inc. becomes a Guarantor.
47
<PAGE> 54
ARTICLE VII.A. FINANCIAL COVENANTS.
The Borrower covenants and agrees that, during the term of this
Agreement and any extensions hereof and until the indebtedness described herein
has been paid and satisfied in full, unless Majority Lenders shall otherwise
first consent in writing, the Borrower will not:
SECTION 7A.01 FINANCIAL COVENANTS.
(a) Minimum Net Worth. Permit the Consolidated Net Worth to be
less than a minimum amount equal to: (i) $142,000,000, plus (ii) on a
quarterly basis for each Fiscal Quarter beginning with the first Fiscal
Quarter for the 1998 Fiscal Year, a cumulative amount equal to 75% of
quarterly Consolidated Net Income, plus (iii) 100% of the net proceeds
of any Equity Proceeds raised subsequent to Closing Date. For the
purpose of this calculation, Consolidated Net Income shall never be
less than 0.
(b) Total Funded Debt to EBITDA. Permit the ratio of Total
Funded Debt of the Consolidated Entities divided by EBITDA to exceed a
ratio of 3.0 to 1.0 calculated as of the end of each Fiscal Quarter on
a trailing four quarter basis.
(c) Total Funded Debt to Capitalization. Permit the ratio of
Total Funded Debt of the Consolidated Entities to Capitalization to
exceed .45 to 1.0 at any time, all as determined at the end of each
Fiscal Quarter.
(d) Fixed Charge Coverage Ratio. Permit the ratio of EBITAR of
the Consolidated Entities to Fixed Charges, as calculated at the end of
each Fiscal Quarter on a trailing four quarter basis, to be less than
2.5 to 1.0 at any time.
ARTICLE VIII. EVENTS OF DEFAULT.
SECTION 8.01 EVENTS OF DEFAULT. Any of the following events shall be
considered an Event of Default as those terms are used in this Agreement:
(a) Principal and Interest Payments. The Borrower fails to
make payment by of principal when due in accordance with the terms of
the Loan Documents or the Borrower fails to pay within five (5) days
when due any payment of interest or any other amount when due in
accordance with the terms of the Loan Documents; or
(b) Representations and Warranties. Any representation or
warranty made by the Borrower in any Loan Document is incorrect in any
material respect as of the date thereof; or any representation,
statement (including Financial Statements), certificate, or data
furnished or made by the Borrower in any Loan Document with respect to
any indebtedness is untrue in any material respect, as of the date as
of which the facts therein set forth were stated or certified; or
48
<PAGE> 55
(c) Obligations. The Borrower fails to perform any of its
respective obligations as required by and contained in any Loan
Document or a breach or violation occurs under any of the promises,
agreements, or covenants contained herein and such breach or violation
is not cured within thirty (30) days after the earlier of (i) any
officer of the Borrower obtaining knowledge thereof, or (ii) the
delivery of written notice by Agent to Borrower, provided and except
that such thirty (30) day cure period shall not apply and an Event of
Default shall be deemed to exist without opportunity to cure upon the
breach or violation of any of the following articles and sections of
this Agreement: Section 6.04(a)(i), 6.10, 6.11, 6.12, 6.13, 6.14,
Article VII, and Article VII.A; or
(d) Involuntary Bankruptcy or Receivership Proceedings. A
receiver, custodian, liquidator, or trustee of the Borrower or any of
the Guarantors, or of any of their respective Property, is appointed by
the order or decree of any court or agency or supervisory authority
having jurisdiction; or the Borrower or any of the Guarantors is
adjudicated bankrupt or insolvent; or any of the Property of the
Borrower or any of the Guarantors is sequestered by court order; or a
petition is filed against the Borrower or any of the Guarantors under
any state or federal bankruptcy, reorganization, debt arrangement,
insolvency, readjustment of debt, dissolution, liquidation, or
receivership law of any jurisdiction, whether now or hereafter in
effect, which petition is not dismissed within sixty (60) days after it
has been filed; or
(e) Voluntary Petitions. The Borrower or any of the Guarantors
takes affirmative steps to prepare to file, or the Borrower or any of
the Guarantors files a petition in voluntary bankruptcy or to seek
relief under any provision of any bankruptcy, reorganization, debt
arrangement, insolvency, readjustment of debt, dissolution, or
liquidation law of any jurisdiction, whether now or hereafter in
effect, or consents to the filing of any petition against it under any
such law; or
(f) Assignments for Benefit of Creditors, Etc. The Borrower or
any of the Guarantors makes an assignment for the benefit of its
creditors, or admits in writing its inability to pay its debts
generally as they become due, or consents to the appointment of a
receiver, trustee, or liquidator of the Borrower or any of the
Guarantors or of all or any part of their respective Properties; or
(g) Undischarged Judgments. If a final, non-appealable
judgment for the payment of money in excess of $500,000 is rendered by
any court or other governmental authority against the Borrower or any
of the Guarantors which is not fully covered by valid collectible
insurance, or if any judgment by any court or governmental authority is
entered against the Borrower, any of the Guarantors, or any Property of
the Borrower or the Guarantors, which judgment has a material adverse
affect on the Borrower or any of the Guarantors and which judgment is
not discharged, stayed, or deferred for sixty (60) days after date of
entry; or
49
<PAGE> 56
(h) Violation of Laws, Etc. The Borrower or any of the
Guarantors violates or otherwise fails to comply with any law, rule,
regulation, decree, order, or judgment under the laws of the United
States of America, or of any state or jurisdiction thereof the effect
of which has a material and adverse impact on the Borrower or any of
the Guarantors; or Borrower or any of the Guarantors fails or refuses
at any and all times to remain current in its or their financial
reporting requirements pursuant to such laws, rules, and regulations or
pursuant to the rules and regulations of any exchange upon which the
shares of the Borrower or any Guarantors are traded; or
(i) Execution of Guaranty by a Consolidated Entity. Should any
Consolidated Entity not execute and deliver to Agent the guaranty and
other items required by Section 6.13 herein; or
(j) ERISA Liability. The Borrower or any of the Guarantors
incurs any liability under ERISA that has a material adverse effect on
the financial condition or other condition of the Borrower or any of
the Guarantors; or
(k) Change of Ownership. More than thirty percent (30%) of the
outstanding common stock of Borrower becomes owned by any Control Group
who does now own more than thirty percent (30%) of the outstanding
Voting Stock; or
(l) Executive Committee. Alan Sielbeck or Ron Smith no longer
serve on the Borrower's executive committee; or
(m) Default to Other Persons. A default, breach, or event of
default occurs under any promissory note for an amount in excess of
$500,000 issued by Borrower or any Guarantor to any Person or a
default, breach, or event of default occurs under any agreement between
Borrower or any Guarantor and any Person involving Debt of $500,000 or
more, the effect of which is to permit or cause the Person to
accelerate such indebtedness and to demand payment thereof, provided,
that an Event of Default shall not be deemed to have occurred if the
Borrower or any Guarantor in good faith is contesting by appropriate
proceedings the demand and acceleration and if the Borrower or
Guarantor, as applicable, has established an appeal bond (if
appropriate), cash bonds, sureties, bonds, or cash reserves in such
amounts as reasonably required by Agent or in the case of an appeal
bond, as required by law.
SECTION 8.02 REMEDIES. Upon the happening of any Event of Default set
forth above, with the exception of those events set forth in Section 8.01(d) and
8.01(e): (i) Agent, acting pursuant to Lenders' direction as set forth in
Article XII, may declare the entire principal amount of all indebtedness then
outstanding, including interest accrued thereon, to be immediately due and
payable without presentment, demand, protest, notice of protest, or dishonor or
other notice of default of any kind, all of which the Borrower hereby expressly
waives, (ii) Agent, acting pursuant to Lenders' direction as set forth in
Article XII may terminate and cancel all obligations of the Lenders (including
the Swing Line Lender) under this
50
<PAGE> 57
Agreement unless and until the Lenders (including the Swing Line Lender) shall
reinstate such obligations in writing; or (iii) Agent, acting pursuant to
Lenders' direction as set forth in Article XII, may bring an action to protect
or enforce the rights of the Agent and the Lenders (including the Swing Line
Lender) under the Loan Documents or seek to collect the indebtedness described
herein by any lawful means.
Upon the happening of any event specified in Section 8.01(d) and
Section 8.01(e) above: (i) all indebtedness described herein, including all
principal, accrued interest, and other charges or monies due in connection
therewith shall be immediately and automatically due and payable in full,
without presentment, demand, protest, or dishonor or other notice of any kind,
all of which the Borrower hereby expressly waives, (ii) all obligations of
Lenders (including the Swing Line Lender) under this Agreement shall immediately
cease and terminate unless and until each of the Lenders (including the Swing
Line Lender) shall reinstate such obligations in writing; or (iii) Agent, acting
pursuant to Lenders' direction as set forth in Article XII, may bring an action
to protect or enforce their rights under the Loan Documents or seek to collect
the indebtedness described herein and/or enforce the obligations evidenced
herein by any lawful means.
SECTION 8.03 DEFAULT CONDITIONS. Any of the following events shall be
considered a Default Condition:
(a) The Borrower suffers a material adverse change in its
financial condition; or
(b) Should any event occur that except for the giving of
notice and/or the passage of time would be an Event of Default.
Upon the occurrence of a Default Condition or at any time thereafter
until such Default Condition no longer exists, the Borrower agrees that subject
to Article XII, the Agent and the Lenders (including the Swing Line Lender), in
their sole discretion, and without notice to the Borrower, may immediately cease
making any Advances, all without liability whatsoever to the Borrower or any
other Person whomsoever, all of which is expressly waived hereby. The Borrower
releases the Lenders (including the Swing Line Lender) and the Agent from any
and all liability whatsoever, whether direct, indirect, or consequential, and
whether seen or unforeseen, resulting from or arising out of or in connection
with Lenders' determination to cease making Advances pursuant to this Section.
ARTICLE IX. GENERAL PROVISIONS.
SECTION 9.01 NOTICES. All communications under or in connection with
this Agreement or any of the other Loan Documents shall be in writing and shall
be mailed by first class certified mail, postage prepaid, or otherwise sent by
telex, telegram, telecopy, or other similar form of rapid transmission confirmed
by mailing (in the manner stated above) a written confirmation at substantially
the same time as such rapid transmission, or personally delivered
51
<PAGE> 58
to an officer of the receiving party. All such communications shall be mailed,
sent, or delivered as follows:
(a) if to the Borrower, to its address shown below, or to such
other address as Borrower may have furnished to Agent in writing:
Mr. Anthony M. Schofield
Chief Financial Officer
Service Experts, Inc.
111 Westwood Place
Suite 420
Brentwood, Tennessee 37027
or after May 15, 1998
Mr. Anthony M. Schofield
Chief Financial Officer
Service Experts, Inc.
6 Cadillac Drive
Suite 400
Brentwood, Tennessee 37027
(b) if to Agent, to its address shown below, or to such other
address or to such individual's or department's attention as it may
have furnished the Borrower in writing:
SunTrust Bank, Nashville, N.A., Agent
201 Fourth Avenue, North
Nashville, Tennessee 37219
Attention: Allen Oakley
(c) if to Lenders, to the address of each of the Lenders as
shown beside the respective signature of each of the Lenders.
Any communication so addressed and mailed by certified mail shall be deemed to
be given when so mailed.
SECTION 9.02 INVALIDITY. In the event that any one or more of the
provisions contained in any Loan Document for any reason shall be held invalid,
illegal, or unenforceable in any respect, such invalidity, illegality, or
unenforceability shall not affect any other provision of any Loan Document.
52
<PAGE> 59
SECTION 9.03 SURVIVAL OF AGREEMENTS. All representations and warranties
of the Borrower in this Agreement and all covenants and agreements in this
Agreement not fully performed before the Closing Date of this Agreement shall
survive the Closing Date.
SECTION 9.04 SUCCESSORS AND ASSIGNS. The Borrower may not assign its
respective rights or delegate duties under this Agreement or any other Loan
Document. All covenants and agreements contained by or on behalf of the Borrower
in any Loan Document shall bind the Borrower's successors and assigns and shall
inure to the benefit of the Agent, each Lender, the Swing Line Lender, and their
respective successors and assigns.
SECTION 9.05 WAIVERS. Pursuant to T.C.A. Section 47-50-112, no action
or course of dealing on the part of Agent or any Lender or the Swing Line
Lender, their respective officers, employees, consultants, or agents, nor any
failure or delay by Agent or any Lender or the Swing Line Lender with respect to
exercising any right, power, or privilege of Agent or any Lender or the Swing
Line Lender under any of the Loan Documents shall operate as a waiver thereof,
except as otherwise provided in this Agreement. Acting pursuant to the
requirements of Article XII herein, Agent may from time to time waive any
requirement hereof, including any of the Conditions Precedent; however no waiver
shall be effective unless in writing and signed by the Agent. The execution by
Agent of any waiver shall not obligate Agent or any Lender or the Swing Line
Lender to grant any further, similar, or other waivers.
SECTION 9.06 CUMULATIVE RIGHTS. Rights and remedies of Agent or any
Lender or the Swing Line Lender under each Loan Document shall be cumulative,
and the exercise or partial exercise of any such right or remedy shall not
preclude the exercise of any other right or remedy.
SECTION 9.07 GOVERNING LAW. This Agreement and the other Loan Documents
constitute a contract made under and shall be construed in accordance with and
governed by the laws of the State of Tennessee.
SECTION 9.08 TIME OF ESSENCE. Time is of the essence with regard to
each and every provision of this Agreement.
SECTION 9.09 COSTS, EXPENSES, AND TAXES. The Borrower agrees to pay on
demand all reasonable out-of-pocket costs and expenses of Agent (including the
reasonable fees and out-of-pocket expenses of counsel for Agent) incurred by
Agent in connection with the preparation, execution, delivery, administration,
enforcement, or protection of Agent's or any Lender's or Swing Line Lender's
rights under the Loan Documents (including any suit for declaratory judgment or
interpretation of the provisions hereof).
SECTION 9.10 ENTIRE AGREEMENT; NO ORAL REPRESENTATIONS LIMITING
ENFORCEMENT. This Agreement represents the entire agreement between the parties
hereto except for such other agreements set forth in the Loan Documents, and any
and all oral statements heretofore made regarding the matters set forth herein
are merged herein.
53
<PAGE> 60
SECTION 9.11 AMENDMENTS. The parties hereto agree that this Agreement
may not be modified or amended except in writing signed by the parties hereto.
SECTION 9.12 DISTRIBUTION OF INFORMATION. The Borrower hereby
authorizes the Agent and each Lender (including the Swing Line Lender), as the
Agent and each Lender (including the Swing Line Lender) may elect in its sole
discretion, to discuss with and furnish to any Affiliate, to any government or
self-regulatory agency with jurisdiction over the Agent and each Lender
(including the Swing Line Lender), or to any participant or prospective
participant, all financial statements, audit reports and other information
pertaining to the Borrower, the Guarantors, and/or the Consolidated Entities,
whether such information was provided by the Borrower or prepared or obtained by
the Agent or third parties. Neither the Agent nor any of its employees,
officers, directors or agents make any representation or warranty regarding any
audit reports or other analyses of the Borrower which the Agent may elect to
distribute, whether such information was provided by the Borrower or prepared or
obtained by the Agent or third parties, nor shall the Agent or any of its
employees, officers, directors or agents be liable to any Person receiving a
copy of such reports or analyses for any inaccuracy or omission contained in
such reports or analyses or relating thereto.
ARTICLE X. JURY WAIVER.
SECTION 10.01 JURY WAIVER. IF ANY ACTION OR PROCEEDING INVOLVING THIS
LOAN AGREEMENT OR ANY LOAN DOCUMENT IS COMMENCED IN ANY COURT OF COMPETENT
JURISDICTION, THE BORROWER, AGENT, AND EACH LENDER (INCLUDING THE SWING LINE
LENDER) HEREBY WAIVE THEIR RIGHTS TO DEMAND A JURY TRIAL.
ARTICLE XI. HAZARDOUS SUBSTANCES.
SECTION 11.01 REPRESENTATION AND INDEMNITY REGARDING HAZARDOUS
SUBSTANCES.
(a) The Borrower has no knowledge of any spills, releases,
discharges, or disposal of Hazardous Substances that have occurred or
are presently occurring on or onto any of its Property or on any of the
Property of any Consolidated Entity; or of any spills or disposal of
Hazardous Substances that have occurred or are occurring off any of its
Property (or the Property of any Consolidated Entity) as a result of
any construction on or operation and use of such Property; in each case
under this paragraph (a) so as to violate any Environmental Law in a
manner that would have a material adverse effect on the business,
Properties or financial condition of the Borrower or the Consolidated
Entities or on the ability of the Borrower or the Guarantors to perform
their respective obligations under this Agreement or any of the other
Loan Documents.
54
<PAGE> 61
(b) The Borrower represents that its Property and any current
operation concerning its Property (and the Property of any of the
Consolidated Entities) and its business operations are not in violation
of any applicable Environmental Law, and the Borrower has no actual
knowledge or any notice from any governmental body claiming that such
Property or such business operations or operations or uses of the
Property have or may result in any violation of any Environmental Law
or requiring or calling attention to the need for any work, repairs,
corrective actions, construction alterations or installation on or in
connection with the Property or any of the Borrower's business in order
to comply with any Environmental Law with which Borrower has not
complied, in each case under this paragraph (b) wherein such violation
would have a material adverse effect on the business, Properties, or
financial condition of the Borrower and/or any of the Consolidated
Entities. If there are any such notices which would have such effect
with which the Borrower has not complied, the Borrower shall provide
Agent with copies thereof. If the Borrower receives any such notice
which would have such effect, the Borrower will immediately provide a
copy to Agent.
(c) The Borrower agrees to indemnify and hold Agent and each
of the Lenders (including the Swing Line Lender) harmless from and
against any and all claims, demands, damages, losses, liens,
liabilities, penalties, fines, lawsuits, and other proceedings, costs
and expenses (including, without limitation, reasonable attorneys'
fees), arising directly or indirectly from or out of, or in any way
connected with (i) the presence of any Hazardous Substances on any of
the Property of any Consolidated Entity in violation of any
Environmental Law; (ii) any violation or alleged violation of any
Environmental Law relating to Hazardous Substances on any of the
Property of any Consolidated Entity, whether attributable to events
occurring before or after Borrower's acquisition of any of its Property
or the acquisition of such property by any Consolidated Entity; (iii)
any violation of any Environmental Law by any of the Consolidated
Entities resulting from the conduct of its business, use of its
Property, or otherwise; or (iv) any inaccuracy in the certifications
contained in Section 11.01(a).
ARTICLE XII. THE AGENT.
SECTION 12.01 APPOINTMENT OF AGENT. Each Lender hereby designates STB
as Agent to administer all matters concerning the Loans and to act as herein
specified. Each Lender hereby irrevocably authorizes, and each holder of any
Revolving Credit Note, Foreign Currency Note, or Competitive Bid Note by the
acceptance of any such promissory note shall be deemed irrevocably to authorize,
the Agent to take such actions on its behalf under the provisions of this
Agreement, the other Loan Documents and all other instruments and agreements
referred to herein or therein, and to exercise such powers and to perform such
duties hereunder and thereunder as are specifically delegated to or required of
the Agent by the terms hereof and thereof and such other powers as are
reasonably incidental thereto. The Agent may perform any of its duties hereunder
by or through its agents or employees. The Lenders agree that neither the Agent
nor any of its directors, officers, employees, or agents shall be liable for any
action
55
<PAGE> 62
taken or omitted to be taken by it or them hereunder or in connection herewith,
except for its or their own gross negligence or willful misconduct. The Lenders
agree that the Agent shall not have any duties or responsibilities, except those
expressly set forth herein, or any fiduciary relationship with any of the
Lenders, and no implied covenants, functions, responsibilities, duties,
obligations or liabilities shall be read into this Agreement or otherwise be
imposed upon or exist against the Agent.
SECTION 12.02 AUTHORIZATION OF AGENT WITH RESPECT TO THE LOAN
DOCUMENTS. (a) Each Lender hereby authorizes the Agent to enter into each of the
Loan Documents and to take all action contemplated thereby, all in its capacity
as Agent for the ratable benefit of the Lenders. All rights and remedies under
the Loan Documents may be exercised by the Agent for the benefit of the Agent
and the Lenders upon the terms thereof. The Lenders further agree that the Agent
may assign its rights and obligations under any of the Loan Documents to any
Affiliate of the Agent, if necessary or appropriate under applicable law, which
assignee in each such case shall (subject to compliance with any requirements of
applicable law governing the assignment of such Loan Documents) be entitled to
all the rights of the Agent under and with respect to the applicable Loan
Document.
(b) The Agent shall administer the Loans described herein and the Loan
Documents on behalf of and for the benefit of the Lenders in all respects
as if the Agent were the sole Lender under the Loan Documents, except that:
(i) The Agent shall administer the Loans and the Loan Documents
with a degree of care at least equal to that customarily employed by
the Agent in the administration of similar credit facilities for its
own account.
(ii) The Agent shall not, without the consent of the Majority
Lenders, take any of the following actions:
(A) agree to a waiver of any material requirements,
covenants, or obligations of the Borrower or any of the
Guarantors contained herein;
(B) agree to any amendment to or modification of any of the
terms of any of the Loan Documents, except Agent may agree to
amendments and modifications to the Swing Line Note with only the
consent of the Swing Line Lender;
(C) waive any Event of Default or Default Condition as set
forth in this Agreement;
(D) accelerate the indebtedness described in this Agreement
following an Event of Default; or
56
<PAGE> 63
(E) initiate litigation or pursue other remedies to enforce
the obligations contained in any Loan Document or to collect the
indebtedness described herein.
(iii) The Agent shall not, without the consent of all of the
Lenders, take any of the following actions:
(A) increase or extend any Revolving Credit Loan Commitment,
or the Maximum Total Amount;
(B) extend the maturity of any payment of principal of or
interest on the indebtedness described herein;
(C) reduce any fees paid to or for the benefit of Lenders
under this Agreement;
(D) reduce the rate of interest charged on the indebtedness
described herein;
(E) release any Guaranty;
(F) waive, amend, modify or change the Conditions Precedent;
(G) postpone any date fixed for the payment in respect of
principal of, or interest on the indebtedness described herein,
or any fees hereunder;
(H) modify the definition of Majority Lenders; or
(I) modify this Section 12.02(b)(iii).
(iv) The Agent shall use its best efforts to distribute to
Lenders copies of Financial Statements and other material writings and
documents delivered to Agent by Borrower within three (3) Business
Days after receipt thereof; provided, however, the Agent shall have no
liability for failure to comply with this provision.
(c) The Agent, upon its receipt of actual notice thereof, shall notify
the Lenders of: (i) each proposed action that would require the consent of
the Lenders as set forth herein, or (ii) any action proposed to be taken by
the Agent in the administration of the Loans and Loan Documents not in the
ordinary course of business; provided that any failure of the Agent to give
the Lenders any such notice shall not alone be the basis for any liability
of the Agent to the Lenders except for the Agent's gross negligence or
willful misconduct.
57
<PAGE> 64
(d) The Lenders agree that the Agent shall incur no liability under or
in respect of this Agreement with respect to anything which it may do or
refrain from doing in the reasonable exercise of its judgment or which may
seem to it to be necessary or desirable in the circumstances, except for
its gross negligence or willful misconduct. Agent shall incur no liability
to any of the Lenders for giving consent on behalf of the Lenders when
under the terms of this Agreement consent may not be unreasonably withheld.
(e) The Agent shall not be liable to the Lenders or to any Lender in
acting or refraining from acting under this Agreement or any other Loan
Document in accordance with the instructions of the Majority Lenders or all
of the Lenders, where expressly required by this Agreement, and any action
taken or failure to act pursuant to such instructions shall be binding on
all Lenders. In each circumstance where any consent of or direction from
the Majority Lenders or all of the Lenders is required or requested by
Agent, the Agent shall send to the Lenders a notice setting forth a
description in reasonable detail of the matter as to which consent or
direction is requested and the Agent's proposed course of action with
respect thereto. In the event the Agent shall not have received a response
from any Lender within five (5) Business Days after Agent sends such
notice, such Lender shall be deemed to have agreed to the course of action
proposed by the Agent.
SECTION 12.03 AGENT'S DUTIES LIMITED; NO FIDUCIARY DUTY. The Lenders agree
that the Agent shall have no duties or responsibilities except those expressly
set forth in this Agreement and the other Loan Documents. The Lenders agree that
none of the Agent nor any of its respective officers, directors, employees or
agents shall be liable for any action taken or omitted by it as such hereunder
or in connection herewith, unless caused by its or their gross negligence or
willful misconduct. The Agent shall not have by reason of this Agreement a
fiduciary relationship to or in respect of any Lender, and nothing in this
Agreement, express or implied, is intended to or shall be so construed as to
impose upon the Agent any obligations in respect of this Agreement or the other
Loan Documents except as expressly set forth herein.
SECTION 12.04 NO RELIANCE ON THE AGENT. (A) EACH LENDER REPRESENTS AND
WARRANTS TO THE AGENT AND THE OTHER LENDERS THAT INDEPENDENTLY AND WITHOUT
RELIANCE UPON THE AGENT, EACH LENDER, TO THE EXTENT IT DEEMS APPROPRIATE, HAS
MADE AND SHALL CONTINUE TO MAKE (I) ITS OWN INDEPENDENT INVESTIGATION OF THE
FINANCIAL CONDITION AND AFFAIRS OF THE BORROWER, THE GUARANTORS, AND THE
CONSOLIDATED ENTITIES IN CONNECTION WITH THE TAKING OR NOT TAKING OF ANY ACTION
IN CONNECTION HEREWITH, AND (II) ITS OWN APPRAISAL OF THE CREDIT WORTHINESS OF
THE BORROWER, THE GUARANTORS, AND THE CONSOLIDATED ENTITIES, AND, EACH LENDER
FURTHER AGREES THAT, EXCEPT AS EXPRESSLY PROVIDED IN THIS AGREEMENT, THE AGENT
SHALL HAVE NO DUTY OR RESPONSIBILITY, EITHER INITIALLY OR ON A CONTINUING BASIS,
TO PROVIDE ANY LENDER WITH ANY CREDIT OR OTHER INFORMATION WITH RESPECT
58
<PAGE> 65
THERETO, WHETHER COMING INTO ITS POSSESSION BEFORE THE MAKING OF THE LOANS OR AT
ANY TIME OR TIMES THEREAFTER. AS LONG AS ANY OF THE LOANS ARE OUTSTANDING AND/OR
ANY AMOUNT IS AVAILABLE TO BE REQUESTED OR BORROWED HEREUNDER, OR THIS AGREEMENT
AND THE LOAN DOCUMENTS HAVE NOT BEEN CANCELLED AND TERMINATED, EACH LENDER SHALL
CONTINUE TO MAKE ITS OWN INDEPENDENT EVALUATION OF THE FINANCIAL CONDITION AND
AFFAIRS OF THE BORROWER, THE GUARANTORS, AND THE CONSOLIDATED ENTITIES.
(b) The Agent shall not be responsible to any Lender
(including the Swing Line Lender) for any recitals, statements,
information, representations or warranties herein or in any document,
certificate or other writing delivered in connection herewith or for
the execution, effectiveness, genuineness, validity, enforceability,
collectability, priority or sufficiency of this Agreement, the
Revolving Credit Notes, the Foreign Currency Notes, the Competitive Bid
Notes, the Swing Line Note, the Guaranties, the other Loan Documents,
or any other documents contemplated hereby or thereby, or the financial
condition of the Borrower, the Guarantors, or any of the Consolidated
Entities, or be required to make any inquiry concerning either the
performance or observance of any of the terms, provisions or conditions
of this Agreement, the Revolving Credit Notes, the Foreign Currency
Notes, the Competitive Bid Notes, the Swing Line Note, the Guaranties,
the other Loan Documents or the other documents contemplated hereby or
thereby, or the financial condition of the Borrower, the Guarantors, or
any of the Consolidated Entities or the existence or possible existence
of any Default Condition or Event of Default.
SECTION 12.05 CERTAIN RIGHTS OF AGENT. The Lenders agree that if the
Agent shall request instructions from the Majority Lenders (or all of the
Lenders where unanimity is expressly required under the terms of this Agreement)
with respect to any action or actions (including the failure to act) in
connection with this Agreement, the Agent shall be entitled to refrain from such
act or taking such act, unless and until the Agent shall have received
instructions from the Majority Lenders (or all of the Lenders where unanimity is
expressly required under the terms of this Agreement); and the Agent shall not
incur liability to any Person by reason of so refraining. Without limiting the
foregoing, no Lender shall have any right of action whatsoever against the Agent
as a result of the Agent's acting or refraining from acting hereunder in
accordance with the instructions of the Majority Lenders (or, with regard to
acts for which the consent of all of the Lenders is expressly required under the
terms of this Agreement, in accordance with the instructions of all of the
Lenders).
SECTION 12.06 RELIANCE BY AGENT. The Lenders agree that the Agent shall
be entitled to rely, and shall be fully protected in relying, upon any note,
writing, resolution, notice, statement, certificate, telex, teletype or
telecopier message, cablegram, radiogram, order or other documentary,
teletransmission or telephone message reasonably believed by it to be genuine
and correct and to have been signed, sent or made by the proper Person. The
Lenders agree that the Agent may consult with legal counsel (including counsel
for any Lender), independent public
59
<PAGE> 66
accountants and other experts selected by it and shall not be liable for any
action taken or omitted to be taken by it in good faith in accordance with the
advice of such counsel, accountants or experts.
SECTION 12.07 INDEMNIFICATION OF AGENT. To the extent the Agent is not
reimbursed and indemnified by the Borrower, each Lender will reimburse and
indemnify the Agent, ratably according to their respective Pro Rata Share, for,
from and against any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses (including fees of
experts, consultants and counsel and disbursements) or disbursements of any kind
or nature whatsoever that may be imposed on, incurred by or asserted against the
Agent in performing its duties hereunder, in any way relating to or arising out
of this Agreement or the other Loan Documents; provided that no Lender shall be
liable to the Agent for any portion of such liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
resulting from the Agent's gross negligence or willful misconduct. The
obligations and indemnifications arising under this Section 12.07 shall survive
termination of this Agreement, repayment of the Loans and indebtedness arising
in connection with the Letters of Credit and expiration of the Letters of
Credit.
SECTION 12.08 THE AGENT IN ITS INDIVIDUAL CAPACITY. With respect to its
obligation to lend under this Agreement, the Loan made by it and the Revolving
Credit Note issued to it, the Agent shall have the same rights and powers
hereunder as any other Lender or holder of a Revolving Credit Note and may
exercise the same as though it were not performing the duties of Agent specified
herein; and the terms "Lenders," "Majority Lenders," "holders of Revolving
Credit Notes," or any similar terms shall, unless the context clearly otherwise
indicates, include the Agent in its individual capacity. The Agent may also
exercise rights and remedies of the Swing Line Lender. The Agent and its
Affiliates may accept deposits from, lend money to, and generally engage in any
kind of banking, trust, financial advisory or other business with the Borrower,
the Guarantors, the Consolidated Entities, or any Affiliate of the Borrower as
if it were not performing the duties specified herein as Agent, and may accept
fees and other consideration from the Borrower for services in connection with
this Agreement and otherwise without having to account for the same to the
Lenders.
SECTION 12.09 HOLDERS OF NOTES. The Agent and the Borrower may deem and
treat the payee of any Revolving Credit Note as the owner thereof for all
purposes hereof unless and until a written notice of the assignment or transfer
thereof shall have been filed with the Agent and the Borrower. Any request,
authority or consent of any Person who, at the time of making such request or
giving such authority or consent, is the holder of any Revolving Credit Note
shall be conclusive and binding on any subsequent holder, transferee or assignee
of such Revolving Credit Note.
SECTION 12.10 SUCCESSOR AGENT. (a) The Agent may resign at any time by
giving written notice thereof to the Lenders and the Borrower and may be removed
at any time with cause by the Majority Lenders; provided, however, the Agent may
not resign or be removed until (i) a successor Agent has been appointed and
shall have accepted such appointment, and (ii) the
60
<PAGE> 67
successor Agent has assumed all responsibility for issuance of the Letters of
Credit and the successor Agent has assumed in the place and stead of the Agent
all existing liability under outstanding Letters of Credit, and (iii) the
successor agent has assumed all responsibility for Advances under the Swing Line
Loan (including outstanding Advances thereunder) and the successor Agent has
assumed in the place and stead of the Agent all existing liability under the
Swing Line Loan. The transactions described in the immediately preceding
sentence shall be accomplished pursuant to written agreements reasonably
satisfactory to the Agent and the successor Agent. Upon any such resignation or
removal, the Majority Lenders shall have the right to appoint a successor Agent.
If no successor Agent shall have been so appointed by the Majority Lenders, and
shall have accepted such appointment, within thirty (30) days after the retiring
Agent's giving of notice of resignation or the Majority Lenders' removal of the
retiring Agent, then the retiring Agent may, on behalf of the Lenders, appoint a
successor Agent, which shall be a bank that maintains an office in the United
States, or a commercial bank organized under the laws of the United States of
America or any State thereof, or any Affiliate of such bank, having a combined
capital and surplus of at least $100,000,000.
(b) Upon the acceptance of any appointment as the Agent
hereunder by a successor Agent, such successor Agent shall thereupon
succeed to and become vested with all the rights, powers, privileges
and duties of the retiring Agent, and the retiring Agent shall be
discharged from its duties and obligations under this Agreement. After
any retiring Agent's resignation or removal hereunder as Agent, the
provisions of this Article XII shall inure to its benefit as to any
actions taken or omitted to be taken by it while it was an Agent under
this Agreement.
SECTION 12.11 NOTICE OF DEFAULT OR EVENT OF DEFAULT. In the event that
the Agent or any Lender shall acquire actual knowledge, or shall have been
notified, of any Default Condition or Event of Default (other than through a
notice by one party hereto to all other parties), the Agent or such Lender shall
promptly notify the Agent, and the Agent shall take such action and assert such
rights under this Agreement as the Majority Lenders shall request in writing,
and the Agent shall not be subject to any liability by reason of its acting
pursuant to any such request. If, following notification by Agent to Lenders,
the Majority Lenders (or all of the Lenders if required hereunder) shall fail to
request the Agent to take action or to assert rights under this Agreement in
respect of any Default Condition or Event of Default within five (5) Business
Days after their receipt of the notice of any Default Condition or Event of
Default from the Agent or any Lender, or shall request inconsistent action with
respect to such Default Condition or Event of Default, the Agent may, but shall
not be required to, take such action and assert such rights (other than rights
under Article VIII hereof) as it deems in its discretion to be advisable for the
protection of the Lenders.
SECTION 12.12 BENEFIT OF AGREEMENT.
(a) Any Lender may make, carry or transfer Loans at, to or for
the account of, any of its branch offices or the office of an Affiliate
of such Lender, provided that no such action shall increase the cost of
the Loans to the Borrower.
61
<PAGE> 68
(b) Each Lender may assign a portion of its interests, rights
and obligations under this Agreement, including all or a portion of any
of its Revolving Credit Loan Commitment (including without limitation
its commitment to participate in Letters of Credit) to any Eligible
Assignee; provided, however, that (i) the amount of the Revolving
Credit Loan Commitment of the assigning Lender subject to each
assignment (determined as of the date the assignment and acceptance
with respect to such assignment is delivered to the Agent) shall not be
less than an amount equal to $10,000,000 or greater integral multiples
thereof, (ii) the assigning Lender may not assign to an Eligible
Assignee more than an amount equal to $10,000,000; (iii) the parties to
each such assignment shall execute and deliver to the Agent an
Assignment and Acceptance, (iv) the Borrower shall execute a Revolving
Credit Note or Foreign Currency Note subject to such assignment, and
(v) the Eligible Assignee shall pay to the Agent a processing and
recordation fee of $3,000. From and after the effective date specified
in each Assignment and Acceptance, the assignee thereunder shall be a
party hereto and to the extent of the interest assigned by such
Assignment and Acceptance, have the rights and obligations of a Lender
under this Agreement. Notwithstanding the foregoing, the assigning
Lender must retain after the consummation of such Assignment and
Acceptance, a minimum aggregate amount of Revolving Credit Loan
Commitment of $10,000,000; provided, however, no such minimum amount
shall be required with respect to any such assignment made at any time
there exists an Event of Default hereunder. Within five (5) Business
Days after receipt of the notice and the Assignment and Acceptance, the
Borrower, at its own expense, shall execute and deliver to the Agent,
in exchange for the surrendered Revolving Credit Note or Foreign
Currency Note, a new Revolving Credit Note or Foreign Currency Note to
the order of the Eligible Assignee in a principal amount equal to the
applicable Revolving Credit Loan Commitment assumed by it pursuant to
such Assignment and Acceptance, as well as a new Revolving Credit Note
or Foreign Currency Note to the assigning Lender in the amount of its
retained Revolving Credit Loan Commitment. Such new Revolving Credit
Note and Foreign Currency Note to the Eligible Assignee and to the
assigning Lender shall be in an aggregate principal amount equal to the
aggregate principal amount of such surrendered Revolving Credit Note or
Foreign Currency Note, shall be dated the date of the surrendered
Revolving Credit Note or Foreign Currency Note that they replace, and
shall otherwise be in substantially the form attached hereto as Exhibit
A and Exhibit C, as applicable.
(c) No assignment of all or any portion of this Agreement by
any Lender shall be permitted without compliance with the provisions of
Section 12.12(b) hereof, or if such assignment would violate any
applicable securities law. In connection with its execution and
delivery hereof each Lender represents that it is acquiring its
interest herein for its own account for investment purposes and not
with a view to further distribution thereof, and shall require any
proposed assignee to furnish similar representations to the Agent and
the Borrower.
(d) Each Lender may, without the consent of the Borrower or
the Agent, but subject to the provisions of Section 2.09, sell
participations in its respective Revolving
62
<PAGE> 69
Credit Loan Commitment and Letter of Credit Subcommitment to such
Lender's Affiliate(s), but sales of participations to Persons other
than such Lender's Affiliates shall be made only with the prior consent
of the Agent and in all events subject to said section. Provided,
however, that (i) no Lender may sell a participation in its aggregate
Revolving Credit Loan Commitment and Letter of Credit Subcommitment
(after giving effect to any permitted assignment hereof) unless it
retains an aggregate exposure of at least $10,000,000 (except that no
such limitation shall be applicable to any such participation sold at
any time there exists an Event of Default hereunder), (ii) the
participation interest sold may not exceed 50% of such Lender's
Revolving Credit Loan Commitment (iii) such Lender's obligations under
this Agreement shall remain unchanged, (iv) such Lender shall remain
solely responsible to the other parties hereto for the performance of
such obligations, and (v) the Borrower and the Agent and other Lenders
shall continue to deal solely and directly with each Lender in
connection with such Lender's rights and obligations as provided in
this Agreement and the other Loan Documents. Each Lender shall promptly
notify in writing the Agent of any sale of a participation hereunder.
(e) Any Lender or participant may, in connection with the
assignment or participation or proposed assignment or participation,
pursuant to this Section 12.12, disclose to the assignee or participant
or proposed assignee or participant any information relating to the
Borrower, any of the Guarantors, or the Consolidated Entities furnished
to such Lender by or on behalf of the Borrower, any of the Guarantors,
or any of the Consolidated Entities. With respect to any disclosure of
confidential, non-public, proprietary information, such proposed
assignee or participant shall agree to use the information only for the
purpose of making any necessary credit judgments with respect to this
credit facility and not to use the information in any manner prohibited
by any law, including without limitation, the securities laws of the
United States. The proposed participant or assignee shall agree in
writing not to disclose any of such information except (i) to
directors, employees, auditors or counsel to whom it is necessary to
show such information, each of whom shall be informed of the
confidential nature of the information and agree to maintain the
confidentiality thereof as described herein, (ii) in any statement or
testimony pursuant to a subpoena or order by any court, governmental
body or other agency asserting jurisdiction over such entity, or as
otherwise required by law (provided prior notice is given to the
Borrower and the Agent unless otherwise prohibited by the subpoena,
order or law), and (iii) upon the request or demand of any regulatory
agency or authority with proper jurisdiction. The proposed participant
or assignee, and such representatives, shall further agree to return to
the Borrower all documents or other written material and copies thereof
received from any Lender, the Agent, or the Borrower relating to such
confidential information.
(f) Any Lender may at any time assign all or any portion of
its rights in this Agreement and the promissory note issued to it to a
Federal Reserve Bank; provided that no such assignment shall release
the assigning Lender from any of its obligations hereunder.
63
<PAGE> 70
ENTERED INTO the date first above written.
BORROWER:
SERVICE EXPERTS, INC.
By: /s/ Anthony M. Schofield
--------------------------------------
Title: Chief Financial Officer
-----------------------------------
AGENT:
SUNTRUST BANK, NASHVILLE, N.A., Agent
By: /s/ TRACY L. ELLIOTT
--------------------------------------
Title: AVP
-----------------------------------
Address: 201 Fourth Avenue North
Nashville, Tennessee 37219
[Signatures Continued on Next Page]
64
<PAGE> 71
LENDERS:
SUNTRUST BANK, NASHVILLE, N.A.
By: /s/ TRACY L. ELLIOTT
-------------------------------------
Title: AVP
----------------------------------
Address: 201 Fourth Avenue North
Nashville, Tennessee 37219
Pro Rata Share: 30%
[Signatures Continued on Next Page]
65
<PAGE> 72
BANK OF AMERICA, FSB
By: /s/ Calvin E. Blount
-----------------------------------------
Title: Vice President
--------------------------------------
Address: 1230 Peachtree Street, Suite 3600
Atlanta, Georgia 30309
Pro Rata Share: 12 1/2%
[Signatures Continued on Next Page]
66
<PAGE> 73
SOUTHTRUST BANK, NATIONAL
ASSOCIATION
By: /s/ RETT DALLAS
-----------------------------------------
Title: Vice President
--------------------------------------
Address: 230 Fourth Avenue North, 8th Floor
Nashville, Tennessee 37219
Pro Rata Share: 25%
[Signatures Continued on Next Page]
67
<PAGE> 74
NATIONSBANK, N.A.
By: /s/ Johns Ellington
------------------------------------------
Title: Vice President
---------------------------------------
Address: 100 N. Tyron Street, 8th Floor
Charlotte, North Carolina 28255
Pro Rata Share: 12 1/2%
[Signatures Continued on Next Page]
68
<PAGE> 75
FIRST AMERICAN NATIONAL BANK
By: /s/ RUSSELL S. ROGERS
--------------------------------------
Title: Senior Vice President
-----------------------------------
Address: 4th & Union Street, 3rd Floor
Nashville, Tennessee 37237-0310
Pro Rata Share: 20%
69
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF SERVICE EXPERTS, INC. FOR THE SIX MONTHS ENDED JUNE 30,
1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 5,962
<SECURITIES> 0
<RECEIVABLES> 49,361
<ALLOWANCES> 1,764
<INVENTORY> 22,035
<CURRENT-ASSETS> 86,773
<PP&E> 43,624
<DEPRECIATION> 12,163
<TOTAL-ASSETS> 275,256
<CURRENT-LIABILITIES> 34,421
<BONDS> 61,606
0
0
<COMMON> 164
<OTHER-SE> 177,280
<TOTAL-LIABILITY-AND-EQUITY> 275,256
<SALES> 168,761
<TOTAL-REVENUES> 168,761
<CGS> 109,447
<TOTAL-COSTS> 109,447
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,180
<INCOME-PRETAX> 16,583
<INCOME-TAX> 6,730
<INCOME-CONTINUING> 9,853
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,853
<EPS-PRIMARY> .62
<EPS-DILUTED> .61
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF SERVICE EXPERTS, INC. FOR THE SIX MONTHS ENDED JUNE 30,
1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 19,246
<SECURITIES> 0
<RECEIVABLES> 28,485
<ALLOWANCES> 1,047
<INVENTORY> 8,457
<CURRENT-ASSETS> 60,714
<PP&E> 25,042
<DEPRECIATION> 6,891
<TOTAL-ASSETS> 150,503
<CURRENT-LIABILITIES> 31,110
<BONDS> 4,126
0
0
<COMMON> 144
<OTHER-SE> 114,532
<TOTAL-LIABILITY-AND-EQUITY> 150,503
<SALES> 102,103
<TOTAL-REVENUES> 102,103
<CGS> 67,072
<TOTAL-COSTS> 67,072
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 409
<INCOME-PRETAX> 10,698
<INCOME-TAX> 3,932
<INCOME-CONTINUING> 6,766
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,766
<EPS-PRIMARY> .50
<EPS-DILUTED> .49
</TABLE>
