<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, 1999
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 16, 1999
COMMON STOCK, $.01 PAR VALUE 17,661,166
1
<PAGE> 2
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SERVICE EXPERTS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, June 30,
1998 1999
--------- ---------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ............................................... $ 8,408 $ 12,773
Accounts receivable
Trade, net of allowance for doubtful accounts of $2,050 in 1998 ..... 50,211 70,967
and $3,297 in 1999
Related parties .................................................. 312 658
Employees ........................................................ 581 1,171
Other ............................................................ 6,351 5,010
--------- ---------
57,455 77,806
Refundable income taxes ................................................. 2,836 --
Inventories ............................................................. 29,715 32,857
Costs and estimated earnings in excess of billings ...................... 5,911 9,974
Prepaid expenses and other current assets ............................... 6,558 7,503
Current portion of note receivable - related party ...................... 14 14
Current portion of notes receivable - other ............................. 140 109
Deferred income taxes ................................................... 4,008 4,044
--------- ---------
Total current assets .................................... 115,045 145,080
Property, buildings and equipment:
Land .................................................................... 1,904 1,904
Buildings ............................................................... 5,001 5,471
Furniture and fixtures .................................................. 13,801 16,415
Machinery and equipment ................................................. 8,150 11,096
Vehicles ................................................................ 23,197 29,323
Leasehold improvements .................................................. 3,850 5,502
--------- ---------
55,903 69,711
Less accumulated depreciation and amortization .......................... (17,283) (23,179)
--------- ---------
38,620 46,532
Note receivable - related party, net of current portion ...................... 324 298
Notes receivable - other, net of current portion ............................. 508 396
Goodwill, net of accumulated amortization of $5,609 in 1998 and $7,851 in 1999 191,016 240,722
Unallocated purchase price ................................................... 8,738 --
Other assets ................................................................. 2,304 1,046
--------- ---------
Total Assets ................................................... $ 356,555 $ 434,074
========= =========
</TABLE>
See accompanying notes.
2
<PAGE> 3
<TABLE>
<CAPTION>
December 31, June 30,
1998 1999
--------- ---------
(UNAUDITED)
(IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term note payable .................................................. $ 2,418 $ --
Trade accounts payable and accrued liabilities ........................... 17,677 25,914
Accrued compensation ..................................................... 5,523 7,896
Accrued warranties ....................................................... 2,847 3,661
Billings in excess of costs and estimated earnings ....................... 1,268 2,196
Current portion of long-term debt and capital lease obligations .......... 2,275 4,784
--------- ---------
Total current liabilities ....................................... 32,008 44,451
Long-term debt and capital lease obligations, net of current portion .......... 104,479 155,979
Deferred revenue .............................................................. 9,883 13,647
Deferred income taxes ......................................................... 3,682 3,794
Commitments and contingencies (Note 8)
Minority interest ............................................................. 121 --
Stockholders' equity:
Common stock, $.01 par value; 30,000,000 shares authorized, 17,450,664
shares issued and outstanding at December 31, 1998 and 17,556,902
shares issued and outstanding at June 30, 1999 ............................ 175 176
Preferred stock, $.01 par value; 10,000,000 shares authorized, no shares
issued and outstanding .................................................... -- --
Additional paid-in-capital .................................................... 163,302 164,850
Deferred compensation ......................................................... (941) (745)
Retained earnings ............................................................. 43,865 51,922
Accumulated other comprehensive income (loss) ................................. (19) --
--------- ---------
Total stockholders' equity .................................................... 206,382 216,203
--------- ---------
Total liabilities and stockholders' equity .................................... $ 356,555 $ 434,074
========= =========
</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,
1998 1999 1998 1999
--------- --------- --------- ---------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net revenue ........................................... $ 102,894 $ 152,787 $ 173,556 $ 268,953
Cost of goods sold .................................... 65,104 105,105 111,249 180,809
--------- --------- --------- ---------
Gross margin .......................................... 37,790 47,682 62,307 88,144
Selling, general and administrative expenses .......... 25,131 38,427 44,278 71,394
--------- --------- --------- ---------
Income from operations ................................ 12,659 9,255 18,029 16,750
Other income (expense):
Interest expense ................................. (934) (2,198) (1,208) (3,991)
Interest income .................................. 191 62 291 106
Other income ..................................... 170 190 290 1,064
--------- --------- --------- ---------
(573) (1,946) (627) (2,821)
--------- --------- --------- ---------
Income before income taxes ............................ 12,086 7,309 17,402 13,929
Provision for income taxes:
Current .......................................... 4,528 3,084 6,702 5,675
Deferred ......................................... 160 139 267 197
--------- --------- --------- ---------
4,688 3,223 6,969 5,872
--------- --------- --------- ---------
Net income ............................................ $ 7,398 $ 4,086 $ 10,433 $ 8,057
========= ========= ========= =========
Net income per common share:
Basic ............................................ $ 0.44 $ 0.23 $ 0.63 $ 0.46
========= ========= ========= =========
Diluted .......................................... $ 0.44 $ 0.23 $ 0.63 $ 0.45
========= ========= ========= =========
Weighted average shares outstanding:
Basic ............................................ 16,739 17,479 16,472 17,474
--------- --------- --------- ---------
Diluted .......................................... 16,987 17,998 16,683 17,776
--------- --------- --------- ---------
Pro forma net income data, reflecting
pro forma tax provision on income of a pooled company
previously taxed as a Subchapter S corporation:
Historical net income applicable to Common Stock .... $ 7,398 $ 4,086 $ 10,433 $ 8,057
Pro forma adjustment to provision for income taxes .. (202) -- (180) --
--------- --------- --------- ---------
Pro forma net income applicable to Common Stock ....... $ 7,196 $ 4,086 $ 10,253 $ 8,057
--------- --------- --------- ---------
Pro forma net income per common share:
Basic ............................................ $ 0.43 $ 0.23 $ 0.62 $ 0.46
========= ========= ========= =========
Diluted .......................................... $ 0.42 $ 0.23 $ 0.61 $ 0.45
========= ========= ========= =========
</TABLE>
See accompanying notes.
4
<PAGE> 5
SERVICE EXPERTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
1998 1999
-------- --------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES ... $(12,535) $ 7,515
INVESTING ACTIVITIES
Payments (advance) on notes receivable ................ (8) 170
Purchase of property, buildings and equipment ......... (6,756) (6,995)
Proceeds from sale of property, buildings and equipment 109 242
Proceeds from sale of investment ...................... -- 1,594
Cash acquired through acquisitions .................... 2,365 3,078
Payment of cash for acquired companies ................ (32,402) (41,034)
(Increase) decrease in other assets ................... (451) 1,212
-------- --------
Net cash used in investing activities ............ (37,143) (41,733)
-------- --------
FINANCING ACTIVITIES
Decrease in short-term debt ........................... -- (2,418)
Issuance of stock pursuant to options exercised ....... -- 847
Net increase in line of credit ........................ 45,160 40,154
-------- --------
Net cash provided by financing activities ........ 45,160 38,583
-------- --------
Increase (decrease) in cash and cash equivalents ...... (4,518) 4,365
Cash and cash equivalents at beginning of year ........ 11,298 8,408
-------- --------
Cash and cash equivalents at end of period ............ $ 6,780 $ 12,773
======== ========
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid ......................................... $ 875 $ 2,077
======== ========
Income taxes paid ..................................... $ 7,976 $ 6,416
======== ========
</TABLE>
See accompanying notes.
5
<PAGE> 6
SERVICE EXPERTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED
JUNE 30, 1999 (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, 1999 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1999.
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The condensed consolidated financial statements of the Company include the
accounts of the Company and its subsidiaries. All intercompany transactions have
been eliminated in consolidation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." The statement
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. In June 1999, the effective date of SFAS No. 133 was
extended for one year; consequently, the statement will now be effective for
all fiscal quarters of fiscal years beginning after June 15, 2000, and earlier
application is encouraged. Management does not anticipate that the adoption of
SFAS No. 133 will have a significant effect on the financial position or
results of operations of the Company.
3 - MARKETABLE SECURITIES
At December 31, 1998, the Company's investments in marketable equity securities
totaled approximately $994,000. During the first quarter, the Company sold the
securities for a gain of approximately $619,000.
4 - ACQUISITIONS
From January 1, 1999 through June 30, 1999, the Company acquired 97 heating,
ventilating and air conditioning businesses. The following displays pertinent
information regarding acquisitions accounted for under the purchase method
during 1998 and 1999:
<TABLE>
<CAPTION>
Service Total
Centers Companies Total Shares Total Cash Convertible Total
Acquired Acquired Issued Consideration Debt Consideration
-------- -------- ------ ------------- ---- -------------
(in thousands)
1998
<S> <C> <C> <C> <C> <C> <C>
First Quarter...... 10 19 389,000 $ 8,585 $ -- $ 19,243
Second Quarter..... 12 34 593,000 25,077 -- 43,504
Third Quarter...... 8 29 222,000 11,710 667 19,314
Fourth Quarter..... 12 23 232,000 11,681 5,497 22,034
1999
First Quarter...... 12 31 -- 20,620 7,304 27,924
Second Quarter....... 9 66 42,000 17,626 5,459 23,895
</TABLE>
6
<PAGE> 7
OTHER INFORMATION REGARDING ACQUISITIONS
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. The operating results of the acquisitions 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 Service Centers 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 income tax
provisions for federal and state taxes as certain of the Service Centers
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,
-------------------------
1998 1999
-------- --------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C>
Net revenue ................ $251,156 $286,310
Net income ................. $ 14,097 $ 8,416
Net income per common share:
Basic ................. $ 0.80 $ 0.48
Diluted ............... $ 0.78 $ 0.47
</TABLE>
7
<PAGE> 8
5 - NET INCOME PER COMMON SHARE
The following table sets forth the computation of basic and diluted net income
per share:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------- ---------------------
1998 1999 1998 1999
------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Numerator:
Net income ........................................... $ 7,398 $ 4,086 $10,433 $ 8,057
------- ------- ------- -------
Numerator for basic income per share - Income
Available to common stockholders after assumed
conversations ........................................... 7,398 4,086 10,433 8,057
======= ======= ======= =======
Numerator for diluted income per share
Net income ........................................... 7,398 4,086 10,433 8,057
Add: interest on subordinated convertible securities,
net of tax ........................................... -- 38 -- 38
------- ------- ------- -------
Income available to common stockholders after assumed
conversions ............................................. $ 7,398 $ 4,124 $10,433 $ 8,095
======= ======= ======= =======
Denominator:
Denominator for basic income per share -
weighted average shares .............................. 16,739 17,479 16,472 17,474
Effect of dilutive securities:
Employee stock options ................................. 182 154 132 116
Warrants ............................................... 66 21 52 15
Contingent shares ...................................... -- 3 27 --
Convertible debt ....................................... -- 341 -- 171
------- ------- ------- -------
Dilutive potential common shares
Denominator for diluted income per share-
adjusted ............................................. 248 519 211 302
------- ------- ------- -------
Weighted-average shares and assumed
conversations ........................................ 16,987 17,998 16,683 17,776
======= ======= ======= =======
Basic net income per share ................................ $ 0.44 $ 0.23 $ 0.63 $ 0.46
======= ======= ======= =======
Diluted net income per share .............................. $ 0.44 $ 0.23 $ 0.63 $ 0.45
======= ======= ======= =======
</TABLE>
6 - INCOME TAXES
The income tax provision recorded for the three and six months ended June 30,
1998 and 1999 differs from the expected income tax provision, by applying the
35% statutory rate, due primarily to goodwill amortization, a portion of which
is not deductible for federal income tax purposes, and the provision for state
income taxes.
8
<PAGE> 9
7 - FINANCING ARRANGEMENTS
From January 1, 1999 through June 30, 1999, the Company issued convertible
subordinated notes ("Notes") totaling approximately $12,763,000 as consideration
in certain acquisitions. Principal is payable in four equal annual installments
beginning one year from the date of issuance. Interest at an average rate of
5.08% (ranging from 4.71% to 5.37%) is payable quarterly. The Notes are
convertible, at the option of the holder, into the Company's Common Stock at any
time, at an average conversion price of $26.04 per share (ranging from $14.93 to
$38.95), subject to adjustment in certain events. If the closing sales price of
a share of Common Stock exceeds the conversion price for periods ranging from
five to 20 consecutive trading days, the Company may elect to convert the Notes
into shares of Common Stock at the conversion price.
On June 11, 1999, the Company entered into an amended and restated $200.0
million unsecured revolving credit facility with a syndicate of banks available
through May 31, 2002 (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 a variable margin of from 0 to .375 basis points
depending on the Company's net funded debt to EBITDA ratio determined on a
quarterly basis 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
100.0 to 237.5 basis points depending on the Company's net 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 customary for
financing of this type, including covenants with respect to (i) the maintenance
of certain financial ratios and specified net worth, (ii) the limitation of (A)
the aggregate outstanding principal balance of the senior notes (issued June 23,
1998) to $50.0 million and (B) the aggregate outstanding principal balance of
any debt issued by the Company directly to sellers of acquired HVAC businesses
to $100.0 million, (iii) the sale of substantial assets, consolidations or
mergers by the Company and (iv) the payment of dividends.
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 an adequate provision for losses has been provided to the extent
necessary.
9 - SUBSEQUENT EVENT
As of August 16, 1999, the Company has made certain personnel changes at the SEI
Management Company. These personnel changes will result in a severance charge of
approximately $1.4 million in the third quarter of 1999.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
OVERVIEW
In 1998, the Company acquired 106 HVAC businesses (the "1998 Acquired
Companies"), of which 43 are Service Centers. The consideration paid by the
Company for the 1998 Acquired Companies was approximately $110.1 million,
consisting of approximately 1.8 million shares of Common Stock, $6.2 million in
notes convertible into shares of Common Stock, and approximately $56.3 million
in cash. One of the Acquired Companies was accounted for using the pooling of
interests method and the remainder were accounted for using the purchase method.
Approximately $85.5 million of the consideration paid by the Company was
allocated to intangible assets which are being amortized over a 40-year period.
From January 1, 1999 through March 31, 1999, the Company acquired 31 HVAC
businesses, of which 12 are Service Centers. The consideration paid by the
Company for these businesses was approximately $27.9 million, consisting of
approximately $7.3 million in notes convertible into shares of Common Stock and
approximately $20.6 million in cash. Approximately $19.5 million of the
consideration paid by the Company was allocated to intangible assets which are
being amortized over a 40-year period.
From April 1, 1999 through June 30, 1999, the Company acquired 66 HVAC
businesses (collectively, with the 31 HVAC businesses acquired in the first
quarter of 1999, the "1999 Acquired Companies"), of which 9 are Service Centers.
The consideration paid by the Company for these businesses was approximately
$23.9 million, consisting of approximately 42,000 shares of Common Stock,
approximately $5.5 million in notes convertible into shares of Common Stock and
approximately $16.2 million in cash. All of these acquisitions were accounted
for using the purchase method. Approximately
9
<PAGE> 10
$14.2 million of the consideration paid by the Company was allocated to
intangible assets which are amortized over a 40-year period.
The 1998 and 1999 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 other things, their historical levels of owner's compensation.
Owners and certain key employees of the Acquired Companies have agreed to
certain reductions in their compensation in connection with the acquisitions.
COMPONENTS OF INCOME
Net revenue has been derived primarily from the installation, service and
maintenance of central air conditioners, furnaces and heat pumps in existing
homes and commercial businesses. 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, legal and professional
fees, insurance expense and promotion and advertising expenses.
RESULTS OF OPERATIONS
Because of the significant effect and timing of 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.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED JUNE 30,
1998 1999
---- ----
<S> <C> <C> <C> <C>
(dollar amounts in millions)
Revenue .................................... $102.9 100.0% $152.8 100.0%
Cost of goods sold ......................... 65.1 63.3 105.1 68.8
------ ------ ------ ------
Gross profit ............................... 37.8 36.7 47.7 31.2
Selling, general and administrative expenses 25.1 24.4 38.4 25.1
------ ------ ------ ------
Operating income ........................... 12.7 12.3 9.3 6.1
Other income (expense) ..................... (.6) (.6) (2.0) (1.3)
------ ------ ------ ------
Income before taxes ........................ 12.1 11.7 7.3 4.8
Provision for income taxes ................. 4.7 4.5 3.2 2.1
------ ------ ------ ------
Net income ................................. $ 7.4 7.2% $ 4.1 2.7%
====== ====== ====== ======
</TABLE>
THREE MONTHS ENDED JUNE 30, 1999 COMPARED TO THREE MONTHS ENDED JUNE 30, 1998
Net Revenue. Net revenue increased $49.9 million, or 48.5%, from $102.9 million
for the three months ended June 30, 1998 to $152.8 million for the three months
ended June 30, 1999. Approximately $7.5 million of the increase is attributable
to reported revenue from Service Centers owned and operated by the Company
during both periods and spoke acquisitions acquired during these periods,
approximately $8.9 million of the increase is attributable to Service Centers
acquired in 1998 reporting results for a full three months in 1999 and
approximately $33.5 million of the increase is attributable to the acquisition
of new Service Centers between July 1, 1998 and June 30, 1999.
10
<PAGE> 11
Cost of Goods Sold. Cost of goods sold increased $40.0 million, or
61.4%, from $65.1 million for the three months ended June 30, 1998 to $105.1
million for the three months ended June 30, 1999. Approximately $21.9 million of
this increase is attributable to the acquisition of new Service Centers between
July 1, 1998 and June 30, 1999 and the remaining $18.1 million is attributable
to existing Service Centers operated in both 1998 and 1999. As a percentage of
net revenue, cost of goods sold increased 5.5% from 63.3% for the three months
ended June 30, 1998 to 68.8% for the three months ended June 30, 1999. The 5.5%
increase in cost of goods sold as a percentage of net revenue is comprised of
increases in parts and equipment of 0.6%, labor of 3.6% and other cost of goods
sold expenses of 1.3%.
Gross Margin. Gross margin increased $9.9 million, or 26.2%, from $37.8
million for the three months ended June 30, 1998 to $47.7 million for the three
months ended June 30, 1999. The change is comprised of an $11.6 million increase
attributable to the acquisition of new Service Centers between July 1, 1998 and
June 30, 1999, net of a $1.7 million decrease attributable to existing Service
Centers operated in both 1998 and 1999. As a percentage of net revenue, gross
margin decreased 5.5% from 36.7% for the three months ended June 30, 1998 to
31.2% for the three months ended June 30, 1999.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $13.3 million, or 53.0%, from $25.1 million
for the three months ended June 30, 1998 to $38.4 million for the three months
ended June 30, 1999. As a percentage of net revenue, selling, general and
administrative expenses increased from 24.4% for the three months ended June 30,
1998 to 25.1% for the three months ended June 30, 1999. This increase is
primarily attributable to increased volume associated with acquired Service
Centers, an increase of approximately $503,000 of goodwill amortization and an
increase of approximately $2.6 million of administrative overhead.
Income from Operations. Income from operations decreased $3.4 million,
or 26.8%, from $12.7 million for the three months ended June 30, 1998 to $9.3
million for the three months ended June 30, 1999. Income from operations as a
percentage of net revenue decreased 6.2% from 12.3% for the three months ended
June 30, 1998 to 6.1% for the three months ended June 30, 1999. The decrease in
income from operations is the result of increased cost of goods sold (discussed
above) and includes a $2.5 million decrease in income from operations at seven
Service Centers with a high content of light commercial revenue and a $1.2
million decrease in income from operations of certain Service Centers which were
merged into three separate locations.
Other Income (Expense). Other expense increased $1.4 million, or
233.3%, from ($0.6) million for the three months ended June 30, 1998 to ($2.0)
million for the three months ended June 30, 1999. Other expense as a percentage
of net revenue increased from (0.6%) for the three months ended June 30, 1998 to
(1.3%) for the three months ended June 30, 1999. This increase is primarily a
result of approximately $1.3 million of increased interest costs incurred on
debt used to fund acquisitions.
Provision for Income Taxes. The Company's effective tax rate of 44.1%
for the three months ended June 30, 1999 differed from the federal statutory
rate of 35.0% primarily as a result of goodwill amortization, portions of which
are not deductible for federal income tax purposes, and state income taxes. The
effective tax rate of 38.8% for the three months ended June 30, 1998 differed
from the federal statutory rate of 35.0% primarily as a result of goodwill
amortization, portions of which are not deductible for federal income tax
purposes, and state income taxes, and offset by income of a Subchapter S
corporation accounted for using the pooling of interests method which is not
subject to federal income tax.
11
<PAGE> 12
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30,
1998 1999
---- ----
<S> <C> <C> <C> <C>
(dollar amounts in millions)
Revenue .................................... $173.6 100.0% $269.0 100.0%
Cost of goods sold ......................... 111.3 64.1 180.8 67.2
------ ------ ------ ------
Gross profit ............................... 62.3 35.9 88.2 32.8
Selling, general and administrative expenses 44.3 25.5 71.4 26.5
------ ------ ------ ------
Operating income ........................... 18.0 10.4 16.8 6.3
Other income (expense) ..................... (.6) (.4) (2.8) (1.1)
------ ------ ------ ------
Income before taxes ........................ 17.4 10.0 14.0 5.2
Provision for income taxes ................. 7.0 4.0 5.9 2.2
------ ------ ------ ------
Net income ................................. $ 10.4 6.0% $ 8.1 3.0%
====== ====== ====== ======
</TABLE>
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 1998
Net Revenue. Net revenue increased $95.4 million, or 55.0%, from $173.6
million for the six months ended June 30, 1998 to $269.0 million for the six
months ended June 30, 1999. Approximately $20.3 million of the increase is
attributable to reported revenue from Service Centers owned and operated by the
Company during both periods and spoke acquisitions acquired during these
periods, approximately $11.2 million of the increase is attributable to Service
Centers acquired in 1998 reporting results for a full six months in 1999 and
approximately $63.9 million of the increase is attributable to the acquisition
of new Service Centers between July 1, 1998 and June 30, 1999.
Cost of Goods Sold. Cost of goods sold increased $69.5 million, or
62.4%, from $111.3 million for the six months ended June 30, 1998 to $180.8
million for the six months ended June 30, 1999. Approximately $42.3 million of
this increase is attributable to the acquisition of new Service Centers between
July 1, 1998 and June 30, 1999 and the remaining $27.2 million is attributable
to existing Service Centers operated in both 1998 and 1999. As a percentage of
net revenue, cost of goods sold increased 3.1% from 64.1% for the six months
ended June 30, 1998 to 67.2% for the six months ended June 30, 1999. The 3.1%
increase in cost of goods sold is comprised of increases in parts and equipment
of 0.5%, labor of 1.7% and other cost of goods sold expenses of 0.9%.
Gross Margin. Gross margin increased $25.9 million, or 41.6%, from
$62.3 million for the six months ended June 30, 1998 to $88.2 million for the
six months ended June 30, 1999. Approximately $21.6 million of this increase is
attributable to the acquisition of new Service Centers between July 1, 1998 and
June 30, 1999 and the remaining $4.3 million is attributable to existing Service
Centers operated in both 1998 and 1999. As a percentage of net revenue, gross
margin decreased 3.1% from 35.9% for the six months ended June 30, 1998 to 32.8%
for the six months ended June 30, 1999.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $27.1 million, or 61.2%, from $44.3 million
for the six months ended June 30, 1998 to $71.4 million for the six months ended
June 30, 1999. As a percentage of net revenue, selling, general and
administrative expenses increased from 25.5% for the six months ended June 30,
1998 to 26.5% for the six months ended June 30, 1999. This increase is primarily
attributable to increased volume associated with acquired Service Centers, an
increase of approximately $1.1 million of goodwill amortization and an increase
of approximately $4.6 million of administrative overhead.
Income from Operations. Income from operations decreased $1.2 million,
or 6.7%, from $18.0 million for the six months ended June 30, 1998 to $16.8
million for the six months ended June 30, 1999. Income from operations as a
percentage of net revenue decreased 4.1% from 10.4% for the six months ended
June 30, 1998 to 6.3% for the six months ended June 30, 1999. The 4.1% decrease
in income from operations is comprised of cost of goods sold increases discussed
above, selling, general and administrative increases of 1.0% and includes a $1.5
million decrease in income from operations at seven Service Centers with a high
content of light commercial revenue and a $1.3 million decrease in income from
operations of certain Service Centers which were merged into three separate
locations.
Other Income (Expense). Other expense increased $2.2 million, or
366.7%, from ($0.6) million for the six months ended June 30, 1998 to ($2.8)
million for the six months ended June 30, 1999. Other expense as a percentage of
net revenue increased from (0.4%) for the six months ended June 30, 1998 to
(1.1%) for the six months ended June 30, 1999. This increase is primarily a
result of approximately $2.8 million of increased interest
12
<PAGE> 13
costs incurred on debt used to fund acquisitions, offset by a $619,000 gain
realized on the sale of marketable equity securities.
Provision for Income Taxes. The Company's effective tax rate of 42.2%
for the six months ended June 30, 1999 differed from the federal statutory rate
of 35.0% primarily as a result of goodwill amortization, portions of which are
not deductible for federal income tax purposes, and state income taxes. The
effective tax rate of 40.1% for the six months ended June 30, 1998 differed from
the federal statutory rate of 35.0% primarily as a result of goodwill
amortization, portions of which are not deductible for federal income tax
purposes, and state income taxes, and offset by income of a Subchapter S
corporation accounted for using the pooling of interests method which is not
subject to federal income tax.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1999, the Company had working capital of $100.6 million, including
cash and cash equivalents of $12.8 million. The ratio of current assets to
current liabilities was 3.3 to 1.0 at June 30, 1999 and 3.6 to 1.0 at December
31, 1998.
The Company's principal capital needs arise from the acquisition of new HVAC
businesses and the costs associated with such expansion. Cash used in investing
activities was primarily attributable to the acquisition of HVAC businesses and
capital expenditures.
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 HVAC businesses, that
the Company can integrate such new HVAC businesses into the Company's operations
or that the Company's new HVAC businesses will generate sales revenue or profit
margins consistent with those of the Company's existing HVAC businesses.
The Company currently has a $200.0 million unsecured revolving credit facility
with a syndicate of banks available through May 31, 2002 (the "Credit
Facility"), of which $89.8 million was outstanding at June 30, 1999. At June 30,
1999, $110.2 million was available under 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 a variable margin of 0 to .375 basis
points depending on the Company's net funded debt to EBITDA ratio determined on
a quarterly basis or (ii) a variable rate equal to the 30, 60, 90 or 180-day
LIBOR, as such rates change from time to time, plus a variable margin of from
100.0 to 237.5 basis points depending on the Company's net 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 customary for
financing of this type including covenants with respect to (i) the maintenance
of certain financial ratios and specified net worth, (ii) the limitation of (A)
the aggregate outstanding principal balance of the Senior Notes (as defined
below) to $50.0 million and (B) the aggregate outstanding principal balance of
any debt issued by the Company directly to sellers of acquired HVAC businesses
to $100.0 million, (iii) the sale of substantial assets, consolidations or
mergers by the Company and (iv) 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 "Senior Notes"), in a private placement to a
group of institutional investors. The Senior 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 Senior
Notes. The Note Purchase Agreement, pursuant to which the Senior Notes were
issued, contains covenants with respect to maintaining 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.
During 1998, the Company issued convertible subordinated notes ("Notes")
totaling approximately $6,164,000 as consideration in certain acquisitions.
Principal is payable in four equal annual installments beginning one year from
the date of issuance. Interest, at an average rate of 4.85% (ranging from 4.51%
to 5.54%), is payable quarterly. The Notes are convertible, at the option of the
holder, into the Company's Common Stock at any time, at an average
13
<PAGE> 14
conversion price of $36.70 per share (ranging from $31.56 to $42.09), subject to
adjustment in certain events. If the closing sales price of a share of Common
Stock exceeds the conversion price for five consecutive trading days, the
Company may elect to convert the Notes into shares of Common Stock at the
conversion price.
From January 1, 1999 through March 31, 1999, the Company issued Notes totaling
approximately $7,304,000 as consideration in certain acquisitions. Principal is
payable in four equal annual installments beginning one year from the date of
issuance. Interest at an average rate of 4.85% (ranging from 4.71% to 5.12%), is
payable quarterly. The Notes are convertible, at the option of the holder, into
the Company's Common Stock at any time, at an average conversion price of $18.85
per share (ranging from $14.93 to $32.15), subject to adjustment in certain
events. If the closing sales price of a share of Common Stock exceeds the
conversion price for periods ranging from five to ten consecutive trading days,
the Company may elect to convert the Notes into shares of Common Stock at the
conversion price.
From April 1, 1999 through June 30, 1999, the Company issued Notes totaling
approximately $5,459,000 as consideration in certain acquisitions. Principal is
payable in four equal annual installments beginning one year from the date of
issuance. Interest at an average rate of 5.33% (ranging from 5.22% to 5.37%), is
payable quarterly. The Notes are convertible, at the option of the holder, into
the Company's Common Stock at any time, at an average conversion price of $34.06
per share (ranging from $26.81 to $38.95), subject to adjustment in certain
events. If the closing sales price of a share of Common Stock exceeds the
conversion price for periods ranging from five to 20 consecutive trading days,
the Company may elect to convert the Notes into shares of Common Stock at the
conversion price.
The conversion of all Notes issued through June 30, 1999 into shares of the
Company's Common Stock would result in the issuance of approximately 728,000
shares of Common Stock. Subsequent to June 30, 1999, the trading price of the
Company's Common Stock has resulted in the Company having the option to convert
$5.6 million of these Notes into 341,000 shares of Common Stock. As of August
16, 1999, the Company has not elected to exercise the option to convert any of
the Notes.
For the six months ended June 30, 1999, net cash provided by operations was $7.5
million compared to cash used in operations of $12.5 million during the six
month period ended June 30, 1998.
For the six months ended June 30, 1999, net cash used in investing activities
totaled $41.7 million as compared to $37.1 million for the six month period
ended June 30, 1998. Cash used by investing activities during the six month
period ended June 30, 1999 is primarily attributable to the approximately $41.0
million of cash used to purchase HVAC businesses.
For the six months ended June 30, 1999, net cash provided by financing
activities was $38.6 million as compared to $45.2 million for the six month
period ended June 30, 1998. Cash provided by financing activities during the six
month period ended June 30, 1999 is primarily attributable to borrowing against
the Credit Facility.
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
convertible into shares of Common Stock in connection with acquisitions.
Management believes that the Company's existing cash balances, cash generated
from operations and additional borrowings 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. Prior to
September 1998, such acquisitions were predominantly funded by issuing shares of
Common Stock and cash. Since September 1998, the Company predominantly has used
convertible subordinated notes and cash to fund its acquisitions. Future
acquisitions could be effected using Common Stock, warrants, debt securities or
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
14
<PAGE> 15
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 additional financing on reasonable terms could have a negative
effect on the Company's plans to acquire additional HVAC businesses.
IMPACT OF YEAR 2000
The following disclosure is designated as Year 2000 readiness disclosure for
purposes of the Year 2000 Information and Readiness Disclosure Act.
Many computer systems in use today were designed and developed using two digits,
rather than four, to specify the year. As a result, such systems will recognize
the Year 2000 as "00" and may assume that the year is 1900 rather than 2000.
This could cause many computer applications to fail completely or to create
erroneous results unless corrective measures are taken. The Company recognizes
the need to minimize the risk that its operations will be adversely affected by
Year 2000 software failures and is in the process of preparing for the Year
2000.
The Company has evaluated its Year 2000 risk in three separate categories:
information technology systems ("IT"), non-IT systems ("Non-IT") and material
third party relationships. The Company has developed a plan in which the risks
in each of these categories are being reviewed and addressed by the appropriate
level of management as follows:
IT. The Company is actively engaged in developing and installing new financial,
information and operational systems which are expected to be completed and
installed in all Service Centers. The Company's new financial, information and
operational systems have been installed at the SEI Management Company support
center and at 51 locations. Two modules of the Company's new financial system
currently being installed are not Year 2000 compliant. Modifications to make
these two modules Year 2000 compliant have been completed and testing is in
progress on these modules. Management expects that they will be in production by
September 1999. The Company is prioritizing the installation of its new systems
at Service Centers which are not Year 2000 compliant to minimize its IT risk. In
connection with this implementation, system programs have been designed so that
the Year 2000 will be recognized as a valid date and will not affect the
processing of date-sensitive information. Current systems in place at various
Service Centers that have not installed the Company's new financial, information
and operational systems are being evaluated for Year 2000 compliance, and the
assessment efforts are 99% complete. In certain situations, current systems may
need to be upgraded to Year 2000 compliant versions or replaced with the new
financial, information and operational systems. Management believes that all
upgrades and replacements necessary to ensure Year 2000 readiness of IT systems
for currently owned Service Centers will be completed by December 1999.
Non-IT. Non-IT systems involve embedded technologies, such as microcontrollers
or microprocessors. Examples of Non-IT systems include telephones, time clocks
and security systems. Management believes the Company's Non-IT risks are
minimal. The Company is in the process of performing an inventory and assessment
of the embedded systems at the Service Centers and SEI Management Company
support center. The assessment effort is 70% complete and the project is
scheduled to be completed by September 1999. The Company expects to complete any
required upgrade or replacement of Non-IT systems by October 1999. This actual
completion date may be affected by the number of non-Year 2000 ready embedded
systems identified during the assessment. The Company estimates the costs to be
incurred for the review and modification of the Company's Non-IT systems will
not exceed $100,000.
The Company plans to acquire additional HVAC businesses during the remainder of
1999. Each new HVAC business will be assessed for Year 2000 readiness, and the
Company expects that any required IT or Non-IT systems upgrades or replacements
will be made before January 1, 2000.
Third Party Risk. The Company's review of its third party risk includes detailed
review of material relationships with vendors and certain business partners. To
operate its business, the Company relies upon government agencies, utility
companies, providers of telecommunication services, suppliers and other third
party service providers ("Material Relationships"), over which it can assert
little control. The Company's ability to conduct its core business is
15
<PAGE> 16
dependent upon the ability of these Material Relationships to fix their Year
2000 issues to the extent they affect the Company. The Company is monitoring and
assessing the progress of its Material Relationships to determine whether they
will be able to successfully interact with the Company in the Year 2000. The
Company has contacted and received oral or written responses from approximately
80% of its Material Relationships and is currently awaiting responses from the
remainder of its Material Relationships. The vast majority of the responses
received indicate that the vendors are Year 2000 compliant. The Company expects
to complete its Year 2000 readiness assessment of its Material Relationships by
August 1999.
If the steps taken by the Company and its Material Relationships to be Year 2000
compliant are not successful, the Company would likely experience various
operational difficulties resulting in a material adverse effect upon the
Company's financial condition and results of operations. These could include,
among other things, processing transactions to an incorrect accounting period,
difficulties in posting general ledger entries, inability to service customers
and lapses of service by vendors. If the Company's plan to install new systems
which effectively address the Year 2000 issue is not successfully or timely
implemented, the Company may need to devote more resources to the process, and
additional costs may be incurred. Management believes that the Year 2000 issue
is being appropriately addressed through the implementation of these new systems
and software development or the upgrade of current systems in place and by its
Material Relationships. Management does not expect the Year 2000 issue to have a
material adverse effect on the financial position, results of operations or cash
flows of the Company in future periods. The Company's forward-looking statements
regarding Year 2000 issues are dependent on many factors, including the ability
of the Company's vendors to achieve Year 2000 compliance, the proper functioning
of the new IT and Non-IT systems installed by the Company, the integration of
such systems and the development of software, some of which are beyond the
Company's control.
Through June 30, 1999, the Company has incurred approximately $475,000 of
systems and related costs that address Year 2000 compliance plans. The Company
expects to spend an additional $765,000 to complete its Year 2000 compliance
plans. The Company expenses costs associated with Year 2000 system changes as
the costs are incurred.
The costs of Year 2000 compliance and the date on which the Company believes it
will complete the project are based on management's best estimates, which were
derived utilizing numerous assumptions of future events, including the continued
availability of certain resources, third party modification plans and other
factors. However, there can be no guarantee that these estimates will be
achieved and actual results could differ materially from those anticipated.
Specific factors that might cause such material differences include, but are not
limited to, the availability and cost of personnel trained in this area,
supplier compliance and contingency actions and similar uncertainties. The
Company's total Year 2000 project costs do not include the estimated costs and
time associated with anticipated third party Year 2000 issues based on presently
available information.
The Company's Year 2000 contingency plan, although still in development,
addresses recovery solutions for Year 2000 related issues which may be
encountered by the Company. The contingency plan will mitigate the effects
arising from the most likely Year 2000 scenarios, based on current information
available to the Company. These scenarios could include the Company's failure to
complete all of its remediation plans in a timely manner or any third parties'
failure to deliver goods and services essential to the Company's business.
Management expects development of the contingency plan to conclude during the
third quarter.
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 cannot predict its ability to offset or control
future cost increases.
16
<PAGE> 17
SUBSEQUENT EVENT
As of August 16, 1999, the Company has made certain personnel changes at the SEI
Management Company. These personnel changes will result in a severance charge of
approximately $1.4 million in the third quarter of 1999.
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.
There were no other material changes to the quantitative and qualitative
disclosures about market risks presented in the Company's Annual Report on Form
10-K for the year ended December 31, 1998 or the Company's Quarterly Report
on Form 10-Q for the three months ended March 31, 1999.
17
<PAGE> 18
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 7, 1999. At this meeting, the following matters were voted upon by the
Company's stockholders:
(a) APPROVAL OF AGREEMENT AND PLAN OF MERGER.
The Company's stockholders approved the Agreement and Plan of Merger
providing for the merger of the Company with and into a wholly-owned Tennessee
subsidiary of the Company for the purposes of changing the state of
incorporation of the Company from Delaware to Tennessee by the following vote:
<TABLE>
<CAPTION>
VOTES CAST IN FAVOR VOTES CAST AGAINST ABSTENTIONS
<S> <C> <C>
9,622,458 1,608,604 13,292
</TABLE>
(b) ELECTION OF CLASS III DIRECTORS
Alan R. Sielbeck and Timothy G. Wallace were elected to serve as Class
III directors of the Company. The vote was as follows:
<TABLE>
<CAPTION>
VOTES CAST IN FAVOR VOTES CAST AGAINST OR
WITHHELD
<S> <C> <C>
Alan R. Sielbeck 13,565,578 413,798
Timothy G. Wallace 13,656,083 323,293
</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, 1999, by the following vote:
<TABLE>
<CAPTION>
VOTES CAST IN FAVOR VOTES CAST AGAINST ABSTENTIONS
<S> <C> <C>
13,844,136 55,321 79,919
</TABLE>
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
2000 Annual Meeting of Stockholders will be February 26, 2000, pursuant to
Rule 14a-4 of the Securities Exchange Act of 1934. The persons named as proxies
in the proxy statement may exercise discretionary authority to vote on any
proposals received after such date.
18
<PAGE> 19
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------ -----------------------
<S> <C>
3.1 -- Restated Certificate of Incorporation of the Registrant (a)
3.2 -- Bylaws of the Registrant (a)
4 -- Form of Common Stock Certificate (b)
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 -- Third Amended and Restated Credit Agreement, dated as of June 11, 1999, by and among
the Registrant, SunTrust Bank, Nashville, N.A., Nations Bank, N.A., and The first
National Bank of Chicago, as agents
27.1 -- Restated Financial Data Schedule for the Six Months Ended June 30, 1998 (for SEC
use only)
27.2 -- Financial Data Schedule for the Six Months Ended June 30, 1999 (for SEC use only)
</TABLE>
(a) Incorporated by reference to the exhibits filed with the
Registrant's Registration Statement on Form S-1, Registration
No. 333-07037.
(b) Incorporated by reference to the exhibits filed with the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1998, File No. 001-13037.
(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 year ended
December 31, 1997, File No. 001-13037.
(b) Reports on Form 8-K.
The Company did not file any Current Reports on Form 8-K during the
three months ended June 30, 1999.
19
<PAGE> 20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant 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 16, 1999
20
<PAGE> 21
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------ -----------------------
<S> <C>
3.1 -- Restated Certificate of Incorporation of the Registrant (a)
3.2 -- Bylaws of the Registrant (a)
4 -- Form of Common Stock Certificate (b)
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 -- Third Amended and Restated Credit Agreement, dated as of June 11, 1999, by and among
the Registrant, SunTrust Bank, Nashville, N.A., NationsBank, N.A., and The First
National Bank of Chicago, as agents
27.1 -- Restated Financial Data Schedule for the Six Months Ended June 30, 1998 (for SEC
use only)
27.2 -- Financial Data Schedule for the Six Months Ended June 30, 1999 (for SEC use only)
</TABLE>
(a) Incorporated by reference to the exhibits filed with the
Registrant's Registration Statement on Form S-1, Registration
No. 333-07037.
(b) Incorporated by reference to the exhibits filed with the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1998, File No. 001-13037.
(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 year ended
December 31, 1997, File No. 001-13037.
21
<PAGE> 1
EXHIBIT 10.3
THIRD AMENDED AND RESTATED
CREDIT AGREEMENT
dated as of June 11, 1999
by and among
SERVICE EXPERTS, INC.
AND
SUNTRUST BANK, NASHVILLE, N.A.
ADMINISTRATIVE AGENT, DOCUMENTATION AGENT
CO-BOOK MANAGER, AND AS A LENDER
AND
NATIONSBANK, N.A.
SYNDICATION AGENT,
CO-BOOK MANAGER, AND AS A LENDER
AND
THE FIRST NATIONAL BANK OF CHICAGO
CO-AGENT AND AS A LENDER
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I. DEFINITIONS............................................................................................1
ARTICLE II. THE CREDIT...........................................................................................14
Section 2.1 The Revolving Credit Loan...................................................................14
(a) Availability..........................................................................15
(b) Calculation of Maximum Total Amount...................................................15
(c) Revolving Feature.....................................................................15
(d) Funding by Lenders....................................................................15
Section 2.2 Letters of Credit Subcommitment.............................................................15
(a) Availability..........................................................................15
(b) Letter of Credit Fee..................................................................16
(c) Fronting Fee..........................................................................16
(d) Delivery of Letter of Credit..........................................................16
(e) Term..................................................................................16
(f) Reduction of Advances.................................................................16
(g) Participation of Lenders..............................................................16
Section 2.3 Swing Line Commitment.......................................................................17
(a) Availability..........................................................................17
(b) Borrowing Procedure Under Swing Line Commitment.......................................17
(c) Refunding Swing Line Loans With Proceeds of Mandatory Revolving Loans.................18
Section 2.4 Competitive Bid Loans.......................................................................19
Section 2.5 Interest Rate...............................................................................21
Section 2.6 Effective Date for Adjustment to Applicable Margin and Facility Fee.........................22
Section 2.7 Borrowing Procedure.........................................................................22
(a) In General............................................................................22
(b) Requests for Advances Under the Revolving Credit Loan.................................22
(c) Requests for Competitive Bid Loans....................................................23
(d) Requests for Swing Line Loans.........................................................23
(e) No Liability..........................................................................23
(f) Warranty..............................................................................23
Section 2.8 Use of Proceeds.............................................................................23
Section 2.9 Participation...............................................................................23
Section 2.10 Term of This Agreement.....................................................................24
Section 2.11 Payments to Principal Office; Debit Authority..............................................24
Section 2.12 Payments...................................................................................27
(a) Required Prepayment...................................................................27
(b) Optional Prepayment...................................................................27
(c) Permanent Reductions..................................................................28
(d) Interest Payments.....................................................................28
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
Section 2.13 Funding Losses.............................................................................29
Section 2.14 Apportionment of Payments..................................................................29
Section 2.15 Sharing of Payments, Etc...................................................................30
Section 2.16 Right of Offset, Etc.......................................................................30
Section 2.17 Facility Fee...............................................................................30
Section 2.18 Usury......................................................................................31
Section 2.19 Interest Rate Not Ascertainable, Etc.......................................................31
Section 2.20 Illegality.................................................................................31
Section 2.21 Increased Costs............................................................................32
Section 2.22 Capital Adequacy...........................................................................33
ARTICLE III. GUARANTORS..........................................................................................34
Section 3.1 Guarantors..................................................................................34
ARTICLE IV. REPRESENTATIONS AND WARRANTIES.......................................................................34
Section 4.1 Corporate Existence.........................................................................34
Section 4.2 Power and Authorization.....................................................................34
Section 4.3 Binding Obligations.........................................................................34
Section 4.4 No Legal Bar or Resultant Lien..............................................................34
Section 4.5 No Consent..................................................................................35
Section 4.6 Financial Condition.........................................................................35
Section 4.7 Investments, Advances, and Guaranties.......................................................35
Section 4.8 Liabilities and Litigation..................................................................35
Section 4.9 Taxes; Governmental Charges.................................................................35
Section 4.10 No Default.................................................................................36
Section 4.11 Compliance with Laws, Etc..................................................................36
Section 4.12 ERISA......................................................................................36
Section 4.13 No Material Misstatements..................................................................38
Section 4.14 Solvency...................................................................................36
Section 4.15 Regulation U...............................................................................36
Section 4.16 Filings....................................................................................37
Section 4.17 Title, Etc.................................................................................37
Section 4.18 Investment Company Act.....................................................................37
Section 4.19 Personal Holding Company...................................................................37
Section 4.20 Burdensome Agreements......................................................................37
Section 4.21 Insurance..................................................................................37
Section 4.22 Subsidiaries...............................................................................38
Section 4.23 Y2K Compliance.............................................................................38
ARTICLE V. CONDITIONS PRECEDENT..................................................................................38
Section 5.1 Initial Conditions..........................................................................38
(a) Notes and Loan Documents..............................................................38
(b) Resolutions...........................................................................39
(c) Certificate of Existence..............................................................39
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
(d) Consents, Etc.........................................................................39
(e) Incumbency Certificate................................................................39
(f) Charter and By-Laws and Organizational Documents......................................39
(g) Attorneys Opinion Letter..............................................................39
(h) Payment of Fees, Etc..................................................................39
(i) No Default Certificate................................................................39
(j) Seller Notes..........................................................................39
(k) Other.................................................................................39
Section 5.2 All Borrowings..............................................................................40
ARTICLE VI. AFFIRMATIVE COVENANTS................................................................................40
Section 6.1 Financial Statements and Reports............................................................40
(a) Annual Reports........................................................................40
(b) Quarterly and Year-to-Date Reports....................................................41
(c) Compliance Reports....................................................................41
(d) SEC Filings and Public Information....................................................41
(e) Consolidating Statements..............................................................41
(f) Other Information.....................................................................41
Section 6.2 Taxes and Other Liens.......................................................................41
Section 6.3 Maintenance.................................................................................42
Section 6.4 Further Assurances..........................................................................42
Section 6.5 Performance of Obligations..................................................................43
Section 6.6 Insurance...................................................................................43
Section 6.7 Accounts and Records........................................................................43
Section 6.8 Right of Inspection.........................................................................43
Section 6.9 Notice of Certain Events....................................................................43
Section 6.10 ERISA Information and Compliance...........................................................44
Section 6.11 Management.................................................................................44
Section 6.12 Additional Guaranties......................................................................44
Section 6.13 Equity Proceeds............................................................................45
Section 6.14 Y2K Compliant..............................................................................45
ARTICLE VII. NEGATIVE COVENANTS..................................................................................45
Section 7.1 Debts, Guarantees, and Other Obligations....................................................45
Section 7.2 Liens.......................................................................................47
Section 7.3 Investments, Loans, and Advances............................................................47
Section 7.4 Distributions and Redemptions; Issuance of Stock............................................48
Section 7.5 Sales and Leasebacks........................................................................49
Section 7.6 Mergers, Consolidations, Etc................................................................49
Section 7.7 Proceeds of Loan............................................................................49
Section 7.8 Disposition of Assets.......................................................................49
Section 7.9 Limitation on Business......................................................................49
Section 7.10 Inconsistent Agreements....................................................................49
Section 7.11 Acquisitions...............................................................................50
Section 7.12 Prepayment of Seller Notes.................................................................50
</TABLE>
iii
<PAGE> 5
<TABLE>
<S> <C>
ARTICLE VII.A. FINANCIAL COVENANTS...............................................................................50
Section 7A.01 Financial Covenants.......................................................................50
(a) Minimum Net Worth.....................................................................50
(b) Total Net Funded Debt to Pro Forma EBITDA.............................................50
(c) Total Net Funded Debt to Capitalization...............................................50
(d) Fixed Charge Coverage Ratio...........................................................50
ARTICLE VIII. EVENTS OF DEFAULT..................................................................................50
Section 8.1 Events of Default...........................................................................50
(a) Principal and Interest Payments.......................................................50
(b) Representations and Warranties........................................................51
(c) Obligations...........................................................................51
(d) Involuntary Bankruptcy or Receivership Proceedings....................................51
(e) Voluntary Petitions...................................................................51
(f) Assignments for Benefit of Creditors, Etc.............................................51
(g) Undischarged Judgments................................................................52
(j) ERISA Liability.......................................................................52
(k) Change of Ownership...................................................................52
(m) Default to Other Persons..............................................................52
Section 8.2 Remedies....................................................................................52
Section 8.3 Default Conditions..........................................................................53
ARTICLE IX. GENERAL PROVISIONS...................................................................................54
Section 9.1 Notices.....................................................................................54
Section 9.2 Invalidity..................................................................................54
Section 9.3 Survival of Agreements......................................................................55
Section 9.4 Successors and Assigns......................................................................55
Section 9.5 Waivers.....................................................................................55
Section 9.6 Cumulative Rights...........................................................................55
Section 9.7 Governing Law...............................................................................55
Section 9.8 Time of Essence.............................................................................55
Section 9.9 Costs, Expenses, and Taxes..................................................................55
Section 9.10 Entire Agreement; No Oral Representations Limiting Enforcement.............................56
Section 9.11 Amendments.................................................................................56
Section 9.12 Distribution of Information................................................................56
Section 9.13 Borrower's Right to Replace a Lender.......................................................56
ARTICLE X. JURY WAIVER...........................................................................................57
Section 10.1 Jury Waiver................................................................................57
</TABLE>
iv
<PAGE> 6
<TABLE>
<S> <C>
ARTICLE XI. HAZARDOUS SUBSTANCES.................................................................................57
Section 11.1 Representation and Indemnity Regarding Hazardous Substances................................57
ARTICLE XII. THE ADMINISTRATIVE AGENT............................................................................58
Section 12.1 Appointment of Administrative Agent........................................................58
Section 12.2 Authorization of Administrative Agent with Respect to the Loan Documents...................59
Section 12.3 Administrative Agent's Duties Limited; No Fiduciary Duty...................................61
Section 12.4 NO RELIANCE ON THE ADMINISTRATIVE AGENT....................................................62
Section 12.5 Certain Rights of Administrative Agent.....................................................62
Section 12.6 Reliance by Administrative Agent...........................................................63
Section 12.7 Indemnification of Administrative Agent....................................................63
Section 12.8 The Administrative Agent in its Individual Capacity........................................63
Section 12.9 Holders of Notes...........................................................................64
Section 12.10 Successor Administrative Agent............................................................64
Section 12.11 Notice of Default or Event of Default.....................................................65
Section 12.12 Benefit of Agreement......................................................................65
Section 12.13 Co-Agents, Documentation Agent, Syndication Agent, Etc....................................67
</TABLE>
v
<PAGE> 7
EXHIBITS
EXHIBIT A: Pricing Grid
EXHIBIT B: form of Revolving Credit Note
EXHIBIT C: form of Application and Agreement for Issuance of a Letter of
Credit
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 and Consolidated Entities
EXHIBIT J: Compliance Certificate (Section 6.1(c))
vi
<PAGE> 8
THIS THIRD AMENDED AND RESTATED CREDIT AGREEMENT is made and entered
into as of this 8th day of June, 1999 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 administrative agent for the Lenders and each successive
administrative agent for such Lenders as may be appointed from time to time
pursuant to Article XII herein (in such capacity, the "Administrative Agent"),
SUNTRUST BANK, NASHVILLE, N.A., as documentation agent (in such capacity, the
"Documentation Agent"), NATIONSBANK, N.A., as syndication agent (in such
capacity, the "Syndication Agent"), THE FIRST NATIONAL BANK OF CHICAGO, as
co-agent (in such capacity, the "Co-Agent"), and SUNTRUST BANK, NASHVILLE, N.A.
and NATIONSBANK, N.A., as Co-Book Managers (in such capacity, the "Co-Book
Managers").
RECITALS:
1. The Borrower, Administrative Agent, and the Lenders entered into an
Amended and Restated Credit Agreement dated as of September 18, 1997, which
subsequently was amended by the Second Amended and Restated Credit Agreement
dated April 28, 1998 and other amendments thereto (herein the Amended and
Restated Credit Agreement, as amended and restated by the Second Amended and
Restated Credit Agreement, as amended, shall be referred to as the "Credit
Agreement").
2. The parties to the Credit Agreement desire to amend and restate the
Credit Agreement as provided herein.
3. This Third 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.
<PAGE> 9
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.
If, after the date hereof, there shall be any modification in GAAP used
in the preparation of the Financial Statements delivered pursuant to Section 4.6
(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 4.6.
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.
"Acquired Entity" means any Person acquired by, merged into, or
consolidated with the Borrower or any Consolidated Entities, as permitted
herein.
"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.
"Administrative Agent" means SunTrust Bank, Nashville, N.A. or its
successor as appointed pursuant to the provisions of Article XII herein.
"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 the
face amount of
2
<PAGE> 10
Letters of Credit issued by the Administrative Agent. 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.
"Agreement" means this Third 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 respective percentages designated in the
Pricing Grid for LIBOR Advances and Base Rate Advances based on the Consolidated
Entities' ratio of Total Net Funded Debt to Pro Forma EBITDA determined at the
end of each Fiscal Quarter; provided, however, if the Consolidated Entities'
ratio of Total Net Funded Debt to Capitalization is greater than .50 to 1.00,
then the Applicable Margin shall be equal to the respective Applicable Margin
for when the Consolidated Entities' ratio of Total Net Funded Debt to Pro Forma
EBITDA is greater than 2.50x, even if the Consolidated Entities' ratio of Total
Net Funded Debt to Pro Forma EBITDA shall not be greater than 2.50x. Any change
to the Applicable Margin shall be effective immediately on the first day of the
Fiscal Quarter following the date of calculation.
"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 Administrative 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 Administrative 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 Administrative
Agent shall take effect at the opening of business on the
3
<PAGE> 11
day such announcement is made. The Administrative Agent may make 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, plus the Applicable Margin.
"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 Administrative Agent for an Advance as described in
Section 2.7(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.
"Calculation Date" has the same meaning as set forth in Section 2.6
herein.
"Capitalization" means an amount as measured in accordance with GAAP
for the Consolidated Entities equal to the sum of Total Net Funded Debt plus
Consolidated Net Worth.
"Cash" means the amount attributed to cash as depicted on the
consolidated Financial Statements of the Consolidated Entities and calculated in
accordance with GAAP.
"Closing Date" means the 8th day of June, 1999.
"Co-Agent" has the same meaning as set forth in the preamble hereto.
"Co-Book Managers" has the same meaning as set forth in the preamble
hereto.
4
<PAGE> 12
"Code" means the Internal Revenue Code of 1986, as amended from time to
time, and any successor statute.
"Competitive Bid" shall mean an offer to make a Competitive Bid Loan to
Borrower substantially in the form of Exhibit F.
"Competitive Bid Facility" shall mean the facility established pursuant
to Section 2.4.
"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 2.4 for the same Interest 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" means the absolute rate obtained by the Borrower
from the solicitation of Competitive Bids from the Lenders for specific time
periods as requested by the Borrower pursuant to a Competitive Bid Request and
the bidding procedure described in Section 2.4 herein. Each Lender may bid at
its own discretion for amounts up to the aggregate amount of its Pro Rata Share
of the unused Revolving Credit Loan Commitment, and the Borrower is under no
obligation to accept any of the Competitive Bids. Competitive Bid Rate Advances
provided by any Lender shall be deemed usage of such Lender's Pro Rata Share for
the purpose of calculating its lending obligation hereunder.
"Competitive Bid Rate Advance" shall mean an Advance made by a Lender
to the Borrower pursuant to the bidding procedure described in Section 2.4.
"Competitive Bid Request" shall mean a request made by the Borrower
pursuant to Section 2.4 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 I
hereto.)
5
<PAGE> 13
"Consolidated Interest Expense" means without duplication and as
determined in accordance with GAAP, 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 including net costs under interest rate
protection agreements for the Consolidated Entities to the extent required to be
reflected as interest expense under GAAP.
"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 Administrative 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, the sum of (i) Total Funded Debt, and (ii) all other liabilities
contingent or otherwise, which in accordance with GAAP are required to 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, for which claims
have been made.
6
<PAGE> 14
"Default" or "Event of Default" means the occurrence of any of the
events specified in Section 8.1 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 8.3 hereof.
"Default Rate" means an interest rate equal to two percent (2%) per
annum above the Base Rate.
"Documentation Agent" has the same meaning as set forth in the preamble
hereto.
"Dollar" and the sign "$" means the lawful money of the United States
of America.
"EBITAR" means, as measured in accordance with GAAP, for the
Consolidated Entities 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 in accordance with GAAP, for the
Consolidated Entities 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.
"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 Administrative Agent,
which approval shall not be unreasonably withheld, provided that the approval of
the Borrower shall not be required if an Event of Default exists hereunder; and
(ii) any Lender or Affiliate of any Lender.
"Environmental Law" means any federal, state, or local law, statute,
ordinance, or regulation applicable or pertaining to health, waste materials,
removal of waste materials, oil, gas, underground storage tanks, Hazardous
Substances, other environmental conditions on, under, or affecting any of the
Property of any Consolidated Entity.
"Equity Proceeds" means the net cash proceeds obtained by any
Consolidated Entity through the public or private sale of shares of stock of any
Consolidated Entity.
"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.
7
<PAGE> 15
"Facility Fee" means that fee designated on the Pricing Grid and
payable quarterly in arrears on the Maximum Total Amount of the Credit Facility,
based on the Consolidated Entities' ratio of Total Net Funded Debt to Pro Forma
EBITDA; provided, however, if the Consolidated Entities' ratio of Total Net
Funded Debt to Capitalization is greater than 0.50:1.00, then the Facility Fee
shall be equal to the respective Facility Fee for when the Consolidated
Entities' ratio of Total Net Funded Debt to Pro Forma EBITDA is greater than
2.50x, even if the Consolidated Entities' ratio of Total Net Funded Debt to Pro
Forma EBITDA shall not be greater than 2.50x. Any change to the Facility Fee
shall be effective immediately on the first day of the fiscal quarter following
the date of calculation. The Facility Fee shall be calculated for the actual
days elapsed on the basis of a 360-day year.
"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 Administrative
Agent from three (3) Federal funds brokers of recognized standing selected by
the Administrative Agent.
"Financial Statements" means (i) the consolidated financial statement
or statements of the Consolidated Entities, described or referenced in Section
4.6 hereof and delivered pursuant to this Agreement to Administrative Agent for
distribution to Lenders, and (ii) subsequent financial statements as described
or referenced in Section 6.1 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 of the Consolidated Entities, as determined on a
consolidated basis for the Consolidated Entities in accordance with GAAP and
measured over a trailing four Fiscal Quarter period.
"Fronting Fee" means the fee as stipulated in a letter agreement
between Borrower and Administrative Agent dated April 19, 1999, referred to
therein as the "Fee Letter."
"Funding Account" shall mean the account maintained by the Borrower
with Administrative Agent into which Advances are deposited.
8
<PAGE> 16
"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 6.12 herein.
"Guaranty" and "Guaranties" mean the guaranty agreements executed by
each of the Guarantors in form and substance approved by Administrative 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 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
(ii) thereafter each period commencing on the last day of the
next preceding Interest 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 Periods are subject
to the following:
(1) if any Interest Period would otherwise end on a day that
is not a Business Day, such Interest Period shall be extended to the
next succeeding Business Day unless the result of such extension would
be to carry such Interest Period into another calendar month, in which
event such Interest Period shall end on the immediately preceding
Business Day;
(2) any Interest Period that would otherwise extend beyond the Maturity
Date shall end on the Maturity Date; and
9
<PAGE> 17
(3) any Interest Period that begins on the last Business Day
of a calendar month (or on a day for which there is no numerically
corresponding day in the calendar month at the end of such Interest
Period) shall end on the last Business Day of 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 2.5 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 C hereto
or any other similar form required by the Administrative Agent appropriately
completed by the Borrower pursuant to Section 2.2(a) herein.
"Letter of Credit Fee", as set forth in Section 2.2(b) herein, means an
amount equal to the product of: (a) the Applicable Margin used in calculating
the LIBOR Option for each period of calculation multiplied by (b) the face
amount of outstanding Letters of Credit.
"Letter of Credit Subcommitment" means the commitment of Administrative
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 2.2 herein.
"Letters of Credit" has the same meaning as set forth in Section 2.2(a)
herein.
"LIBOR" shall mean, for any Interest Period, the offered rates for
deposits in U.S. Dollars for a period comparable to the selected Interest 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 Period. If any of the Interest 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 Administrative 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
10
<PAGE> 18
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 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 Administrative Agent's request.
"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) May 31, 2002, 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 $200,000,000, 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,
11
<PAGE> 19
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, 1998; (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.
"Pricing Grid" means the Pricing Grid depicted on Exhibit A.
"Principal Office" means the principal office of the Administrative
Agent located at 201 Fourth Avenue North, Nashville, Tennessee 37219.
"Private Placement Debt" means those certain Senior Notes, Series
1998-A in the principal face amount of $32,500,000 dated June 1, 1998 with a
maturity of June 15, 2003 and those certain Senior Notes, Series 1998-B in the
principal face amount of $17,500,000 dated June 1, 1998 with a maturity of June
15, 2005.
"Pro Forma EBITDA" means without duplication:
(i) EBITDA for the four consecutive Fiscal Quarters ending on
such dates; plus
(ii) the EBITDA for any Acquired Entity prior to it becoming
an Acquired Entity for such respective period of measurement.
"Pro Rata Share" means the percentage of Maximum Total Amount committed
to by each of the Lenders as set forth opposite their respective signatures
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.
12
<PAGE> 20
"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.
"Required Lenders" means those Lenders with an aggregate Pro Rata Share
equal to or greater than 66 2/3%.
"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 2.1 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 B 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.
"Security Documents" means any stock pledge agreement, security
agreement, Reg U, stock power, any other agreement required by Administrative
Agent to be executed by a Consolidated Entity in form and substance satisfactory
to Administrative Agent that enables Administrative Agent to obtain a perfected
security interest for the benefit of the Lenders in certain shares of stock of
certain Guarantors, all as specified in Section 6.12 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) the terms
and forms of which are satisfactory to Administrative 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 either directly
or indirectly through one or more other Subsidiaries at the time as of which any
determination is being made.
"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
13
<PAGE> 21
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 Administrative Agent and any successor
thereto or assign thereof.
"Swing Line Loan" means the Advance 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.
"Syndication Agent" has the same meaning as set forth in the preamble
hereto.
"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 with respect to any
redeemable preferred stock to be redeemed within the next twelve (12) months.
"Total Net Funded Debt" shall mean the sum of Total Funded Debt less
Cash, provided, however, under no circumstances shall the amount of Cash used to
adjust Total Net Funded Debt exceed $8,000,000.
"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 2.1 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 from time
to time on and after the Closing Date, but prior to the Maturity Date
equal to such Lender's Pro Rata Share of the Advance requested
14
<PAGE> 22
to be made on such day (herein its "Revolving Credit Loan Commitment")
(excluding Advances requested under the Swing Line Loan), provided that
(i) in no event shall any Lender be permitted to fund an amount under
its Revolving Credit Loan Commitment (including its Pro Rata Share of
outstanding Letters of Credit), plus any Competitive Bid Loans, plus
any outstanding Swing Line Loan owed to such Lender in excess of its
Pro Rata Share of the Maximum Total Amount; (ii) the principal amount
advanced and outstanding under any Competitive Bid Rate Advance shall
reduce the amount that any Lender is obligated to fund under its
Revolving Credit Loan Commitment by an equal amount; and (iii) in the
event that any Lender's obligation to fund an Advance under its
Revolving Credit Loan Commitment is reduced because of outstanding
Competitive Bid Rate Advances owing to such Lender (herein the amount
that such Lender is unable to fund shall be referred to as the
"Unfunded Advance"), then the remaining Lenders, upon notice from the
Administrative Agent, shall fund the Unfunded Advance on a pro rata
basis.
(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, 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, 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.
(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 then exist, 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 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.
SECTION 2.2 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 Administrative 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
15
<PAGE> 23
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 Administrative Agent.
(b) Letter of Credit Fee. In connection with the issuance of
any Letter of Credit, the Borrower shall pay to the Administrative
Agent the Letter of Credit Fee quarterly in advance based on the actual
number of days for the prospective Fiscal Quarter and calculated on the
basis of a year of 360 days for the actual number of days elapsed and
to be apportioned and paid by Administrative 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) Fronting 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 Administrative Agent a Fronting Fee quarterly
in advance based on the actual number of days for the prospective
Fiscal Quarter and calculated on the basis of a year of 360 days for
the actual number of days elapsed and to be retained by Administrative
Agent. None of the Lenders, except for the Administrative Agent, shall
share in the Fronting Fee.
(d) Delivery of Letter of Credit. The Administrative 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 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 Administrative
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 Administrative 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 Administrative Agent, shall be
promptly notified by Administrative Agent and shall be deemed to have
purchased without recourse a risk participation from the Administrative
Agent in such Letter of Credit and the
16
<PAGE> 24
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 Administrative 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 Administrative Agent has not been reimbursed as
required hereunder or under any such Letter of Credit, each such Lender
shall pay to the Administrative Agent its Pro Rata Share of such
unreimbursed drawing in same day funds on the day of notification by
the Administrative 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
Administrative 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 2.3 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
Swing Line Loan (which designation shall be delivered by the
Borrower to the Administrative 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 Administrative
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;
17
<PAGE> 25
(iii) the Borrower authorizes the Administrative 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.
(c) 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 Administrative 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 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
18
<PAGE> 26
circumstance, happening or event whatsoever, whether or not similar to
any of the foregoing.
SECTION 2.4 COMPETITIVE BID LOANS.
(a) In addition to making Revolving Loans pursuant to the
Revolving Credit Commitments pursuant to Section 2.1 above, the
Borrower may on the terms and conditions set forth herein request the
Lenders to make offers to make Competitive Bid Loans for amounts up to
the aggregate amount of any Lender's unused Revolving Credit
Commitment. The Lenders may, but shall have no obligation to, make such
offers, and the Borrower may, but shall have no obligation 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 noon
(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 Periods in a single notice;
provided, however, that the request for each separate Interest 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 (iii) the
Interest 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 12:30 p.m. (Nashville, Tennessee time) on the
Business Day of the proposed Competitive Bid Loan. Competitive Bids
that do not conform substantially to the format of Exhibit F 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, (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 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.
19
<PAGE> 27
(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 1:00 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 general corporate purposes, including working
capital, Acquisitions permitted under this Agreement, and capital
expenditures.
(h) Any Lender's Competitive Bid Rate Advance shall reduce
such Lender's obligation to lend its Pro Rata Share of the remaining
unused Revolving Credit Loan Commitment.
(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 Administrative 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).
(j) Notwithstanding any provision contained herein to the
contrary, (i) upon the occurrence of an Event of Default and at any
time thereafter while such Event of Default is continuing, and (ii)
upon the delivery of written notice from the Administrative Agent to
the Lenders advising that the Administrative Agent is invoking the
requirements of this paragraph, each of the Lenders, including
20
<PAGE> 28
Lenders under the Revolving Credit Loan, Lenders under any Competitive
Bid Loans, and the Swing Line Lender, shall execute such assignments,
participation agreements, and other documentation as reasonably
required by the Administrative Agent to cause all such Lenders to
receive and hold an interest in the then outstanding principal balance
of the aggregate of all outstanding Revolving Credit Loans, Competitive
Bid Loans, and the Swing Line Loan equal to the Pro Rata Share
percentage as defined herein. Should the Event of Default giving rise
to the execution of such assignments, participation agreements, and/or
related documentation be cured, then upon the delivery of written
notice from the Administrative Agent, each of the Lenders, including
Lenders under the Revolving Credit Loan, Lenders under any Competitive
Bid Loans, and the Swing Line Lender shall execute such assignments,
participation agreements, and other documentation as reasonably
required by Administrative Agent to cause all such Lenders to hold the
respective interest in and to the Revolving Credit Loans, Competitive
Bid Loans, and the Swing Line Loan held by such Lenders at the time the
Lenders were required to execute the assignments and participation
agreements specified herein following an Event of Default. The Borrower
acknowledges the requirements of this paragraph and consents to the
transactions described herein. Each Lender's obligations under this
Section 2.4(j) shall be absolute and unconditional and shall not be
affected by any circumstance including, without limitation, (i) any
adverse change in the condition (financial or otherwise) of the
Borrower or any other Consolidated Entity, (ii) any breach of this
Agreement by the Borrower or any other Lender, or (iii) any other
circumstance, happening or event whatsoever. Should the Event of
Default giving rise to the execution of such assignments, participation
agreements, and related documentation be cured, then all outstanding
Loans held by the Lenders shall bear interest at the Base Rate Option.
SECTION 2.5 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 2.7(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 Periods applicable to LIBOR Advances outstanding at any one
time.
21
<PAGE> 29
(d) During the existence 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 2.6 EFFECTIVE DATE FOR ADJUSTMENT TO APPLICABLE MARGIN AND
FACILITY FEE. The Applicable Margin and Facility Fee shall be determined and
adjusted quarterly on the first day of the Fiscal Quarter next following the
date on which the Borrower delivers the officer's certificate required to be
delivered pursuant to Section 6.1(c) (herein referred to as a "Calculation
Date"). If the Borrower fails to deliver to the Administrative Agent the
officer's certificate required by Section 6.1(c) in the manner so required and
within fifteen (15) days after the date so required, then an Event of Default
shall be deemed to exist hereunder and the Applicable Rate shall be deemed to be
the Default Rate, and the Facility Fee shall be deemed to be the highest
Facility Fee reflected in the Pricing Grid.
SECTION 2.7 BORROWING PROCEDURE.
(a) In General. The Borrower authorizes the Administrative
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
Administrative Agent). When a request for an Advance is made by 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
Administrative Agent to follow such instructions.
(b) Requests for Advances Under the Revolving Credit Loan.
Borrower shall give the Administrative Agent notice by 12:00 noon
(Nashville, Tennessee time) at least three (3) Business Days prior to 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 12:00 noon (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 Administrative Agent after 12:00 noon (Nashville, Tennessee
time) shall be deemed given on the next Business Day. Any telephonic
notices shall be promptly confirmed in writing delivered to
Administrative 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
22
<PAGE> 30
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 Period. By 12:00 noon
(Nashville, Tennessee time) at least three (3) Business Days prior to
the expiration of any applicable Interest 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. Administrative 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
Administrative 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 2.4 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 2.3(b) herein.
(e) No Liability. The Administrative Agent and the Lenders
(including the Swing Line Lender) shall have no liability to Borrower
arising out of their compliance with the 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 exists; and (ii) the representations and
warranties contained in Article IV of this Agreement remain true,
correct, and accurate.
SECTION 2.8 USE OF PROCEEDS. Proceeds of the Advances shall be used by
the Borrower and the other Consolidated Entities for general corporate purposes,
including working capital, Acquisitions permitted under this Agreement, and
capital expenditures.
SECTION 2.9 PARTICIPATION. Subject to Section 12.12(d), any Lender
shall have the right to enter into one or more participation agreements with one
or more Affiliates,
23
<PAGE> 31
banks, or financial institutions on such terms and conditions as such Lender
shall deem advisable.
SECTION 2.10 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 2.11 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 Administrative 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
Administrative 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 Administrative Agent.
Additionally, payments under the Swing Line Loan shall be made pursuant
to the procedure specified in the Business Sweep System.
(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 Loan 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 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 Loan Documents, after withholding or
deduction for or on account of any such taxes (including additional
sums payable under this Section 2.11), will not be less than the full
amount provided
24
<PAGE> 32
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 Administrative 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
Administrative Agent and each Lender and reimburse the Administrative
Agent and each Lender upon written request for the amount of any such
taxes so levied or imposed and paid by the Administrative 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 Administrative 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 Administrative 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 Administrative
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
Administrative Agent and each Lender, upon written request,
for any taxes imposed (including, without limitation, taxes
imposed on the overall net income of the Administrative Agent
or Lender pursuant to the laws of the jurisdiction in which
the principal executive office of the Administrative Agent or
Lender is located) as the Administrative Agent or Lender shall
determine are payable by the Administrative Agent or Lender in
respect of amounts paid by or on behalf of Borrower to or on
behalf of the Administrative Agent or Lender pursuant to
paragraph (i) hereof.
(iv) In addition to the documents to be furnished
pursuant to Section 2.11(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
25
<PAGE> 33
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 Loan Documents.
(v) The Borrower shall not be required to pay any
amounts pursuant to Section 2.11(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 2.11 (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 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
26
<PAGE> 34
payments with respect to future payments due to any Lender
under this Agreement or the other Loan Documents.
(c) Payment by the Borrower to the Administrative Agent in
accordance with the terms of this Agreement shall, as to the Borrower,
constitute payment to the Lenders under this Agreement.
SECTION 2.12 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 2.1(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
Administrative 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
Administrative 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 Administrative 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 Administrative 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); provided that, no notice is required for prepayments
made pursuant to the Business Sweep System;
(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 Administrative
Agent no later than 1:00 p.m. (Nashville, Tennessee time) on
the date of such prepayment and Administrative Agent shall
promptly give notice to Lenders on the date of such
prepayment;
27
<PAGE> 35
(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 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 Period provided that: (A) the Borrower must give
Administrative Agent written notice of the amount and time of
such prepayment no later than 12:00 noon (Nashville, Tennessee
time) at least three (3) Business Days' prior to such
prepayment; (B) Borrower agrees to immediately pay all amounts
owed under Section 2.13 herein; 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 Period for such Advance only as
negotiated between the Borrower and such Lender and subject to
Borrower's paying to such Lender or Lenders all amounts owed
under Section 2.13 herein, if any.
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 Administrative 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 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 Administrative 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 Administrative Agent
on the last day of each Interest Period, provided
28
<PAGE> 36
that for all Advances at the LIBOR Option that have an
Interest 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 Period; and (C) on the Maturity Date, the
Borrower shall pay to the Administrative 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
Period, provided that for all Advances at the Competitive Bid
Rate that have an Interest Period in excess of three (3)
months, accrued interest on such Advances shall also be paid
on terms established by the offeror of the Competitive Bid
Loan.
(iii) All accrued interest on Advances under the
Swing Line Loan shall be paid on a quarterly basis in arrears
by Borrower to Administrative 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 2.13 FUNDING LOSSES. The Borrower shall compensate each Lender,
upon any Lender's written request to the Borrower, copied to Administrative
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, breakage fees, 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 Period. Notwithstanding the immediately
preceding sentence, any Lender to whom a Competitive Bid Loan is owed may, but
shall not be obligated to, forego compensation under this Section 2.13 related
to such Competitive Bid Loan either at the time it submits a Competitive Bid or
at the time the Borrower's liability arises hereunder.
SECTION 2.14 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; provided that if any Lenders have
obtained a greater interest in any Advance because such Lenders participated in
funding an Unfunded Advance pursuant to Section 2.1(a) herein, then aggregate
principal and interest payments made in respect of such Advances shall be
apportioned appropriately among such Lenders. In the event the Administrative
Agent receives payment under the Revolving Credit Loan on or before 1:00 p.m.
(Nashville, Tennessee time), then the
29
<PAGE> 37
Administrative Agent shall promptly thereafter distribute to each Lender its
share of all such payments received by the Administrative Agent on such Business
Day. Payments received by Administrative Agent subsequent to 1:00 p.m.
(Nashville, Tennessee time) shall be treated as received on the next succeeding
Business Day. Payments received by Administrative 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 Administrative Agent for
the Swing Line Loan shall not be apportioned but shall be delivered to the Swing
Line Lender.
SECTION 2.15 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 Administrative Agent, upon which the Administrative 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 2.15
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 2.16 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 2.17 FACILITY FEE. 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) and on the Maturity Date, the Borrower shall pay the
Facility Fee to the Administrative 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.
30
<PAGE> 38
SECTION 2.18 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, Administrative 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 canceled 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 2.19 INTEREST RATE NOT ASCERTAINABLE, ETC. In the event that
the Administrative 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 Administrative 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 Administrative 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 Period then in effect and until the Administrative
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 Administrative Agent), all Loans shall bear
interest at the Base Rate Option.
SECTION 2.20 ILLEGALITY.
(a) In the event that the Administrative Agent or any Lender
shall have determined any time that the making or continuance of any
Advance bearing interest at the LIBOR Option 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
Administrative 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.
31
<PAGE> 39
(b) Upon the giving of the notice to the Borrower referred to
in Section 2.20(a), the Borrower's right to elect a LIBOR Option 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 Period has
expired.
SECTION 2.21 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 Administrative 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 (all such Advances being collectively
referred to as the "LIBOR Loans") or its obligation to make
LIBOR Loans, or the basis of taxation of payments to the
Administrative Agent or any Lender of the principal of or
interest on its LIBOR Loans or its obligation to make LIBOR
Loans shall have changed (except for changes in the tax on the
overall net income of the Administrative Agent or such Lender,
or similar taxes, pursuant to the laws of jurisdictions with
taxing authority over the Administrative 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 Administrative Agent or any Lender
shall be imposed or deemed applicable or any other condition
affecting its LIBOR Loans or its obligation to make LIBOR
Loans shall be imposed on the Administrative Agent, any
Lender, the London interbank market;
and as a result thereof there shall be any increase in the cost to the
Administrative Agent or such Lender (a "LIBOR Affected Lender") of agreeing to
make or making, funding or maintaining LIBOR Loans (except to the extent already
included in the determination of the interest rate for LIBOR Loans), or there
shall be a reduction in the amount received or receivable by the Administrative
Agent or any LIBOR Affected Lender, then the Borrower shall from time to time,
upon written notice from and demand in good faith by the Administrative Agent,
pay to the Administrative Agent for the account of the Lenders (or any LIBOR
Affected Lender) within five (5) Business Days after the date of such notice and
demand, additional amounts sufficient to indemnify the Administrative Agent or
such LIBOR Affected Lender against such
32
<PAGE> 40
increased cost; provided, however, that nothing in this section shall require
Borrower to indemnify the Administrative Agent or any Lender for withholding
taxes imposed by the United States.
(b) If the Administrative Agent or any LIBOR Rate Affected
Lender shall in good faith determine that at any time, because of the
circumstances described in Section 2.20(a)(i) or (ii) arising after the
date of this Agreement affecting the Administrative Agent or any
Lender, the London interbank market, or the Administrative Agent or any
Lender's position in such market, the calculations for the interest
rates for LIBOR Loans as determined by the Administrative Agent or any
Lender will not adequately and fairly reflect the cost to the
Administrative Agent or any Lender of funding such LIBOR Loans, the
Administrative Agent or any LIBOR 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 Administrative Agent or any LIBOR 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 Administrative Agent or any LIBOR Rate Affected Lender):
(i) The Borrower's right to request, and the
Administrative 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
Period as LIBOR Loans shall be immediately suspended; and
(ii) After the last day of the then-current Interest
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 2.22 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
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
33
<PAGE> 41
Administrative 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 2.22. (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 3.1 GUARANTORS. Subject to the provisions of Section 6.12, 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 Administrative
Agent and to Lenders as follows:
SECTION 4.1 CORPORATE EXISTENCE. Each Consolidated Entity is a
corporation duly organized, legally existing, and in good standing under the
laws of its state of incorporation, and each 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 Consolidated Entities,
their respective business, or their respective Properties taken as a whole.
SECTION 4.2 POWER AND AUTHORIZATION. Each Consolidated Entity is duly
authorized and empowered to execute, deliver, and perform under all Loan
Documents to which it is a party; the board of directors of each Consolidated
Entity has authorized each Consolidated Entity to execute and perform under the
Loan Documents to which it is a party; and all other corporate and shareholder
action on the part of each Consolidated Entity required for the due execution,
delivery, and performance of the Loan Documents has been duly and effectively
taken.
SECTION 4.3 BINDING OBLIGATIONS. The Loan Documents when executed and
delivered in accordance with this Agreement will be, legal, valid and binding
upon and against each Consolidated Entity signing such Loan Documents 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 4.4 NO LEGAL BAR OR RESULTANT LIEN. The execution, delivery and
performance of the Loan Documents by the Consolidated Entities does not
constitute a default under, and will not violate any provisions of the articles
of incorporation (or
34
<PAGE> 42
charter), bylaws, articles of organization, and/or operating agreement of any of
the Consolidated Entity, any contract, agreement, law, regulation, order,
injunction, judgment, decree, or writ to which any of the Consolidated Entities
is subject, or result in the creation or imposition of any Lien upon any
Properties of any of the Consolidated Entities.
SECTION 4.5 NO CONSENT. The execution, delivery, and performance of the
Loan Documents by the Consolidated Entities do not require the consent or
approval of any other Person where the failure to obtain any such consent would
have a material adverse affect on the Consolidated Entities taken as a whole or
where the failure to obtain any such consent would impair the validity or
enforceability of the Loan Documents.
SECTION 4.6 FINANCIAL CONDITION. The consolidated Financial Statements
which have been delivered to Administrative Agent and to Lenders for the
Consolidated Entities dated December 31, 1998 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 4.7 INVESTMENTS, ADVANCES, AND GUARANTIES. None of the
Consolidated Entities has made material 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 4.8 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 Administrative 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 the
Consolidated Entities taken as a whole.
SECTION 4.9 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
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.
35
<PAGE> 43
SECTION 4.10 NO DEFAULT. None of the Consolidated Entities is in
default in any respect that materially and adversely affects the business,
Properties, operations, or financial condition of the Consolidated Entities
taken as a whole, 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. The Consolidated Entities are
not 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 the business, Properties, or financial condition of the Consolidated
Entities taken as a whole. The Consolidated Entities have not failed to obtain
any license, permit, franchise, trademark, patent, other intellectual property
rights, 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 the Consolidated
Entities taken as a whole. 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 NO MATERIAL MISSTATEMENTS. No information, exhibit, or
report furnished or to be furnished by the Consolidated Entities to
Administrative Agent or to Lenders in connection with this 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 4.14 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 4.15 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
36
<PAGE> 44
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 T, U or X, any laws and regulations to employee
benefit plans, and/or applicable environmental laws, rules, or regulations.
SECTION 4.16 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 4.17 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 7.2 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 the Consolidated Entities taken
as a whole 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, intellectual property rights, 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 the Consolidated Entities taken as a whole or on the
ability of the Borrower to perform its respective obligations under this
Agreement or any of the other Loan Documents.
SECTION 4.18 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.
SECTION 4.19 PERSONAL HOLDING COMPANY. The Borrower is not a "personal
holding company" as defined in Section 542 of the Code.
SECTION 4.20 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 the Consolidated Entities
taken as a whole.
SECTION 4.21 INSURANCE. Schedule 4.21 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 as of the Closing
Date. The Consolidated Entities have paid all material amounts of insurance
premiums now due
37
<PAGE> 45
and owing with respect to such insurance policies and coverages, and such
policies and coverages are in full force and effect as of the Closing Date. The
representation contained in this Section 4.21 shall not be deemed to be
reaffirmed on each Advance hereunder, and the requirement to maintain adequate
insurance coverage shall be governed on an ongoing basis by Section 6.6 herein.
SECTION 4.22 SUBSIDIARIES. Schedule 4.22 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.
SECTION 4.23 Y2K COMPLIANCE. The Borrower has initiated a review and
assessment of all areas within the business operations of the Consolidated
Entities (including those affected by suppliers and vendors) that could be
adversely affected by the "Year 2000 Problem", and pursuant to such review and
assessment, the Consolidated Entities taken as a whole have developed and
implemented plans to insure that the hardware and software systems which impact
or affect in any material way the business operations of the Consolidated
Entities taken as a whole are Year 2000 Compliant and Ready or shall be Year
2000 Compliant and Ready prior to the Consolidated Entities' sustaining any
material, adverse impact. As used herein, "Year 2000 Problem" means the risk
that computer applications used by the Consolidated Entities (or suppliers and
vendors of the Consolidated Entities) may be unable to recognize and perform
properly date-sensitive functions involving certain dates prior to and any date
after December 31, 1999. As used herein, "Year 2000 Compliant and Ready" means
that the hardware and software systems of the Consolidated Entities used in the
operation of their business and their general business plan will: (i) handle
date information involving any and all dates before, during, and/or after
January 1, 2000, including accepting input, providing output, and performing
date calculations in whole or in part; (ii) operate accurately without
interruption on and in respect of any and all dates before, during, and/or after
January 1, 2000 and without any change in performance; (iii) respond to and
process two digit year input without creating any ambiguity as to the century;
and (iv) store and provide date input information without creating any ambiguity
as to the century.
ARTICLE V. CONDITIONS PRECEDENT.
SECTION 5.1 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
Administrative 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 Administrative Agent and
its counsel:
(a) Notes and Loan Documents. This Agreement, the Revolving
Credit Notes, Swing Line Notes, the Competitive Bid Notes, 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").
38
<PAGE> 46
(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
Administrative Agent.
(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, 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 Administrative Agent.
(h) Payment of Fees, Etc. Payment of all outstanding fees and
expenses to Administrative Agent, and to any Lender, including all of
Administrative 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 Administrative
Agent and to Lenders that no Default Condition or Event of Default
exists and that all representations and warranties contained herein are
true and correct.
(j) Seller Notes. Delivery of the general form of Seller Note
used by Borrower.
(k) Other. Such other documents as Administrative Agent may
reasonably request.
39
<PAGE> 47
SECTION 5.2 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 and warranties 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 business operations or financial condition of the
Consolidated Entities taken as a whole; and (c) No Default Conditions
and no Event of Default have occurred and continue to exist.
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 6.1 FINANCIAL STATEMENTS AND REPORTS. Promptly furnish to
Administrative Agent (with sufficient copies for distribution by Administrative
Agent to each Lender):
(a) Annual Reports. As soon as available, and in any event
within one hundred and five (105) 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 or Treasurer as being correct
reflections of the information used for the audited consolidated
Financial Statements. Notwithstanding the foregoing, the Borrower shall
cause its Form 10-K to be available via the SEC EDGAR site within 90
days after the end of each Fiscal Year. 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
Administrative Agent and shall be accompanied by such certificates as
reasonably required by Administrative Agent.
40
<PAGE> 48
(b) Quarterly and Year-to-Date Reports. As soon as available
and in any event within fifty-five (55) days after the end of each
Fiscal Quarter, the company prepared consolidated Financial Statements
of the Consolidated Entities as of the end of such Fiscal Quarter,
together with the consolidated balance sheets, statements of income,
and statements of cash flow of the Consolidated Entities 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 Assistant Secretary of the Borrower as being true and
correct to the best of his or her knowledge. Notwithstanding the
foregoing, the Borrower shall cause its Form 10 Q's to be available via
the SEC EDGAR site within forty-five (45) days after the end of each
Fiscal Quarter.
(c) Compliance Reports. As soon as available and in any event
within one hundred and five (105) days after the end of a Fiscal Year
or within fifty-five (55) 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 J
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.
(e) Consolidating Statements. As reasonably requested by
Administrative Agent or any Lender, the Borrower shall make available
at its premises for review to the Administrative Agent or any such
Lender the Borrower's consolidating balance sheets, statement of
income, and statements of retained earnings.
(f) 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 Administrative
Agent may reasonably request from time to time.
All such balance sheets and other Financial Statements referred to in Sections
6.1(a) and (b) hereof shall conform to GAAP.
SECTION 6.2 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
41
<PAGE> 49
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 6.3 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) except to
the extent that a failure to do so would not have a material adverse
effect on the business operations or financial condition of the
Consolidated Entities taken as a whole 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) Except to the extent that a failure to do so would not
have a material adverse effect on the business operations or financial
condition of the Consolidated Entities taken as a whole observe and
comply and cause each Consolidated Entity to observe and comply 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) Except to the extent that a failure to do so would not
have a material adverse effect on the business operations or financial
condition of the Consolidated Entities taken as a whole 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) Except to the extent that a failure to do so would not
have a material adverse effect on the business operations or financial
condition of the Consolidated Entities taken as a whole 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 6.4 FURTHER ASSURANCES. Promptly cure any defects in the
creation, issuance, and delivery of the Loan Documents. The Borrower at its
expense promptly
42
<PAGE> 50
will execute and deliver to Administrative 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.
SECTION 6.5 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 6.6 INSURANCE. Maintain and continue to maintain, and cause
each Consolidated Entity to maintain and continue to maintain, with financially
sound and reputable insurers, insurance against such liabilities, casualties,
risks, and contingencies and in such types and amounts as is deemed prudent by
the Borrower and as is acceptable to the Administrative Agent. Upon request of
any Lender, through the Administrative Agent, the Borrower will furnish or cause
to be furnished to Administrative Agent from time to time a summary of the
insurance coverage of the Consolidated Entities in form and substance
satisfactory to Administrative Agent and if requested will furnish each Lender
copies of the applicable policies when available to Borrower.
SECTION 6.7 ACCOUNTS AND RECORDS. Keep books of record and account, in
which full, true, and correct entries will be made of all material 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 Administrative Agent in writing
and with an explanation thereof.
SECTION 6.8 RIGHT OF INSPECTION. Permit and cause each Consolidated
Entity to permit any officer, employee, or agent of Administrative Agent or any
Lender as may be designated by Administrative 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 Administrative Agent may reasonably desire.
SECTION 6.9 NOTICE OF CERTAIN EVENTS. Promptly notify Administrative
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
43
<PAGE> 51
other evidence of Debt of any of the Consolidated Entities which individually or
in the aggregate exceeds $1,000,000 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 governmental proceedings, including, but not limited to,
material litigation, arbitration proceedings, regulatory proceedings, and
environmental matters, affecting any of the Consolidated Entities in which the
amount involved is material and is not adequately covered by 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 which could reasonably be expected to impair the ability of the
Borrower to perform its respective obligations under this Agreement or the Loan
Documents; 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 6.10 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 Administrative Agent with
notice of any "reportable event" or "prohibited transaction" or the imposition
of a "withdrawal liability" within the meaning of ERISA.
SECTION 6.11 MANAGEMENT. Give prompt notice to the Administrative Agent
of the termination or resignation of the Chief Executive Officer, the Chief
Operating Officer, or the Chief Financial Officer of the Borrower.
SECTION 6.12 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 Administrative Agent such Guaranties and other documents, instruments
and items with respect thereto that are similar to those resolutions, 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
Administrative Agent for the benefit of Lenders pursuant to
44
<PAGE> 52
the Security Documents. Additionally, in such case upon Administrative Agent's
request, the Borrower shall cause the Administrative Agent to receive a
counsel's opinion letter issued by counsel acceptable to Administrative Agent
regarding such matters involving such Consolidated Entity as may be required by
Administrative Agent. Immediately upon any Person becoming a Consolidated
Entity, the Borrower shall give notice thereof to Administrative Agent. The
Borrower shall pay the costs and expenses, including without limitation, the
Administrative 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 6.12 shall not apply to Future
University, Inc. in the event that it becomes a Consolidated Entity until and
unless the Borrower or any other Consolidated Entity acquires one hundred
percent (100%) ownership of the common stock of Future University, Inc.
SECTION 6.13 EQUITY PROCEEDS. Give to Administrative Agent five (5)
Business Days prior notice of any proposed transaction intended to raise Equity
Proceeds.
SECTION 6.14 Y2K COMPLIANT. Maintain and cause each Consolidated Entity
to maintain its material hardware and software systems used in its business
operations and its general business plan in such manner as to remain Year 2000
Compliant and Ready on and after November 30, 1999.
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 7.1 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;
45
<PAGE> 53
(d) taxes, assessments, or other governmental charges that are
not yet delinquent 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 $100,000,000 in the aggregate
outstanding principal balance at any one time;
(g) the Private Placement Debt; and
(h) Total Funded Debt to other Persons, excluding Debt allowed
above, which Total Funded Debt 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.
46
<PAGE> 54
SECTION 7.2 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 7.3 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 the lesser of (i) an amount equal to five percent
(5%) of Consolidated Net Worth or (ii) $20,000,000 in the aggregate for all
Consolidated Entities, except that, subject to all other provisions of this
Article, the foregoing restriction shall not apply to:
(a) investments received in settlement of Debt owed to any
Consolidated Entity and created in the ordinary course of business;
(b) investments in, and loans or advances to any Guarantor;
(c) the endorsement of negotiable instruments in the ordinary
course of business;
(d) investments in and loans or advances to Future University,
Inc. which do not exceed $2,000,000.00 in the aggregate at any one time
outstanding;
(e) investments in commercial paper issued by any Person
organized under the laws of the United States or any state thereof and
(i) rated "P-1" or higher by Moody's Investors Services, Inc. or "A-1"
or higher by Standard & Poor's Corporation, or (ii) rated "P-2" or
higher by Moody's Investors Services, Inc. or "A-2" or higher by
Standard & Poor's Corporation and having maturities of not more than
thirty (30) days, provided that such investments are payable in
Dollars;
(f) investments in investment repurchase agreements (with
maturities of less than 45 days) with any financial institution with a
long-term senior debt rating of "A-" or better by Standard & Poor's
Corporation (or an equivalent rating by another nationally recognized
credit rating agency), provided that such investments are payable in
Dollars;
(g) investments in certificates of deposit issued by any bank
(i) with a long-term senior unsecured debt rating of "A" or better by
Standard and Poor's Corporation or "A2" or better by Moody's Investors
Services, Inc. and (ii) having combined capital and surplus, as shown
in its most recent published financial statements, aggregating in
excess of Five Hundred Million Dollars ($500,000,000), provided that
such investments are payable in Dollars;
47
<PAGE> 55
(h) investments in marketable direct obligations of, or
obligations unconditionally guaranteed by, the United States government
or any agency thereof, provided that such investments are payable in
Dollars;
(i) investments in Debt securities (i) with a rating of "A" or
better by Standard & Poor's Corporation or "A-2" by Moody's Investors
Services, Inc., or (ii) issued by a regulated public utility company
and rated "BBB" or better by Standard & Poor's Corporation or "Baa2" or
better by Moody's Investors Services, Inc.;
(j) investments in money market preferred stock rated "A" or
better by Standard & Poor's Corporation or "A2" or better by Moody's
Investors Services, Inc.;
(k) investments in "tax exempt floating rate option under
bonds" backed by a letter of credit issued by a bank with long-term
senior unsecured debt rated "A" or better by Standard & Poor's
Corporation, or "A2" or better by Moody's Investors Services, Inc. or
"A" or better by Fitch IBCA;
(l) investments in purchase money notes received in
consideration for assets sold by the Borrower or any Subsidiary
thereof, so long as such notes are (i) issued or guaranteed by a Person
whose long-term senior unsecured debt is rated "A" or better by
Standard & Poor's Corporation or "A2" or better by Moody's Investors
Services, Inc. or (ii) secured by assets with a fair market value equal
to at least 100% of the principal amount of such notes;
(m) investments in mutual funds sponsored by any securities,
broker-dealer of recognized national standing (or any affiliate
thereof), having an investment policy that requires invested assets of
such funds to be invested in investments described in Section 7.3(e)
through 7.3(k); and
(n) investments by the Borrower in any "swap," "cap," "floor,"
"collar," "option," "future," or other hedging contract or similar
arrangement with any Lender or any Affiliate of any Lender.
SECTION 7.4 DISTRIBUTIONS AND REDEMPTIONS; ISSUANCE OF STOCK. (a)
Purchase, redeem, or otherwise acquire for value any of its stock now or
hereafter outstanding, (b) return any capital to its stockholders, or (c) make
any distribution of its assets to its stockholders as such provided that so long
as no Default Condition or Event of Default exists or would exist immediately
thereafter, the Borrower shall be permitted to redeem in the aggregate up to ten
percent (10%) of its outstanding Voting Stock as determined on the date hereof
during the time period from December 31, 1998 through the term of this
Agreement, and 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.
48
<PAGE> 56
SECTION 7.5 SALES AND LEASEBACKS. 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, excluding sale and leaseback
transactions between Consolidated Entities and sale and leaseback transactions
involving real property affected in an Acquisition permitted hereunder, provided
that the sale and leaseback transaction occurs simultaneously with the
Acquisition or within thirty (30) days after the completion of the Acquisition.
SECTION 7.6 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 acquired) to
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 or any other
Consolidated Entity may merge, reorganize or consolidate with any Person as long
as, after giving effect to any such merger, reorganization or consolidation the
Borrower or such other Consolidated Entity is the surviving corporation; and (c)
excluding the Borrower, any other Consolidated Entity may merge into another
Consolidated Entity.
SECTION 7.7 PROCEEDS OF LOAN. Permit the proceeds of the Advances to be
used for any purpose other than those permitted under this Agreement.
SECTION 7.8 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 7.9 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 7.10 INCONSISTENT AGREEMENTS. Enter into any material agreement
containing any provision which would be violated or breached by the performance
by the Borrower of its obligations hereunder.
49
<PAGE> 57
SECTION 7.11 ACQUISITIONS. Make any Acquisition if a Default or Event
of Default shall be deemed to exist immediately or 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 7.12 PREPAYMENT OF SELLER NOTES. Prepay Seller Notes in the
aggregate amount in excess of $1,000,000 in any twelve (12) month period without
obtaining the prior written consent of the Required Lenders.
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 Required 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) $190,000,000, plus (ii) on a
quarterly basis for each Fiscal Quarter beginning with the Fiscal
Quarter ending September 30, 1999, 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 Net Funded Debt to Pro Forma EBITDA. Permit the
ratio of Total Net Funded Debt of the Consolidated Entities divided by
Pro Forma EBITDA to exceed a ratio of 2.80 to 1.0 calculated as of the
end of each Fiscal Quarter.
(c) Total Net Funded Debt to Capitalization. Permit the ratio
of Total Net Funded Debt of the Consolidated Entities to Capitalization
to exceed .55 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, to be less than 2.5 to 1.0.
ARTICLE VIII. EVENTS OF DEFAULT.
SECTION 8.1 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 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
50
<PAGE> 58
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
(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 Administrative 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 6.1,
6.3(a)(i), 6.9, 6.10, 6.11, 6.12, 6.13, Article VII, and Article VII.A;
and provided and except that an Event of Default shall not be deemed to
exist under Section 6.1(c) unless the Borrower fails to provide the
officers certificate required thereby within fifteen (15) days after
the time required therefor; 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
51
<PAGE> 59
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, which when combined with other
outstanding final, non-appealable judgments and orders against any of
the Borrower and the Consolidated Entities, exceeds $1,000,000 in the
aggregate, is rendered by any court or other governmental authority
against the Borrower or any other Consolidated Entity which is not
fully covered by valid collectible insurance, or if a judgment by any
court or governmental authority is entered against the Borrower, any
other Consolidated Entity, or any Property of the Borrower or any other
Consolidated Entity, which judgment has a material adverse affect on
the Consolidated Entities taken as a whole and which judgment is not
discharged, stayed, or deferred for sixty (60) days after date of
entry; or
(h) ERISA Liability. The Borrower or any of the Consolidated
Entities incurs any liability under ERISA that has a material adverse
effect on the financial condition or other condition of the
Consolidated Entities taken as a whole; or
(i) Change of Ownership. More than thirty percent (30%) of the
outstanding common stock of Borrower becomes owned by any Control Group
who does not now own more than thirty percent (30%) of the outstanding
Voting Stock; or
(j) Default to Other Persons. A default, breach, or event of
default occurs under any Debt of the Consolidated Entities for amounts
individually or in the aggregate, exceeding $1,000,000 or a default,
breach, or event of default occurs under any agreement between any
Consolidated Entity and any Person involving Debt of $1,000,000 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
Consolidated Entity in good faith is contesting by appropriate
proceedings the demand and acceleration and if the Consolidated Entity,
as applicable, has established an appeal bond (if appropriate), cash
bonds, sureties, bonds, or cash reserves in such amounts as reasonably
required by Administrative Agent or in the case of an appeal bond, as
required by law.
SECTION 8.2 REMEDIES.
(a) Upon the happening of any Event of Default set forth
above, with the exception of those events set forth in Section 8.1(d)
and 8.1(e): (i) Administrative Agent, acting pursuant to Lenders'
direction as set forth in Article XII, shall 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
52
<PAGE> 60
waives, (ii) Administrative Agent, acting pursuant to Lenders'
direction as set forth in Article XII shall terminate and cancel all
obligations of the Lenders (including the Swing Line Lender) under this
Agreement unless and until the Lenders (including the Swing Line
Lender) shall reinstate such obligations in writing; or (iii)
Administrative Agent, acting pursuant to Lenders' direction as set
forth in Article XII, shall bring an action to protect or enforce the
rights of the Administrative 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; or (iv)
Administrative Agent, acting pursuant to Lenders' direction as set
forth in Article XII, shall demand that the Borrower pay to the
Administrative Agent an amount (the "Cash Collateral") in immediately
available funds equal to the aggregate undrawn face amount under all
Letters of Credit outstanding at such time, and the Borrower will upon
such demand pay to the Administrative Agent such amount. The Borrower
hereby authorizes the Administrative Agent to from time to time apply
the Cash Collateral to the payment of any obligations under this
Agreement as the same become due and payable.
(b) Upon the happening of any event specified in Section
8.1(d) and Section 8.1(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) Administrative
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;
and (iv) the Borrower will be and become unconditionally obligated,
without any notice, act or demand, to pay to the Administrative Agent
Cash Collateral in the amount described in Section 8.2(a)(iv), which
Cash Collateral may be applied by the Administrative Agent as described
in Section 8.2(b)(iv).
SECTION 8.3 DEFAULT CONDITIONS. Any of the following events shall be
considered a Default Condition:
(a) The Consolidated Entities suffer a material adverse change
in their financial condition taken as a whole; 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
53
<PAGE> 61
Administrative 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 Administrative 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 9.1 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 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 Administrative Agent in
writing:
Mr. Anthony M. Schofield
Chief Financial Officer
Service Experts, Inc.
6 Cadillac Drive
Suite 400
Brentwood, Tennessee 37027
(b) if to Administrative 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.
Administrative 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 9.2 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
54
<PAGE> 62
unenforceable in any respect, such invalidity, illegality, or unenforceability
shall not affect any other provision of any Loan Document.
SECTION 9.3 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 9.4 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 Administrative Agent, each Lender, the Swing Line
Lender, and their respective successors and assigns.
SECTION 9.5 WAIVERS. Pursuant to T.C.A. Section 47-50-112, no action or
course of dealing on the part of Administrative Agent or any Lender or the Swing
Line Lender, their respective officers, employees, consultants, or agents, nor
any failure or delay by Administrative Agent or any Lender or the Swing Line
Lender with respect to exercising any right, power, or privilege of
Administrative 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,
Administrative 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 Administrative Agent. The execution by
Administrative Agent of any waiver shall not obligate Administrative Agent or
any Lender or the Swing Line Lender to grant any further, similar, or other
waivers.
SECTION 9.6 CUMULATIVE RIGHTS. Rights and remedies of Administrative
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 9.7 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 9.8 TIME OF ESSENCE. Time is of the essence with regard to each
and every provision of this Agreement.
SECTION 9.9 COSTS, EXPENSES, AND TAXES. The Borrower agrees to pay on
demand all reasonable out-of-pocket costs and expenses of Administrative Agent
(including the reasonable fees and out-of-pocket expenses of counsel for
Administrative Agent) incurred by Administrative Agent in connection with the
preparation, execution, delivery, administration, enforcement, or protection of
Administrative 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). During the
55
<PAGE> 63
continuance of any Event of Default and in addition to the other payments
required herein, the Borrower shall pay on demand all reasonable out-of-pocket
costs and expenses (including reasonable legal fees and court costs) incurred by
any of the Lenders in the enforcement or protection of such Lender's rights and
benefits under the Loan Documents.
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.
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 Administrative Agent and each Lender (including the Swing Line
Lender), as the Administrative 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 Administrative 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 Administrative Agent or third parties. Neither
the Administrative 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 Administrative Agent may elect to distribute,
whether such information was provided by the Borrower or prepared or obtained by
the Administrative Agent or third parties, nor shall the Administrative 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. Neither the
Administrative Agent nor any Lender shall disclose confidential information to
other Persons in violation of SEC rules and regulations and applicable laws.
SECTION 9.13 BORROWER'S RIGHT TO REPLACE A LENDER. If any Lender (a
"Selling Lender"): (a) gives notice pursuant to Section 2.20 that it is unlawful
or impossible for such Lender to make, maintain or fund any Advance bearing
interest at the LIBOR Option, or (b) demands compensation under Section
2.11(b)(i) or Section 2.21, the Borrower shall have the right, with the
assistance of the Administrative Agent, to seek one or more lenders or other
institutions organized under the laws of the United States or any state thereof
having total assets in excess of $1,000,000,000 (each a "Purchasing Lender")
willing to purchase the Loans held by the Selling Lender (including the Selling
Lender's interest in the Letter of Credit Subcommitment) and to assume the
Selling Lender's Revolving Credit Loan Commitment; provided that any such
purchase and assumption by a Purchasing Lender that is not already a Lender
shall be subject to the consent of the Administrative Agent (which consent shall
not be
56
<PAGE> 64
unreasonably withheld). The Selling Lender shall be obligated to sell its Loans
(including the Selling Lender's interest in the Letter of Credit Subcommitment)
to such Purchasing Lender (which may include one or more of the Lenders) within
15 days after receiving notice from the Borrower requiring it to do so, at an
aggregate price equal to the outstanding principal amount thereof plus unpaid
interest accrued thereon up to but excluding the date of sale. In connection
with any such sale, and in addition to the amounts paid by the Purchasing Lender
hereunder, the Borrower shall pay or cause to be paid to the Selling Lender, the
following (a) the amount of any compensation which would be due to the Selling
Lender under Section 2.13 if the Borrower had prepaid Advances made under the
LIBOR Option, and (b) any additional compensation accrued for its account under
Sections 2.11(b)(i), 2.20, and 2.21 up to but excluding the date of sale. Upon
such sale, the Purchasing Lender shall assume the Selling Lender's Revolving
Credit Loan Commitment (including the Selling Lender's obligations and
liabilities under the Letter of Credit Subcommitment), and any other obligations
due hereunder, and the Selling Lender shall be released from its obligations
hereunder to a corresponding extent. If any Purchasing Lender is not already one
of the Lenders, the Selling Lender, as assignor, such Purchasing Lender, as
assignee, and the Administrative Agent shall enter into an appropriate
assignment and assumption agreement, whereupon such Purchasing Lender shall be a
Lender under this Agreement, shall be deemed to be an Eligible Assignee
hereunder and shall have all the rights and obligations of a Lender with a
Revolving Credit Loan Commitment equal to its Pro Rata Share of the Revolving
Credit Loan Commitment of the Selling Lender. Upon the consummation of any sale
pursuant to this Section, the Selling Lender, the Administrative Agent and the
Borrower shall make appropriate arrangements so that, each Purchasing Lender
requesting Notes receives new Notes. In the event that the Borrower invokes the
rights under this Section 9.13, the Borrower shall pay to the Administrative
Agent within fifteen (15) days of written notice, a servicing fee equal to
$3,000, plus any reasonable legal fees and costs incurred by legal counsel to
the Administrative Agent.
ARTICLE X. JURY WAIVER.
SECTION 10.1 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, ADMINISTRATIVE AGENT, AND EACH LENDER (INCLUDING THE
SWING LINE LENDER) HEREBY WAIVE THEIR RIGHTS TO DEMAND A JURY TRIAL.
ARTICLE XI. HAZARDOUS SUBSTANCES.
SECTION 11.1 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
57
<PAGE> 65
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.
(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
Administrative Agent with copies thereof. If the Borrower receives any
such notice which would have such effect, the Borrower will immediately
provide a copy to Administrative Agent.
(c) The Borrower agrees to indemnify and hold Administrative
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 material inaccuracy in the
certifications contained in Section 11.1(a).
ARTICLE XII. THE ADMINISTRATIVE AGENT.
SECTION 12.1 APPOINTMENT OF ADMINISTRATIVE AGENT. Each Lender hereby
designates STB as Administrative Agent to administer all matters concerning the
58
<PAGE> 66
Loans and to act as herein specified. Each Lender hereby irrevocably authorizes,
and each holder of any Revolving Credit Note, or Competitive Bid Note by the
acceptance of any such promissory note shall be deemed irrevocably to authorize,
the Administrative 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 Administrative Agent by the terms hereof and thereof and such
other powers as are reasonably incidental thereto. The Administrative Agent may
perform any of its duties hereunder by or through its agents or employees. The
Lenders agree that neither the Administrative Agent nor any of its directors,
officers, employees, or agents shall be liable for any action 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
Administrative 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 Administrative Agent.
SECTION 12.2 AUTHORIZATION OF ADMINISTRATIVE AGENT WITH RESPECT TO THE
LOAN DOCUMENTS. (a) Each Lender hereby authorizes the Administrative Agent to
enter into each of the Loan Documents and to take all action contemplated
thereby, all in its capacity as Administrative Agent for the ratable benefit of
the Lenders. All rights and remedies under the Loan Documents may be exercised
by the Administrative Agent for the benefit of the Administrative Agent and the
Lenders upon the terms thereof. The Lenders further agree that the
Administrative Agent may assign its rights and obligations under any of the Loan
Documents to any Affiliate of the Administrative 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
Administrative Agent under and with respect to the applicable Loan Document.
(b) The Administrative 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 Administrative Agent
were the sole Lender under the Loan Documents, except that:
(i) The Administrative Agent shall administer the Loans
and the Loan Documents with a degree of care at least equal to
that customarily employed by the Administrative Agent in the
administration of similar credit facilities for its own
account.
(ii) The Administrative Agent shall not, without the
consent of the Required Lenders, take any of the following
actions:
59
<PAGE> 67
(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
Administrative 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
(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 Administrative 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 Required Lenders; or
(I) modify this Section 12.2(b)(iii).
60
<PAGE> 68
(iv) The Administrative Agent shall use its best efforts
to distribute to Lenders copies of Financial Statements and
other material writings and documents delivered to
Administrative Agent by Borrower within three (3) Business
Days after receipt thereof; provided, however, the
Administrative Agent shall have no liability for failure to
comply with this provision.
(c) The Administrative 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 Administrative Agent in the
administration of the Loans and Loan Documents not in the ordinary
course of business; provided that any failure of the Administrative
Agent to give the Lenders any such notice shall not alone be the basis
for any liability of the Administrative Agent to the Lenders except for
the Administrative Agent's gross negligence or willful misconduct.
(d) The Lenders agree that the Administrative 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. Administrative 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 Administrative 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 Required 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
Required Lenders or all of the Lenders is required or requested by
Administrative Agent, the Administrative 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
Administrative Agent's proposed course of action with respect thereto.
In the event the Administrative Agent shall not have received a
response from any Lender within five (5) Business Days after
Administrative Agent sends such notice, such Lender shall be deemed to
have agreed to the course of action proposed by the Administrative
Agent.
SECTION 12.3 ADMINISTRATIVE AGENT'S DUTIES LIMITED; NO FIDUCIARY DUTY.
The Lenders agree that the Administrative 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 Administrative 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 Administrative Agent shall not have by reason of this Agreement a fiduciary
relationship to or in respect of any Lender, and
61
<PAGE> 69
nothing in this Agreement, express or implied, is intended to or shall be so
construed as to impose upon the Administrative Agent any obligations in respect
of this Agreement or the other Loan Documents except as expressly set forth
herein.
SECTION 12.4 NO RELIANCE ON THE ADMINISTRATIVE AGENT. (a) EACH LENDER
REPRESENTS AND WARRANTS TO THE ADMINISTRATIVE AGENT AND THE OTHER LENDERS THAT
INDEPENDENTLY AND WITHOUT RELIANCE UPON THE ADMINISTRATIVE 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 ADMINISTRATIVE 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 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 CANCELED 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 Administrative 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
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 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 12.5 CERTAIN RIGHTS OF ADMINISTRATIVE AGENT. The Lenders agree
that if the Administrative Agent shall request instructions from the Required
Lenders (or all of the Lenders where unanimity is expressly required under the
terms of this
62
<PAGE> 70
Agreement) with respect to any action or actions (including the failure to act)
in connection with this Agreement, the Administrative Agent shall be entitled to
refrain from such act or taking such act, unless and until the Administrative
Agent shall have received instructions from the Required Lenders (or all of the
Lenders where unanimity is expressly required under the terms of this
Agreement); and the Administrative 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 Administrative Agent as a result of
the Administrative Agent's acting or refraining from acting hereunder in
accordance with the instructions of the Required 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 12.6 RELIANCE BY ADMINISTRATIVE AGENT. The Lenders agree that
the Administrative 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 Administrative Agent may consult with legal
counsel (including counsel for any Lender), independent public 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 12.7 INDEMNIFICATION OF ADMINISTRATIVE AGENT. To the extent the
Administrative Agent is not reimbursed and indemnified by the Borrower, each
Lender will reimburse and indemnify the Administrative 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 Administrative 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 Administrative Agent for any portion of such liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements resulting from the Administrative Agent's gross negligence or
willful misconduct. The obligations and indemnifications arising under this
Section 12.7 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 12.8 THE ADMINISTRATIVE 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 Administrative 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 Administrative Agent specified herein; and the terms "Lenders,"
"Required Lenders," "holders of Revolving Credit Notes," or any similar terms
shall, unless the context clearly
63
<PAGE> 71
otherwise indicates, include the Administrative Agent in its individual
capacity. The Administrative Agent may also exercise rights and remedies of the
Swing Line Lender. The Administrative 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 Administrative 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 12.9 HOLDERS OF NOTES. The Administrative 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 Administrative
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 ADMINISTRATIVE AGENT. (a) The Administrative
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 Required Lenders;
provided, however, the Administrative Agent may not resign or be removed until
(i) a successor Administrative Agent has been appointed and shall have accepted
such appointment, and (ii) the successor Administrative Agent has assumed all
responsibility for issuance of the Letters of Credit and the successor
Administrative Agent has assumed in the place and stead of the Administrative
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
Administrative Agent has assumed in the place and stead of the Administrative
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 Administrative Agent and
the successor Administrative Agent. Upon any such resignation or removal, the
Required Lenders shall have the right to appoint a successor Administrative
Agent. If no successor Administrative Agent shall have been so appointed by the
Required Lenders, and shall have accepted such appointment, within thirty (30)
days after the retiring Administrative Agent's giving of notice of resignation
or the Required Lenders' removal of the retiring Administrative Agent, then the
retiring Administrative Agent may, on behalf of the Lenders, appoint a successor
Administrative 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
Administrative Agent hereunder by a successor Administrative Agent,
such successor
64
<PAGE> 72
Administrative Agent shall thereupon succeed to and become vested with
all the rights, powers, privileges and duties of the retiring
Administrative Agent, and the retiring Administrative Agent shall be
discharged from its duties and obligations under this Agreement. After
any retiring Administrative Agent's resignation or removal hereunder as
Administrative 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 Administrative Agent under this Agreement.
SECTION 12.11 NOTICE OF DEFAULT OR EVENT OF DEFAULT. In the event that
the Administrative 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 Administrative
Agent or such Lender shall promptly notify the Administrative Agent, and the
Administrative Agent shall take such action and assert such rights under this
Agreement as the Required Lenders shall request in writing, and the
Administrative Agent shall not be subject to any liability by reason of its
acting pursuant to any such request. If, following notification by
Administrative Agent to Lenders, the Required Lenders (or all of the Lenders if
required hereunder) shall fail to request the Administrative 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
Administrative Agent or any Lender, or shall request inconsistent action with
respect to such Default Condition or Event of Default, the Administrative 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.
(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 Borrower and the
Administrative Agent must approve in writing the assignment (except
that if an Event of Default exists the Borrower is not required to give
its approval); (ii) 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 Administrative Agent) shall not be less than an
amount equal to $5,000,000 or greater integral multiples thereof, (iii)
subsequent to the assignment, the assigning Lender must retain a
Revolving Credit Loan Commitment no less than $10,000,000 unless the
assigning Lender retains a Revolving Credit Loan Commitment equal to
zero (-0-); (iv) the parties to each such assignment shall execute and
deliver to the Administrative Agent an
65
<PAGE> 73
Assignment and Acceptance, (v) the Borrower shall execute a Revolving
Credit Note subject to such assignment, and (vi) the Eligible Assignee
shall pay to the Administrative 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. 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 Administrative Agent, in exchange for
the surrendered Revolving Credit Note, a new Revolving Credit 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
to the assigning Lender in the amount of its retained Revolving Credit
Loan Commitment. Such new Revolving Credit 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, shall be dated the date of the surrendered
Revolving Credit Note that they replace, and shall otherwise be in
substantially the form attached hereto as Exhibit B.
(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
Administrative Agent and the Borrower.
(d) Each Lender may, without the consent of the Borrower or
the Administrative Agent, but subject to the provisions of Section 2.9,
sell participations in its respective Revolving 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 after written notice thereof is delivered to the
Administrative 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 Administrative 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
66
<PAGE> 74
this Agreement and the other Loan Documents. Each Lender shall promptly
notify in writing the Administrative Agent and the Borrower 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, which has been approved by the Borrower
if approval is required, 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 Administrative 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
Administrative 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.
SECTION 12.13 CO-AGENTS, DOCUMENTATION AGENT, SYNDICATION AGENT, ETC.
Neither any of the Lenders identified in this Agreement as a "Co-Agent" nor the
Syndication Agent shall have any right, power, obligation, liability,
responsibility or duty under this Agreement other than those applicable to all
Lenders as such. Without limiting the foregoing, none of such Lenders shall have
or be deemed to have a fiduciary relationship with any Lender. Each Lender
hereby makes the same acknowledgments with respect to such Lenders as it makes
with respect to the Administrative Agent in Section 12.4.
ENTERED INTO the date first above written.
67
<PAGE> 75
BORROWER:
SERVICE EXPERTS, INC.
By:
---------------------------------------
Title:
------------------------------------
ADMINISTRATIVE AGENT:
SUNTRUST BANK, NASHVILLE, N.A., as
Administrative Agent, Documentation Agent,
and Co-Book Manager
By:
---------------------------------------
Title:
------------------------------------
Address: 201 Fourth Avenue North
Nashville, Tennessee 37219
68
<PAGE> 76
SYNDICATION AGENT:
NATIONSBANK, N.A., as Syndication Agent
and Co-Book Manager
By:
---------------------------------------
Print Name:
-------------------------------
Title:
------------------------------------
Address: c/o Bank of America
600 Peachtree Street, NE
9th Floor
Atlanta, Georgia 30308-2213
CO-AGENT:
THE FIRST NATIONAL BANK OF
CHICAGO, as Co-Agent
By:
---------------------------------------
Print Name:
-------------------------------
Title:
------------------------------------
Address: c/o Bank One, N.A.
One First National Plaza
Mail Suite 0324
Chicago, Illinois 60607-0324
[Signatures Continued on Next Page]
69
<PAGE> 77
LENDERS:
SUNTRUST BANK, NASHVILLE, N.A.
By:
---------------------------------------
Print Name:
-------------------------------
Title:
------------------------------------
Address: 201 Fourth Avenue North
Nashville, Tennessee 37219
Pro Rata Share: 17%
[Signatures Continued on Next Page]
70
<PAGE> 78
NATIONSBANK, N.A.
By:
---------------------------------------
Print Name:
-------------------------------
Title:
------------------------------------
Address: c/o Bank of America
600 Peachtree Street, NE
9th Floor
Atlanta, Georgia 30308-2213
Pro Rata Share: 17%
[Signatures Continued on Next Page]
71
<PAGE> 79
THE FIRST NATIONAL BANK OF CHICAGO
By:
---------------------------------------
Print Name:
-------------------------------
Title:
------------------------------------
Address: c/o Bank One, N.A.
One First National Plaza
Mail Suite 0324
Chicago, Illinois 60670-0324
Pro Rata Share: 13 1/2%
[Signatures Continued on Next Page]
72
<PAGE> 80
SOUTHTRUST BANK, NATIONAL
ASSOCIATION
By:
---------------------------------------
Print Name:
-------------------------------
Title:
------------------------------------
Address: 230 Fourth Avenue North
8th Floor
Nashville, Tennessee 37219
Pro Rata Share: 12 1/2%
[Signatures Continued on Next Page]
73
<PAGE> 81
UNION BANK OF CALIFORNIA, N.A.
By:
---------------------------------------
Print Name:
-------------------------------
Title:
------------------------------------
Address: 445 South Figueroa Street
18th Floor
Los Angeles, California 90071
Pro Rata Share: 12 1/2%
[Signatures Continued on Next Page]
74
<PAGE> 82
ABN AMRO BANK, N.V.
By:
---------------------------------------
Print Name:
-------------------------------
Title:
------------------------------------
By:
---------------------------------------
Print Name:
-------------------------------
Title:
------------------------------------
Address: One Ravinia Drive
Suite 1200
Atlanta, Georgia 30346
Pro Rata Share: 7 1/2%
[Signatures Continued on Next Page]
75
<PAGE> 83
FIRST AMERICAN NATIONAL BANK
By:
---------------------------------------
Print Name:
-------------------------------
Title:
------------------------------------
Address: 4th & Union Street, 3rd Floor
Nashville, Tennessee 37237-0310
Pro Rata Share: 7 1/2%
[Signatures Continued on Next Page]
76
<PAGE> 84
MERCANTILE BANK, N.A.
By:
---------------------------------------
Print Name:
-------------------------------
Title:
------------------------------------
Address: 721 Locust Street
Tram 12-3
Saint Louis, MO 63101
Pro Rata Share: 7 1/2%
[Signatures Continued on Next Page]
77
<PAGE> 85
THE BANK OF NOVA SCOTIA
By:
---------------------------------------
Print Name:
-------------------------------
Title:
------------------------------------
Address: 600 Peachtree Street NE
Suite 2700
Atlanta, Georgia 30309
Pro Rata Share: 5%
78
<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>
<RESTATED>
<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> 6,780
<SECURITIES> 0
<RECEIVABLES> 49,864
<ALLOWANCES> 1,846
<INVENTORY> 22,447
<CURRENT-ASSETS> 86,069
<PP&E> 46,145
<DEPRECIATION> 13,604
<TOTAL-ASSETS> 278,936
<CURRENT-LIABILITIES> 32,242
<BONDS> 56,882
0
0
<COMMON> 164
<OTHER-SE> 179,065
<TOTAL-LIABILITY-AND-EQUITY> 278,936
<SALES> 0
<TOTAL-REVENUES> 173,556
<CGS> 111,249
<TOTAL-COSTS> 111,249
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,208
<INCOME-PRETAX> 17,402
<INCOME-TAX> 6,969
<INCOME-CONTINUING> 10,433
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,433
<EPS-BASIC> 0.63
<EPS-DILUTED> 0.63
</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,
1999 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-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 12,773
<SECURITIES> 0
<RECEIVABLES> 81,103
<ALLOWANCES> 3,297
<INVENTORY> 32,857
<CURRENT-ASSETS> 145,080
<PP&E> 69,711
<DEPRECIATION> 23,179
<TOTAL-ASSETS> 434,074
<CURRENT-LIABILITIES> 44,451
<BONDS> 155,979
0
0
<COMMON> 176
<OTHER-SE> 216,027
<TOTAL-LIABILITY-AND-EQUITY> 434,074
<SALES> 0
<TOTAL-REVENUES> 268,953
<CGS> 180,809
<TOTAL-COSTS> 180,809
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,991
<INCOME-PRETAX> 13,929
<INCOME-TAX> 5,872
<INCOME-CONTINUING> 8,057
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,057
<EPS-BASIC> 0.46
<EPS-DILUTED> 0.45
</TABLE>
