SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
----------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the quarterly period ended June 30, 1998
Commission File Number: 333-10611
UNIFRAX CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 34-1535916
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation)
2351 Whirlpool Street, Niagara Falls, NY 14305-2413
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (716) 278-3800
-------------------------------------------
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 period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES X NO _____
<PAGE>
Unifrax Corporation
Form 10-Q
Index
Page No.
PART I. FINANCIAL INFORMATION
Item 1. Condensed Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets at
June 30, 1998 and December 31, 1997 1
Condensed Consolidated Statements of Income for the Three-month and
six-month periods ended June 30, 1998 and 1997 2
Condensed Consolidated Statements of Cash Flow for the
Six-months ended June 30, 1998 and 1997 3
Notes to Condensed Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 2. Changes in Securities 12
Item 3. Defaults on Senior Securities 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 5. Other Information 12
Item 6. Exhibits and Report on Form 8-K 12
Signatures 13
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Unifrax Corporation
Condensed Consolidated Balance Sheets
(Unaudited - In Thousands, Except Share Data)
<TABLE>
<CAPTION>
December 31 June 30
1997 1998
----------- -------
ASSETS
Current assets:
<S> <C> <C>
Cash $ 359 $ 312
Accounts receivable, less allowances of $1,254
and $1,066, respectively 12,720 14,025
Inventories 7,885 9,697
Deferred income taxes 2,320 2,320
Prepaid expenses and other current assets 411 395
------- ------
Total current assets 23,695 26,749
Property, plant and equipment, at cost 70,907 71,647
Less accumulated depreciation and amortization (33,391) (35,562)
------- ------
37,516 36,085
Deferred income taxes 24,849 23,729
Organization costs, net of accumulated amortization
of $875 and $1,251, respectively 4,030 3,654
Other assets 372 289
------- ------
$ 90,462 $ 90,506
======= ======
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 3,206 $ 2,774
Accrued expenses 7,568 7,975
------- ------
Total current liabilities 10,774 10,749
Long term debt 115,500 112,600
Note payable--affiliate 7,000 7,000
Accrued postretirement benefit cost 3,209 3,338
Other long-term obligations 158 160
------- ------
Total liabilities 136,641 133,847
STOCKHOLDERS' DEFICIT
Common stock--$.01 par value; shares authorized--40,000;
shares issued and outstanding--20,000 -- --
Redeemable convertible cumulative preferred stock--voting
$.01 par value; shares authorized--10,000, shares
issued and outstanding--1,666.67
(aggregate liquidation preference of $2,536 and $2,611,
respectively, including dividends in arrears) -- --
Additional paid-in capital 42,520 42,520
Accumulated deficit (88,406) (85,535)
Accumulated other comprehensive income (293) (326)
------- ------
Total stockholders' deficit (46,179) (43,341)
------- ------
$ 90,462 $ 90,506
======= =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
Unifrax Corporation
Condensed Consolidated Statements of Income
(Unaudited - In Thousands)
<TABLE>
<CAPTION>
Three Months Ended June 30 Six Months Ended June 30
-------------------------- ------------------------
1997 1998 1997 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Sales $22,672 $22,023 $44,700 $43,757
Cost of goods sold 11,116 11,067 23,022 21,979
------- ------ ------ ------
Gross margin 11,556 10,956 21,678 21,778
Selling and distribution expenses 3,186 3,382 6,406 6,516
Administration expenses 1,945 1,926 3,919 3,992
Research and development expenses 707 674 1,349 1,340
------- ------ ------ ------
Operating income 5,718 4,974 10,004 9,930
Interest expense (3,187) (3,011) (6,344) (6,042)
Other income (expense), net 44 24 77 103
------- ------ ------ ------
Income before income taxes 2,575 1,987 3,737 3,991
Provision for income taxes 1,019 609 1,529 1,120
------- ------ ------ ------
Net Income $ 1,556 $ 1,378 $ 2,208 $ 2,871
======= ====== ====== ======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
Unifrax Corporation
Condensed Consolidated Statements of Cash Flows
(Unaudited - In Thousands)
Six Months Ended June 30
------------------------
1997 1998
---- ----
OPERATING ACTIVITIES
Net income $ 2,208 $ 2,871
Depreciation and amortization 2,534 2,841
Other adjustments and changes in operating assets
and liabilities 601 (1,911)
-------- -------
Cash provided by operating activities 5,343 3,801
INVESTING ACTIVITIES
Capital expenditures (4,898) (976)
Deferred software and other costs 14 --
Proceeds from sales of property, plant and equipment 99 28
-------- ------
Cash used in investing activities (4,785) (948)
FINANCING ACTIVITIES
Borrowings under revolving loan 12,000 16,150
Repayments of revolving loan (11,400) (18,050)
Repayment of term loan (1,250) (1,000)
------- ------
Cash used in financing activities (650) (2,900)
Net decrease in cash (92) (47)
Cash--beginning of period 898 359
--------- --------
Cash--end of period $ 806 $ 312
======== ========
See accompanying notes to condensed consolidated financial statements.
<PAGE>
Unifrax Corporation
Notes to Condensed Consolidated Financial Statements
June 30 , 1998
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of
Unifrax Corporation ("The Company" or "Unifrax") 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 only of
normal recurring accruals) considered necessary for a fair presentation have
been included. Results for the period ended June 30, 1998, are not necessarily
indicative of the results that may be expected for the year ending December 31,
1998. For further information, refer to the consolidated financial statements
and the notes thereto for the year ended December 31, 1997, included in the
Company's annual report on Form 10-K filed with the Securities and Exchange
Commission. All capitalized terms used in these notes to condensed consolidated
financial statements that are not defined herein have the meanings given to them
in such consolidated financial statements and notes to consolidated financial
statements.
NOTE B - INVENTORIES
The components of inventory consist of the following (in thousands):
December 31 June 30
1997 1998
----------- -------
Raw materials and supplies $1,598 $2,441
Work in process 1,551 1,896
Finished products 4,410 4,855
------ ------
7,559 9,192
Adjustment to LIFO Cost 326 505
------ ------
$ 7,885 $9,697
<PAGE>
NOTE C - CONTINGENCIES
CERAMIC FIBERS
Regulatory agencies and others, including the Company, are currently conducting
scientific research to determine the potential health impact resulting from the
inhalation of airborne ceramic fibers. To date, the results of this research
have been inconclusive as to whether or not ceramic fiber exposure presents an
unreasonable risk to humans.
Various legal proceedings and claims have been made against manufacturers of
ceramic fibers, including the Company, alleging death or personal injury as a
result of exposure in the manufacture and handling of ceramic fiber and other
products. The amount of any liability that might ultimately exist with respect
to these claims is presently not determinable.
Consistent with customary practice among manufacturers of ceramic fiber
products, the Company has entered into agreements with distributors of its
product whereby the Company has agreed to provide a limited indemnification to
selected distributors and customers against losses resulting from ceramic fiber
claims and the costs to defend against such claims. The amount of any liability
that might ultimately exist with respect to these indemnities is presently not
determinable.
Pursuant to the Unifrax Corporation Recapitalization Agreement
("Recapitalization Agreement"), BP America Inc. and certain of its affiliates
(collectively "BPA"), has agreed to indemnify the Company against liabilities
for personal injury and wrongful death attributable to exposure prior to the
Closing to refractory ceramic fibers manufactured by the Company. BPA has agreed
to indemnify the Company against all liabilities arising from exposure claims
pending at the time of the Closing. For all other claims arising from alleged
exposure occurring solely prior to Closing, BPA has agreed to indemnify the
Company against 80% of all losses, until the total loss which the Company incurs
reaches $3.0 million, after which time BPA has agreed to indemnify the Company
against 100% of such losses. BPA has agreed to indemnify the Company against all
punitive damages attributable to the conduct of the Company prior to Closing.
Where losses arise from alleged exposure both before and after Closing, the
losses will be allocated between BPA and the Company, pro rata, based on the
length of exposure or pursuant to arbitration if initiated by the Company.
The Company cannot avail itself of this indemnity for losses attributable to the
Company's failure to maintain a Product Stewardship Program consistent with the
program maintained by the Company prior to Closing, as modified in a
commercially reasonable manner in accordance with changing regulatory,
scientific and technical factors. BP shall not indemnify the Company with
respect to any liabilities for wrongful death or personal injury to the extent
caused by the failure of the Company to maintain a Product Stewardship Program
consistent with that maintained by the Company prior to the Closing. Unifrax
intends to defend ceramic fiber claims vigorously.
ENVIRONMENTAL MATTERS
The Company is subject to loss contingencies pursuant to various federal, state
and local environmental laws and regulations. These include possible obligations
to remove or mitigate the effects on the environment of the placement, storage,
disposal or release of certain chemical or petroleum substances by the Company
or by other parties.
Under the terms of the Recapitalization Agreement, BPA assumed liability, and
the rights to recovery from third parties, for environmental remediation and
other similar required actions with respect to certain environmental obligations
of Unifrax existing as of the Closing Date.
The Company may, in the future, be involved in further environmental assessments
or clean-ups. While the ultimate requirement for any such remediation, and its
cost, is presently not known, and while the amount of any future costs could be
material to the results of operations in the period in which they are
recognized, the Company does not expect these costs, based upon currently known
information and existing requirements, to have a material adverse effect on its
financial position.
Prior to divestment, the Company owned a site in Sanborn, NY, at which extensive
remediation activity is currently being undertaken. The site was used by a
number of former Carborundum operations other than the Company. Testing has
indicated that certain contamination is present in the soil. Neither past nor
current operations of the Company are believed to have contributed to, or to be
contributing to, the existence of the contamination. BPA has assumed
responsibility for implementing remedial activities specified by the State of
New York which required removal of the contamination, chiefly by means of soil
vapor extraction. Under the terms of an agreement, BPA has taken title to and
assumed liability for the remediation of this property as of October 30, 1996.
Unifrax leases a portion of the present manufacturing facilities on this site.
LEGAL PROCEEDINGS
The Company is involved in litigation relating to claims arising out of its
operations in the normal course of business, including product liability claims.
From time to time the Company has been named as a defendant in lawsuits
involving alleged injury suffered from exposure to ceramic fiber. The Company
believes that it is not presently a party to any litigation the outcome of which
would have a material adverse effect on its financial condition or results of
operations. Pursuant to the Recapitalization Agreement, BPA agreed to indemnify
the Company, subject to certain limitations, against all currently known
lawsuits and certain future lawsuits alleging exposure to ceramic fiber.
Various other legal proceedings and claims have been made against the Company in
the ordinary course of business. While the amounts could be material to the
results of operations in the period recognized, in the opinion of management of
the Company, the ultimate liability, if any, resulting from such matters will
not have a material adverse effect on the Company's financial position.
NOTE D - LONG TERM DEBT
During the second quarter of 1998, the Company entered into a Consent and Second
Amendment to the Loan and Security Agreement (the "Consent and Amendment").
Under the provisions of the Consent and Amendment:
a) the banks have consented, under certain circumstances, to allow
the Company to prepay, prior to December 31, 1998, up to $10
million of the Senior Notes or the note payable affiliate,
b) the interest rates on the revolving loan and term loan were
revised to range from LIBOR plus 1.00% to LIBOR plus 1.75%, and
c) the Company is permitted to borrow, prior to December 31, 1998, up
to $7 million under the term loan facility.
NOTE E - COMPREHENSIVE INCOME
Effective January 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income". Statement 130 establishes
new rules for the reporting and display of comprehensive income and its
components. The adoption of this Statement had no impact on the Company's net
income or stockholders' deficit. Statement 130 requires the Company's cumulative
translation adjustment, which prior to adoption was reported separately in
stockholders' equity, to be included in other comprehensive income. Prior year
financial statements have been reclassified to conform with the requirements of
Statement 130. During the three months and six months ended June 30, 1998, total
comprehensive income, which was comprised of net income and foreign currency
translation adjustments, amounted to approximately $1,380,000 and $2,838,000,
respectively ($1,527,000 and $2,070,000, respectively for 1997).
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD LOOKING STATEMENTS
Statements included in this Management Discussion and Analysis of
Financial Condition and Results of Operations and elsewhere in this
document that do not relate to present or historical conditions are
"forward looking statements" within the meaning of that term in
Section 27A of the Securities Act of 1933, as amended, and of Section
21F of the Securities Exchange Act of 1934, as amended. Additional
oral or written statements may be made by the Company from time to
time, and such statements may be included in documents filed with the
Securities and Exchange Commission. Such forward looking statements
involve risks and uncertainties which could cause results or outcomes
to differ materially from those expressed in such forward looking
statements. Among the important factors on which such statements are
based are assumptions concerning the continuing strength of the
ceramic fiber market on which the Company is substantially dependent,
changing prices for ceramic fiber products, acceptance of new
products, the status of health and safety issues affecting the
ceramic fiber industry in general and the Company in particular, the
Company's continuing ability to operate under the restrictions
imposed by the substantial indebtedness which it is subject to, the
risks associated with international operations, the impact of
environmental regulations on the Company's operations and property
and related governmental regulations, and the continuing availability
of certain raw materials, including vermiculite which is purchased
from a source in China.
THREE MONTHS ENDED JUNE 30, 1998 COMPARED WITH THREE MONTHS ENDED
MARCH 31, 1997
Net sales for the second quarter of 1998 decreased by $0.7 million or
2.9% from $22.7 million in 1997 to $22.0 million in 1998, due to
lower sales in porosity-controlled products.
Gross profit decreased by $0.6 million, or 5.2%, from $11.6 million
in 1997 to $11.0 million in 1998. Gross profit as a percentage of net
sales decreased from 51.0% in 1997 to 49.7% in 1998. The gross profit
decrease was primarily due to the lower sales and lower selling
prices as a result of competition in automotive products.
Selling and distribution expenses increased by $0.2 million, or 6.2%,
from $3.2 million in 1997 to $3.4 million in 1998, primarily as a
result of recruitment and relocation costs. Selling and distribution
expense as a percentage of net sales increased from 14.1% in 1997 to
15.4% in 1998.
Administration expenses remained unchanged at $1.9 million in both
1997 and 1998. Administrative expenses as a percentage of net sales
were 8.6 % in 1997 and 8.7% in 1998.
Research and development expenses were at $0.7 million in 1997 and
1998 and remained at 3.1% of net sales for both years.
Operating income decreased by $0.7 million, or 13.0%, from $5.7
million in 1997 to $5.0 million in 1998. Operating income as a
percentage of net sales decreased from 25.2% in 1997 to 22.6% in
1998, as a result of the factors previously indicated.
Interest expense decreased by $0.2 million, or 5.5% from $3.2 million
in 1997 to $3.0 million in 1998 due to the lower level of long term
debt. Interest expense decreased as a percentage of net sales from
14.1% in 1997 to 13.7% in 1998.
Provision for income taxes decreased by $0.4 million, or 40.2% from
$1.0 million in 1997 to $0.6 million in 1998. The effective income
tax rate decreased from 39.6% in 1997 to 30.6% in 1998, primarily as
a result of recognizing deferred tax benefits resulting from the
Recapitalization which were previously unrecognized.
Net income decreased by $0.2 million or 11.4% from $1.6 million in
1997 to $1.4 million in 1998, as a result of the factors previously
indicated. Net income as a percentage of net sales decreased from
6.9% in 1997 to 6.3% in 1998.
SIX MONTHS ENDED JUNE 30, 1998 COMPARED WITH SIX MONTHS ENDED
JUNE 30, 1997
Net sales for the first six months of 1998 decreased by $0.9 million
or 2.1% from $44.7 million in 1997 to $43.8 million in 1998 due to
lower sales in porosity controlled products.
Gross profit increased by $0.1 million, or 0.1% from $21.7 million in
1997 to $21.8 million in 1998. Gross profit as a percentage of net
sales increased from 48.5% in 1997 to 49.8% in 1998. The increase was
due to fewer outside purchases and resale of ceramic fiber offset in
part by the lower sales and by lower selling prices in the automotive
market.
Selling and distribution expenses increased by $0.1 million or 1.7%
from $6.4 million in 1997 to $6.5 million in 1998, increasing as a
percentage of net sales from 14.3% in 1997 to 14.9% in 1998.
Administration expenses increased by $0.1 million or 1.9% from $3.9
million in 1997 to $4.0 million in 1998. Administration expenses as a
percentage of net sales were 8.8% in 1997 and 9.1% in 1998.
Research and development expenses remained at $1.3 million in 1997
and 1998. Research and development expenses as a percentage of net
sales were 3.0% in 1997 and 3.1% in 1998.
Operating income decreased by $0.1 million, or 0.7% from $10.0
million in 1997 to $9.9 million in 1998. Operating income as a
percentage of net sales increased from 22.4% in 1997 to 22.7% in
1997, as a result of the factors previously indicated.
Interest expense decreased by $0.3 million or 4.8% from $6.3 million
in 1997 to $6.0 million in 1998 due to the lower level of long term
debt. Interest expense as a percentage
of net sales decreased from 14.2% in 1997 to 13.8% in 1998.
Provision for income taxes decreased $0.4 million, or 26.7%, from
$1.5 million in 1997 to $1.1 million in 1998. The effective income
tax rate decreased from 40.9% in 1997 to 28.1% in 1998, primarily as
a result of recognizing deferred tax benefits resulting from the
Recapitalization which were previously unrecognized.
Net income increased by $0.7 million, or 30.0% from $2.2 million in
1997 to $2.9 million in 1998, as a result of factors previously
indicated. Net income as a percentage of net sales increased from
4.9% in 1997 to 6.6% in 1998.
LIQUIDITY AND CAPITAL RESOURCES
During the six-month period ended June 30, 1998, the Company's cash
flows from operating activities decreased by $1.5 million or 28.9%,
from $5.3 million in 1997 to $3.8 million in 1997. This decrease was
the result of increases in the level of inventories and receivables,
offset in part by higher net income, depreciation and amortization.
Cash outflows from investing activities decreased $3.8 million or
80.2% from $4.8 million in 1997 to $1.0 million in 1998. This
decrease was due to lower capital spending as a result of the
completion of the expansion project at the New Carlisle, Indiana,
facility.
Cash outflows from financing activities increased by $2.3 million
from $0.6 million in 1997 to $2.9 million in 1998. During 1998 the
Company made a voluntary prepayment of principal of $1.0 million on
its Term Loan and repaid $1.9 million against its $20 million
revolving credit facility.
Management believes that cash flows from operations and the available
credit facility will be sufficient to fund operating and capital
expenditure needs for 1998.
During the second quarter of 1998, the company entered into a Consent
and Second Amendment to the Loan and Security Agreement (the "Consent
and Amendment"). Under the provisions of the Consent and Amendment:
a) the banks have consented, under certain circumstances, to allow
the Company to prepay, prior to December 31, 1998, up to $10
million of the Senior Notes or the note payable-affiliate,
b) the interest rates on the revolving loan and term loan were
revised to range from LIBOR plus 1.00% to LIBOR plus 1.75%, and
c) the company is permitted to borrow, prior to December 31, 1998,
up to $7 million under the term loan facility.
EFFECTS OF NEW ACCOUNTING PRONOUNCEMENTS
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income".
Statement 130 establishes new rules for the reporting and display of
comprehensive income and its components. The adoption of this
Statement had no impact on the Company's net income or stockholders'
deficit. Statement 130 requires the Company's cumulative translation
adjustment, which prior to adoption was reported separately in
stockholders' equity, to be included in other comprehensive income.
Prior year financial statements have been reclassified to conform
with the requirements of Statement 130. During the three months and
six months ended June 30, 1998, total comprehensive income, which was
comprised of net income and foreign currency translation adjustments,
amounted to approximately $1,380,000 and $2,838,000, respectively
($1,527,000 and $2,070,000, respectively for 1997).
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
None.
Item 3. Defaults on Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 Consent and Second Amendment to Loan and Security
Agreement dated June 29, 1998
27.1 Financial Data Schedule
(b) No reports on Form 8-K have been filed during the period covered by
this report.
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF
1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY
THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
UNIFRAX CORPORATION
Date: August 14, 1998 By: /s/ William P. Kelly
---------------------
William P. Kelly, President and
Chief Executive Officer
Date: August 14, 1998 By: /s/ Mark D. Roos
----------------------
Mark D. Roos, Vice President
and Chief Financial Officer
CONSENT AND SECOND AMENDMENT TO
LOAN AND SECURITY AGREEMENT
THIS CONSENT AND SECOND AMENDMENT TO LOAN AND SECURITY AGREEMENT (this
"Agreement") is entered into as of June 29, 1998, among UNIFRAX CORPORATION, a
Delaware corporation ("Borrower"), BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION (formerly known as Bank of America Illinois), an Illinois banking
corporation, as a Lender and as Agent for the Lenders, and National City Bank
("NCB"), as a Lender.
WHEREAS, Borrower has requested that Agent amend the Loan Agreement dated
October 30, 1996 (as amended from time to time, the "Loan Agreement") in various
respects, and Agent has agreed to do so subject to the terms contained herein;
and
WHEREAS, Borrower has requested that Agent consent to certain prepayments
of subordinated debt;
NOW THEREFORE, in consideration of the premises and mutual agreements
herein contained, the parties hereto agree as follows:
1. DEFINED TERMS. Unless otherwise defined herein, capitalized terms used
herein shall have the meanings ascribed to such terms in the Loan Agreement.
2. CONSENT. Subject to satisfaction of the conditions set forth in Section
5 below and notwithstanding the restrictions set forth in Section 5.12 of the
Loan Agreement or any restrictions set forth in the Subordination Agreement,
Lenders hereby consent to the prepayment by Borrower at any time prior to
December 31, 1998 of up to Ten Million Dollars ($10,000,000) in the aggregate of
the Seller Subordinated Debt and/or the indebtedness owing by Borrower pursuant
to the Senior Notes and the Senior Note Documents, provided, that such
prepayment shall only be permitted and such consent shall only be effective in
the event that (1) Revolving Loan Availability equals or exceeds Four Million
Dollars ($4,000,000) after giving effect to each such prepayment, (ii) after
giving effect to any such prepayment, on a pro forma basis Borrower remains in
compliance with all covenants set forth in the Loan Agreement (including those
covenants set forth in Sections 5.26, 5.27, 5.28, 5.29 and 5.30 of the Loan
Agreement), and (iii) no Unmatured Event of Default or Event of Default exists
or would be caused thereby.
3 . AMENDMENT TO LOAN AGREEMENT. Subject to satisfaction of the conditions
set forth in Section 5 below, the Loan Agreement is hereby amended as follows:
(a) Section 1.1 of the Loan Agreement is hereby amended to
delete the definition of "Applicable Margin" and to substitute therefor the
following definition:
""Applicable Margin" means, with respect to any portion of the
Revolving Loans constituting a LIBOR Rate Loan, a percentage equal to
one and one-half percent (1.50%), with respect to any portion of the
Term Loan constituting a LIBOR Rate Loan, a percentage equal to one
and three-quarters percent (1.75%), with respect to any portion of
Revolving Loans constituting a Floating Rate Loan, a percentage equal
to negative one-quarter of one percent ((0.25%)), and with respect to
any portion of the Term Loan constituting a Floating Rate Loan, a
percentage equal to zero percent (O%); provided, that the Applicable
Margin for Revolving Loans and the Term Loan will be adjusted on the
first day of each calendar quarter, commencing on July 1, 1998,
depending on the Leverage Ratio on the last day of the calendar
quarter immediately preceding such calendar quarter, as follows:
<TABLE>
<CAPTION>
Applicable LIBOR Applicable LIBOR Applicable Floating Applicable Floating
Margin for the Margin for the Margin for the Margin for the
Leverage Ratio Revolving Loans Term Loan Revolving Loans Term Loan
- -------------- ---------------- ---------------- ------------------- -------------------
<S> <C> <C> <C> <C>
Greater than or equal 1.50% 1.75% (0.25%) 0%
to 4.75: 1.00
Greater than or equal
to 3.50: 1.00, but less
than 4.75: 1.00 1.25% 1.50% (0.50%) (0.25%)
Less than 3.50: 1.00 1.00% 1.25% (0.75%) (0.50%)
</TABLE>
The calculation of the Leverage Ratio as of the last day of a calendar
quarter shall be based on the financial statements received by
Agent pursuant to Section 5.1.1. Each adjustment to the Applicable Margin
shall be effective retroactively as of the first day of each calendar
quarter."
4. AGREEMENT. Pursuant to Section 2.1.2 of the Loan Agreement, the Lenders
made a Term Loan to Borrower in the original principal amount of Twenty Five
Million Dollars ($25,000,000), of which Thirteen Million Dollars ($13,000,000)
has been prepaid as of the date hereof. Borrower has requested that it be
permitted to make additional borrowings under the Term Loan. Subject to the
condition set forth in the last sentence of this Section 4, Agent, Lenders and
Borrower hereby agree that at any time prior to December 31, 1998, Borrower
shall be permitted to borrow as part of the Term Loan, in increments of One
Million Dollars ($1,000,000), up to Seven Million Dollars ($7,000,000) in the
aggregate, which borrowings, to the extent borrowed, shall be repayable as
follows: (i) the first Seven Hundred Fifty Thousand Dollars ($750,000) borrowed
pursuant to this Section 4 shall be repayable on December 31, 2000, (ii) the
next Two Million Two Hundred Fifty Thousand Dollars ($2,250,000) borrowed
pursuant to this Section 4 shall be repayable on March 31, 2001, (iii) the next
Two Million Two Hundred Fifty Thousand Dollars ($2,250,000) borrowed pursuant to
this Section 4 shall be repayable on June 30, 2001, and (iv) the last One
Million Seven Hundred Fifty Thousand Dollars ($1,750,000) borrowed pursuant to
this Section 4 shall be repayable on September 28, 2001. Borrower agrees to
execute such documents, instruments and agreements to evidence such additional
borrowings as Agent shall request. The foregoing agreement shall only be
effective upon receipt by Agent of date down title endorsements, each in form
and substance acceptable to Agent, with respect to the Mortgages executed by
Borrower in favor of Agent in connection with Borrower's owned facilities
located in New Carlisle, Indiana and Niagara Falls, New York.
5. CONDITIONS. The consent, amendment and agreement set forth in this
Agreement shall each be effective only to the extent that (i) no Unmatured Event
of Default or Event of Default exists, and (ii) Borrower has delivered to Agent
an executed fee letter in form and substance acceptable to Agent.
6. OTHER AMENDMENTS. The amendment set forth in Section 3 of this Agreement
shall constitute an amendment to the Loan Agreement and all of the Related
Agreements as appropriate to express the agreements contained herein. In all
other respects, the Loan Agreement and the Related Agreements shall remain
unchanged and in full force and effect in accordance with their original terms.
7. MISCELLANEOUS.
(a) Warranties and Absence of Defaults. In order to induce Agent and
Lenders to enter into this Agreement, Borrower hereby warrants to Agent and
Lenders, as of the date hereof, that:
(1) The warranties of Borrower contained in the Loan Agreement are
true and correct as of the date hereof as if made on the date hereof.
(11) No Event of Default or event which, with giving of notice or the
passage of time, or both would become an Event of Default, exists as of
the date hereof.
(b) EXPENSES. Borrower agrees to pay on demand all costs and expenses of
Agent (including the reasonable fees and expenses of outside counsel for Agent)
in connection with the preparation, negotiation, execution, delivery and
administration of this Agreement and all other instruments or documents
provided for herein or delivered in connection herewith. In addition, Borrower
agrees to pay, and save Agent and Lenders harmless from all liability for, any
stamp or other taxes which may be payable in connection with the execution or
delivery of this Agreement or the Loan Agreement as amended hereby, and the
execution and delivery of any instruments or documents provided for herein or
delivered or to be delivered hereunder or in connection herewith. All
obligations provided in this Section 7(b) shall survive any termination of this
Agreement and the Loan Agreement as amended hereby.
(c) GOVERNING LAW. This Agreement shall be a contract made under and
governed by the internal laws of the State of Illinois.
(d) COUNTERPARTS. This Agreement may be executed in any number of
counterparts, and by the parties hereto on the same or separate counterparts,
and each such counterpart, when executed and delivered, shall be deemed to be an
original, but all such counterparts shall together constitute but one and the
same Agreement.
(e) REFERENCE TO LOAN AGREEMENT. On and after the effectiveness of the
amendment to the Loan Agreement accomplished hereby, each reference in the Loan
Agreement to "this Agreement" "hereunder," "hereof," "herein" or words of like
import, and each reference to the Loan Agreement in any Related Agreements, or
other agreements, documents or other instruments executed and delivered pursuant
to the Loan Agreement, shall mean and be a reference to the Loan Agreement, as
amended by this Agreement.
(f) SUCCESSORS. This Agreement shall be binding upon Borrower, Agent,
Lenders and their respective successors and assigns, and shall inure to the
benefit of Borrower, Agent, Lenders and the successors and assigns of Agent and
Lenders.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized and delivered at
Chicago, Illinois as of the date first above written.
UNIFRAX CORPORATION
By: /s/ Mark D. Roos
-----------------------------
Its Vice President and CFO
-----------------------------
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, as Agent
By: /s/ Kristine D. Hyde
-----------------------------
Its Agency Officer
-----------------------------
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, as a Lender
By: /s/Steven Kessler
-----------------------------
Its Vice President
-----------------------------
NATIONAL CITY BANK, as a Lender
By: /s/ Matthew T. Garrity
-----------------------------
Its Vice President
-----------------------------
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE UNIFRAX
CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEET AS OF JUNE 30,
1998, AND THEIR CONDENSED CONSOLIDATED STATEMENT OF INCOME FOR THE PERIOD ENDED
JUNE 30, 1998.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 312
<SECURITIES> 0
<RECEIVABLES> 14,466
<ALLOWANCES> 1,066
<INVENTORY> 9,697
<CURRENT-ASSETS> 26,749
<PP&E> 71,647
<DEPRECIATION> 35,562
<TOTAL-ASSETS> 90,506
<CURRENT-LIABILITIES> 10,749
<BONDS> 119,600
<COMMON> 0
0
0
<OTHER-SE> (43,341)
<TOTAL-LIABILITY-AND-EQUITY> 90,506
<SALES> 43,757
<TOTAL-REVENUES> 43,757
<CGS> 21,979
<TOTAL-COSTS> 21,979
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,042
<INCOME-PRETAX> 3,991
<INCOME-TAX> 1,120
<INCOME-CONTINUING> 2,871
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,871
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
