<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report: July 10, 1998
KMG CHEMICALS, INC.
(Formerly KMG-B, Inc.)
(Name of Registrant as specified in its charter)
Commission File Number 000-29278
TEXAS 75-2640529
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
10611 HARWIN DRIVE, SUITE 402
HOUSTON, TEXAS 77036
(Address of principal executive offices)
(713) 988-9252
(Registrant's telephone number)
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
As of June 30,1998, KMG-Bernuth, Inc. ("KMG"), the wholly-owned subsidiary
of registrant KMG Chemicals, Inc. ("Company"), entered into a long-term supply
contract to purchase creosote (a wood treating chemical) from AlliedSignal Inc.
("Allied"). At the same time, KMG purchased certain intangible assets from
Allied pertaining to creosote sales and distribution. KMG paid Allied
$4 million as additional consideration for entering into the supply contract and
paid $4.5 million for the intangible assets. The total consideration was
determined by arm's length negotiation between the Company and Allied. The
Company, KMG and their respective officers and directors have no material
relationship with Allied or its officers and directors except that Allied has
been and is a supplier of creosote to KMG. The performance of KMG under the
supply contract and the asset purchase agreement are guaranteed by the Company.
The supply contract has an initial term of ten (10) years and thereafter
automatically renews for successive one-year periods at the end of the initial
term and each one year renewal term unless, one year prior to the expiration of
the term, either party elects to terminate. Under the supply contract, KMG will
purchase Allied's creosote production, subject to annual maximum and minimum
quantities, at varying prices per gallon. During the initial term, the annual
maximum quantity is approximately 138 million pounds. If Allied's actual
production exceeds the maximum, KMG has the option to purchase that additional
production.
The assets purchased by KMG included Allied's creosote customer list, one
customer contract, certain railcar leases and Allied's rights in creosote
product registrations under the Federal Insecticide, Fungicide and Rodenticide
Act. Allied will continue to produce creosote and sell it to KMG under the
supply contract. KMG did not purchase any inventory or accounts receivable
pertaining to the creosote business of Allied and did not purchase any plant,
equipment or other physical property. KMG did not hire any employees of Allied
or acquire any production techniques or trade names in connection with the
transaction.
The transaction with Allied was financed out of working capital and the
proceeds of a $6 million term loan to KMG by SouthTrust Bank, National
Association. The term loan bears interest at 7.32% and is amortized in equal
monthly installments of approximately $91 thousand over a term of seven years.
The term loan lender has also made available to KMG since fiscal 1997 a
$2.5 million revolving loan facility. The revolving loan facility was modified
in connection with purchasing the intangible assets from Allied in order to
reduce the tangible net worth to liabilities requirement. The term loan and the
revolving loan facility are guaranteed by the Company.
<PAGE>
ITEM 5. OTHER EVENTS.
See Item 2, above.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(c) Exhibits:
2.1 Asset Purchase and Sale Agreement dated June 26, 1998 between
AlliedSignal Inc. and the Company*
10.14 Creosote Supply Agreement dated as of June 30, 1998 between
AlliedSignal Inc. and the Company**
10.15 Performance Guaranty dated June 30, 1998 by the Company
10.16 Term Loan Agreement between SouthTrust Bank, National Association
and KMG-Bernuth, Inc.
10.17 $6,000,000 Term Note
10.18 Guaranty of Payment by the Company
10.19 Fourth Amendment to Revolving Loan Agreement
* Schedules and attachments that are omitted shall be furnished to
the Commission on request.
** Portions of this Exhibit are omitted and separately filed with
the Securities Exchange Commission pursuant to a request for
confidential treatment.
<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, hereunto duly authorized.
KMG CHEMICALS, INC.
By: /s/ David L. Hatcher Date: July 10, 1998
---------------------------------
David L. Hatcher
President
<PAGE>
ASSET PURCHASE AND SALE AGREEMENT
THIS ASSET PURCHASE AND SALE AGREEMENT ("Agreement"), dated as of June
26, 1998 by and between ALLIEDSIGNAL INC., a Delaware corporation ("Seller"),
and KMG-BERNUTH, INC., a Delaware corporation ("Buyer").
Seller is the owner of a business engaged in the marketing and
distribution of creosote (the "Business"). Seller desires to sell and Buyer
desires to purchase the Business on the terms and conditions set forth in this
Agreement. Accordingly, in consideration of the mutual covenants contained
herein and intending to be legally bound, Seller and Buyer agree as follows:
ARTICLE I.
SALE AND PURCHASE OF ASSETS
Concurrently with the execution and delivery hereof, Seller is
selling, transferring, assigning, conveying, setting over and delivering to
Buyer, and Buyer is purchasing and acquiring from Seller, certain assets
associated with the Business, which include certain creosote supply contracts
("Creosote Contracts"), as specifically set forth on Exhibit 1.0 (collectively,
the "Assets"). No other rights, properties or assets, whether or not associated
with the Business are intended to, or shall, be included among the Assets or
conveyed, granted, transferred, contributed, assigned or delivered to the Buyer
hereunder except as set forth in Exhibit 1.0.
ARTICLE II.
CLOSING AND PURCHASE PRICE
2.1 THE CLOSING. The closing (the "Closing") of the transactions
contemplated hereby shall take place at Seller's offices in Morristown, New
Jersey, effective as of June 30, 1998 (the "Closing Date"). Title to the Assets
shall pass to Buyer as of 11:59 p.m. Eastern Daylight time on the Closing Date.
Buyer shall assume risk of loss for the Assets at that time as of the Closing
Date. Time is of the essence in this Agreement, and this Agreement shall
terminate if the closing has not been completed by June 30, 1998.
2.2 CONSIDERATION. In consideration of the sale and transfer of the
Assets to Buyer and the other undertakings of Seller hereunder, Buyer shall:
(a) pay the Purchase Price (as hereinafter defined) to Seller, and (b) assume
the Assumed Liabilities (as hereinafter defined), as of the Closing Date. The
Purchase Price to be paid by Buyer hereunder shall be made by delivery to Seller
of immediately available funds by bank wire transfer to a bank account
designated by Seller.
2.3 PURCHASE PRICE. The Purchase Price shall be the sum of Four
Million Five
1
<PAGE>
Hundred Thousand Dollars ($4,500,000.00). The Purchase Price shall be paid
in cash by wire transfer in immediately available funds to an account
specified by Seller.
2.4 ALLOCATION OF PURCHASE PRICE. Seller and Buyer mutually agree to
the allocation of the Purchase Price among the Assets as set forth on Schedule
2.4, in accordance with Section 1060 of the Internal Revenue Code of 1986, as
amended (the "Code"). Each of the parties agrees to report this transaction for
all Tax purposes in accordance with such allocation of the Purchase Price,
including, without limitation, for all purposes on any federal or state income
or franchise Tax return filed by any party after the Closing Date.
ARTICLE III.
ASSUMPTION OF LIABILITIES
As of the Closing Date, Buyer will assume and become liable for (i)
all obligations of Seller under the Creosote Contracts; (ii) all railcar leases
set forth on Exhibit 1.0; and (iii) any and all liabilities which arise out of
or relate to the Business or to the Assets as operated or owned after the
Closing Date or arise out of events first occurring or conditions first existing
after the Closing Date (collectively, the "Assumed Liabilities"). All
liabilities except for the Assumed Liabilities which have arisen or arise out of
or relate to the Business, all liabilities which arise out of or relate to the
operation of the Assets, as conducted by Seller, prior to and on the Closing
Date and all liabilities which arise out of or relate to the manufacture and
production of creosote by Seller (collectively, the "Excluded Liabilities"),
shall continue to be liabilities of Seller. Certain of the Excluded Liabilities
are set forth more specifically on Exhibit 3.0.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES
4.1 REPRESENTATIONS AND WARRANTIES OF SELLER. Except as set forth in
the disclosure schedule attached hereto, Seller hereby represents and warrants
to Buyer as follows:
4.1.1 ORGANIZATION. Seller is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware.
Seller is duly qualified to do business as a foreign corporation and is in good
standing in all jurisdictions in which the ownership of the Assets or the
operation of the Business makes such qualification necessary, except to the
extent that the failure to be so qualified has not resulted in, and is not
likely to result in, a material adverse change in the Business.
2
<PAGE>
4.1.2 AUTHORITY TO CONDUCT BUSINESS AND TO OWN AND SELL ASSETS.
Seller has all necessary power and authority to own the properties, rights and
other assets it purports to own and which are used or useful in the Business and
to carry on the Business as it is now being conducted, and has the right, power
and authority to transfer the Assets in accordance with the terms and conditions
hereof.
4.1.3 NO CONSENTS. No governmental consents, approvals, orders or
authorizations, and no consent or approval of any other third party, are
required for the execution and delivery of this Agreement by Seller, or for the
consummation by Seller of the transactions contemplated hereby.
4.1.4 AUTHORITY TO EXECUTE, DELIVER AND PERFORM THIS AGREEMENT.
Seller has all necessary corporate power and authority to execute, deliver and
perform this Agreement. All proceedings and actions by Seller required to
authorize the legal and valid execution, delivery and performance of this
Agreement and the consummation of all of the transactions contemplated by this
Agreement, have been, or will be on or before the Closing Date, duly and validly
completed. This Agreement has been duly and validly authorized, executed and
delivered by, and is the valid and binding obligation of, Seller.
4.1.5 NO VIOLATION OF LAWS, AGREEMENTS; NO LIENS. The execution
and delivery of this Agreement by Seller and the consummation by Seller of the
transactions contemplated hereby (i) are not prohibited by, and do not violate
any provision and will not result in the breach of, or accelerate or permit the
acceleration of the performance required by the terms of (A) any applicable law,
rule, regulation, judgment, decree, order or other requirement of (x) the United
States or of (y) any State of the United States or of (z) any court, authority,
department, commission, board, bureau, agency or instrumentality of either (x)
or (y), (B) the Articles of Incorporation or By-Laws of Seller, and any
amendments to any of them, or (C) any material contract, indenture, agreement or
commitment to which Seller is a party or is bound or to which any of the Assets
are subject or which is material to the Business, and (ii) have not resulted and
will not result in the creation or imposition of any material lien,
encroachment, easement, encumbrance, mortgage, hypothecation, equity, charge,
restriction, possibility of reversion or other similar conflicting ownership or
security interest on any Asset.
4.1.6 BUSINESS IN THE ORDINARY COURSE. Since January 1, 1998,
Seller has conducted the Business in the ordinary course of business as
heretofore conducted and has not entered into any contracts or transactions with
respect to the Business other than in the ordinary course of business.
4.1.7 FINANCIAL STATEMENTS. Exhibit 4.1.7 sets forth the
statement of operations of the Business for the periods ended December 31, 1997
and March 31, 1998 (the "Operating Statements"). The Operating Statements have
been prepared from the books and records of the Business using the accounting
principles set forth in the notes to the Operating Statements. Except as
disclosed in those notes, the Operating Statements reflect in all material
respects the
3
<PAGE>
results of operations of the Business for the respective periods. Seller
makes no representation or warranty that the results of operations reflected
in the Operating Statements included in Exhibit 4.1.7 may be attained or
exceeded in any future period by any business or enterprise which Buyer may
conduct using the Assets.
4.1.8 NO UNDISCLOSED LIABILITIES. There are no liabilities of
Seller materially affecting the Business and the Assets (other than Excluded
Liabilities) except as shown in the Operating Statements and the notes thereto
and those arising in the ordinary course of business.
4.1.9 NO LITIGATION. There is no legal action or investigation or
inquiry currently pending or, to the knowledge of the officers of Seller,
threatened in writing against Seller (before any court, agency, arbitrator or
otherwise) with respect to the Business or any of the Assets. Seller is not
subject to any judgment, decree or order entered in any lawsuit or proceeding
brought against it that may reasonably be expected to adversely affect the
Assets in any material respect. It is understood and agreed that any such
action or proceeding arising from events prior to Closing, or any liability
resulting therefrom, will constitute an Excluded Liability.
4.1.10 CUSTOMER LISTS. Exhibit 1.0 hereto includes the top ten
customers of Seller with respect to the Business during the twelve-month period
ended December 31, 1997 and the four-month period ended April 30, 1998.
4.1.11 COMPLIANCE WITH LAW. Seller has complied in all material
respects with each, and is not in material violation of any law, ordinance, or
governmental rule or regulation to which the Business or any of the Assets is
subject.
4.1.12 TITLE TO ASSETS. Seller has as of the date hereof, and on
the Closing Date will have and convey to Buyer, except as shown on Exhibit
4.1.12 hereto, good and marketable title to all the Assets, free and clear of
any mortgage, security interest, pledge, lien, or encumbrance, other than those
which do not adversely affect the value or use in the Business of any Asset or
interfere with the conduct of the Business as now conducted.
4.1.13 BROKERS AND FINDERS. Seller has taken no action that,
directly or indirectly, would obligate Buyer to anyone acting as broker, finder,
financial advisor or in any similar capacity in connection with this Agreement
or any of the transactions contemplated hereby.
4.1.14 TENANCIES; THIRD PARTY RIGHTS. Seller has granted no
leases or tenancies for any portion of the Assets, and no third party has any
rights to the purchase, use or possession of any part or all of the Assets.
4.1.15 LIMITATIONS. EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES
OF SELLER EXPRESSLY SET FORTH IN THIS AGREEMENT, THE SALE OF THE ASSETS IS MADE
"AS IS, WHERE IS," AND THE SELLER SHALL
4
<PAGE>
NOT BE DEEMED TO HAVE MADE ANY FURTHER REPRESENTATIONS OR WARRANTIES, EXPRESS
OR IMPLIED, NOW OR HEREAFTER, AS TO THE VALUE, ECONOMIC VIABILITY OR
PROFITABILITY OF ANY ENTERPRISE BUYER MAY CONDUCT USING THE ASSETS ACQUIRED
HEREUNDER, CONDITION, DESIGN, OPERATION, MERCHANTABILITY, QUALITY OR
WORKMANSHIP, FITNESS FOR USE OR A PARTICULAR PURPOSE, MAINTENANCE OR
MARKETABILITY OF ANY OF THE ASSETS. NO REFERENCE TO "BUSINESS" IN THIS
AGREEMENT SHALL BE READ TO IMPLY ANY SUCH REPRESENTATION OR WARRANTY AND ANY
REFERENCE TO "BUSINESS" HEREIN REFERS ONLY TO THE ENTERPRISE CONDUCTED BY
SELLER PRIOR TO THE DATE HEREOF AND SHALL NOT BE INTERPRETED OTHERWISE.
4.2 REPRESENTATIONS AND WARRANTIES OF BUYER. Buyer hereby represents
and warrants to Seller as follows:
4.2.1 ORGANIZATION OF BUYER. Buyer is a corporation duly
organized, validly existing and in good standing under the laws of Delaware with
all requisite power and authority to own or hold the Assets it will acquire
pursuant to the transactions contemplated by this Agreement, and to execute,
deliver and perform this Agreement and other documents to be executed by Buyer
in connection with this transaction.
4.2.2 AUTHORITY TO EXECUTE, DELIVER AND PERFORM THIS AGREEMENT.
Buyer has all necessary corporate power and authority to execute, deliver and
perform this Agreement. All proceedings and action by Buyer required to
authorize the legal and valid execution, delivery and performance of this
Agreement and other documents related to this transaction and its consummation
have been, or will be on or before the Closing Date, duly taken by Buyer. This
Agreement has been duly authorized, executed and delivered by, and is the valid
and binding obligation of, Buyer.
4.2.3 NO VIOLATION OF LAWS, AGREEMENTS. The execution and
delivery of this Agreement by Buyer and the consummation by Buyer of the
transactions contemplated hereby are not prohibited by, and do not violate any
provision and will not result in the breach of, or accelerate or permit the
acceleration of the performance required by the terms of, (A) any applicable
law, rule, regulation, judgment, decree, order or other requirement of (x) the
United States or of (y) any State of the United States, or of (z) any court,
authority, department, commission, board, bureau, agency or instrumentality of
(x) or (y), (B) the Charter and By-Laws of Buyer or (C) any material contract,
indenture, agreement or commitment to which Buyer is a party or bound or to
which any of Buyer's properties are subject.
4.2.4 KNOWLEDGE CONCERNING REPRESENTATIONS BY SELLER. Neither
Buyer nor any of its representatives has knowledge of any breach by Seller or
the failure to be true and correct of any of the representations or warranties
set forth in Section 4.1 of this Agreement.
5
<PAGE>
4.2.5 BUYER'S FULL ACCESS. Buyer acknowledges that it has been
permitted full and complete access to the Assets and the Business that it has
desired or requested to see and/or review, and that Buyer and its
representatives have had a full opportunity to meet with the representatives of
Seller to discuss the Assets and the employees of the Business to inspect the
Assets. Buyer further acknowledges that neither Seller nor any other person has
made any representation or warranty, express or implied, as to the accuracy or
completeness of any information regarding the Assets not included in this
Agreement, and Seller will not have or be subject to any liability to Buyer or
any person resulting from the distribution to Buyer, or Buyer's use of, any such
information.
4.2.6 BROKERS AND FINDERS. Buyer has taken no action that,
directly or indirectly, would obligate Seller to anyone acting as a broker,
finder, financial advisor or in any similar capacity in connection with this
Agreement or any of the transactions contemplated hereby.
4.2.7. BUYER AS SOPHISTICATED USER. Buyer is a sophisticated user,
marketer, and distributor of creosote and is familiar with all requirements and
practices (including, without limitation, health, safety, and environmental)
necessary for the legal and safe carrying-on of the Business or other
disposition of the Assets from and after the Closing.
ARTICLE V.
CONDITIONS TO CLOSING
5.1 BUYER'S CONDITIONS. The obligations of Buyer to consummate the
transactions contemplated hereby at the Closing are subject to the satisfaction
(unless waived) of the following conditions:
(a) Seller shall execute and deliver to Buyer a general
assignment and bill of sale and such other good and sufficient instruments of
transfer conveying and transferring to Buyer all of the Assets (the "Transfer
Documents"), in each case in form satisfactory to Buyer.
(b) Seller and Buyer shall execute an agreement concerning the
sale of creosote from Seller to Buyer, in the form attached hereto as Exhibit
5.1(b).
(c) Buyer shall receive the opinion of David P. Cooke, Esq.
counsel for Seller in the form attached hereto as Exhibit C.
(d) Each of the representations and warranties of Seller set
forth in Section 4.1 of this Agreement shall be true and correct in all material
respects both on the date of this Agreement and on the Closing Date as though
made on and as of each such date (except with respect to the effect of
transactions permitted by the provisions of this Agreement), except as to
6
<PAGE>
any matter waived by Buyer, and Seller shall deliver to Buyer at the Closing
a certificate dated as of the Closing Date and executed by any authorized
officer to that effect.
(e) There shall have been no material adverse change in the
Assets or the Business.
(f) Seller shall have complied with all of the covenants and
agreements herein contained to be performed by it at or prior to the time fixed
for the Closing, and Seller shall deliver to Buyer at the Closing a certificate
dated as of the Closing Date and executed by any authorized officer to that
effect.
(g) All requisite approvals, authorizations and orders of all
governmental authorities pertaining to consummation of the transactions
contemplated hereby shall have been obtained, except to the extent that failure
to obtain such consent shall not have a material adverse effect on the Assets.
(h) There shall be no suit, action or other proceeding pending or
threatened before any court or before or by any governmental agency in which it
is sought to restrain, prohibit, invalidate or set aside in whole or in part the
consummation of this Agreement or the transactions contemplated hereby or to
obtain damages in connection therewith.
5.2 SELLER'S CONDITIONS. The obligation of Seller to consummate the
transactions contemplated hereby at the Closing are subject to the satisfaction
(unless waived) of the following conditions:
(a) Seller and Buyer shall execute an agreement concerning the
sale of creosote from Seller to Buyer, in the form attached hereto as Exhibit
5.1(b) (the "Supply Agreement").
(b) Buyer shall execute and deliver to Seller an assumption
agreement pursuant to which Buyer shall assume the Assumed Liabilities in a form
satisfactory to Seller.
(c) Seller shall receive the opinion of Woods & Jackson, L.L.P.
counsel for Buyer in the form attached hereto as Exhibit C.
(d) Buyer shall pay to Seller at the Closing the Purchase Price.
(e) Seller shall receive from KMG Chemicals, Inc., in the form
attached hereto as Exhibit 5.2(e), an irrevocable guaranty of all obligations of
Buyer under this Agreement and all ancillary agreements, including but not
limited to Buyer's obligations under the agreement set forth as Exhibit 5.1(b)
and Buyer's obligations under Article VI of this Agreement.
7
<PAGE>
(f) Each of the representations and warranties of Buyer set
forth in Section 4.2 of this Agreement shall be true and correct in all material
respects both on the date of this Agreement and on the Closing Date as though
made on and as of each such date (except with respect to the effect of
transactions permitted by the provisions of this Agreement), except as to any
matter waived by Seller, and Buyer shall deliver to Seller at the Closing a
certificate dated the Closing Date and executed by any authorized officer to
that effect.
(g) Buyer shall have complied with all of the covenants and
agreements herein contained to be performed by it at or prior to the time fixed
for the Closing, and Buyer shall deliver to Seller at the Closing a certificate
dated as of the Closing Date and executed by any authorized officer to that
effect.
(h) All requisite approvals, authorizations and orders of all
governmental authorities pertaining to consummation of the transactions
contemplated hereby shall have been obtained.
(i) There shall be no suit, action or other proceeding pending
or threatened before any court or before or by any governmental agency in which
it is sought to restrain, prohibit, invalidate or set aside in whole or in part
the consummation of this Agreement or the transactions contemplated hereby or to
obtain damages in connection therewith.
5.3 FAILURE OF A CONDITION. The parties shall use good faith efforts
to bring about the satisfaction of the conditions hereunder prior to and at
Closing. Notwithstanding anything to the contrary set forth herein, this
Agreement may be terminated and the transactions contemplated hereby abandoned
at any time prior to Closing: (a) by mutual written consent of Buyer and
Seller; or (b) by Buyer or Seller, upon written notice to the other, if such
other party (or its affiliate) has breached any material representation,
warranty or covenant contained in this Agreement in any material respect, if the
non-breaching party has notified the breaching party of the breach in writing
and the breach has continued without cure for a period of thirty (30) days after
notice of breach (during which time the breaching party shall use its reasonable
efforts to remedy such breach). If this Agreement is terminated pursuant to
this Section, neither party shall have any rights or obligations to the other
hereunder or otherwise.
8
<PAGE>
ARTICLE VI.
INDEMNIFICATION
6.1 INDEMNIFICATION BY SELLER. Seller shall indemnify, defend, save
and hold Buyer harmless from and against all Adverse Consequences (as defined
below) incurred by Buyer in connection with (i) any breach of the
representations and warranties made by Seller in this Agreement, (ii) any breach
of any of the covenants or agreements made by Seller in this Agreement, or (iii)
the Excluded Liabilities. Notwithstanding the foregoing, Buyer shall have no
right to indemnification with respect to any claim which may arise under the
Supply Agreement set forth as Exhibit 5.1(b) hereto, and Buyer's rights and
remedies for any such claims shall be governed by the terms and conditions of
the Supply Agreement.
6.2 INDEMNIFICATION BY BUYER. Buyer shall indemnify, defend, save
and hold Seller harmless from and against any and all demands, claims or actions
incurred by Seller in connection with (i) any breach of the representations and
warranties made by Buyer in this Agreement, (ii) any breach of any of the
covenants or agreements made by Buyer in this Agreement, (iii) any Assumed
Liabilities, or (iv) the operation of any of the Assets after the Closing Date.
Notwithstanding the foregoing, Seller shall have no right to indemnification
with respect to any claim which may arise under the Supply Agreement set forth
as Exhibit 5.1(b) hereto, and Seller's rights and remedies for any such claims
shall be governed by the terms and conditions of the Supply Agreement.
6.3 NOTICE OF CLAIMS. If Buyer or Seller, as the case may be, (an
"Indemnified Party") believes that it has suffered or incurred any Adverse
Consequences for which it is entitled to indemnification under this Article VII,
such Indemnified Party shall promptly notify the party or parties from whom
indemnification is being claimed (the "Indemnifying Parties") identifying with
particularity the basis of such claim. If any action at law or suit in equity
is instituted by or against a third party with respect to which any Indemnified
Party intends to claim any Adverse Consequences, such Indemnified Party shall
promptly notify the Indemnifying Parties of such action or suit, provided,
however, that no undue delay on the part of the Indemnified party in notifying
the Indemnifying party shall relieve the Indemnifying Party from any obligation
hereunder unless (and then solely to the extent) the Indemnifying Party is
prejudiced thereby. If an Indemnified Party makes a claim for indemnification
within the applicable survival period as set forth in Section 6.5, then the
obligations of the Indemnifying Party with respect to Adverse Consequences under
Sections 6.1 or 6.2 shall continue through and after the date of the claim for
indemnification (including any Adverse Consequences suffered after the end of
the applicable survival period.)
6.4 THIRD PARTY CLAIMS; LIMITATION. So long as (i) the Indemnifying
Party notifies the Indemnified Party in writing within fifteen (15) days after
the Indemnified Party has given notice of such third party claim that
Indemnifying Party will indemnify the Indemnified Party from and against the
entirety of any Adverse Consequences the Indemnified Party may suffer resulting
from, arising out of, relating to or in the nature of or caused by the third
party claim, (ii) the third
9
<PAGE>
party claim involves only money damages and does not seek an injunction or
other equitable relief as a primary form of relief, (iii) the Indemnifying
Party conducts the defense of the third party claim actively and diligently,
then the Indemnifying Party shall have the right to conduct and control,
through counsel of its choosing, any third party claim, action or suit So
long as the Indemnifying Party is conducting the defense of a third party
claim in accordance with this Section 6.4, (i) the Indemnified Party may
retain separate co-counsel at its sole cost and expense and participate in
the defense of the third party claim, (ii) the Indemnified Party will not
consent to the entry of any judgment or enter into any settlement with
respect to the third party claim without the prior written consent of the
Indemnifying Party (not to be unreasonably withheld), and (iii) the
Indemnifying Party will not consent to the entry of any judgment or enter
into any settlement with respect to the third party claim without the prior
written consent of the Indemnified Party (not to be unreasonably withheld).
In the event any of the conditions to the Indemnifying Party conducting the
defense of the third party claim is or becomes unsatisfied, however, (i) the
Indemnified Party may defend against, and consent to the entry of any
judgment or enter into any settlement with respect to, the third party claim
in any manner it reasonably may deem appropriate (and the Indemnified Party
need not consult with, or obtain any consent from, the Indemnifying Party in
connection therewith), (ii) the Indemnifying Party will reimburse the
Indemnified Party promptly and periodically for the cost of defending against
the third party claim (including reasonable attorneys fees and expenses), and
(iii) the Indemnifying Party will remain responsible for any Adverse
Consequences the Indemnified Party may suffer resulting from, arising out of,
relating to or in the nature of, or caused by the third party claim to the
fullest extent provided in this Article VI. No Indemnifying Party shall be
liable for any indemnity for any damages unless the aggregate amount of such
damages exceeds $50,000.00, and then such Indemnifying Party shall be liable
for indemnity only to the extent of such excess. In no case, however, shall
such Indemnifying Party be liable for damages which exceed, in the aggregate,
fifty percent (50%) of the Purchase Price.
6.5 SURVIVAL PERIOD. The representations and warranties set forth
herein shall survive for a period of one year from the Closing Date. The
liability of Seller for Excluded Liabilities and the liability of Buyer for
Assumed Liabilities shall survive the Closing Date and continue in full force
and effect forever thereafter (subject to any applicable statute of
limitations).
6.6 EXCLUSIVE REMEDY. The indemnification provided in this Article
VI shall be the exclusive post-Closing remedy available to any party hereto for
any breach or inaccuracy of any representation, warranty or covenant contained
herein, except that either party may obtain such equitable remedies as may be
available under applicable law for the breach of the post-Closing covenants set
forth in Article VIII.
10
<PAGE>
6.7 MINIMIZING LOSSES. Each party agrees to use all reasonable
efforts to minimize all Adverse Consequences for which it may seek
indemnification from the other party pursuant to this Article VI, and to
minimize the amount of such indemnification obligation by reasonably pursuing
the maximum possible insurance recovery or recovery from other available sources
with respect to Adverse Consequences.
6.8 ADVERSE CONSEQUENCES. For purposes of this Agreement, the term
"Adverse Consequences" means all actions, suits, proceedings, hearing,
investigations, charges, complaints, claims, demands, injunctions, judgments,
orders, decrees, rulings, damages, dues, penalties, fines, costs, amounts paid
in settlement (subject, however, to Section 6.4 hereof), liability, obligation,
taxes, liens, losses, expenses and fees, including court costs and reasonable
attorneys fees and expenses.
ARTICLE VII.
TAXES AND EXPENSES
7.1 PRE-CLOSING TAXES. Seller shall be responsible for and shall pay
any and all Taxes arising or resulting from the conduct of the Business or the
ownership of the Assets on or prior to the Closing Date (including, without
limitation, the sale of the Business and the Assets on the Closing Date pursuant
to this Agreement), which liability shall be an Excluded Liability.
7.2 POST-CLOSING TAXES. Buyer shall be responsible for and shall pay
any and all Taxes arising or resulting from the conduct of the Business or the
ownership of the Assets after the Closing Date (excluding, without limitation,
the sale of the Business and the Assets on the Closing Date pursuant to this
Agreement), which liability shall be an Assumed Liability.
7.3 DEFINITION OF "TAX." "Tax" means any tax imposed under Subtitle A
of the Code and any net income, alternative or add-on minimum tax, gross income,
gross receipts, sales, use, ad valorem, transfer, franchise, profits, license,
lease, service, service use, withholding on amounts paid to or by Seller,
payroll, employment, excise, severance, stamp, capital stock, occupation,
property, environmental or windfall profit tax, premium, custom, duty or other
tax, governmental fee or other like assessment or charge of any kind whatsoever,
together with any interest, penalty, addition to tax or additional amount
imposed by any governmental authority responsible for the imposition of any such
tax.
7.4 TRANSFER TAXES. Buyer shall pay all sales, use, registration and
any other similar transfer taxes, and all interest, penalties, or additions to
such taxes, assessed or payable in connection with the transfer of the Assets by
Seller to Buyer.
11
<PAGE>
7.5 EXPENSES. Except as otherwise provided in this Article VII, each
party shall bear and pay its own expenses and taxes incurred in connection with
the transactions referred to in this Agreement.
ARTICLE VIII.
MISCELLANEOUS
8.1 FURTHER Assurances. After the Closing, Seller shall from time to
time, at Buyer's request, execute and deliver to Buyer, such other instruments
of conveyance and transfer (including without limitation, additional assignments
suitable for recording and any actions necessary to effect the transfer of any
registrations under the Federal Insecticide, Fungicide, and Rodenticide Act) and
take such other action as Buyer may reasonably request to the extent necessary
to more effectively sell, transfer, assign and deliver and vest in Buyer, title
to and possession of the Assets as provided in this Agreement or otherwise
necessary to consummate the transactions contemplated by this Agreement.
8.2 ACCESS TO BOOKS AND RECORDS. After Closing:(i) Buyer shall
provide Seller with reasonable access, upon reasonable notice, to all books and
records comprising the Business or the Assets transferred hereunder, in the
event that Seller shall become involved in any effort, undertaking, litigation,
or other matter which would have required such access had the Closing not taken
place; and (ii) Seller shall provide Buyer with reasonable access, upon
reasonable notice, to all books and records to the extent related to the
Business or the Assets transferred hereunder to assist Buyer in making any
submission or any filing required under applicable securities or other law
(including the Federal Insecticide, Fungicide and Rodenticide Act). The parties
shall retain such books and records for a period of no less than five (5) years.
8.3 CONFIDENTIALITY. After Closing: (i) Seller shall maintain the
confidentiality of, and shall not use, for the benefit of itself or others, any
confidential information concerning the Business or the Assets, including but
not limited to any customer lists, pricing information or other business
information; and (ii) Buyer shall not use any confidential information obtained
from Seller relating to periods prior to the Closing Date, except for its own
legitimate business purposes. PROVIDED, HOWEVER, that this Section 8.3 shall
not restrict (a) any disclosure by either party of any confidential information
required by applicable law, securities exchange or any court of competent
jurisdiction; PROVIDED, that the other party is given notice and an adequate
opportunity to contest such disclosure, (b) any disclosure on a confidential
basis to any such party's attorneys, accountants, lenders and investment bankers
and (c) any disclosure of information (i) which is available publicly as of the
date of this Agreement, (ii) which, after the date of this Agreement, becomes
available publicly through no fault of the disclosing party or any of its
Affiliates or (iii) which is received by such party from a third party not, to
the best of such party's knowledge, subject to any obligation of confidentiality
with respect thereto.
12
<PAGE>
8.5 NON-SOLICITATION. Buyer agrees that it will not, for a period of
two (2) years from the date hereof, solicit the employment or other services of
any person who is an active employee of Seller.
8.6 NOTICES. All notices, requests, consents and other
communications hereunder shall be in writing and shall be deemed to have been
duly given when personally delivered or upon expiration of three (3) days after
being mailed by registered or certified first class mail, return receipt
requested, postage prepaid, and in each case addressed:
If to Seller, to:
AlliedSignal Inc.
P. O. Box 1053
101 Columbia Rd.
Morristown, NJ 07962
Attention: General Manager, Carbon Materials & Technologies
with a copy to:
David P. Cooke, Esq.
Assistant General Counsel
AlliedSignal Inc.
P.O. Box 2245
101 Columbia Rd.
Morristown, NJ 07962
If to Buyer, to:
KMG-Bernuth, Inc.
10611 Harwin Suite 402
Houston, TX 77036
Attention: President
with a copy to:
Woods & Jackson, L.L.P.
Suite 1111
2001 Kirby Drive
Houston, TX 77019
provided, however, that if either addressee shall have designated a different
address by such notice to the other addressee, then to the last address so
designated.
8.7 ASSIGNMENT. This Agreement and the rights and duties hereunder
shall be binding upon and inure to the benefit of the successors and assigns of
each of the parties hereto.
13
<PAGE>
8.8 WAIVERS. Any waiver by Seller or Buyer of any breach of or
failure to comply with any provision of this Agreement by the other party must
be in writing and shall not be construed as, or constitute, a continuing waiver
of such provision, or a waiver of such provision, or a waiver of any other
breach of, or failure to comply with, any other provision of this Agreement.
8.9 COMPLETE AGREEMENT. Except as set forth in any contemporaneous
written instruments signed by each of the parties hereto, this Agreement and the
Exhibits and ancillary documents hereto set forth the entire understanding of
the parties hereto and supersede all prior agreements, covenants, arrangements,
communications, representations or warranties, whether oral or written, by any
officer, employee or representative of any party.
8.10 GOVERNING LAW. This Agreement shall be construed and enforced
in accordance with and governed by the laws of the State of New York without
giving effect to the principles of conflicts of laws thereof.
8.11 THIRD PARTIES; AMENDMENT AND TERMINATION. Nothing herein
expressed or implied is intended or shall be construed to confer upon or give to
any person or entity, other than the parties hereto, any rights or remedies
under or by reason of this Agreement. This Agreement may not be amended or
terminated orally but only by an instrument in writing duly executed by the
parties hereto.
8.12 NO WAIVER. Failure to exercise any power given any party
hereunder or to insist upon strict compliance by any other party shall not
constitute a waiver of any party's right to demand exact compliance with the
terms hereof.
8.13 SEPARABILITY OF PROVISIONS. Each provision of this Agreement
shall be considered separable and if for any reason any provision which is not
essential to the effectuation of the basic purpose of this Agreement is
determined to be invalid or contrary to any existing or future law, such
invalidity shall not impair the operation of or affect those provisions of this
Agreement which are valid.
8.14 HEADINGS. The headings of the Articles and Sections of this
Agreement and of the Appendices to this Agreement are inserted for convenience
of reference only and shall not be deemed to constitute a part hereof.
8.15 COUNTERPARTS. More than one counterpart of this Agreement may be
executed by the parties hereto, and each executed counterpart shall be deemed an
original.
14
<PAGE>
8.16 PUBLICITY. Any public announcements or other publicity with
respect hereto or the transactions contemplated hereby shall be made only at
such time and in such manner Seller and Buyer shall mutually agree, except that
either party shall be free to make such public announcements as it shall deem
reasonably necessary, after full consultation with the other, to comply with
federal or state securities or other applicable laws.
15
<PAGE>
WITNESS the due execution hereof on the day and year first above
written.
ALLIEDSIGNAL INC.
By: /s/ JEFFREY A. WILKE
----------------------------
Name: Jeffrey A. Wilke
--------------------------
Title: General Manager
-------------------------
KMG-BERNUTH, INC.
By: /s/ David L. Hatcher
----------------------------
Name: David L. Hatcher
--------------------------
Title: President
-------------------------
16
<PAGE>
Asset Purchase and Sale Agreement
Exhibit 1.0
ASSETS BEING SOLD BY SELLER TO BUYER
1. Federal Insecticide, Fungicide, and Rodenticide Act Registrations for
Creosote
See Exhibit 1.0 Attachments 1 through 15
2. All of Seller's interests in the Creosote Council II as more specifically
set forth in a certain Memorandum of Understanding which created Creosote
Council II
3. Current Customer List
See Exhibit 1.0 Attachment 16
4. Creosote Supply Contract with Kerr-McGee Chemical Corporation for period of
January 1, 1998 - December 31, 1998
See Exhibit 1.0 Attachment 17
5. Railcar Leases
The associated railcar leases are not freely assignable; however,
Seller will make arrangements to either assign the leases or make other
arrangements acceptable to Buyer.
See Exhibit 1.0 Attachments 18 through 19 for copies of Seller's
current railcar leases with General Electric Railcar Services
Corporation and General American Transportation Corporation
<PAGE>
EXHIBIT 2.4
ALLOCATION OF PURCHASE PRICE
All assets conveyed hereunder: $4,500,000.00
<PAGE>
Asset Purchase and Sale Agreement
Exhibit 3.0
CERTAIN EXCLUDED LIABILITIES
All liabilities, other than the Assumed Liabilities, which have arisen or
arise out of, or relate to, the Business, and all liabilities which arise
out of, or relate to, the operation of the Assets, as conducted by Seller
prior to closing, including, but not limited to:
Accounts Payable and Accrued Liabilities
Income, Payroll and Sales & Use Tax obligations
Employee Pension, Post Employment, and Post Retirement Obligations
Environmental Liabilities regarding the manufacturing business
Any or all liabilities relating to a certain past non-product related
customer dispute which has been settled under terms of confidentiality
<PAGE>
Asset Purchase and Sale Agreement
Exhibit 4.1.7
STATEMENT OF OPERATIONS FOR THE CREOSOTE BUSINESS
See Exhibit 4.1.7 Attachments 1 and 2
<PAGE>
Asset Purchase and Sale Agreement
Exhibit 4.1.12
EXCLUDED ASSETS
The railcar leases are not freely assignable; however, Seller will make
arrangements to either assign the leases or make other arrangements
acceptable to Buyer.
<PAGE>
Asset Purchase and Sale Agreement
Exhibit 5.1(b)
AGREEMENT REGARDING THE SALE OF CREOSOTE FROM SELLER TO BUYER
See Creosote Supply Agreement, an ancillary agreement to the Asset Purchase
and Sale Agreement
<PAGE>
Asset Purchase and Sale Agreement
Exhibit C
Opinion of David P. Cooke, Counsel for Seller
Opinion of Roger C. Jackson, Woods & Jackson, L.L.P., Counsel for Buyer
<PAGE>
Asset Purchase and Sale Agreement
Exhibit 5.2(e)
IRREVOCABLE GUARANTY OF ALL OBLIGATIONS OF BUYER UNDER THIS AGREEMENT AND
ALL ANCILLARY AGREEMENTS
<PAGE>
CREOSOTE SUPPLY AGREEMENT
This Agreement, effective as of 11:59 P.M. on June 30, 1998, by and
between ALLIEDSIGNAL INC., a Delaware corporation ("Seller"), and KMG-BERNUTH,
INC., a Delaware corporation ("Buyer").
Pursuant to an Asset Purchase and Sale Agreement dated as of June 26,
1998 between Seller and Buyer (the "Asset Agreement"), Buyer is purchasing,
effective as of June 30, 1998, certain assets related to Seller's creosote
marketing and distribution business.
As contemplated by the Asset Agreement, Seller wishes to sell and
Buyer wishes to purchase certain creosote products produced by the Seller during
the term hereof.
In consideration of the foregoing and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, and
intending to be legally bound hereby, the parties hereto agree as follows:
1. DEFINED TERMS. The capitalized terms set forth in this Section 1
shall have the following meanings:
"CREOSOTE" shall mean certain coal-tar derived creosote products as
specified on Exhibit 1.1 hereto.
"TERM" shall mean the period commencing on the date of this Agreement
and (unless earlier terminated as provided in this Agreement) continuing through
June 30, 2008 (the "Initial Term"), and from year to year thereafter, unless
either party shall give at least one year's prior written notice of its intent
to terminate this Agreement as of or after June 30 2008; provided that if either
party shall give such one year's notice of intent to terminate, the other party
may within 60 days thereafter exercise a right to extend the Term of the
Agreement for an additional two (2) years beyond its then termination date by
giving notice to the terminating party. All the terms and conditions of this
Agreement, as may be modified, supplemented or amended after the date hereof,
shall apply during any extension of this Agreement beyond June 30, 2008, except
that the purchase price and the minimum and maximum quantities of Creosote to be
sold and purchased hereunder shall be either (i) as the parties mutually agree
or (ii) if the parties fail to mutually agree within 180 days prior to the
beginning of any extension of the Initial Term, such failure shall be treated as
a Dispute and resolved by arbitration as provided in Section 14(d) hereof. The
parties agree that in any negotiation between them of the purchase price and
minimum and maximum quantity for Creosote to be sold and purchased during any
extension of the Initial Term, each party shall negotiate in good faith from a
"starting point" of (i) a purchase price equal to the then-current price of coal
tar and Buyer's then-current selling price (less insurance and freight) of
Creosote and (ii) the then-current minimum and maximum quantities of Creosote
provided for under the Agreement. In any arbitration respecting the purchase
price and the minimum and maximum quantity during an extension of the Initial
Term, the arbitrator shall
<PAGE>
set the purchase price and the minimum and maximum quantities based on either
a proposal offered by Seller or a proposal offered by Buyer, and not on an
independently selected purchase price or minimum or maximum quantities. In
the event of any action or award of an arbitrator as contemplated above, this
Agreement shall terminate in the absence of an express agreement between the
parties to the contrary, on the expiration of such two-year extension period.
2. SALE OF CREOSOTE. During the Initial Term, Seller shall sell to
Buyer, and Buyer shall purchase from the Seller, Creosote in the quantities and
at the prices set forth in Exhibit 3 hereof. Unless otherwise mutually agreed,
the quantities of Creosote to be sold hereunder for the applicable annual
periods during the Term shall be sold and delivered at the delivery locations
set forth in Section 3 in one or more deliveries totaling, each calendar
quarter, approximately 1/4 of the applicable annual quantity.
PRICE; DELIVERY TERMS.
a. The purchase price for Creosote sold hereunder shall be as set
forth in Exhibit 3 hereto. All Creosote sales are F.O.B. Seller's manufacturing
facility (unless otherwise shown on Exhibit 3 hereto). Seller shall invoice
Buyer once each week for Creosote sold in the prior week and full payment shall
be due within 30 days from date of invoice. Interest shall be due on all unpaid
balances after 35 days from date of invoice, at the rate of 1% per month. Title
and risk of loss shall pass to Buyer upon delivery of Creosote to Buyer's
railcars or tanktrucks or, in the case of sales F.O.B. Buyer's terminal, upon
delivery of Creosote to Buyer's tanks at Buyer's terminal. In addition to such
purchase price, Buyer shall reimburse Seller for any capital costs incurred by
Seller in order to comply with the Federal Insecticide, Fungicide and
Rodenticide Act or any regulations promulgated thereunder or in order to comply
with any specific request of Buyer regarding the quality or specifications of
Creosote hereunder. Such capital costs shall be reimbursed by Buyer as an
addition to the then-current purchase price of Creosote over a period and in a
manner to be negotiated by the parties on a case-by-case basis.
b. As additional consideration for Seller's obligations under this
Agreement, Buyer shall pay to Seller, by wire transfer on or before the
effective date hereof, the amount of Four Million Dollars ($4,000,000.00)
("Additional Consideration").
4. PURCHASE ORDERS; SALES FORECAST.
a. Buyer shall submit purchase orders for Creosote to Seller in
writing or by another agreed means which shall set forth at a minimum, the
quantity and specification of Creosote ordered, the requested delivery location,
and the shipping instruction and invoice
-2-
<PAGE>
address. All quantities in purchase orders shall be for immediate shipment
unless otherwise provided in the purchase order.
b. Each month during the Term, Buyer agrees to provide Seller, for
guidance only, with a written twelve (12) month rolling forecast ("Sales
Forecast") indicating Buyer's estimate of anticipated sales of Creosote to
customers of the creosote marketing and distribution business of Seller being
transferred pursuant to the Asset Agreement. The Sales Forecast shall be an
estimate only and neither party shall have any liability to the other with
respect thereto. The Sales Forecast shall be used by Buyer to facilitate its
planning for its Creosote production, to facilitate its sales and operating
planning (SOP) and its annual operating plan (AOP). If Seller's then current
SOP or AOP do not provide for sufficient Creosote production to satisfy the
Sales Forecast, Seller will promptly so advise Buyer and give Buyer the full
particulars respecting any anticipated shortfall. In order to assist Buyer in
planning for deliveries to its customers, Seller agrees to permit Buyer to
participate in a monthly telephone conference among Seller's production
personnel at which the Sales Forecast and Seller's SOP/AOP is discussed.
5. TAXES. Any tax or other charge, other than income tax, upon the
production, sale or shipment of Creosote imposed by federal, state, municipal
or other governmental authorities shall be added to the price paid by Buyer.
Seller and Buyer agree that sales or use taxes will not be collected where Buyer
is in possession of applicable resale certificates and any other documents
required to exempt from sales tax the sales to Buyer by Seller hereunder.
Verification of same will be provided by Buyer to Seller upon reasonable
request.
6. LIMITED WARRANTY. Seller warrants that the Creosote, when
delivered to Buyer's railcars or tanktrucks or, by Seller's barge to Buyer's
terminal, and for a reasonable time thereafter so as to allow Buyer to deliver
such Creosote to its customers, shall meet the specifications set forth on
Exhibit 1.1 hereto, and that said specifications will not be modified or altered
other than as authorized herein. Seller warrants that the Creosote will be free
from defects in material and workmanship and that Seller will have good title to
same free from any lien or encumbrance. SELLER EXPRESSLY DISCLAIMS ALL OTHER
REPRESENTATIONS AND WARRANTIES OF ANY KIND, EXPRESS OR IMPLIED, IN FACT OR IN
LAW, INCLUDING WITHOUT LIMITATION, ANY IMPLIED WARRANTY OF MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE.
-3-
<PAGE>
7. TAKE-OR-PAY OBLIGATIONS. Buyer acknowledges that, in light
of the transactions carried out under the terms of the Asset Agreement, Seller
will be unable to market or distribute Creosote except under this Agreement, and
that, in the event that Buyer breached its obligations to take Creosote
hereunder, it would be difficult for Seller to prove its losses and difficult,
inconvenient, or otherwise infeasible for Seller to obtain an adequate remedy.
Therefore, in light of such facts, and as additional inducement and
consideration for Seller's obligations hereunder, Buyer agrees that, as an
integral part of its obligations under this Agreement, it shall pay the full
purchase price, as provided above, for all Creosote which Seller tenders to it
under the terms of this Agreement, whether or not Buyer actually takes physical
delivery of such Creosote. The parties further agree Seller shall have the
right to recover from Buyer such purchase price as reasonable liquidated
damages, and not as a penalty, for all Creosote tendered to Buyer under the
terms of this Agreement or which would have been so tendered but for a
termination of this Agreement by Buyer under the provisions of Section 12(c)
hereof. Without limiting the foregoing obligations of Buyer in any way, in the
event that Seller is able to sell such tendered Creosote to a third party or
otherwise to obtain value from such Creosote, Seller shall credit such selling
price or value (net of all costs of sale or obtaining such value) to Buyer, but
Buyer shall have no rights to such credits, if any, unless and until it complies
in all respects with all of its foregoing obligations.
8. CLAIMS; LIMITATION AND EXCLUSION OF DAMAGES. In the event of
any claims of breach of warranty asserted by Buyer, Buyer will cause such claim
to be transmitted to Seller within ten (10) days of delivery at Buyer's terminal
or its replacement in the case of claims made with respect to Creosote delivered
to Buyer's terminal and, with respect to Creosote not delivered to Buyer's
terminal, within ten (10) days of its receipt of a claim initially asserted by
Buyer's customers. If any Creosote fails to meet the warranty set forth in
Section 6 hereof (other than as to title), Seller will at its option (i) replace
the defective or non-conforming Creosote at no additional cost to Buyer or its
customer or, (ii) provided the defective or non-conforming Creosote is
reasonably deemed usable by Buyer or the customer, agree to a reasonable
reduction of the purchase price. In the event of a breach of the warranty of
title, Seller shall provide a cure reasonably satisfactory to Buyer. This
Section sets forth the exclusive remedies for claims based on defective or non-
conforming Creosote, whether the claim is in contract, warranty, tort (including
negligence), strict liability, equitable relief, or otherwise. Subject to the
provisions of Sections 7 and 9 hereof, but notwithstanding any other provision
herein to the contrary, in no event shall either party be liable to the other
for lost or prospective profits or incidental, indirect, special, punitive, or
consequential damages or losses for breach of this Agreement or for any failure
of performance hereunder whether arising out of strict liability, breach of
contract, tort (including negligence) or otherwise.
-4-
<PAGE>
9. BUYER AS SOPHISTICATED USER. Buyer represents and warrants that
it is a sophisticated user, marketer, and distributor of creosote products and
is familiar with all requirements and practices (including, without limitation,
health, safety, and environmental) necessary for the legal and safe use,
marketing, transportation, handling, storage, distribution, and disposal of
Creosote. Buyer hereby covenants and agrees that its use, marketing,
transportation, storage, distribution, and disposal of Creosote purchased
hereunder shall comply with applicable federal, state, and local statutes,
regulations, and ordinances. Buyer acknowledges that, in light of the
transactions carried out under the terms of the Asset Agreement, Seller will be
unable to market or distribute Creosote except under this Agreement, and that,
in the event that Buyer materially breaches its covenants set forth in this
section, it would be difficult for Seller to prove its losses and difficult,
inconvenient, or otherwise infeasible for Seller to obtain an adequate remedy.
Therefore, in light of such facts, and as additional inducement and
consideration for Seller's obligations hereunder, Buyer agrees that, as an
integral part of its obligations under this Agreement, it shall pay the full
purchase price, as provided above, for all Creosote which Seller would have
tendered to it under the terms of this Agreement, but for termination of this
Agreement by Seller under the provisions of Section 12(d) hereof. The parties
further agree Seller shall have the right to recover from Buyer such amount as
reasonable liquidated damages, and not as a penalty. Without limiting the
foregoing obligations of Buyer in any way, in the event that Seller is able to
sell any Creosote (which it would have tendered to Seller as provided above) to
a third party or otherwise to obtain value from such Creosote, Seller shall
credit such selling price or value (net of all costs of sale or obtaining such
value) to Buyer, but Buyer shall have no rights to such credits, if any, unless
and until it complies in all respects with all of its foregoing obligations.
10. FORCE MAJEURE.
a. DEFINITIONS. "FORCE MAJEURE" shall mean circumstances in
which the operations of either of the parties are substantially adversely
affected by causes not within the control of the non-performing party and which
the non-performing party, by exercise of reasonable care, is unable to avoid,
including, but not limited to, war, fire, flood, riot, strike, labor dispute,
freight embargo or transportation delay, shortage of labor, inability to secure
fuel, material, supplies, equipment or power in sufficient amount, act of God or
the public enemy, any existing or future law, decree, regulation or governmental
act, or any cause beyond the reasonable control of the non-performing party.
"Economic Hardship" shall mean circumstances in which, in the case of Seller,
its average price for coal tar (a raw material) exceeds for at least three
months the then applicable price for Creosote sold hereunder as specified on
Exhibit 3, and, in the case of Buyer, its average selling price for creosote
products is less than for at least three months the then applicable price paid
for Creosote as specified on Exhibit 3.
-5-
<PAGE>
b. EXCUSE. If, by reason of FORCE MAJEURE (as defined above),
occurring during the Initial Term or any extension of the Initial Term, either
of the Seller or Buyer shall be prevented or delayed in the performance of its
obligations (other than the payment of money) under this Agreement, then the
non-performing party shall promptly give the other party notice of the existence
and cause thereof, and it shall thereupon be excused from timely performance to
the extent and duration of such prevention or delay, but in no event shall
either party be excused for longer than 60 days for any single or related events
of FORCE MAJEURE. In order to resume full performance of its duties and
obligations under this Agreement as soon as practicable, the party claiming
FORCE MAJEURE shall exercise reasonable diligence to overcome the event of FORCE
MAJEURE which, to the extent that an event of FORCE MAJEURE does not prevent or
delay the performance of this Agreement at all delivery locations, shall include
taking such steps as are reasonable to produce and sell, take, and/or deliver
Creosote at such other delivery locations. During the period of FORCE MAJEURE,
each party shall, using all reasonable efforts, continue its activities in
conformity with this Agreement, and it shall in every reasonable way safeguard
the interests of the other party. In the event that Seller after 60 days from
the giving of notice shall still be prevented or delayed from continuing with
its performance of this Agreement by the cause of which it gave notice to Buyer,
either party may terminate this Agreement by giving written notice to the other
within a further five days to the other party, except that Seller may not
terminate this Agreement if Seller's failure to perform is waived by Buyer. In
the event that Buyer after 60 days from the giving of notice shall still be
prevented or delayed from continuing with its performance of this Agreement by
the cause of which it gave notice to Seller, Seller (and only Seller) may
terminate this Agreement by giving written notice to the Buyer within a further
five days. Such termination shall not be considered to be based on a breach of,
or default under, this Agreement by either party. In the event of such
termination arising from a FORCE MAJEURE condition affecting Seller (and only
such FORCE MAJEURE condition) before the tenth anniversary of the effective date
hereof, Seller shall refund to Buyer a portion of the Additional Consideration
equal to the total minimum quantity of Creosote to be provided in periods 1
through 10 as set forth in Exhibit 3 (hereinafter the "Minimum Base") less the
quantity of Creosote actually delivered to the date of termination in each of
such periods, up to but not exceeding the minimum quantity in any such period,
multiplied by a fraction whose numerator is the Additional Consideration and
whose denominator is the Minimum Base (i.e., [Minimum Base - actual delivered
quantity not exceeding minimum] x $4,000,000/Minimum Base).The period of FORCE
MAJEURE shall not extend the Term.
c. ECONOMIC HARDSHIP. In the event of Economic Hardship, as
defined above, the parties shall negotiate in good faith a new price for
Creosote purchased hereunder, to be in effect for such period of time as the
parties may agree. In the event that the parties cannot agree to such new price
or period, then the parties shall submit the matter to binding arbitration as
provided in section 14(d) hereof. The parties further agree that the arbitrator
shall make a decision and award based either on a proposal offered by Seller, or
on a proposal offered by
-6-
<PAGE>
Buyer, with respect to price and time, and shall not make a decision or award
based upon an independently selected price or time.
11. BREACH, NOTICE, AND OPPORTUNITY TO CURE. If either party in
good faith should conclude that the other has committed a breach of this
Agreement, the party so concluding shall notify the other party of the breach.
A party receiving such notice shall have thirty (30) days to cure such breach,if
any, and to notify the party sending such notice that such breach has been
cured, or if such breach (other than a breach under Sections 7 and 9 hereof) is
not capable of being cured within thirty (30) days, the breaching party shall
diligently pursue its cure as promptly as possible. Following the cure period
specified above, if the notifying party shall reject the cure or otherwise
maintain that an uncured breach of this Agreement exists, then such matter shall
be resolved as provided in Section 14(d). Both parties agree, however, that
this provision is not intended to require additional notice or opportunity to
cure in situations involving repetitive or chronic breaches by either party.
12. TERMINATION. This Agreement may be terminated prior to the end
of the Term only as provided below:
a. The insolvency, bankruptcy, reorganization or liquidation of, or
the appointment of a receiver for substantially all of the assets of, either
party to this Agreement, shall cause an automatic termination of this Agreement.
b. Upon a material breach of this Agreement by a party that impairs
the value of the Agreement as a whole, other than a breach of the obligations
set forth in Sections 7 or 9 hereof, the other party, subject to Sections 11 and
14(d) hereof, may terminate this Agreement after giving notice thereof to the
other party.
c. Upon a material breach of Section 7 of this Agreement by Seller,
then Seller, subject to Sections 11 and 14(d) hereof, may terminate this
Agreement after giving notice thereof to Buyer.
d. Upon a material breach of Section 9 of this Agreement to Buyer,
then Seller, subject to Sections 11 and 14(d) hereof, may terminate this
Agreement after giving notice thereof to Buyer; provided, however, that Seller
shall have no right to terminate this Agreement under this Section so long as
Buyer is taking reasonable action before the applicable federal, state or local
government agency to correct, cure or resolve to the satisfaction of that
governmental agency the issue of possible non-compliance with statutes,
regulations and ordinances.
-7-
<PAGE>
e. Subject to the provisions of Section 10, upon the occurrence of a
FORCE MAJEURE circumstance.
f. Upon termination or cancellation of this Agreement under this
Section 12, neither party shall be released from the payment of any sum owing to
the other party hereto. Any termination or cancellation of this Agreement under
this Section 12 shall not affect or limit the rights and obligations of the
parties which have accrued at the date of termination and shall not limit the
other rights and remedies of the parties under Sections 7 and 9 or otherwise.
13. PESTICIDE REGISTRATION
a. SUPPLEMENTAL DISTRIBUTION. Pursuant to the Asset Agreement,
Seller transferred to Buyer certain assets associated with Seller's creosote
marketing and distribution business, including registrations with the United
States Environmental Protection Agency ("EPA"), pursuant to the Federal
Insecticide, Fungicide, and Rodenticide Act ("FIFRA"), of pesticide products
that contain Creosote as a pesticide active ingredient. Promptly following
execution of this Agreement, Buyer shall apply jointly with Seller to register
such pesticide products for supplemental distribution ("distributor products")
by Seller pursuant to EPA regulations and procedures. Seller shall not
distribute or sell such distributor products except (1) while Buyer is in breach
of any obligation, covenant, representation, or warranty under this Agreement
after the time for cure as provided in Section 11 hereof, (2) during the period
of any FORCE MAJEURE as defined in Section 10 hereof which prevents or delays
the performance of Buyer's obligations under this Agreement (but only to the
extent affected thereby), or (3) when there occurs the insolvency, bankruptcy,
reorganization or liquidation of, or appointment of a receiver for,
substantially all of the assets of Buyer.
b. DATA CITATION. Pursuant to the Asset Agreement, Seller
transferred to Buyer its rights, title, and interest in scientific study data
previously submitted to or otherwise in the possession of, and/or under
development for submission to, EPA for the purpose of maintaining the EPA
registration of pesticide products that contain Creosote as a pesticide active
ingredient. In the event of supplemental distribution as provided under Section
13(a) hereof, Buyer grants Seller the right to cite or rely upon, in support of
Seller's application to register with EPA pesticide products that contain
Creosote as a pesticide active ingredient, all study data, in which Buyer has
any right or holds any interest, that would support such an application. Seller
shall have no obligation to compensate Buyer for citation of, or reliance upon,
such Creosote data pursuant to Sections 3 and 4 of FIFRA.
c. In the event of the insolvency, bankruptcy, reorganization or
liquidation of, or the appointment of a receiver for substantially all of the
assets of, Buyer, Seller shall have the right to purchase from Buyer, at its
then fair market value, registrations with the EPA, pursuant to FIFRA, of
pesticide products that contain Creosote as a pesticide active ingredient.
-8-
<PAGE>
14. MISCELLANEOUS.
a. NOTICES. All notices, requests, consents and other
communications hereunder shall be in writing and shall be deemed to have been
duly given when personally delivered or upon expiration of three (3) days after
being mailed by registered or certified first class mail, return receipt
requested, postage prepaid, and in each case addressed: If to Seller, to:
AlliedSignal Inc.
P. O. Box 1053
101 Columbia Rd.
Morristown, NJ 07962
Attention: General Manager, Carbon Materials & Technologies
If to Buyer, to:
KMG-Bernuth, Inc.
10611 Harwin Suite 402
Houston, TX 77036
Attention: President
b. SUCCESSORS AND ASSIGNS. This Agreement and all the rights
and powers granted hereby shall bind and inure to the benefit of the parties
hereto and their respective successors and permitted assigns.
c. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York without regard to
its conflicts of law doctrines.
d. DISPUTE RESOLUTION. Any dispute, controversy or claim
arising out of or relating to this Agreement, or the breach (or termination,
except as provided in Section 12 hereof) thereof (collectively, "Disputes"),
shall be resolved as provided in this Section 13(d). Initially, representatives
of Seller and Buyer shall in good faith strive to resolve any Dispute that may
arise. If, however, those representatives shall fail for any reason to resolve
any Dispute to the mutual satisfaction of Seller and Buyer, then the Dispute
settled by arbitration in accordance with the American Arbitration Association
("AAA") Rules as in force at the commencement of the arbitration. The
arbitration shall be conducted by a sole arbitrator. If within thirty (30) days
after receipt of a party of a proposal made by the other party for an
arbitrator, the parties have not
-9-
<PAGE>
reached agreement on the choice of an arbitrator, the sole arbitrator shall
be appointed by the AAA in accordance with its rules. The place of
arbitration shall be New York, New York, and the arbitrator shall apply the
laws of the State of New York, without regard to its conflicts of law
doctrines. The award of the arbitrator shall be final and binding upon the
parties and may be entered and/or enforced in any court of competent
jurisdiction. The arbitrator shall divide all costs (including fees of
counsel and costs of counsel) incurred in conducting the arbitration in the
final award in accordance with what such arbitrator deems just and equitable
under the circumstances.
e. FORMS. The parties hereto may use standard business forms
in effecting the transactions outlined in this Agreement, including but not
limited to purchase orders and shipping documents. However, this Agreement
governs in the event of any ambiguity or contradiction between the language of
such forms and the language contained herein.
f. NO AGENCY RELATIONSHIP. Nothing herein shall be construed
to mean that either party shall be acting as agent for the other, as an
employment relationship, partnership or joint venture. This parties' agreement
hereunder constitutes the retention by each party of the other solely as an
independent contractor. Neither party shall have the authority or power to make
any commitments of any nature whatsoever on the account of or on behalf of the
other or to assume or create any obligation or responsibility, express or
implied, in the name of the other or to bind the other in any respect.
g. ASSIGNMENT. This Agreement and the rights, interests and
obligations hereunder may not be assigned (including assignments or other
transfers by merger or operation of law) without the consent of the other party,
which consent shall not unreasonably be withheld; provided, however, that Seller
may assign its rights and obligations under this Agreement to any party which
acquires from Seller the facilities used to produce Creosote sold hereunder, as
well as to any entity which controls, is controlled by, or is under common
control with Seller and, provided further, that Buyer may assign its rights and
obligations under this Agreement to any party with a credit rating or financial
standing at least comparable to that of Buyer as of the effective date hereof
that acquires the Creosote business of Buyer, as well as to any entity which
controls, is controlled by, or is under common control with Buyer, so long as
any such entity has a credit rating or financial standing at least comparable to
that of Buyer as of the effective date hereof.
h. EFFECT OF BANKRUPTCY. The insolvency, bankruptcy,
reorganization or liquidation of, or the appointment of a receiver for
substantially all of the assets of, either party to this Agreement, shall cause
an automatic termination of this Agreement. Upon termination or cancellation of
this Agreement, neither party shall be released from the payment of any sum
owing to the other party hereto.
-10-
<PAGE>
i. ENTIRE AGREEMENT. This Agreement sets forth all of the
promises, covenants, agreements, conditions and undertakings between the parties
hereto with respect to the subject matter hereof, and supersedes all prior and
contemporaneous agreements and understandings, inducements or conditions,
express or implied, oral or written, relating to such subject matter.
j. SEVERABILITY. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law,
or public policy, all other terms, conditions and provisions of this Agreement
shall nevertheless remain in full force and effect so long as the economic or
legal substance of the transactions contemplated hereby is not affected in any
manner materially adverse to any party.
k. REMEDIES CUMULATIVE. The rights and remedies of the
parties, whether pursuant to this Agreement or as provided in accordance with
applicable law, shall be cumulative. The exercise of any single right or remedy
shall constitute neither a bar to the exercise of, nor the waiver of, any other
available right or remedy.
l. COUNTERPARTS. This Agreement may be executed in
counterparts, each of which shall be deemed to be an original but both of which
together shall be deemed to be one and the same instrument.
m. AMENDMENT AND MODIFICATION. This Agreement may be amended,
modified, or supplemented only by written agreement of the parties hereto.
n. HEADINGS. The headings used in this Agreement are for
convenience and reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
o. NO THIRD PARTY BENEFICIARIES. No third parties shall be
beneficiaries of any provision of this Agreement or of any right conferred on
any party hereto.
p. RAILCAR CLEANING AND MAINTENANCE. The parties agree that
Seller shall at its cost and expense provide a first cleaning and maintenance of
each railcar for which a lease was transferred by Seller to Buyer under the
Asset Agreement. Such cleaning and maintenance shall be provided as required
upon the termination of railcar leases or as is otherwise reasonable under the
circumstances and returned to Buyer's service upon completion thereof. It is
the intent of the parties that such cleaning and maintenance shall be scheduled
by Seller in consultation with Buyer so as to minimize any disruption of
Creosote deliveries and to that purpose Seller will provide substitute railcars,
if needed, without additional cost to Buyer for the
-11-
<PAGE>
delivery of Creosote on a temporary basis. Cleaning and maintenance of
railcars after the first cleaning shall be done by Seller for Buyer on a fee
basis as mutually agreed.
-12-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Creosote Supply Agreement as of the day and year first above written.
ALLIEDSIGNAL INC.
By: /s/ Jeffrey A. Wilke
-----------------------------------
Title: General Manager
--------------------------------
KMG-BERNUTH, INC.
By: /s/ David L. Hatcher
-----------------------------------
Title: President
--------------------------------
-13-
<PAGE>
Creosote Supply Agreement
Exhibit 1.1
CERTAIN COAL-TAR DERIVED CREOSOTE PRODUCTS
See Exhibit 1.1 Attachments 1 through 4 for product Specifications.
In addition to the specifications set forth on Attachments 1 through 4 of
Exhibit 1.1, Seller, during Period 1, will attempt in good faith to provide
Creosote complying with special requests beyond AWPA specifications as
requested by Creosote customers of Seller immediately prior to the effective
date of the Agreement.
-14-
<PAGE>
Exhibit 1.1
Attachment 1
AMERICAN WOOD-PRESERVERS' ASSOCIATION
STANDARD
(This Standard is under the jurisdiction of AWPA Subcommittee P-2)
P1/P13--95
STANDARD FOR COAL TAR CREOSOTE FOR LAND, FRESH
WATER AND MARINE (COASTAL WATER) USE
1. The creosote shall be a distillate derived entirely from tar produced by
the carbonization of bituminous coal.
2. The new material and the material in use in treating solutions shall
conform to the following detailed requirements.
<TABLE>
New Material Material In Use
------------ ---------------
Not Not Not Not
Less More Less More
Than Than Than Than
---- ---- ---- ----
<S> <C> <C> <C> <C>
2.1 Water, % by Volume -- 1.5 -- 3.0
2.2 Matter Insoluble in Xylene, % by wt. -- 0.5 -- 1.5
2.3 Specific Gravity at 38 DEG. C Compared to water
at 15.5 DEG. C:
2.3.1 Whole Creosote 1.070 -- 1.070 --
2.3.2 Fraction 235-315 DEG. C 1.028 -- 1.028 --
2.3.3 Fraction 315-355 DEG. C 1.100 -- 1.100 --
2.4 Distillation: The distillate, % by wt. on a water
free basis, shall be within the following limits:
Up to 210 DEG. C -- 2.0 -- 2.0
Up to 235 DEG. C -- 12.0 -- 12.0
Up to 270 DEG. C 10.0 40.0 10.0 40.0
Up to 315 DEG. C 40.0 65.0 40.0 65.0
Up to 355 DEG. C 65.0 77.0 65.0 77.0
</TABLE>
3.0 Tests to establish conformance with the foregoing requirements shall be
made in accordance with the standard methods of the American Wood-Preservers'
Association: (See Standard A1.)
STANDARD P1/P13-95 WAS REAFFIRMED IN 1995 WITH MINOR EDITORIAL CORRECTIONS.
-15-
<PAGE>
Exhibit 1.1
Attachment 2
AMERICAN WOOD-PRESERVERS' ASSOCIATION
STANDARD
(This Standard is under the jurisdiction of AWPA Subcommittee P-2)
P2--95
STANDARD FOR CREOSOTE SOLUTIONS
1. The material shall be a pure coal tar product derived entirely from tar
produced by the carbonization of bituminous coal. It may either be a coal
tar distillate or a solution of coal tar in coal tar distillage.
2. The new material and the material in use in treating solutions shall
conform to the following detailed requirements.
<TABLE>
New Material Material In Use
------------ ---------------
Not Not Not Not
Less More Less More
Than Than Than Than
2.4.1 Whole Creosote 1.080 1.130 1.080 1.130
<S> <C> <C> <C> <C>
2.1 Water, % by Volume -- 1.5 -- 3.0
2.2 Matter Insoluble in Xylene, % by wt. -- 3.5 -- 4.5
2.3 Coke Residue, % by wt. -- 9.0 -- 10.0
2.4 Specific Gravity at 38 DEG. C Compared to water
at 15.5 DEG. C:
2.4.1 Whole Creosote 1.080 1.130 1.080 1.130
2.4.2 Fraction 235-315 DEG. C 1.025 -- 1.025 --
2.4.3 Fraction 315-355 DEG. C 1.085 -- 1.085 --
2.4 Distillation: The distillate, % by wt. on a water
free basis, shall be within the following limits:
2.5.1 Up to 210 DEG. C -- 5.0 -- 5.0
2.5.2 Up to 235 DEG. C -- 25.0 -- 25.0
2.5.3 Up to 315 DEG. C 32.0 -- 32.0 --
2.5.4 Up to 355 DEG. C 52.0 -- 52.0 --
</TABLE>
3.0 Tests to establish conformance with the foregoing requirements shall be
made in accordance with the standard methods of the American Wood-Preservers'
Association: (See Standard A1.)
- ------------------
Proceedings: 1917, 1918, 1921, 1923, 1933, 1935, 1936, 1941, 1942,
1947, 1953, 1954, 1957, 1958, 1968, 1985, 1989, 1995.
STANDARD P2 WAS REAFFIRMED IN 1995 WITH MINOR EDITORIAL CORRECTIONS.
-16-
<PAGE>
Exhibit 1.1
Attachment 3
AMERICAN WOOD-PRESERVERS' ASSOCIATION
STANDARD
(This Standard is under the jurisdiction of AWPA Subcommittee P-2)
P3--94
STANDARD FOR CREOSOTE-PETROLEUM OIL SOLUTION
Creosote-petroleum oil solution shall consist solely of specified proportions
of coal tar creosote which meets AWPA Standard P1/P13 and of petroleum oil
which meet AWPA Standard P4. No creosote petroleum oil solution shall
contain less than 50 percent by volume of such creosote or more than 50
percent by volume of such petroleum oil.*
- ---------------
*Owing to the lack of suitable methods of analysis, it is not possible to
determine the relative amounts of either component once these materials have
been blended. The purchaser may therefore, wish to consider obtaining the
materials separately and having them blended under his supervision.
THIS STANDARD WAS REAFFIRMED IN 1994.
-17-
<PAGE>
Exhibit 1.1
Attachment 4
AMERICAN WOOD-PRESERVERS' ASSOCIATION
STANDARD
(This Standard is under the jurisdiction of AWPA Subcommittee P-2)
P4--94
STANDARD FOR PETROLEUM OIL FOR BLENDING WITH CREOSOTE
Petroleum oil for blending with creosote (Standard P1/P3 shall conform to the
following requirements:
1. SPECIFIC GRAVITY(1). Specific gravity at 60 DEG. F./60 DEG. F. not
less than 0.96(2) (not greater than 15.9 DEG., A.P.I.) ASTM Standard D 287.
2. WATER AND SEDIMENT.--Water and sediment (B.S. & W. not more than 1 percent.
ASTM Standard D 96.
3. FLASH POINT. --Flash point not less than 175 DEG. F., as determined by
the Pensky-Martens closed tester. ASTM Standard D 93.
4. VISCOSITY. -- The viscosity shall be expressed as Kinematic vis. cSt at
210 DEG. F. by ASTM D 445. It shall not be less than 4.2; nor more than
10.2. oils of higher viscosity may be used, provided the penetration
requirements are met. The purchaser may specify the viscosity best suited to
his requirements, allowing the supplier a tolerance of plus or minus 10
percent of the value specified (Equivalent vis. SUS at 210 DEG. F. shall
be 40 min. to 60 max. by ASTM D 88).
5. Each of the foregoing determinations shall be made in accordance with the
ASTM method currently in effect. The ASTM Standards referred to herein may
be obtained from the American Society for Testing & Materials, 1916 Race
Street, Philadelphia 19103-1180.
PROCEEDINGS: 1939, 194, 1942, 1943, 1947, 1948, 1955, 1956 1967, 1970, 1986,
1994
- ----------------
(1) To convert the specific gravity of Group O petroleum oils at 60
DEG. F./60 DEG. F. to specific gravity at 38 DEG. C/15.5 DEG. C,
subtract 0.0140. For Group 1 oils subtract 0.0162. Group 0 oils are those
whose specific gravities at 60 DEG. F./60 DEG. F. are not less than
0.9665. Group 1 oils are those whose specific gravities at 60 DEG. F./60
DEG. F. are not less than 0.8504 and not over 0.9664.
(2) Petroleum oil of lower specific gravity may be used provided
experience or test shows that it may be blended with creosote without the
formation of excessive sludge.
-18-
<PAGE>
Exhibit 3.0
Creosote Supply Agreement
QUANTITY AND PURCHASE PRICE
Quantities to be purchased are stated in million pounds. Creosote will be
sold FOB at Seller's facilities in Detroit, MI, Ironton, OH, and Fairfield,
AL, and sold FOB at Buyer's terminal in Avondale, LA. During the Term, Buyer
may in its discretion change the delivery location for its terminal on
reasonable notice to Seller in which case Creosote will be sold FOB (freight
equalized with Avondale) at Buyer's new terminal. During the Term, Seller
may in its discretion change the shipping location of Creosote (freight
equalized with the initial shipping locations set forth in this Exhibit).
<TABLE>
Total Total
Maximum Minimum P-1,
Quantity Quantity 24CB P-2
Period Dates (Mlbs.) (Mlbs.) $/lb $/lb
- ------ ----- --------- --------- ---- ----
<S> <C> <C> <C> <C> <C>
1 7/1/98-6/30/99 138.6525 [ ]
2 7/1/99-6/30/00 137.7525 [ material omitted ]
3 7/1/00-6/30/01 137.7525 [ subject to a request ]
4 7/1/01-6/30/02 137.7525 [ for confidential ]
5 7/1/02-6/30/03 137.7525 [ treatment ]
6 7/1/03-6/30/04 137.7525 [ ]
7 7/1/04-6/30/05 137.7525 [ ]
8 7/1/05-6/30/06 137.7525 [ ]
9 7/1/06-6/30/07 137.7525 [ ]
10 7/1/07-6/30/08 137.7525 [ ]
</TABLE>
Creosote produced by Seller in excess of the maximum quantities set forth
above may be purchased hereunder by Buyer at its option for the purchase
price shown above; however, if Buyer chooses not to purchase such additional
Creosote, Seller may sell such Creosote to third parties for other than use
as a wood presevative and may sell up to nine million pounds of such Creosote
in any rolling twelve-month period to any third party without regard to
application or use.
-19-
<PAGE>
Exhibit 3.0
Creosote Supply Agreement
QUANTITY BY LOCATION
(All quantities in millions of pounds)
<TABLE>
Period Detroit Ironton Fairfield Avondale
- ------ ------- ------- --------- --------
<S> <C> <C> <C> <C>
1 - 10 [material omitted subject to a request for confidential treatment]
</TABLE>
-20-
<PAGE>
Exhibit 10.15
AlliedSignal Inc.
P.O. Box 1053
101 Columbia Rd.
Morristown, NJ 07962
Attention: General Manager, Carbon Materials & Technologies
RE: PERFORMANCE GUARANTEE - KMG-BERNUTH, INC.
Ladies and Gentlemen:
In consideration of good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, including but not limited to the
agreement between you and KMG-Bernuth, Inc., our wholly-owned subsidiary
("KMG-Bernuth"), pursuant to the Creosote Supply Agreement dated as of June
30, 1998 (the "Supply Agreement"), to sell Creosote (as defined in the Supply
Agreement) to KMG-Bernuth, the undersigned, irrevocably and unconditionally
guarantees the performance, as and when due, to the fullest extent permitted
by applicable law, of all obligations to be performed by KMG-Bernuth pursuant
to the Supply Agreement (the "Guarantee").
We hereby agree to the fullest extent permitted by applicable law, that
our obligations with regard to this Guarantee shall be unconditional,
irrespective of the validity, regularity or enforceability of the Supply
Agreement and the related purchase orders, the absence of any action to
enforce the same, any delays in obtaining or realizing upon or failures to
obtain or realize upon collateral, the recovery of any judgment against
KMG-Bernuth, any action to enforce the same or any other circumstances that
might otherwise constitute a legal or equitable discharge or defense of a
guarantor. We hereby waive diligence, presentment, demand of payment, filing
of claims with a court in the event of insolvency or bankruptcy of
KMG-Bernuth, any right to require a proceeding first against KMG-Bernuth or
right to require the prior disposition of the assets of KMG-Bernuth to meet its
obligations, protest, notice and all demands whatsoever and covenants that this
Guarantee will
<PAGE>
not be discharged except by complete performance of the obligations contained
in the Supply Agreement and the related purchase orders.
This Guarantee will be governed by and in accordance with the laws of
the State of New York.
The Guarantee shall continue in full force and effect until the full
performance of all obligations to be performed by KMG-Bernuth pursuant to the
Supply Agreement and the related purchase orders.
Sincerely,
KMG Chemicals, Inc., a Delaware corporation
By: /s/ David L. Hatcher
---------------------------------------
David L. Hatcher, President
Date: June 30, 1998
<PAGE>
TERM LOAN AGREEMENT
THIS TERM LOAN AGREEMENT (this "Agreement"), dated as of June 26, 1998, is
made by and between KMG-BERNUTH, INC., a Delaware corporation (hereinafter
referred to as the "Borrower") and SOUTHTRUST BANK, NATIONAL ASSOCIATION (the
"Bank").
W I T N E S S E T H:
WHEREAS, the Borrower has requested the Bank to lend it up to the sum of
Six Million and No/100 Dollars ($6,000,000.00) on a term loan basis, and the
Bank is willing to do so upon the terms and subject to the conditions
hereinafter set forth.
NOW, THEREFORE, in consideration of the promises herein contained, and each
intending to be legally bound hereby, the parties hereto agree as follows:
ARTICLE I.
16. DEFINITIONS.
1.1 DEFINED TERMS. As used herein:
"ACCOUNTS, "CHATTEL PAPER", "CONTRACTS", "DOCUMENTS", "EQUIPMENT",
"FIXTURES", "GENERAL INTANGIBLES", "GOODS", "INSTRUMENTS" and other terms not
specifically defined herein shall have the same respective meanings as are given
to those terms in the Uniform Commercial Code as presently adopted and in effect
in the State of Alabama.
"AFFILIATE" means, as to any Person, each other Person that directly
or indirectly through one or more intermediaries, controls, or is controlled by,
or under common control with, such Person.
"AGREEMENT" means this Term Loan Agreement, as amended or modified
from time to time.
"BANK" means SouthTrust Bank, National Association.
"BORROWER" means KMG-Bernuth, Inc., a Delaware corporation.
"BORROWER'S CLOSING AFFIDAVIT" means an affidavit, in form and
substance satisfactory to Bank, dated the date of Closing, and signed by a duly
authorized officer of Borrower.
"CLOSING" means the time and place of actual execution and delivery of
this Agreement, the Term Note, the Purchase Money Security Agreement, the
Guaranty, and any other Loan Documents due to be executed and delivered
therewith.
"COLLATERAL" means the property and rights described in Sections 4.1,
4.2 and 4.3 hereof or in the Security Agreement, the Purchase Money Security
Agreement, or any of the other Loan Documents.
1
<PAGE>
"CURRENT ASSETS" and "CURRENT LIABILITIES" mean, at any time, all
assets or liabilities, respectively, that, in accordance with Generally Accepted
Accounting Principles consistently applied, should be classified as current
assets or current liabilities, respectively, on a balance sheet of a Person.
"DEFAULT" and "EVENT OF DEFAULT" each mean the occurrence of an event
described in Section 7.1.
"DOLLARS" and "$" each mean U.S. Dollars.
"ENVIRONMENTAL LAWS" means the Comprehensive Environmental Response
Compensation and Liability Act of 1980 (CERCLA), as amended (42 U.S.C. Sections
9601, ET SEQ.), the Hazardous Materials Transportation Act, as amended (49
U.S.C. Sections 1801, ET SEQ.), the Resource Conservation and Recovery Act
(RCRA), as amended (42 U.S.C. Sections 6901, ET SEQ.), the Clean Water Act, as
amended (42 U.S.C. Sections 7401, ET SEQ.), the Toxic Substances Control Act, as
amended (15 U.S.C. Sections 2601, ET SEQ.), and the rules and regulations
adopted and publications promulgated pursuant thereto, and the rules and
regulations of the Occupational Safety and Health Administration (OSHA)
pertaining to occupational law, ordinance, rule, or regulation now or hereafter
in effect.
"ERISA" means the Federal Employee Retirement Income Security Act of
1974, as amended and in effect from time to time, and the regulations and
published interpretations thereof.
"FINANCIAL STATEMENTS" means the interim balance sheets of the
Borrower as of April 30, 1998, and interim statements of income and retained
earnings of the Borrower for the period ended on such date plus the audited
balance sheets of the Borrower as of July 31, 1997, and the audited statement of
income and retained earnings for the year then-ended.
"FIXED ASSETS" means, at any time, all assets (other than Current
Assets) that should, in accordance with Generally Accepted Accounting Principles
consistently applied, be classified as assets on a balance sheet of the
Borrower.
"FIXED CHARGE COVERAGE" means the quotient which is obtained by
dividing (i) the sum of the net income of the Borrower (after provision for
federal and state taxes) for the 12-month period preceding the applicable date
plus the interest, lease and rental expenses of the Borrower for the same period
plus the sum of non-cash expenses or allowances for such period (including,
without limitation, amortization or write-down of intangible assets,
depreciation, depletion and deferred taxes and expenses) by (ii) the sum of the
current portion of the long-term debt of the Borrower as of the applicable date
plus the interest, lease and rental expenses for the 12-month period preceding
the applicable date.
"GENERALLY ACCEPTED ACCOUNTING PRINCIPLES" means generally accepted
principles of accounting in effect from time to time in the United States
applied in a manner consistent with those used in preparing such financial
statements as have theretofore been furnished to the Bank by the applicable
Person.
"GUARANTOR" means KMG Chemicals, Inc., a Texas corporation.
2
<PAGE>
"GUARANTOR'S CLOSING AFFIDAVIT" means an affidavit, in form and
substance satisfactory to Bank, dated the date of Closing, and signed by a duly
authorized officer of Guarantor.
"GUARANTY" means the Guaranty of Payment, of even date herewith,
executed by the Guarantor in favor of the Bank, guaranteeing the payment and
performance to the Bank of the Borrower's obligations hereunder, as amended or
modified from time to time.
"HAZARDOUS MATERIALS" means any asbestos, urea formaldehyde foam
insulation, flammable explosives, radioactive materials, hazardous materials,
hazardous wastes, hazardous or toxic substances, or related or unrelated
substances or materials defined, regulated, controlled, limited or prohibited in
any Environmental Laws.
"INDEBTEDNESS" means, as to any Person, all items of indebtedness,
obligation or liability, whether matured or unmatured, liquidated or
unliquidated, direct or contingent, joint or several, including, but without
limitation:
(A) All indebtedness guaranteed, directly or indirectly, in any
manner, or endorsed (other than for collection or deposit in the ordinary course
of business) or discounted with recourse;
(B) All indebtedness in effect guaranteed, directly or indirectly,
through agreements, contingent or otherwise:
(1) to purchase such indebtedness; or
(2) to purchase, sell or lease (as lessee or lessor) property,
products, materials or supplies or to purchase or sell services, primarily for
the purpose of enabling the debtor to make payment of such indebtedness or to
assure the owner of the indebtedness against loss; or
(3) to supply funds to or in any other manner invest in the
debtor;
(C) All indebtedness secured by (or which the holder of such
indebtedness has a right, contingent or otherwise, to be secured by) any
mortgage, deed of trust, pledge, lien, security interest or other charge or
encumbrance upon property owned or acquired subject thereto, whether or not the
liabilities secured thereby have been assumed; and
(D) All indebtedness incurred as the lessee of goods or services
under leases that, in accordance with Generally Accepted Accounting Principles,
should not be reflected on the lessee's balance sheet.
"INVENTORY" means all inventory of the Borrower, whether now owned or
hereafter acquired by the Borrower, and wherever located, including, without
limitation, all goods, merchandise, raw materials, work in process, finished
goods, and other tangible personal property held for sale or lease or furnished
or to be furnished under contracts of service or used or consumed in the
Borrower's business; all Documents now or hereafter evidencing any such
3
<PAGE>
Inventory; all returned and repossessed Goods; and all proceeds and products of
the foregoing.
"LAWS" means all ordinances, statutes, rules, regulations, orders,
injunctions, writs or decrees of any government or political subdivision or
agency thereof, or any court or similar entity established by any thereof.
"LIABILITIES" means all Indebtedness that, in accordance with
Generally Accepted Accounting Principles, should be classified as liabilities on
a balance sheet of a Person.
"LOAN" means the Term Loan.
"LOAN DOCUMENTS" means this Agreement, the Note, the Security
Agreement, the Purchase Money Security Agreement, the Guaranty, and any and all
other agreements, documents and instruments of any kind executed or delivered in
connection with, or evidencing, securing, guaranteeing or relating to, the Term
Loan, whether heretofore, simultaneously herewith or hereafter delivered,
together with all modifications and amendments heretofore or hereafter made to
any of the foregoing.
"LOAN FEE" means a fee of Ten Thousand and No/100 Dollars
($10,000.00), payable to the Bank by the Borrower concurrently with the
execution of this Agreement.
"LONG-TERM LIABILITIES" means Liabilities less the portion thereof
that constitutes Current Liabilities.
"NOTE" means the Term Note.
"OBLIGATIONS" means the obligations of Borrower:
(A) To pay the principal of and interest on the Term Note in
accordance with the terms thereof and to satisfy all of its other liabilities to
the Bank, whether hereunder or otherwise, whether now existing or hereafter
incurred, matured or unmatured, direct or contingent, joint or several,
including any extensions, modifications, and renewals thereof and substitutions
therefor;
(B) To repay to the Bank all amounts advanced by the Bank hereunder,
under any of the other Loan Documents or otherwise on behalf of the Borrower,
including, but without limitation, advances for principal or interest payments
to prior secured parties, mortgagees, or lienors, or for taxes, levies,
insurance, rent, or repairs to or maintenance or storage of, any of the
Collateral; and
(C) To reimburse the Bank, on demand, for all of the Bank's expenses
and costs, including the reasonable fees and expenses of its counsel, in
connection with the preparation, administration, amendment, modification, or
enforcement of this Agreement and the documents required hereunder, including,
without limitation, any proceeding brought or threatened to enforce payment of
any of the obligations referred to in the foregoing paragraphs (A) and (B).
4
<PAGE>
"PARTICIPANT" means any bank, financial institution, Affiliate of the
Bank, or other entity which purchases an interest in the Term Note from the Bank
at any time.
"PERMITTED LIENS" means:
(A) Liens for taxes, assessments, or similar charges, incurred in the
ordinary course of business that are not yet due and payable;
(B) Pledges or deposits made in the ordinary course of business to
secure payment of workmen's compensation, or to participate in any fund in
connection with workmen's compensation, unemployment insurance, old-age pensions
or other social security programs;
(C) Liens of mechanics, materialmen, warehousemen, carriers, or other
like liens, securing obligations incurred in the ordinary course of business
that are not yet due and payable;
(D) Good faith pledges or deposits made in the ordinary course of
business to secure performance of bids, tenders, Contracts (other than for the
repayment of borrowed money) or leases, not in excess of ten percent (10%) of
the aggregate amount due thereunder, or to secure statutory obligations, or
surety, appeal, indemnity, performance or other similar bonds required in the
ordinary course of business;
(E) Liens in favor of the Bank;
(F) Purchase money security interests granted to secure not more than
one hundred percent (100%) of the purchase price of assets, the purchase of
which does not constitute a breach of this Agreement or any instrument required
hereunder; and
(G) The following, if the validity or amount thereof is being
contested in good faith by appropriate and lawful proceedings, so long as levy
and execution thereon have been stayed and continue to be stayed and they do
not, in the aggregate, materially detract from the value of the property of the
Borrower, or materially impair the use thereof in the operation of its business:
(1) Claims or liens for taxes, assessments or charges due and
payable and subject to interest or penalty;
(2) Claims, liens and encumbrances upon, and defects of title
to, real or personal property, including any attachment of personal or
real property or other legal process prior to adjudication of a
dispute on the merits;
(3) Claims or liens of mechanics, materialmen, warehousemen,
carriers, or other like liens; and
(4) Adverse judgments on appeal.
"PERSON" means any individual, corporation, partnership, association,
joint-stock company, trust, unincorporated organization, joint venture, court or
5
<PAGE>
government or political subdivision or agency thereof, and any other legal
entity.
"PURCHASE MONEY SECURITY AGREEMENT" means the separate Purchase Money
Security Agreement, of even date herewith, executed by Borrower and granting the
Bank a security interest in the Collateral (as defined in the Purchase Money
Security Agreement), and includes any and all modifications or amendment to said
Purchase Money Security Agreement hereafter made.
"RECORDS" means correspondence, memoranda, tapes, discs, microfilm,
microfiche, papers, books and other documents, or transcribed information of any
type, whether expressed in ordinary or machine language, and all filing cabinets
and other containers in which any of the foregoing is stored or maintained.
"REGULATION U" means Regulation U of the Board of Governors of the
Federal Reserve System as now or from time to time hereafter in effect and shall
include any successor or other regulation or official interpretation of said
Board of Governors relating to the extension of credit by banks for the purpose
of purchasing or carrying margin stocks applicable to member banks of the
Federal Reserve System.
"REVOLVING LOAN AGREEMENT" means that certain Revolving Loan Agreement
between Borrower and Bank dated as of August 1, 1996, and includes any and all
modifications or amendments thereto heretofore, simultaneously herewith or
hereafter made.
"REVOLVING LOAN DOCUMENTS" means the "Loan Documents" as defined in
the Revolving Loan Agreement.
"SECURITY AGREEMENT" means the separate Security Agreement, dated as
of August 1, 1996, executed by Borrower and granting the Bank a security
interest in the Collateral (as defined in the Security Agreement), and includes
any and all modifications or amendments to said Security Agreement heretofore,
simultaneously herewith or hereafter made.
"STOCKHOLDERS' EQUITY" means, at any time, the sum of the following
accounts set forth in a balance sheet of the Borrower, adjusted to U.S. Dollars
by means of applicable foreign currency exchange rates and prepared in
accordance with Generally Accepted Accounting Principles consistently applied:
(A) The par or stated value of all outstanding capital stock;
(B) Capital surplus; and
(C) Retained earnings.
"SUBSIDIARY" means any corporation of which more than fifty percent
(50%) of the outstanding voting securities shall, at the time of determination,
be owned directly, or indirectly through one or more intermediaries, by the
Borrower.
"TANGIBLE NET WORTH" means, at any time, Stockholders' Equity less the
sum of:
6
<PAGE>
(A) Any surplus resulting from any write-up of assets subsequent to
the date of Closing;
(B) Goodwill, including any amounts, however designated on a balance
sheet of the Borrower, representing the excess of the purchase price paid for
assets or stock acquired over the value assigned thereto on the books of the
Borrower;
(C) Patents, trademarks, trade names and copyrights;
(D) Any amount at which shares of capital stock of the Borrower
appear as an asset on the Borrower's balance sheet;
(E) Loans and advances to stockholders, directors, officers or
employees;
(F) Deferred expenses; and
(G) Any other amount in respect of an intangible that, in accordance
with Generally Accepted Accounting Principles, should be classified as an asset
on a balance sheet of the Borrower, including, without limitation, the
following:
(i) Advances for premiums on employee owned life insurance
policies; secured by the cash surrender value of the
policies;
(ii) EPA testing costs, net of accumulated amortization;
(iii) Licensing agreement;
and (iv) Loan costs, net of accumulated amortization, amortized on a
straight-line basis over the term of the line of credit.
"TERM LOAN" means the aggregate unpaid principal balance from time to
time of the loan made to the Borrower pursuant to Section 2.1 of this Agreement.
"TERM NOTE" means the promissory note, in substantially the form of
Exhibit "A" to this Agreement, dated as of the date of Closing, made by the
Borrower to evidence the Borrower's obligation to repay the Term Loan and the
interest thereon, and includes any amendment to or modification of such note and
any promissory note given in extension or renewal of, or in substitution for,
such note.
"TERM RATE" is defined in Section 2.4(A) of this Agreement.
1.2 ACCOUNTING TERMS. Accounting terms used and not otherwise defined in
this Agreement have the meanings determined by, and all calculations with
respect to accounting or financial matters unless otherwise provided herein
shall be computed in accordance with, Generally Accepted Accounting Principles.
7
<PAGE>
1.3 CONSTRUCTION OF TERMS. Whenever used in this Agreement, the singular
number shall include the plural and the plural the singular, and pronouns of one
gender shall include all genders.
ARTICLE II.
17. THE TERM LOAN
2.1 GENERAL TERMS. Subject to the terms hereof, the Bank will lend the
Borrower the principal sum of Six Million and No/100 Dollars ($6,000,000.00) on
a term loan basis.
2.2 DISBURSEMENT OF THE TERM LOAN. The Bank will credit the proceeds of
the Term Loan to the principal deposit account of the Borrower with the Bank, or
in such other manner as the Borrower and the Bank may agree.
2.3 THE TERM NOTE. The Borrower's obligation to repay the Term Loan shall
be evidenced by the Term Note.
2.4 INTEREST RATE AND PAYMENTS OF INTEREST.
(A) Interest on the Term Loan shall be calculated and paid as
provided in the Term Note (the rate of interest as may from time to time be
accruing under the Term Note being herein referred to as the "Term Rate").
(B) If, at any time, the Term Rate shall be deemed by any competent
court of law, governmental agency or tribunal to exceed the maximum rate of
interest permitted by any applicable Laws, then, for such time as the Term Rate
would be deemed excessive, its application shall be suspended and there shall be
charged instead the maximum rate of interest permissible under such Laws, and
any excess interest actually collected by the Bank shall be credited as a
partial prepayment of principal.
2.5 PAYMENTS OF PRINCIPAL. Borrower shall make to Bank such payments of
principal on the Term Loan as are required by the terms of the Term Note.
2.6 PAYMENT TO THE BANK. All sums payable to the Bank hereunder shall be
paid directly to the Bank in United States Dollars and immediately available
funds at the place payment is due. If the Bank shall send the Borrower
statements of amounts due hereunder, such statements shall be considered correct
and conclusively binding on the Borrower unless the Borrower notifies the Bank
to the contrary within ninety (90) days of its receipt of any statement which it
deems to be incorrect.
2.7 USE OF PROCEEDS OF TERM LOAN. The proceeds of the Term Loan hereunder
shall be used by the Borrower to finance costs incurred with the acquisition of
certain assets of the Carbon Materials and Technologies division of AlliedSignal
Inc., and to pay closing costs and expenses incurred by the Borrower in
connection with the closing of the Term Loan.
8
<PAGE>
ARTICLE III.
18. CONDITIONS PRECEDENT
The obligation of the Bank to make the Loan is subject to the following
conditions precedent:
3.1 DOCUMENTS REQUIRED FOR THE CLOSING. Prior to the disbursement of the
Loan, the following instruments and documents, duly executed by all proper
Persons shall have been delivered to the Bank:
(A) This Agreement;
(B) The Term Note;
(C) The financing statements required by Section 4.5;
(D) The lien waivers required by Section 4.6;
(E) (1) A certificate of the Borrower's corporate secretary dated as
of the date of this Agreement, certifying as to the incumbency and signatures of
the officers of the Borrower signing this Agreement, the Term Note, each of the
other Loan Documents to be executed by Borrower, and each other document to be
delivered pursuant hereto, together with the following documents attached
thereto:
(a) A copy of the resolutions of the Borrower's board of
directors authorizing the execution, delivery and performance of
this Agreement, the Term Note, each of the other Loan Documents
to be delivered by Borrower, and each other document to be
delivered by Borrower pursuant hereto;
(b) A copy, certified as of the most recent date
practicable by the secretary of state of the state where the
Borrower is incorporated, of the Borrower's articles or
certificate of incorporation; and
(c) A copy of the Borrower's bylaws;
(2) A certificate of the Guarantor's corporate secretary dated
as of the date of this Agreement, certifying as to the incumbency and signatures
of the officers of the Guarantor signing the Guarantor and each of the other
Loan Documents to be executed by Guarantor, and each other document to be
delivered pursuant hereto, together with the following documents attached
thereto:
(a) A copy of the resolutions of the Guarantor's board of
directors authorizing the execution, delivery and performance of
the Guaranty and each of the other Loan Documents to be delivered
by Guarantor, and each other document to be delivered by
Guarantor pursuant hereto;
(b) A copy, certified as of the most recent date
practicable by the secretary of state of the state where the
9
<PAGE>
Guarantor is incorporated, of the Guarantor's articles or
certificate of incorporation; and
(c) A copy of the Guarantor's bylaws;
(F) Certificates, as of the most recent dates practicable, of the
secretary of state of Delaware, Alabama, Louisiana, and Texas and the department
of revenue or taxation of each of the foregoing states, as to the good standing
of the Borrower; and certificates as of the more recent dates practicable of the
secretary of state of Texas and the department of revenue or taxation of such
state, as to the good standing of the Guarantor;
(G) A written opinion of Woods & Jackson, L.L.P., dated the date of
this Agreement and addressed to the Bank, substantially in the form of Exhibit
"B", attached hereto;
(H) The Guaranty;
(I) The Borrower's Closing Affidavit and the Guarantor's Closing
Affidavit;
(J) The Purchase Money Security Agreement; and
(K) The Financial Statements.
3.2 CERTAIN EVENTS. At the time of disbursement of the Term Loan:
(A) No Event of Default shall have occurred and be continuing, and no
event shall have occurred and be continuing that, with the giving of notice or
passage or time or both, would be an Event of Default;
(B) No material adverse change shall have occurred in the financial
condition of the Borrower since the date of this Agreement;
(C) All of the Loan Documents shall have remained in full force and
effect; and
(D) The Borrower shall have paid the Loan Fee.
3.3 LEGAL MATTERS. At the time of disbursement of the Term Loan, all
legal matters incidental thereto shall be satisfactory to Gordon, Silberman,
Wiggins & Childs, P.C., counsel to the Bank.
ARTICLE IV.
4. COLLATERAL SECURITY
4.1 COMPOSITION OF THE COLLATERAL. The property in which a security
interest is granted pursuant to the provisions of Sections 4.2 and 4.3 is herein
collectively called the "Collateral." The Collateral, together with all of the
Borrower's other property of any kind held by the Bank, shall stand as one
general, continuing collateral security for all Obligations and may be retained
by the Bank until all Obligations have been satisfied in full.
10
<PAGE>
4.2 RIGHTS IN PROPERTY HELD BY THE BANK. As security for the prompt
satisfaction of all Obligations, the Borrower hereby assigns, transfers and sets
over to the Bank all of the Borrower's right, title and interest in and to, and
grants the Bank a lien on and a security interest in, all amounts that may be
owing from time to time by the Bank to the Borrower in any capacity, including,
without limitation, any balance or share belonging to the Borrower, of any
deposit or other account with the Bank, which lien and security interest shall
be independent of any right of set-off which the Bank may have.
4.3 RIGHTS IN PROPERTY HELD EITHER BY THE BORROWER OR BY THE BANK. As
further security for the prompt satisfaction of all Obligations, the Borrower
hereby assigns to the Bank all of the Borrower's right, title and interest in
and to, and grants the Bank a lien upon and security interest in, all of the
Collateral (as defined in the Security Agreement) and all of the Collateral (as
defined in the Purchase Money Security Agreement).
4.4 PRIORITY OF LIENS. The foregoing liens shall be first and prior liens
except for the Permitted Liens.
4.5 FINANCING STATEMENTS.
(A) The Borrower will:
(1) Execute such financing statements (including amendments
thereto and continuation statements thereof) in form satisfactory to
the Bank as the Bank, from time to time, may specify;
(2) Pay, or reimburse the Bank for paying, all costs and taxes
of filing or recording the same in such public offices as the Bank may
designate; and
(3) Take such other steps as the Bank, from time to time, may
direct, including the noting of the Bank's lien on the Collateral and
on any certificates of title therefor all to perfect the Bank's
security interest in the Collateral.
(B) In addition to the foregoing, and not in limitation thereof:
(1) A carbon, photographic, or other reproduction of this
Agreement shall be sufficient as a financing statement and may be
filed in any appropriate office in lieu thereof; and
(2) To the extent lawful, the Borrower hereby appoints the Bank
as its attorney-in-fact (without requiring the Bank to act as such) to
execute any financing statement in the name of the Borrower, and to
perform all other acts that the Bank deems appropriate to perfect and
continue its security interest in, and to protect and preserve, the
Collateral.
4.6 LIEN WAIVERS. The Borrower will cause each mortgagee of all real
estate owned by the Borrower and each landlord of all premises leased by the
Borrower (as listed on Exhibit "C" attached hereto) on whose premises any of the
Collateral may be located, to execute and deliver to the Bank instruments, in
form and substance satisfactory to the Bank, by which such mortgagee or landlord
11
<PAGE>
waives his or its rights, if any, in and to all Goods composing a part of the
Collateral.
ARTICLE V.
5. REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants to Bank, knowing that Bank will rely
on such representations and warranties as an inducement to make the Loan, that:
5.1 BORROWER'S AND GUARANTOR'S EXISTENCE. Borrower is a duly organized
and existing Delaware corporation, is duly qualified to do business in Delaware
and in all other jurisdictions in which its business interest requires it to be
so qualified, and has full power and authority to consummate the transactions
contemplated (except where the failure to so qualify does not have a material
adverse effect on the Borrower) by this Agreement; Guarantor is a duly organized
and existing Texas corporation, is duly qualified to do business in Texas and in
all other jurisdictions in which its business interest requires it to be so
qualified, and has full power and authority to consummate the transactions
contemplated (except where the failure to so qualify does not have a material
adverse effect on the Guarantor) by the Guaranty.
5.2 BORROWER'S AND GUARANTOR'S AUTHORITY. The execution, delivery and
performance of all of the Loan Documents to be delivered by Borrower have been
duly authorized by all requisite corporate action, all of such Loan Documents
have been duly executed and delivered and constitute valid and binding
obligations of the Borrower, enforceable in accordance with their respective
terms, and the Bank will be entitled to the benefits of all of such Loan
Documents; the execution, delivery and performance of all of the Loan Documents
to be delivered by Guarantor have been duly authorized by all requisite
corporate action, all of such Loan documents have been duly executed and
delivered and constitute valid and binding obligations of the Guarantor,
enforceable in accordance with their respective terms, and the Bank will be
entitled to the benefits of all of such Loan Documents.
5.3 VIOLATIONS OR ACTIONS PENDING. There are no actions, suits, or
proceedings pending or, to the best of Borrower's knowledge, threatened, which
might adversely affect the financial condition of Borrower, or which might
impair the value of any collateral taken or to be taken by Bank in connection
with this Agreement. Borrower is not in violation of any agreement, the
violation of which will or might reasonably be expected to have a materially
adverse effect on Borrower's business or assets, and Borrower, is not in
violation of any order, judgment, or decree of any court, or any statute or
governmental regulation to which Borrower is subject. The execution and
performance of this Agreement by Borrower will not result in any breach of any
mortgage, lease, credit or loan agreement or any other instrument which may bind
or affect Borrower.
5.4 FINANCIAL STATEMENTS. All financial statements of Borrower and/or
Guarantor, given and hereafter to be given to Bank are and will be true and
complete in all respects as of their respective dates and will be prepared in
accordance with Generally Accepted Accounting Principles consistently applied,
and will fairly represent the financial conditions of the business or Persons to
12
<PAGE>
which they pertain, and no materially adverse change has occurred in the
financial conditions reflected therein since the respective dates thereof.
5.5 GOOD AND MARKETABLE TITLE. Borrower has good and marketable title to
all its assets, including, without limitation, the Collateral subject to no
encumbrances, liens, or claims of any third parties, except for Permitted Liens.
5.6 ERISA COMPLIANCE. All Defined Benefit Pension Plans, as defined in
ERISA, of the Borrower or the Guarantor meet, as of the date hereof, the minimum
funding standards of Section 302 of ERISA and no reportable event or prohibited
transaction as defined in ERISA has occurred.
5.7 ACCURACY OF DOCUMENTS. All documents furnished to Bank by or on
behalf of Borrower or the Guarantor as a part of or in support of the
application for the Loans or pursuant to the Bank's Commitment Letter dated June
17, 1998, or this Agreement are true, correct, complete and accurately represent
the matters to which they pertain.
5.8 ENVIRONMENTAL MATTERS. Neither any property of the Borrower nor the
Borrower, to the best of Borrower's knowledge, are in violation of or subject to
any existing, pending or threatened investigation or inquiry by any governmental
authority or any remedial obligations under any applicable laws, rules or
regulations pertaining to health or the environment, including, without
limitation, the Comprehensive Environmental Response, Compensation and Liability
Act of 1980, as amended ("CERCLA"), the Resource Conservation and Recovery Act
of 1976, as amended ("RCRA"), and the Superfund Amendments and Reauthorization
Act of 1986, as amended, and that to the best of its knowledge there are no
facts, conditions or circumstances known to it which could result in any such
investigation or inquiry if such facts, conditions and circumstances, if any,
were fully disclosed to the applicable governmental authority, and Borrower will
promptly notify Bank if it becomes aware of any such facts, conditions or
circumstances or any such investigation or inquiry; Borrower has not obtained
and is not required to obtain any permits, licenses, or similar authorizations
to construct, occupy, operate or use any buildings, improvements, fixtures or
equipment in connection with any of Borrower's property constructed or to be
constructed by reason of any environmental laws, rules or regulations; and
Borrower has no knowledge that any oil, toxic or hazardous substances or solid
wastes have been disposed of or released on any of Borrower's property, and
Borrower will not in its use of any of its property dispose of or release oil,
toxic or hazardous substances or solid wastes on any of its property (the term
"hazardous substance" and "release" shall have the meanings specified in CERCLA,
and the terms "solid waste" and "disposal", "dispose" or "disposed" shall have
the meanings specified in RCRA, except that if such acts are amended to broaden
the meanings thereof, the broader meaning shall apply herein). Notwithstanding
anything to the contrary herein, Borrower shall indemnify and hold Bank harmless
from and against any fines, charges, expenses, fees, attorney fees and costs
incurred by Bank in the event the Borrower or any of its property (whether or
not due to any fault of Borrower) is hereafter determined to be in violation of
any environmental laws, rules or regulations applicable thereto, excluding,
however, any conditions caused by materials placed on any of Borrower's property
following foreclosure or acceptance by Bank of a deed in lieu of foreclosure,
and this indemnity shall survive any foreclosure or deed in lieu of foreclosure.
This indemnification shall specifically include any and all costs due to
hazardous
13
<PAGE>
substances that flow, diffuse, migrate, or percolate into, onto, from or
under any of Borrower's property.
5.9 CONTINUING EFFECTIVENESS. All representations and warranties
contained herein shall be deemed continuing and in effect at all times while
Borrower remains indebted to Bank under the Loan and shall be deemed to be
incorporated by reference in each requisition for an advance by Borrower, unless
Borrower specifically notifies Bank in writing of any change therein.
5.10 PRIORITY OF COLLATERAL ASSIGNMENTS. The Security Agreement
constitutes a valid first lien against the collateral of Borrower subject
thereto, prior to all other liens and encumbrances, including those whose may
have accrued after the execution thereof, except for Permitted Liens, and the
Purchase Money Security Agreement, when duly executed and delivered, will
constitute a valid first lien against the collateral of Borrower subject
thereto, prior to all other liens and encumbrances, including those which may
hereafter accrue, except for Permitted Liens.
ARTICLE VI.
6. THE BORROWER'S COVENANTS
The Borrower does hereby covenant and agree with the Bank that, so long as
any of the Obligations remain unsatisfied or any commitments hereunder remain
outstanding, it will comply at all times with the following covenants:
6.1 AFFIRMATIVE COVENANTS.
(A) The Borrower will use the proceeds of the Term Loan only for the
purposes set forth in Section 2.7, and will furnish the Bank such evidence as it
may reasonably require with respect to such uses.
(B) The Borrower will furnish, or cause to be furnished, the Bank:
(1) Within thirty (30) days after the close of each calendar
month (a) an income statement of the Borrower for such period and (b)
a balance sheet of the Borrower as of the end of such period, adjusted
to U. S. Dollars, all in reasonable detail with Bank having full
access to all supporting schedules and comments, subject to year-end
audit adjustments, and certified by the Borrower's president or
principal financial officer to have been prepared in accordance with
Generally Accepted Accounting Principles consistently applied by the
Borrower, except for any inconsistencies explained in such
certificate;
(2) Within one hundred twenty (120) days after the close of each
fiscal year (a) a statement of Stockholders' Equity and a statement of
cash flows of the Borrower for such fiscal year, (b) an income
statement of the Borrower for such fiscal year, and (c) a balance
sheet of the Borrower as of the end of such fiscal year, adjusted to
U. S. Dollars, all in reasonable detail, including all supporting
schedules and comments; the statements and balance sheets to be
certified by Borrower to have been prepared in accordance with
14
<PAGE>
Generally Accepted Accounting Principles consistently applied by the
Borrower;
(3) Contemporaneously with each monthly and year-end financial
report required by the foregoing paragraphs, a certificate of the
president or principal financial officer of the Borrower stating that,
to the best of his knowledge, the Borrower has observed and performed
each and every undertaking contained in this Agreement and is not at
the time in default in the observance or performance of any of the
terms and conditions hereof or, if the Borrower shall be so in
default, specifying all such defaults and events of which he may have
knowledge;
(4) Monthly, within twenty (20) days after the end of the prior
month, and at such other times as the Bank may request, a Collateral
Report and Borrowing Base Certificate for the immediately preceding
month, certified to be correct by the president or controller of the
Borrower;
(5) Within thirty (30) days after the close of each calendar
quarter (a) a consolidated income statement of the Guarantor for such
period and (b) a consolidated balance sheet of the Guarantor as of the
end of such period, adjusted to U. S. Dollars, all in reasonable
detail with Bank having full access to all supporting schedules and
comments, subject to year-end audit adjustments, and certified by the
Guarantor's president or principal financial officer to have been
prepared in accordance with Generally Accepted Accounting Principles
consistently applied by the Guarantor, except for any inconsistencies
explained in such certificate;
(6) Within one hundred twenty (120) days after the close of each
fiscal year (a) a consolidated statement of Stockholders' Equity and a
consolidated statement of cash flows of the Guarantor for such fiscal
year, (b) a consolidated income statement of the Guarantor for such
fiscal year, and (c) a consolidated balance sheet of the Guarantor as
of the end of such fiscal year, adjusted to U. S. Dollars, all in
reasonable detail, including all supporting schedules and comments;
the statements and balance sheets to be audited by an independent
certified public accountant selected by the Guarantor and acceptable
to the Bank, and certified by such accountants to have been prepared
in accordance with Generally Accepted Accounting Principles
consistently applied by the Guarantor, except for any inconsistencies
explained in such certificate; the Bank shall have the right, from
time to time, to discuss the Guarantor's affairs directly with the
Guarantor's independent certified public accountant after notice to
the Guarantor and opportunity of the Guarantor to be present at any
such discussions; and
(7) Promptly after sending or making available or filing of the
same, copies of all reports, proxy statements and financial statements
that the Borrower or Guarantor sends or makes available to its
stockholders and all registration statements and reports that
15
<PAGE>
the Borrower or Guarantor files with the Securities and Exchange
Commission or any successor Person.
(C) The Borrower will maintain its Inventory, Equipment, real estate
and other properties in good condition and repair (normal wear and tear
excepted), and will pay and discharge or cause to be paid and discharged when
due, the cost of repairs to or maintenance of the same, and will pay or cause to
be paid all rental or mortgage payments due on such real estate. The Borrower
hereby agrees that, in the event it fails to pay or cause to be paid any such
payments, the Bank may do so and on demand be reimbursed therefor by the
Borrower.
(D) The Borrower will maintain, or cause to be maintained, public
liability insurance, and fire and extended coverage insurance on all tangible
assets owned by it, all in such form and amounts as are consistent with industry
practices and with such insurers as may be satisfactory to the Bank. Such
policies shall contain a provision whereby they cannot be cancelled except upon
thirty (30) days written notice to the Bank and shall contain a New York
standard endorsement or similar provision naming the Bank as loss payee. The
Borrower will, upon request, furnish to the Bank a Request for Insurance, duly
executed by the authorized agent, and other such evidence of insurance as the
Bank may require. The Borrower hereby agrees that, in the event it fails to pay
or cause to be paid the premium on any such insurance, the Bank may do so and be
reimbursed by the Borrower therefor.
(E) The Borrower will pay or cause to be paid when due all taxes,
assessments and charges or levies imposed upon it or on any of its property or
which it is required to withhold and pay over, except where contested in good
faith by appropriate proceedings with adequate reserves therefor having been set
aside on its books; provided, however, that the Borrower shall pay or cause to
be paid all such taxes, assessments, charges or levies forthwith whenever
foreclosure on any lien that attached (or security therefor) appears imminent.
(F) The Borrower will maintain during the term of this Agreement:
(1) Tangible Net Worth of, at minimum, Two Million Five Hundred
Thousand and No/100 Dollars ($2,500,000.00) as of July 31, 1999,
and until July 30, 2000, and Five Million and No/100 Dollars
($5,000,000.00) as of July 31, 2000, and at all times thereafter.
(2) A Fixed Charge Coverage of not less than 1.25 to 1.0 at the
end of each fiscal year commencing July 31, 1999.
(3) A ratio of Liabilities to Tangible Net Worth of not more
than 3.50 to 1.0 as of July 31, 1999, and until July 30, 2000,
and 2.0 to 1.0 as of July 31, 2000, and at all times thereafter.
(G) The Borrower will, when requested so to do, make available for
inspection and audit by duly authorized representatives of the Bank any of its
books and records, and will furnish the Bank any information regarding its
business affairs and financial condition within a reasonable time after written
request therefor. Borrower shall reimburse Bank for all costs associated with
16
<PAGE>
such audit if the audit reveals a material discrepancy in any financial report,
statement or other document provided to Bank pursuant to this Agreement.
(H) The Borrower will take all necessary steps to preserve its
corporate existence and franchises and comply with all present and future Laws,
applicable to it in the operation of its businesses, and all material agreements
to which it is subject.
(I) The Borrower will collect its Accounts and sell its Inventory
only in the ordinary course of business.
(J) The Borrower will keep accurate and complete Records of its
Accounts, Inventory and Equipment, consistent with sound business practices.
(K) The Borrower will give immediate written notice to the Bank of:
(1) Any litigation or proceeding in which it is a party if an
adverse decision therein would require it to pay over more than
$500,000.00 or deliver assets the value of which exceeds such sum
(whether or not the claim is considered to be covered by
insurance); and
(2) The institution of any other suit or proceeding involving it
that might materially and adversely affect its operations,
financial condition, property or business prospects.
(L) Within ten (10) days of the Bank's request therefor, the Borrower
will furnish the Bank with copies of federal income tax returns filed by the
Borrower.
(M) The Borrower will pay when due (or within applicable grace
periods) all Indebtedness due third Persons, except when the amount thereof is
being contested in good faith by appropriate proceedings and with adequate
reserves therefor being set aside on the books of the Borrower.
(N) The Borrower will notify the Bank immediately if it becomes aware
of the occurrence of any Event of Default or of any fact, condition or event
that only with the giving of notice or passage of time or both, could become an
Event of Default, or if it becomes aware of any material adverse change in the
business prospects, financial condition (including, without limitation,
proceedings in bankruptcy, insolvency, reorganization, or the appointment of a
receiver or trustee), or results of operations of the Borrower, or of the
failure of the Borrower to observe any of its undertakings hereunder or under
any of the other Loan Documents.
(O) The Borrower will notify the Bank thirty (30) days in advance of
any change in the location of any of its places of business in the United States
or of the establishment of any new place of business in the United States, or
the discontinuance of any existing place of business in the United States.
(P) The Borrower will:
17
<PAGE>
(1) Fund all its Defined Benefit Pension Plans, as defined in
ERISA, in accordance with no less than the minimum funding
standards of Section 302 of ERISA;
(2) Furnish the Bank, promptly after the filing of the same,
with copies of all reports or other statements filed with the
United States Department of Labor or the Internal Revenue Service
with respect to all such Plans; and
(3) Promptly advise the Bank of the occurrence of any Reportable
Event or Prohibited Transaction with respect to any such Plan.
(Q) The Borrower will comply with all Environmental Laws, and will
handle, store, treat, discharge, and dispose of any Hazardous Materials only in
compliance with all Environmental Laws.
(R) The Borrower will pay all installments of the Loan Fee when due.
6.2 NEGATIVE COVENANTS. The Borrower does hereby covenant and agree with
the Bank that, so long as any of the Obligations remain unsatisfied or any
commitments hereunder remain outstanding, it will comply at all times with the
following negative covenants:
(A) The Borrower will not change its name, enter into any merger,
consolidation, reorganization or recapitalization, or reclassification of its
capital stock, or dissolve without the prior written consent of the Bank (which
consent shall not be unreasonably withheld).
(B) The Borrower will not sell, transfer, lease, assign or otherwise
dispose of all or (except in the ordinary course of business) any material part
of its assets.
(C) The Borrower will not sell, lease, transfer, assign, or otherwise
dispose of any of the Collateral except in the ordinary course of business and
as permitted under this Agreement.
(D) The Borrower will not replace its Chairman of the Board of
Directors or its President without the prior written consent of the Bank.
(E) The Borrower will not mortgage, pledge, grant or permit to exist
a security interest in or lien upon any of the Collateral, now owned or
hereafter acquired, except for Permitted Liens.
(F) [Intentionally Deleted]
(G) [Intentionally Deleted]
(H) [Intentionally Deleted]
(I) The Borrower will not make any future equity investment(s) or
loan(s) in an amount exceeding, in the aggregate, $250,000.00 in or to any
18
<PAGE>
Subsidiary, foreign or domestic or in or to any other Person during the term of
this Agreement.
(J) [Intentionally Deleted]
(K) [Intentionally Deleted]
(L) [Intentionally Deleted]
(M) The Borrower will not issue, redeem, purchase or retire any of
its capital stock or grant or issue any warrant, right or option pertaining
thereto or any other security convertible into any of the foregoing. The
Borrower will not permit, and will cause the Guarantor not to permit, any
voluntary transfer, sale, redemption, retirement, or other change in the
ownership of the outstanding capital stock of the Borrower or of the Guarantor
by any of their respective shareholders which results in a "Change in Control".
For purposes of this Section 6.2(M), "Change in Control" shall mean either a
change in the ownership of the outstanding capital stock of the Borrower such
that the Guarantor owns less than fifty and 01/100 percent (50.01%) of the
outstanding capital stock of the Borrower, or a change in the ownership of the
outstanding capital stock of the Guarantor such that David L. Hatcher owns less
than fifty and 01/100 percent (50.01%) of the outstanding capital stock of the
Guarantor.
(N) [Intentionally Deleted]
(O) The Borrower will not enter into any sale-leaseback transaction.
(P) The Borrower will not furnish the Bank any certificate or other
document that will contain any untrue statement of material fact or that will
omit to state a material fact necessary to make it not misleading in light of
the circumstances under which it was furnished.
(Q) The Borrower will not directly or indirectly apply any part of
the proceeds of the Loan to the purchasing or carrying of any "margin stock"
within the meaning of Regulation U or any regulations, interpretations or
rulings thereunder.
(R) The Borrower will not treat, store, handle, discharge, or dispose
of any Hazardous Materials except in compliance with all Environmental Laws.
ARTICLE VII.
7. DEFAULT
7.1 EVENTS OF DEFAULT. The occurrence of any one or more of the following
events shall constitute an Event of Default hereunder:
(A) The Borrower shall fail to pay any installment of principal or
interest or fee payable hereunder or under the Term Note within ten (10) days of
the due date thereof.
19
<PAGE>
(B) The Borrower shall fail to observe or perform any other
obligation to be observed or performed by it hereunder or under any of the other
Loan Documents, and such failure shall continue for thirty (30) days after:
(1) Notice of such failure from the Bank; or
(2) The Bank is notified of such failure or should have been so
notified pursuant to the provisions of Section 6.1(N), whichever
is earlier.
(C) The Borrower shall fail to pay any Indebtedness due any third
Persons and such failure shall continue beyond any applicable grace period.
(D) Any financial statement, representation, warranty or certificate
made or furnished by the Borrower or the Guarantor to the Bank in connection
with this Agreement, or as inducement to the Bank to enter into this Agreement,
or in any separate statement or document to be delivered hereunder to the Bank,
shall be materially false, incorrect, or incomplete when made.
(E) The Borrower or the Guarantor shall admit its inability to pay
its debts as they mature, or shall make an assignment for the benefit of itself
or any of its creditors.
(F) Proceedings in bankruptcy, or for reorganization of the Borrower
or the Guarantor, or for the readjustment of any of their respective debts,
under the Bankruptcy Code, as amended, or any part thereof, or under any other
Laws, whether state or federal, for the relief of debtors, now or hereafter
existing, shall be commenced by the Borrower or the Guarantor, or shall be
commenced against the Borrower or the Guarantor and shall not be discharged
within sixty (60) days of commencement.
(G) A receiver or trustee shall be appointed for the Borrower or the
Guarantor or for any substantial part of their respective assets, or any
proceedings shall be instituted for the dissolution or the full or partial
liquidation of the Borrower or the Guarantor, and such receiver or trustee shall
not be discharged within thirty (30) days of his appointment, or such
proceedings shall not be discharged within sixty (60) days of its commencement,
or the Borrower or the Guarantor shall discontinue business or materially change
the nature of its business.
(H) The Borrower shall suffer final judgments for payment of money
aggregating in excess of $100,000.00 and shall not discharge the same within a
period of thirty (30) days unless, pending further proceedings, execution has
not been commenced or if commenced has been effectively stayed.
(I) A judgment creditor of the Borrower shall obtain possession of
any of the Collateral by any means, including, without limitation, levy,
distraint, replevin or self-help.
(J) The validity or enforceability of this Agreement, the Term Note,
or any of the other Loan Documents shall be contested by the Borrower or the
Guarantor and/or Borrower or Guarantor shall deny that it has any or further
liability or obligation hereunder or thereunder.
20
<PAGE>
(K) Any Defined Benefit Pension Plan, as defined in ERISA, shall fail
to meet the minimum funding standards of the Internal Revenue Code of 1986, as
now in effect or hereafter amended.
(L) The Guarantor shall be dissolved either voluntarily or by
operation of law.
(M) There shall occur any "Event of Default" under and as defined in
the Revolving Loan Agreement or any of the other Revolving Loan Documents.
7.2 ACCELERATION. All Obligations shall, at the option of Bank, become
immediately due and payable, without notice, upon the occurrence of an Event of
Default without further action of any kind.
7.3 REMEDIES. After any acceleration, as provided for in Section 7.2, the
Bank shall have, in addition to the rights and remedies given it by this
Agreement and each of the other Loan Documents, all those allowed by all
applicable Laws, including, but without limitation, the Uniform Commercial Code
as enacted in any jurisdiction in which any Collateral may be located. Without
limiting the generality of the foregoing, the Bank may immediately, without
demand for performance and without other notice (except as specifically required
by this Agreement or any of the other Loan Documents, or as required by law and
which cannot be waived) or demand to the Borrower, all of which are hereby
expressly waived, and without advertisement, sell at public or private sale or
otherwise realize upon, the whole or, from time to time, any part of the
Collateral, or any interest which the Borrower may have therein. After
deducting from the proceeds of sale or other disposition of the Collateral all
expenses (including all reasonable expenses for legal services), the Bank shall
apply such proceeds toward the satisfaction of the Obligations in such order as
the Bank may elect. Any remainder of the proceeds after satisfaction in full of
the Obligations shall be distributed as required by applicable Laws. Notice of
any sale or other disposition shall be given to the Borrower at least five (5)
days before the time of any intended public sale or of the time after which any
intended private sale or other disposition of the Collateral is to be made,
which the Borrower hereby agrees shall be reasonable notice of such sale or
other disposition. The Borrower agrees to assemble, or to cause to be
assembled, at its own expense, the Collateral at such place or places as the
Bank shall designate. At any such sale or other disposition, the Bank may, to
the extent permissible under applicable Laws, purchase the whole or any part of
the Collateral, free from any right of redemption on the part of the Borrower,
which right is hereby waived and released. Without limiting the generality of
any of the rights and remedies conferred upon the Bank under this paragraph, the
Bank may, to the full extent permitted by applicable Laws:
(A) Enter upon the premises of the Borrower, exclude therefrom the
Borrower or any Affiliate thereof, and take immediate possession of the
Collateral, either personally or by means of a receiver appointed by a court of
competent jurisdiction, using all necessary force to do so;
(B) At the Bank's option, use, operate, manage and control the
Collateral in any lawful manner;
(C) Collect and receive all rents, income, revenue, earnings, issues
and profits therefrom; and
21
<PAGE>
(D) Maintain, repair, renovate, alter or remove the Collateral as the
Bank may determine in its discretion.
7.4 RIGHT OF SET-OFF. Upon the occurrence of any Event of Default, the
Bank may, and is hereby authorized by the Borrower, at any time and from time to
time, to the fullest extent permitted by applicable Laws, and without advance
notice to the Borrower (any such notice being expressly waived by the Borrower),
set-off and apply any and all deposits (general or special, time or demand,
provisional or final) at any time held and any other Indebtedness at any time
owing by the Bank to, or for the credit or the account of, the Borrower against
any or all of the Obligations of the Borrower now or hereafter existing whether
or not such Obligations have matured and irrespective of whether the Bank has
exercised any other rights that it has or may have with respect to such
Obligations, including without limitation any acceleration rights. The
aforesaid right of set-off may be exercised by the Bank against the Borrower or
against any trustee in bankruptcy, debtor in possession, assignee for the
benefit of the creditors, receiver, or execution, judgment or attachment
creditor of the Borrower, or such trustee in bankruptcy, debtor in possession,
assignee for the benefit of creditors, receiver, or execution, judgment or
attachment creditor, notwithstanding the fact that such right of set-off shall
not have been exercised by the Bank prior to the making, filing or issuance, or
service upon the Bank of, or of notice of, any such petition; assignment for the
benefit of creditors; appointment or application for the appointment of a
receiver; or issuance of execution, subpoena, order or warrant. The Bank agrees
to promptly notify the Borrower after any such set-off and application, provided
that the failure to give such notice shall not affect the validity of such
set-off and application. The rights of the Bank under this Section 7.4 are
in addition to the other rights and remedies (including, without limitation,
other rights of set-off) which the Bank may have.
ARTICLE VIII.
8. MISCELLANEOUS
8.1 CONSTRUCTION. The provisions of this Agreement shall be in addition
to those of any guaranty, pledge or security agreement, note or other evidence
of liability held by the Bank, all of which shall be construed as complementary
to each other. Nothing herein contained shall prevent the Bank from enforcing
any or all other notes, guaranties, pledges or security agreements in accordance
with their respective terms.
8.2 FURTHER ASSURANCE. From time to time, the Borrower will execute and
deliver to the Bank such additional Documents and will provide such additional
information as the Bank may reasonably require to carry out the terms of this
Agreement and be informed of the status and affairs of the Borrower.
8.3 INDEMNITY. The Borrower hereby agrees to indemnify the Bank and its
officers, directors, agents and attorney's against, and to hold the Bank and all
such other persons harmless from, any claims, demands, liabilities, costs,
damages, and judgments (including, without limitation, liability under any
Environmental Laws and costs of defense and attorneys' fees) resulting from any
representation or warranty made by Borrower or on Borrower's behalf pursuant to
Article V of this Agreement having been false when made, or resulting from
22
<PAGE>
Borrower's breach of any of the covenants set forth in Article VI of this
Agreement. This agreement of indemnity shall be a continuing agreement and
shall survive payment of the Loan and termination of this Agreement.
8.4 ENFORCEMENT AND WAIVER BY THE BANK. The Bank shall have the right at
all times to enforce the provisions of this Agreement, the Term Note, and the
other Loan Documents in strict accordance with the terms hereof and thereof,
notwithstanding any conduct or custom on the part of the Bank in refraining from
so doing at any time or times. The failure of the Bank at any time or times to
enforce its rights under such provisions, strictly in accordance with the same,
shall not be construed as having created a custom in any way or manner contrary
to specific provisions of this Agreement or as having in any way or manner
modified or waived the same. All rights and remedies of the Bank are cumulative
and concurrent and the exercise of one right or remedy shall not be deemed a
waiver or release of any other right or remedy.
8.5 EXPENSES OF THE BANK. The Borrower will, on demand, reimburse the
Bank for all reasonable expenses, including the fees and expenses of legal
counsel for the Bank, incurred in connection with the preparation,
administration, amendment, modification or enforcement of this Agreement and the
other Loan Documents and the collection or attempted collection of the Loan and
the Term Note.
8.6 NOTICES. Any notices or consents required or permitted by this
Agreement shall be in writing and shall be deemed delivered if delivered in
person or if sent by certified mail, postage prepaid, return receipt requested,
or telegraph, as follows, unless such address is changed by written notice
hereunder:
(A) If to the Borrower:
KMG-Bernuth, Inc.
10611 Harwin, Suite 402
Houston, Texas 77036
Attention: David L. Hatcher
with copy to:
Roger C. Jackson, Esq.
Woods & Jackson
2001 Kirby Drive, Suite 1111
Houston, Texas 77019
(B) If to the Bank:
SouthTrust Bank, National Association
P.O. Box 2554
Birmingham, Alabama 35290
Attention: Metropolitan Lending
23
<PAGE>
with a copy to:
Timothy D. Davis, Esq.
Gordon, Silberman, Wiggins & Childs, P.C.
1400 SouthTrust Tower
Birmingham, Alabama 35203
8.7 WAIVER AND RELEASE BY THE BORROWER. To the maximum extent permitted
by applicable Laws, the Borrower:
(A) Waives protest of all commercial paper at any time held by the
Bank on which the Borrower is any way liable;
(B) Except as the same may herein be specifically granted, waives
notice of acceleration and of intention to accelerate;
(C) Waives notice and opportunity to be heard, after acceleration in
the manner provided in Section 7.2, before exercise by the Bank of the remedies
of self-help, set-off, or of other summary procedures permitted by any
applicable Laws or by any agreement with the Borrower, and except where required
hereby or by any applicable Laws which requirement cannot be waived, notice of
any other action taken by the Bank; and
(D) Releases the Bank and its officers, attorneys, agents and
employees from all claims for loss or damage caused by any act or omission on
the part of any of them except willful misconduct.
8.8 PARTICIPATION. Notwithstanding any other provision of this Agreement,
the Borrower understands that the Bank may enter into participation agreements
with Participants whereby the Bank will allocate certain percentages of its
commitment to them. The Borrower acknowledges that, for the convenience of all
parties, this Agreement is being entered into with the Bank only and that its
obligations under this Agreement are undertaken for the benefit of, and as an
inducement to each of any such Participant as well as the Bank, and the Borrower
hereby grants to each such Participant, to the extent of its participation in
the Loan, the right to set off deposit accounts maintained by the Borrower with
such Participant. The Borrower authorizes the Bank to disclose financial and
other information regarding the Borrower to Participants and potential
Participants.
8.9 GOVERNING LAW. This Agreement is entered into and performable in
Jefferson County, Alabama, and the substantive Laws, without giving effect to
principles of conflict of laws, of the United States and the State of Alabama
shall govern the construction of this Agreement and the documents executed and
delivered pursuant hereto, and the rights and remedies of the parties hereto and
thereto, except to the extent that the location of any Collateral in a state or
jurisdiction other than Alabama requires that the perfection of the Bank's
security interest hereunder, and the enforcement of certain of the Bank's
remedies with respect to the Collateral, be governed by the laws of such other
state or jurisdiction.
8.10 SUBMISSION TO JURISDICTION; WAIVERS.
(A) THE BORROWER HEREBY IRREVOCABLY AND UNCONDITIONALLY:
24
<PAGE>
(1) SUBMITS FOR ITSELF AND ITS PROPERTY IN ANY LEGAL ACTION OR
PROCEEDING RELATING TO THIS AGREEMENT, OR FOR RECOGNITION AND
ENFORCEMENT OF ANY JUDGMENT IN RESPECT THEREOF, TO THE
NON-EXCLUSIVE GENERAL JURISDICTION OF THE COURTS OF THE STATE OF
ALABAMA, THE COURTS OF THE UNITED STATES OF AMERICA FOR THE
NORTHERN DISTRICT OF ALABAMA, AND APPELLATE COURTS FROM ANY
THEREOF;
(2) CONSENTS THAT ANY SUCH ACTION OR PROCEEDING MAY BE BROUGHT
IN SUCH COURTS, AND WAIVES ANY OBJECTION THAT IT MAY NOW OR
HEREAFTER HAVE TO THE VENUE OF ANY SUCH ACTION OR PROCEEDING IN
ANY SUCH COURT OR THAT SUCH ACTION OR PROCEEDING WAS BROUGHT IN
AN INCONVENIENT COURT AND AGREES NOT TO PLEAD OR CLAIM THE SAME;
(3) AGREES THAT SERVICE OF PROCESS IN ANY SUCH ACTION OR
PROCEEDING MAY BE EFFECTED BY MAILING A COPY THEREOF BY
REGISTERED OR CERTIFIED MAIL (OR ANY SUBSTANTIALLY SIMILAR FORM
OF MAIL), POSTAGE PREPAID, TO THE COMPANY AT ITS ADDRESS SET
FORTH IN SECTION 8.6 OR AT SUCH OTHER ADDRESS OF WHICH THE BANK
SHALL HAVE BEEN NOTIFIED PURSUANT THERETO; AND
(4) AGREES THAT NOTHING HEREIN SHALL AFFECT THE RIGHT TO EFFECT
SERVICE OF PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL
LIMIT THE RIGHT TO SUE IN ANY OTHER JURISDICTION.
(B) THE BORROWER AND THE BANK HEREBY:
(1) IRREVOCABLY AND UNCONDITIONALLY WAIVE THE RIGHT TO A TRIAL
BY JURY IN ANY ACTION OR PROCEEDING OR COUNTERCLAIM OF ANY TYPE
AS TO ANY MATTER ARISING DIRECTLY OR INDIRECTLY OUT OF OR WITH
RESPECT TO THIS AGREEMENT, THE TERM NOTE, ANY OF THE OTHER LOAN
DOCUMENTS OR ANY OTHER DOCUMENT EXECUTED IN CONNECTION HEREWITH
OR THEREWITH; AND
(2) AGREE THAT EITHER OF THEM MAY FILE A COPY OF THIS AGREEMENT
WITH ANY COURT AS WRITTEN EVIDENCE OF THE KNOWING, VOLUNTARY AND
BARGAINED FOR AGREEMENT BETWEEN THE PARTIES IRREVOCABLY TO WAIVE
TRIAL BY JURY, AND THAT ANY DISPUTE OR CONTROVERSY OF ANY KIND
WHATSOEVER BETWEEN THEM SHALL INSTEAD BE TRIED IN A COURT OF
COMPETENT JURISDICTION BY A JUDGE SITTING WITHOUT A JURY.
8.11 BINDING EFFECT, ASSIGNMENT. This Agreement shall inure to the benefit
of, and shall be binding upon, the respective successors and permitted assigns
of the parties hereto. The Borrower has no right to assign any of its rights or
obligations hereunder without the prior written consent of the Bank.
8.12 ENTIRE AGREEMENT, AMENDMENTS. This Agreement, including the Exhibits
hereto, all of which are hereby incorporated herein by reference, and the
documents executed and delivered pursuant hereto, constitute the entire
agreement between the parties, and may be amended only by a writing signed on
behalf of each party.
25
<PAGE>
8.13 SEVERABILITY. If any provision of this Agreement, the Term Note, or
any of the other Loan Documents shall be held invalid under any applicable Laws,
such invalidity shall not affect any other provision of this Agreement or such
other instrument or agreement that can be given effect without the invalid
provision, and, to this end, the provisions hereof are severable.
8.14 HEADINGS. The paragraph and subparagraph headings hereof are inserted
for convenience of reference only, and shall not alter, define, or be used in
construing the text of such paragraphs or subparagraphs.
8.15 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute but one and the same instrument.
8.16 SEAL. This Agreement is intended to take effect as an instrument
under seal.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective duly authorized officers as of the day and year
first above written.
THE BORROWER:
KMG-BERNUTH, INC.
By: /s/ Bobby D. Godfrey [SEAL]
----------------------------------------
Bobby D. Godfrey
Its: Vice President
THE BANK:
SOUTHTRUST BANK, NATIONAL ASSOCIATION
By: /s/ Alan T. Drennen III [SEAL]
----------------------------------------
Alan T. Drennen III
-------------------------------------------
Its Group Vice Pres
----------------------------------------
26
<PAGE>
STATE OF TEXAS )
COUNTY OF HARRIS )
I, the undersigned, a Notary Public in and for said County in said State,
hereby certify that Bobby D. Godfrey, whose name as Vice President of
KMG-Bernuth, Inc., a Delaware corporation, is signed to the foregoing
Agreement, and who is known to me, acknowledged before me on this day that,
being informed of the contents of said Agreement, he, as such officer and
with full authority, executed the same voluntarily for and as the act of said
corporation.
Given under my hand and official seal, this the 25th day of June, 1998.
/s/ Judith Mallernee
--------------------------------------
Notary Public
(SEAL) My Commission Expires: 7/11/2001
---------------
STATE OF ALABAMA )
COUNTY OF JEFFERSON )
I, the undersigned, a Notary Public in and for said County in said
State, hereby certify that ALAN T. DRENNEN III, whose name as GROUP VICE
PRESIDENT of SouthTrust Bank, National Association, a national banking
association, is signed to the foregoing Agreement, and who is known to me,
acknowledged before me on this day that, being informed of the contents of
said Agreement, he, as such officer and with full authority, executed the
same voluntarily for and as the act of said banking association.
Given under my hand and official seal, this the 26th day of June, 1998.
/s/ Cynthia S. Bailey
--------------------------------------
Notary Public
(SEAL) My Commission Expires: 1/24/2000
---------------
27
<PAGE>
LIST OF EXHIBITS
"A" Form of Term Note
"B" Form of Opinion Letter
"C" Addresses of Leased Premises of Borrower
<PAGE>
EXHIBIT "C"
LEASED PREMISES
1. Premises leased from Gulf Facilities, Inc.:
Donald Foust & Mineral Loop
Brownsville, Texas 78521
2. Premises leased from International-Matex Tank Terminals:
5450 River Road
Avondale, Louisiana 70094
3. 10611 Harwin, Suite 402
Houston, Texas 77036
<PAGE>
TERM NOTE
$6,000,000.00 JUNE 26, 1998
FOR VALUE RECEIVED, the undersigned KMG-BERNUTH, INC., a Delaware
corporation (hereinafter referred to as "Maker"), promises to pay to the order
of SOUTHTRUST BANK, NATIONAL ASSOCIATION, a national banking association
(hereinafter, together with any holder of this Note, the "Bank"), at its main
office in the City of Birmingham, Alabama, or at such other address as the Bank
may from time to time designate in writing, the principal sum of Six Million and
No/100 Dollars ($6,000,000.00) (the "Loan"), or so much as may be advanced
hereunder, together with interest thereon, such principal and interest to be
payable as follows:
(A) On the 1st day of August, 1998, and on the same day of each successive
calendar month thereafter until this Note is paid in full, Maker shall pay
to Bank monthly installments of principal and interest in the amount of
$91,497.55 each.
(B) On the 1st day of July, 2005, the Maker shall pay to Bank the then
outstanding principal balance, together with all accrued and unpaid
interest thereon.
During the entire term of this Note, the outstanding principal amount shall
bear interest at a fixed rate of seven and 32/100 per cent (7.32%) percent per
annum (the "Interest Rate").
All payments shall be applied first to interest then due and payable and
any balance shall be applied in reduction of principal. The principal and
interest shall be payable in lawful money of the United States which shall be
legal tender for public and private debts at the time of payment. All interest
payable herein shall be calculated on the basis of a 360-day year by multiplying
<PAGE>
the outstanding principal amount by the applicable per annum rate, multiplying
the product thereof by the actual number of days elapsed, and dividing the
product so obtained by 360.
Maker shall have the right to prepay all or any part of the principal sum
represented by this Note or the interest thereon at any time and from time to
time without premium or penalty. All prepayments of principal will be applied
to installments coming due hereunder in their inverse order of maturity, and no
prepayment shall delay any monthly installment or other payment coming due.
Amounts prepaid may not be reborrowed.
Maker will pay a late charge equal to five percent (5.0%) of any payment
not received by Bank within fifteen (15) days after the due date thereof.
Collection or acceptance by Bank of such late charge shall not constitute a
waiver of any remedies of Bank provided herein.
This Note is the Term Note referred to in, and entitled to the security of,
and proceeds of which will be advanced in accordance with, that certain Term
Loan Agreement between Maker and Bank dated of even date herewith (herein,
together with any and all extensions, revisions, modifications or amendments at
any time made, referred to as the "Loan Agreement"). This Note is subject to
the terms and conditions of the Loan Agreement, which Loan Agreement (including
all defined terms set forth therein) is hereby incorporated herein in its
entirety. This Note is further secured by a Security Agreement and a Purchase
Money Security Agreement (each as defined in the Loan Agreement), the terms of
each of which, and all terms and conditions thereof (including all defined terms
set forth therein), are hereby incorporated herein by this reference. This Note
is guaranteed by a Guaranty of Payment (hereinafter, together with any and all
extensions, revisions, modifications or amendments heretofore, simultaneously
herewith or hereafter made, referred to as the "Guaranty") executed by KMG
2
<PAGE>
Chemicals, Inc. (the "Guarantor") (this Note, the Loan Agreement, the Security
Agreement, the Purchase Money Security Agreement, the Guaranty, and any and all
other agreements, instruments or documents, now existing or hereafter arising,
executed or delivered in connection with the Loan, together with any and all
extensions, revisions, modifications or amendments heretofore, simultaneously
herewith or hereafter made to any of the foregoing, hereinafter referred to
collectively as the "Loan Documents").
The principal sum evidenced by this Note, together with accrued interest,
shall become immediately due and payable at the option of the Bank upon the
occurrence of (1) any failure to pay any installment of principal or interest
due hereunder within ten (10) days of the due date thereof; or (2) any "Event of
Default" under the terms of the Loan Agreement; each of which shall constitute
an "Event of Default" hereunder. Upon any Event of Default, in addition to any
late charge which may be due as provided for hereinabove, Maker agrees to pay
interest to Bank at a rate equal to two percentage points (2.0%) in excess of
the Interest Rate set forth herein on the aggregate indebtedness represented
hereby, including accrued interest, until such aggregate indebtedness is paid in
full. Maker will also pay to Bank, in addition to the amount due, all costs of
collecting, securing or attempting to collect or secure this Note, including
without limitation, court costs and reasonable attorneys' fees, including
attorneys' fees on any appeal by either Maker or Bank.
With respect to the amounts due pursuant to this Note, Maker waives the
following:
(1) All rights of exemption of property from levy or sale under execution
or other process for the collection of debts under the Constitution or laws
of the United States or any state thereof;
3
<PAGE>
(2) Demand, presentment, protest, notice of dishonor, notice of
nonpayment, suit against any party, diligence in collection, and all other
requirements necessary to enforce this Note; and
(3) Any further receipt by or acknowledgment of any collateral now or
hereafter deposited as security for the obligations hereunder.
In no event shall the amount of interest due or payable hereunder exceed
the maximum rate of interest allowed by applicable law, and in the event such
payment is inadvertently paid by Maker or inadvertently received by Bank, then
such excess sum shall be credited as a payment of principal, unless Maker elects
to have such excess sum refunded to it forthwith. It is the express intent
hereof that Maker not pay and Bank not receive, directly or indirectly, interest
in excess of that which may be legally paid by Maker under applicable law. Bank
shall not by any act, delay, omission, or otherwise be deemed to have waived any
of its rights or remedies, and no waiver of any kind shall be valid unless in
writing and signed by Bank. All rights and remedies of Bank under the terms of
this Note and applicable statutes or rules of law shall be cumulative, and may
be exercised successively or concurrently. Maker agrees that there are no
defenses, equities or setoffs with respect to the obligations set forth herein.
The obligations of Maker hereunder shall be binding upon and enforceable against
Maker and its successors and assigns. This Note is being held by the Bank in
the State of Alabama, and shall be governed by, and construed in accordance
with, the laws of the State of Alabama, and Maker hereby consents to the
jurisdiction of the state and federal courts presiding in and over Jefferson
County, Alabama, and agrees that the receipt of this Note by Bank in the State
of Alabama shall constitute sufficient minimum contacts of the Maker with the
State of Alabama. Any provisions of this Note which may be unenforceable or
invalid under any law
4
<PAGE>
shall be ineffective to the extent of such unenforceability or invalidity
without affecting the enforceability or validity of any other provision
hereof.
MAKER HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY ON ANY CLAIM, COUNTERCLAIM,
SETOFF, DEMAND, ACTION OR CAUSE OF ACTION (A) ARISING OUT OF OR IN ANY WAY
PERTAINING OR RELATING TO THIS NOTE, THE LOAN AGREEMENT, THE SECURITY AGREEMENT,
ANY OF THE OTHER LOAN DOCUMENTS, OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT
EXECUTED OR DELIVERED IN CONNECTION WITH THIS NOTE OR (B) IN ANY WAY CONNECTED
WITH OR PERTAINING OR RELATED TO OR INCIDENTAL TO ANY DEALING WITH RESPECT TO
THIS NOTE, THE LOAN AGREEMENT, THE SECURITY AGREEMENT, ANY OF THE OTHER LOAN
DOCUMENTS, OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED
IN CONNECTION THEREWITH OR IN CONNECTION WITH THE TRANSACTIONS RELATED THERETO
OR CONTEMPLATED THEREBY OR THE EXERCISE OF ANY RIGHTS AND REMEDIES THEREUNDER,
IN ALL OF THE FOREGOING CASES WHETHER NOW EXISTING OR HEREAFTER ARISING, AND
WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE. MAKER AGREES THAT BANK MAY
FILE A COPY OF THIS PARAGRAPH WITH ANY COURT AS WRITTEN EVIDENCE OF THE KNOWING,
VOLUNTARY AND BARGAINED AGREEMENT OF MAKER WITH BANK IRREVOCABLY TO WAIVE TRIAL
BY JURY, AND THAT ANY DISPUTE OR CONTROVERSY WHATSOEVER BETWEEN THEM SHALL
INSTEAD BE TRIED IN A COURT OF COMPETENT JURISDICTION BY A JUDGE SITTING WITHOUT
A JURY.
Bank may, at its option, release any collateral given to secure the
indebtedness evidenced hereby, and no such release shall impair the obligations
to Bank of Maker not expressly released by Bank.
All capitalized terms used herein shall be as defined in the Loan Agreement
unless otherwise indicated.
5
<PAGE>
IN WITNESS WHEREOF, the undersigned Maker has caused this instrument to be
executed by its duly authorized officer on the day and year first above written.
MAKER:
KMG-BERNUTH, INC.
By: /s/ Bobby D. Godfrey
-----------------------------------
Its Vice President
STATE OF TEXAS )
COUNTY OF HARRIS )
I, the undersigned, a Notary Public in and for said County in said
State, hereby certify that Bobby D. Godfrey, whose name as Vice President of
KMG-Bernuth, Inc., a Delaware corporation, is signed to the foregoing Term
Note, and who is known to me, acknowledged before me on this day that, being
informed of the contents of said Term Note, he, as such officer and with full
authority, executed the same voluntarily for and as the act of said
corporation.
Given under my hand and official seal, this the 25th day of June, 1998.
/s/ Judith Mallernee
--------------------------------------
Notary Public
(SEAL)
My Commission Expires: 7/11/2001
----------------
6
<PAGE>
GUARANTY OF PAYMENT
THIS AGREEMENT is made as of the 26th day of June, 1998, by KMG
CHEMICALS, INC., a Texas corporation (the "Guarantor"), in favor of
SOUTHTRUST BANK, NATIONAL ASSOCIATION (the "Bank").
R E C I T A L S
KMG-Bernuth, Inc., a Delaware corporation (the "Borrower"), has
requested that the Bank loan to Borrower the sum of Six Million and No/100
Dollars ($6,000,000.00) (the "Loan"), to be evidenced by Borrower's Term Note
of even date herewith (as the same may be amended or modified from time to
time, the "Note") payable by Borrower to Bank, and such other documents and
instruments as are more particularly described in the Note. As a condition
to making the Loan, the Bank has required that the Guarantor guarantee the
Loan and any other obligations of Borrower to the Bank, whether now existing
or hereafter incurred.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing recitals, as an
inducement to the Bank to make the Loan to Borrower, and as security for the
payment of all obligations of Borrower arising out of the Loan and the Note
evidencing the Loan, all renewals and extensions of the Loan, all obligations
of Borrower set forth in the Term Loan Agreement between Borrower and Bank
pursuant to which the Loan is made (as the same may be amended or modified
from time to time, the "Loan Agreement"), the Security Agreement (as defined
in the Loan Agreement), the Purchase Money Security Agreement (as defined in
the Loan Agreement), and any and all other documents and instruments, now
existing or hereafter arising, executed or delivered evidencing, securing or
relating to the Loan (the Note, the Loan Agreement, the Security Agreement,
the Purchase Money Security Agreement, and any and all such other documents
and instruments herein
1
<PAGE>
collectively called the "Loan Documents"), all as the same may at any time be
amended by Borrower and the Bank, the consent of Guarantor to which shall not
be required, and all other obligations now existing and hereafter incurred by
Borrower to the Bank in connection with the Loan and all renewals and
extensions thereof (the Loan and all other indebtedness, liabilities and
obligations secured hereby being hereinafter called "Obligations"), the
Guarantor agrees, covenants and represents as follows:
1. The Guarantor hereby absolutely and unconditionally guarantees to
the Bank the due, regular and punctual payment of the Obligations, including,
without limitation, payment of any sum or sums of money which the Borrower
now owes the Bank or from time to time hereafter shall owe the Bank in
connection with the Loan, whether evidenced by notes or other instruments, or
by open account or otherwise, and whether it represents an original balance,
a balance reduced by part payment, or a deficiency after sale of collateral,
an extension or renewal of an original debt, or otherwise. The Guarantor
hereby further guarantees the due, regular and punctual payment of any other
debt or obligations of any kind or character of the Borrower to the Bank set
forth in the Loan Agreement and each of the other Loan Documents or otherwise
arising in connection with the Loan, and upon failure of the Borrower to
timely do so, the Guarantor guarantees to Bank the payment of all costs and
expenses incurred by Bank in performing such obligations. Further, the
Guarantor guarantees the payment of all costs, attorney fees or expenses
which may be incurred by the Bank by reason of a default of the Borrower
under the Obligations or any other liability of the Borrower to the Bank.
In the event of any default by the Borrower in the payment of the
Obligations, the Guarantor absolutely and unconditionally promises to pay to
the Bank such amounts as are necessary to cure the default, or, at the option
of the
2
<PAGE>
Bank, the Guarantor agrees to pay the entire indebtedness owed the Bank by
the Borrower at the time of default.
This Guaranty is an unconditional guaranty, and the Guarantor agrees
that the Bank, upon the occurrence of an Event of Default by the Borrower
under the Note, the Loan Agreement and/or any one or more of the other Loan
Documents, shall not be required to assert any claim or cause of action
against the Borrower or any other party before asserting any claim or cause
of action against the Guarantor under this Agreement. Furthermore, the
Guarantor agrees that the Bank shall not be required to pursue or foreclose
on any collateral that it may receive from the Borrower, the Guarantor or
others as security for any Obligations before making a claim or asserting a
cause of action against the Guarantor under this Agreement.
The failure of the Bank to perfect any portion of its security interest
in the collateral as set forth in the Loan Documents or any other collateral
now or hereafter securing all or any part of the Obligations, shall not
release the Guarantor from the Guarantor's liabilities and obligations
hereunder.
To the extent permitted by law: notice of acceptance of this Guaranty
and of any default by the Borrower is hereby waived by the Guarantor;
presentment, protest, demand, and notice of protest and demand of any and all
collateral, and of the exercise of possessory remedies or foreclosure on any
and all collateral received by the Bank from the Borrower or the Guarantor
are hereby waived; and all settlements, compromises, compositions, accounts
stated, and agreed balances in good faith between any primary or secondary
obligors on any accounts received as collateral shall be binding upon the
Guarantor.
This Guaranty shall not be affected, modified, or impaired by the
voluntary or involuntary liquidation, dissolution, sale or other disposition
of all or substantially all of the assets, marshalling of assets and
liabilities,
3
<PAGE>
receivership, insolvency, bankruptcy, assignment for the benefit of
creditors, reorganization, arrangements, composition with creditors or
readjustment of, or other similar proceedings affecting the Borrower, the
Guarantor or any other guarantor, or any of the assets belonging to one or
more of them, nor shall this Guaranty be affected, modified or impaired by
the invalidity of the Note, the Loan Agreement, any of the other Loan
Documents or any other document executed by the Borrower or the Guarantor in
connection with the Loan.
Without notice to the Guarantor, without the consent of the Guarantor,
and without affecting or limiting the Guarantor's liability hereunder, the
Bank may:
(a) grant the Borrower extensions of time for payment of the
Obligations or any part thereof;
(b) renew any of the Obligations;
(c) grant the Borrower extensions of time for performance of
agreements or other indulgences;
(d) at any time release any or all of the collateral held by the
Bank as security for the Obligations;
(e) at any time release any other guarantor from such guarantor's
guarantee of any of the Obligations;
(f) compromise, settle, release, or terminate any or all of the
obligations, covenants, or agreements of the Borrower under the Note, the
Loan Agreement, and/or any one or more of the other Loan Documents; and
(g) with Borrower's written consent, modify or amend any
obligation, covenant or agreement of the Borrower set forth in any one or
more of the Note, the Loan Agreement, and/or the other Loan Documents.
This Guaranty may not be terminated by the Guarantor until such time as
all Obligations, including any renewals or extensions thereof, have been paid
and performed in full and such payments and performance of the Obligations
have
4
<PAGE>
become final and are not subject to being refunded as a preference or
fraudulent transfer under the Bankruptcy Code or other applicable law.
2. The Guarantor represents and warrants to the Bank and covenants that
the Guarantor has full power and unrestricted right to enter into this
Agreement, to incur the obligations provided for herein, and to execute and
deliver the same to Bank, and that when executed and delivered, this
Agreement will constitute a valid and legally binding obligation of the
Guarantor, enforceable in accordance with its terms. The Guarantor
acknowledges that the Bank is relying upon the Guarantor's covenants herein
in making the Loan to Borrower, and the Guarantor undertakes to perform the
Guarantor's obligations hereunder promptly and in good faith.
3. The Guarantor confirms and warrants that the Borrower is in sound
financial condition and will perform its obligations in accordance with the
terms of the Note, the Loan Agreement and each of the other Loan Documents.
4. The Guarantor covenants and agrees that so long as the Obligations
are outstanding, the Guarantor will from time to time upon request, furnish
to the Bank such information regarding the business affairs, finances, and
conditions of the Guarantor and the Guarantor's properties in such detail as
the Bank reasonably may request. The Guarantor will furnish to the Bank such
financial statements as shall be required to be furnished by the Guarantor
pursuant to the Loan Agreement.
5. If Borrower is or shall hereafter be indebted to Bank for any
obligations, liability or indebtedness other than the Obligations, and Bank
should collect or receive any payments, funds or distributions which are not
specifically required, by law or agreement, to be applied to the Obligations,
Bank may, in its sole discretion, apply such payments, funds or distributions
to indebtedness of Borrower other than the Obligations.
5
<PAGE>
6. No payment by the Guarantor to the Bank pursuant to the provisions
of this Agreement will entitle the Guarantor (by subrogation to the rights of
the Bank in respect of which such payment is made or otherwise) to any
payment by the Borrower or out of the property of the Borrower, except after
indefeasible payment in full of all amounts and obligations owing to the Bank
by the Borrower and all other guarantors of the obligations of the Borrower
under the Loan Documents.
7. This Agreement shall be binding upon, and inure to the benefit of,
the Guarantor, the Bank and their respective successors and assigns.
8. The validity, interpretation, enforcement and effect of this
Agreement shall be governed by, and construed according to the laws of, the
State of Alabama. The Guarantor consents that any legal action or proceeding
arising hereunder may be brought, at the election of Bank, in the Circuit
Court of Jefferson County, of the State of Alabama, or in the United States
District Court for the Northern District of Alabama, and assents and submits
to the personal jurisdiction of any such courts in any such action or
proceeding.
9. GUARANTOR HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY ON ANY CLAIM,
COUNTERCLAIM, SETOFF, DEMAND, ACTION OR CAUSE OF ACTION ARISING OUT OF OR IN
ANY WAY PERTAINING OR RELATING TO THIS GUARANTY OR ANY OTHER INSTRUMENT,
DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH OR IN
CONNECTION WITH THE TRANSACTIONS RELATED HERETO OR THERETO OR CONTEMPLATED
HEREBY OR THEREBY OR THE EXERCISE OF ANY RIGHTS AND REMEDIES HEREUNDER OR
THEREUNDER, IN ALL OF THE FOREGOING CASES WHETHER NOW EXISTING OR HEREAFTER
ARISING, AND WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE. GUARANTOR
AGREES THAT BANK MAY FILE A COPY OF THIS PARAGRAPH WITH ANY COURT AS WRITTEN
EVIDENCE OF THE KNOWING, VOLUNTARY AND BARGAINED AGREEMENT OF GUARANTOR WITH
BANK IRREVOCABLY TO WAIVE TRIAL BY JURY,
6
<PAGE>
AND THAT ANY DISPUTE OR CONTROVERSY WHATSOEVER BETWEEN THEM SHALL INSTEAD BE
TRIED IN A COURT OF COMPETENT JURISDICTION BY A JUDGE SITTING WITHOUT A JURY.
10. In the event that any provision hereof is deemed to be invalid by
reason of the operation of any law or by reason of the interpretation placed
thereon by any court, this Agreement shall be construed as not containing
such provisions and the invalidity of such provisions shall not affect other
provisions hereof which are otherwise lawful and valid and shall remain in
full force and effect.
11. Any notice or payment required hereunder or by reason of the
application of any law shall be deemed to have been duly given if delivered
in person, mailed by certified or registered mail, postage prepaid, return
receipt requested, or sent by Federal Express or other similar national
overnight courier, to the Guarantor or the Bank, as applicable, at their
respective addresses set forth below, or to such other address as either
party shall designate to the other in a written notice, given as herein
provided:
If to the Guarantor to:
KMG Chemicals, Inc.
10611 Harwin, Suite 402
Houston, Texas 77036
Attention: President
with copy to:
Roger C. Jackson, Esq.
Woods & Jackson
2001 Kirby Drive, Suite 1111
Houston, Texas 77019
If to the Bank to:
SouthTrust Bank, National Association
420 North 20th Street (35203)
P. O. Box 2554
Birmingham, Alabama 35290
Attention: Metropolitan Lending
7
<PAGE>
With copy to:
Timothy D. Davis, Esq.
Gordon, Silberman, Wiggins & Childs, P.C.
1400 SouthTrust Tower
Birmingham, Alabama 35203
All fees or expenses of mail or overnight courier shall be paid by the
sender. Notice shall be deemed received at the earlier of the time actually
received or three (3) days following the time deposited when sent by mail or
overnight courier in the manner aforesaid. Actual receipt of notice shall
not be required to effect notice hereunder. Payment shall be deemed received
only upon the actual receipt thereof.
12. The failure at any time or times hereafter to require strict
performance by the Guarantor of any of the provisions, warranties, terms and
conditions contained herein or in any other agreement, document or instrument
now or hereafter executed by the Guarantor and delivered to the Bank shall
not waive, affect or diminish any right of the Bank hereafter to demand
strict compliance or performance therewith and with respect to any other
provisions, warranties, terms and conditions contained in such agreements,
documents and instruments, and any waiver of any default shall not waive or
affect any other default, whether prior or subsequent thereto and whether of
the same or a different type. None of the warranties, conditions, provisions
and terms contained in this Agreement or in any agreement, document or
instrument now or hereafter executed by the Guarantor and delivered to the
Bank shall be deemed to have been waived by any act or knowledge of the Bank,
its agents, officers or employees, but only by an instrument in writing,
signed by an officer of the Bank, and directed to Guarantor specifying such
waiver.
13. The obligations of the Guarantor under this Agreement
will continue to be effective or be reinstated, as the case might
be, if at any time any payment from the Borrower of any sum due
to the Bank is rescinded or must
8
<PAGE>
otherwise be restored or returned by the Bank on the insolvency, bankruptcy,
dissolution, liquidation or reorganization of the Borrower or as a result of
the appointment of a custodian, conservator, receiver, trustee or other
officer with similar powers with respect to the Borrower or any part of the
Borrower's property or otherwise. If an event permitting the acceleration of
the maturity of the Loan has occurred and is continuing and such acceleration
is at such time prevented by reason of the pendency against the Borrower of a
proceeding under any bankruptcy or insolvency law, the Guarantor agrees that,
for the purposes of this Agreement and the obligations of the Guarantor under
this Agreement, the maturity of the Loan will be deemed to have been
accelerated with the same effect as if the Bank had accelerated the same in
accordance with the terms of the Loan Agreement, the Note, any of the other
Loan Documents or any other document executed in connection with the Loan,
and the Guarantor will immediately pay the unpaid balance of the Loan.
14. If, at any time or times hereafter, the Bank employs counsel to
advise or provide other representation with respect to this Agreement or any
other agreement, document or instrument heretofore, now or hereafter executed
by the Guarantor and delivered to the Bank with respect to the Borrower or
the Obligations, or to commence, defend or intervene, file a petition,
complaint, answer, motion or other pleadings or to take any other action in
or with respect to any suit or proceeding relating to this Agreement or any
other agreement, instrument or document heretofore, now or hereafter executed
by the Guarantor and delivered to the Bank with respect to the Borrower or
the Obligations, or to represent the Bank in any litigation with respect to
the affairs of the Guarantor, or to enforce any rights of the Bank or
obligations of the Guarantor or any other person, firm or corporation which
may be obligated to the Bank by virtue of this Agreement or any other
agreement, document or instrument
9
<PAGE>
heretofore, now or hereafter delivered to the Bank by or for the benefit of
the Guarantor with respect to the Borrower or the Obligations, or to collect
from Guarantor any amounts owing hereunder, then in any such event, all of
the attorneys' fees incurred by the Bank arising from such services and any
expenses, costs and charges relating thereto shall constitute additional
obligations of the Guarantor payable on demand. The Guarantor does hereby
waive any rights of exemption of property from levy or sale under execution
or other process for the collection of debts under the Constitution or laws
of the United States or any state thereof as to any of the obligations
created hereunder.
15. This Agreement constitutes the entire agreement and supersedes all
prior agreements and understandings, both oral and written, between the
Guarantor and the Bank with respect to the subject matter hereof.
IN WITNESS WHEREOF, the Guarantor has caused this instrument to be
executed by its duly authorized officer as of the day and year first above
written.
KMG CHEMICALS, INC.
By: /s/ Bobby D. Godfrey
--------------------------------
Its: Vice President
--------------------------------
STATE OF TEXAS
----------
COUNTY OF HARRIS
----------
I, the undersigned, a Notary Public in and for said County in said
State, hereby certify that BOBBY D. GODFREY, whose name as VICE PRESIDENT of
KMG Chemicals, Inc., a Texas corporation, is signed to the foregoing
instrument, and who is known to me, acknowledged before me on this day that,
being informed of the contents of said instrument, he, as such officer and
with full authority, executed the same voluntarily for and as the act of said
corporation.
Given under my hand and official seal, this the 25TH day of JUNE, 1998.
/s/ Judith Mallernee
--------------------------------------
(SEAL) Notary Public
My Commission Expires: 7/11/2001
---------------
10
<PAGE>
FOURTH AMENDMENT
TO REVOLVING LOAN AGREEMENT
THIS FOURTH AMENDMENT TO REVOLVING LOAN AGREEMENT (the "Fourth
Amendment"), dated effective as of the 26th day of June, 1998, is made by and
between KMG-BERNUTH, INC., a Delaware corporation (the "Borrower"), and
SOUTHTRUST BANK, NATIONAL ASSOCIATION, formerly known as SouthTrust Bank of
Alabama, National Association (the "Bank").
W I T N E S S E T H:
WHEREAS, the Borrower and the Bank entered into a Revolving Loan
Agreement dated August 1, 1996 (the "Loan Agreement"); and
WHEREAS, pursuant to that certain First Amendment to Revolving Loan
Agreement dated effective as of December 31, 1996 (the "First Amendment"),
the Bank and Borrower amended the Loan Agreement to extend the Revolving Loan
Termination Date until November 30, 1998; and
WHEREAS, pursuant to that certain Second Amendment to Revolving Loan
Agreement dated effective as of September 1, 1997 (the "Second Amendment"),
the Bank and Borrower further amended the Loan Agreement to extend the
Revolving Loan Termination Date until January 15, 1999; and
WHEREAS, pursuant to that certain Third Amendment to Revolving Loan
Agreement dated effective as of December 31, 1997 (the "Third Amendment")
(the Loan Agreement as amended by the First Amendment, the Second Amendment
and the Third Amendment being hereinafter referred to as the "Loan Agreement
As Amended"), the Bank and Borrower further amended the Loan Agreement to,
among other things, extend the Revolving Loan Termination Date until January
15, 2000, and to acknowledge the Bank's release of the Guaranty (except as
otherwise herein specifically provided, all capitalized terms used but not
otherwise defined herein shall have the respective meanings ascribed to them
in the Loan Agreement As Amended), all as more specifically hereinafter set
forth.
WHEREAS, the Borrower desires, and the Bank has agreed, to further
modify the Loan Agreement As Amended in order to amend certain financial
covenants contained in the Loan Agreement As Amended, all as more
specifically hereinafter set forth.
1
<PAGE>
NOW, THEREFORE, the Borrower and the Bank hereby modify the Loan
Agreement As Amended as follows:
1. Section 6.1(F) of the Loan Agreement As Amended is hereby deleted
in its entirety and the following new Section 6.1(F) substituted in lieu
thereof:
(F) The Borrower will maintain during the term of this Agreement:
(1) Tangible Net Worth of, at minimum, Two Million
Five Hundred Thousand and No/100 Dollars
($2,500,000.00) as of July 31, 1999, and until July 30,
2000, and Five Million and No/100 Dollars
($5,000,000.00) as of July 31, 2000, and at all times
thereafter.
(2) A Fixed Charge Coverage of not less than 1.25 to
1.0 at the end of each fiscal year commencing July 31,
1999.
(3) A ratio of Liabilities to Tangible Net Worth of
not more than 3.50 to 1.0 as of July 31, 1999, and
until July 30, 2000, and 2.0 to 1.0 as of July 31,
2000, and at all times thereafter.
(4) A Borrowing Base such that the balance of the
Borrower's outstanding Revolving Loan will not, at any
time, exceed its Borrowing Base.
2. Borrower represents and warrants to the Bank that all
representations and warranties given by Borrower in Article V of the Loan
Agreement As Amended are true and correct as of the date hereof, except to
the extent affected by this Fourth Amendment. Borrower represents and
warrants to the Bank that Borrower is in full compliance with all of the
covenants of Borrower contained in Article VI of the Loan Agreement As
Amended, except to the extent affected by this Fourth Amendment. Borrower
agrees to pay directly, or reimburse the Bank for, all reasonable expenses,
including the reasonable fees and expenses of legal counsel, incurred in
connection with the preparation of the documentation to evidence this Fourth
Amendment and any other documents executed in furtherance hereof.
3. Except as heretofore or herein expressly modified, or as may
otherwise be inconsistent with the terms of this Fourth Amendment (in which
case the terms and conditions of this Fourth Amendment shall govern), all
terms of the Loan Agreement As Amended shall be and remain in full force and
effect, and the same are hereby ratified and confirmed in all respects.
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Fourth
Amendment effective as of the date first above written.
WITNESSES: SOUTHTRUST BANK, NATIONAL ASSOCIATION
/s/ Cynthia S. Bailey By: /s/ Alan T. Drennan
- ------------------------------ ---------------------------------
Its: Group Vice President
--------------------------------
KMG-BERNUTH, INC.
/s/ Judith Mallernee By: /s/ Bobby D. Godfrey
- ------------------------------ ---------------------------------
Its: Vice President
--------------------------------
3
