UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________TO _________
COMMISSION FILE NUMBER: 000-23231
------------------------
INNOVATIVE VALVE TECHNOLOGIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 76-0530346
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
2 NORTHPOINT DRIVE, SUITE 300 77060
HOUSTON, TEXAS (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (281) 925-0300
------------------------
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
The number of shares of Common Stock of the Registrant, par value $.001 per
share, outstanding at August 14, 1998 was 9,664,562.
<PAGE>
INNOVATIVE VALVE TECHNOLOGIES, INC.
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1998
INDEX
PAGE
----
Part I -- Financial Information ........................................... 2
Item 1 -- Financial Statements ........................................... 2
General Information ..................................................... 2
Unaudited Pro Forma Combined Statements of Operations
for the ................................................................... 3
Three Months and Six Months Ended June 30, 1997 and 1998
Note to Unaudited Pro Forma Combined Statements of ...................... 4
Operations
Consolidated Balance Sheets as of December 31, 1997 and
June 30, 1998 (Unaudited) ............................................. 6
Consolidated Statements of Operations for the Three Months
and Six Months ended June 30, 1997 and 1998 (Unaudited) ............... 7
Consolidated Statements of Cash Flows for the Six Months
ended June 30, 1997 and 1998 (Unaudited) .............................. 8
Notes to Consolidated Financial Statements (Unaudited) .................. 9
Item 2 -- Management's Discussion and Analysis of
Financial ................................................................. 13
Condition and Results of Operations
Part II -- Other Information ............................................. 17
Item 4 -- Submission of Matters to a Vote of Security Holders ............ 17
Item 6 -- Exhibits and Reports on Form 8-K ............................... 19
1
<PAGE>
INNOVATIVE VALVE TECHNOLOGIES, INC.
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
GENERAL INFORMATION
Introduction to Pro Forma Combined Statements of Operations.
Innovative Valve Technologies, Inc. ("Invatec" or the "Company") was
incorporated in Delaware in March 1997 to create the leading single-source
provider of comprehensive maintenance, repair, replacement and value-added
distribution services for industrial valves and related process-system
components throughout North America. Except for its purchase of an established
business in July 1997, Invatec conducted no operations of its own prior to the
closing on October 28, 1997 of (i) its initial public offering (the "IPO") of
its common stock ("Common Stock"), (ii) its purchase of two established
businesses and (iii) a merger (the "SSI Merger") in which The Safe Seal Company,
Inc. ("SSI") became its subsidiary (Invatec, SSI and all businesses acquired
through the closing of the IPO are collectively referred to herein as the
"Founding Companies"). Earlier in 1997, SSI had purchased three established
businesses. SSI and its subsidiaries were affiliates of Invatec prior to the SSI
Merger.
Following the IPO, the Company acquired additional businesses in 1997 and
the first half of 1998 (these businesses, together with the businesses acquired
through the closing of the IPO, are referred to herein as the "Acquired
Businesses"). The Company accounted for the acquisitions of the Acquired
Businesses in accordance with the purchase method of accounting.
The accompanying unaudited pro forma combined statements of operations of
the Company for the three and six months ended June 30, 1997 and 1998,
respectively, include the combined operations of the Founding Companies from
January 1, 1997 and the other Acquired Businesses from their respective dates of
acquisition.
2
<PAGE>
INNOVATIVE VALVE TECHNOLOGIES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
These unaudited pro forma combined financial statements should be read in
conjunction with the unaudited interim historical consolidated financial
statements of the Company elsewhere in this report.
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
--------------------- ---------------------
1997 1998 1997 1998
Pro forma Pro forma
-------- -------- -------- --------
REVENUES ....................... $ 24,394 $ 40,367 $ 46,701 $ 73,871
COST OF OPERATIONS ............. 16,210 27,308 32,191 49,856
-------- -------- -------- --------
Gross profit .............. 8,184 13,059 14,510 24,015
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES ........ 6,229 11,423 11,707 19,482
-------- -------- -------- --------
Income from operations .... 1,955 1,636 2,803 4,533
OTHER INCOME (EXPENSE):
Interest, net ............. (83) (1,423) (166) (2,132)
Other ..................... (4) 87 4 99
-------- -------- -------- --------
Total other ............... (87) (1,336) (162) (2,033)
INCOME BEFORE INCOME TAXES ..... 1,868 300 2,641 2,500
PROVISION FOR INCOME TAXES ..... 883 129 1,215 1,075
-------- -------- -------- --------
NET INCOME ..................... $ 985 $ 171 $ 1,426 $ 1,425
======== ======== ======== ========
EARNINGS PER SHARE - BASIC ..... $ 0.13 $ 0.02 $ 0.18 $ 0.17
======== ======== ======== ========
EARNINGS PER SHARE - DILUTED ... $ 0.12 $ 0.02 $ 0.18 $ 0.17
======== ======== ======== ========
WEIGHTED AVERAGE SHARES
OUTSTANDING - BASIC .......... 7,822 8,716 7,822 8,375
======== ======== ======== ========
WEIGHTED AVERAGE SHARES
OUTSTANDING - DILUTED ........ 8,093 8,845 7,898 8,586
======== ======== ======== ========
The accompanying note is an integral part of these unaudited pro forma combined
financial statements.
3
<PAGE>
NOTE TO UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS:
The unaudited pro forma combined statements of operations include the
Company's historical consolidated information for the three months and six
months ended June 30, 1998 and present the historical consolidated information
for the corresponding periods in 1997 (with SSI as the "accounting acquirer"),
as adjusted to give effect to the following 1997 events and transactions as if
they had occurred on January 1, 1997: (i) the SSI Merger; (ii) the acquisitions
of the Founding Companies and the financings thereof; (iii) certain reverse
stock splits of outstanding stock; (iv) the IPO and the Company's application of
the net proceeds therefrom; and (v) the issuance of shares of Common Stock to
repay certain of the Company's indebtedness. The unaudited pro forma combined
statements convert the results of operations of the Acquired Businesses whose
historical fiscal periods were not on a calendar-year basis to a calendar-year
basis and include pro forma adjustments consisting principally of the following:
(i) the adjustments to selling, general and administrative expenses described
below; (ii) adjustments for the effects of recording inventories on a first-in,
first-out rather than on a last-in, first-out basis;(iii) adjustments for pro
forma goodwill amortization using a 40-year estimated life; (iv) eliminations of
historical interest expense resulting from the application of proceeds from the
IPO and the use of Common Stock to retire outstanding indebtedness; and (v)
adjustments to federal and state income tax provisions.
The unaudited pro forma combined statements of operations include pro forma
adjustments to selling, general and administrative expenses to reflect: (i)the
decrease in salaries and benefits associated with certain owners and managers of
the Acquired Businesses who (a) were not employed by the Company after the
acquisition of their Acquired Business and will not be replaced, or (b) agreed
prospectively to the decrease prior to the acquisition of their Acquired
Business; (ii) the elimination of certain excess administrative support service
fees charged by the former parent company of one of the Acquired Businesses; and
(iii) the reversal of the special non-cash, non-recurring compensation expense
attributable to stock awards made by SSI and Common Stock sales and option
awards made by Invatec.
The integration of the Acquired Businesses may present opportunities to
reduce other costs through the elimination of duplicative functions and
operating locations and the development of economies of scale. The Company
cannot currently quantify these anticipated savings and expects these savings
will be partially offset by incremental costs that the Company expects to incur,
but also cannot currently quantify accurately. The unaudited pro forma combined
financial information herein reflects neither unquantifiable expected savings
nor unquantifiable expected incremental costs. The pro forma adjustments are
based on preliminary estimates, available information and certain assumptions
that management deems appropriate.
The provision for income taxes included in the unaudited pro forma combined
statement of operations for the three and six months ended June 30, 1997 is an
estimate of the federal and state income taxes that would have been applicable
to the Company had it acquired all the Founding Companies on January 1, 1997.
The tax rates indicated by this provision differ from statutory federal and
state rates primarily because a portion of the goodwill amortization arising
from the acquisitions is not deductible for tax purposes.
The computation of pro forma earnings per share for the three and six
months ended June 30, 1997 is based on 8,092,849 and 7,897,871 weighted average
shares outstanding common and common equivalent shares, respectively, which
include (i) 7,821,732 shares issued and outstanding for the entire three-month
and six-month periods, (ii) 76,139 shares representing the dilution
4
<PAGE>
attributable to outstanding options to purchase the Company's Common Stock,
using the treasury stock method, and (iii) 194,978 shares representing the
dilution attributable to convertible subordinated notes using the if-converted
method for the three months ended June 30, 1997.
The unaudited pro forma combined financial information may not be
comparable to and may not be indicative of the Company's future results of
operations because SSI and the Acquired Businesses were not under common control
or management throughout the periods presented.
5
<PAGE>
INNOVATIVE VALVE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, JUNE 30,
1997 1998
------------- -------------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash ....................................... $ 2,544,450 $ 116,457
Accounts receivable, net of
allowance of $1,079,857 and $1,570,586... 17,680,697 31,372,129
Inventories, net ......................... 15,987,765 22,181,213
Prepaid expenses and other
current assets........................... 1,171,090 2,082,677
Deferred tax asset ....................... 3,723,448 3,808,947
------------- -------------
Total current assets ................ 41,107,450 59,561,423
PROPERTY AND EQUIPMENT, net ................ 11,474,701 17,883,492
GOODWILL, net .............................. 48,387,981 88,575,446
OTHER NONCURRENT ASSETS, net ............... 4,462,551 4,819,976
------------- -------------
TOTAL ASSETS ........................ $ 105,432,683 $ 170,840,337
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term debt .......................... $ 4,660,924 $ --
Current maturities of long-term debt...... 304,310 128,191
Credit Facility .......................... -- 56,077,800
Accounts payable and accrued expenses..... 14,910,638 21,582,883
------------- -------------
Total current liabilities ........... 19,875,872 77,788,874
LONG-TERM DEBT, net ........................ 318,911 1,070,873
CREDIT FACILITY ............................ 11,750,000 --
CONVERTIBLE SUBORDINATED DEBT .............. 12,493,178 12,916,927
OTHER LONG-TERM OBLIGATIONS ................ 1,125,417 1,500,764
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $0.001 par value,
30,000,000 shares authorized,
7,890,198 and 9,223,542 shares
issued and outstanding............... 7,890 9,223
Additional paid-in capital ............ 70,212,035 86,479,043
Retained deficit ...................... (10,350,620) (8,925,367)
------------- -------------
Total stockholders' equity ......... 59,869,305 77,562,899
------------- -------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY............... $ 105,432,683 $ 170,840,337
============= =============
The accompanying notes are an integral part of these consolidated financial
statements.
6
<PAGE>
INNOVATIVE VALVE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
---------------------------- ----------------------------
1997 1998 1997 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUES .................................... $ 12,814,638 $ 40,367,440 $ 19,759,635 $ 73,871,478
COST OF OPERATIONS .......................... 8,743,747 27,307,900 13,494,613 49,856,116
------------ ------------ ------------ ------------
Gross profit .............................. 4,070,891 13,059,540 6,265,022 24,015,362
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES ................... 2,965,967 11,423,158 4,917,324 19,481,930
SPECIAL COMPENSATION EXPENSE ................ -- -- 2,605,005 --
------------ ------------ ------------ ------------
Income (loss) from operations ............. 1,104,924 1,636,382 (1,257,307) 4,533,432
OTHER INCOME (EXPENSE):
Interest expense, net ..................... (655,412) (1,423,652) (998,111) (2,132,454)
Other ..................................... 2,281 87,172 2,243 99,468
------------ ------------ ------------ ------------
Total Other ............................... (653,131) (1,336,480) (995,868) (2,032,986)
INCOME (LOSS) BEFORE INCOME TAXES ........... 451,793 299,902 (2,253,175) 2,500,446
PROVISION (BENEFIT) FOR INCOME TAXES ........ 274,321 128,958 (275,095) 1,075,191
------------ ------------ ------------ ------------
NET INCOME (LOSS) ........................... $ 177,472 $ 170,944 $ (1,978,080) $ 1,425,255
============ ============ ============ ============
NET INCOME (LOSS) BEFORE
DIVIDENDS APPLICABLE TO PREFERRED STOCK ..... $ 177,472 $ 170,944 $ (1,978,080) $ 1,425,255
PREFERRED STOCK DIVIDENDS ................... -- -- (47,500) --
------------ ------------ ------------ ------------
NET INCOME (LOSS) APPLICABLE TO COMMON SHARES $ 177,472 $ 170,944 $ (2,025,580) $ 1,425,255
============ ============ ============ ============
EARNINGS (LOSS) PER SHARE - BASIC ........... $ 0.07 $ 0.02 $ (0.90) $ 0.17
============ ============ ============ ============
EARNINGS (LOSS)PER SHARE - DILUTED .......... $ 0.07 $ 0.02 $ (0.90) $ 0.17
============ ============ ============ ============
WEIGHTED AVERAGE SHARES
OUTSTANDING - BASIC ....................... 2,419,338 8,716,415 2,241,564 8,374,666
============ ============ ============ ============
WEIGHTED AVERAGE SHARES
OUTSTANDING - DILUTED ..................... 2,419,338 8,845,210 2,241,564 8,586,051
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
7
<PAGE>
INNOVATIVE VALVE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30
----------------------------
1997 1998
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ............................... $ (1,978,080) $ 1,425,255
Adjustments to reconcile net income
(loss) to net cash used in
operating activities -
Depreciation and amortization ................... 469,200 1,889,479
Special compensation expense .................... 2,605,005 --
Gain on sale of property and equipment .......... -- (3,195)
Deferred taxes .................................. -- (30,955)
(Increase) decrease in -
Accounts receivable ........................... (1,741,839) (7,164,853)
Inventories ................................... (761,987) (2,008,946)
Prepaid expenses and other
current assets ............................. 1,186,376 (1,357,280)
Other noncurrent assets ....................... (2,667,005) (221,964)
Increase (decrease) in -
Accounts payable and accrued
expenses ................................ 3,458,788 (738,928)
Payable to Innovative Valve
Technologies, Inc. ......................... (1,453,897) --
------------ ------------
Net cash used in operating
Activities .............................. (883,439) (8,211,387)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of equipment ................. -- 100,515
Additions to property and
equipment .................................... (275,161) (2,124,341)
Business acquisitions, net of cash
acquired of $135,109 and $335,519............. (19,109,479) (32,122,864)
------------ ------------
Net cash used in investing activities ...... (19,384,640) (34,146,690)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings of long-term debt .................... 19,598,566 350,182
Repayments of long-term debt .................... (505,187) (199,157)
Repayments of short-term debt ................... -- (4,660,924)
Net borrowings under Credit Facility ............ -- 44,327,800
Payments on noncompete obligations .............. -- (96,318)
Proceeds from exercise of stock
options ...................................... -- 208,501
Proceeds from exercise of common
stock warrant ................................ 1,216,855 --
Preferred stock dividends ....................... (47,500) --
------------ ------------
Net cash provided by
financing activities .................... 20,262,734 39,930,084
NET DECREASE IN CASH ................................. (5,345) (2,427,993)
CASH, beginning of period ............................ 396,637 2,544,450
------------ ------------
CASH, end of period .................................. $ 391,292 $ 116,457
============ ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest .......................... $ 415,975 $ 1,874,374
Cash paid for income taxes ...................... $ -- $ 1,679,152
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
8
<PAGE>
INNOVATIVE VALVE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION:
Innovative Valve Technologies, Inc. ("Invatec") was incorporated in
Delaware in March 1997 to create the leading single-source provider of
comprehensive maintenance, repair, replacement and value-added distribution
services for industrial valves and related process-system components throughout
North America. Except for its purchase of an established business in July 1997,
Invatec conducted no operations of its own prior to the closing on October 28,
1997 of (i) its initial public offering (the "IPO") of its common stock ("Common
Stock"), (ii) its purchase of two established businesses and (iii) a merger (the
"SSI Merger") in which The Safe Seal Company, Inc. ("SSI") became its
subsidiary. Earlier in 1997, SSI had purchased three established businesses. SSI
and its subsidiaries were affiliates of Invatec prior to the SSI Merger.
For financial reporting purposes, SSI is presented as the "accounting
acquirer" of the seven businesses it and Invatec purchased through the IPO
closing date(collectively, the "Initial Acquired Businesses"), and, as used
herein, the term "Company" means (i) SSI and its consolidated subsidiaries prior
to October 31, 1997 and (ii)Invatec and its consolidated subsidiaries (including
SSI) on that date and thereafter.
Following the IPO, the Company purchased four businesses in the fourth
quarter of 1997, three businesses in the first quarter of 1998 and two in the
second quarter of 1998 (these businesses, together with the Initial Acquired
Businesses, are referred to herein as the "Acquired Businesses"). The Company is
accounting for the acquisitions of the Acquired Businesses in accordance with
the purchase method of accounting. The allocation of the purchase prices paid to
the assets acquired and the liabilities assumed in the acquisitions of the
Acquired Businesses has been recorded initially on the basis of preliminary
estimates of fair value and may be revised as additional information concerning
the valuation of those assets and liabilities becomes available. The
accompanying historical consolidated financial statements of operations present
historical information of the Company which gives effect to the acquisitions as
of their respective acquisition dates.
The consolidated financial statements herein have been prepared by the
Company without audit, pursuant to rules and regulations of the Securities and
Exchange Commission which permit certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles to be condensed or omitted. The Company believes
the presentation and disclosures herein are adequate to make the information not
materially misleading, and the financial statements reflect all elimination
entries and normal adjustments that are necessary for a fair presentation of the
results for the interim periods ended June 30, 1997 and 1998.
Operating results for interim periods are not necessarily indicative of the
results for full years. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Fluctuations in Operating Results" in
Item 2 of this Part I. Invatec's Annual Report on Form 10-K for the year ended
December 31, 1997, as amended (the "1997 10-K Report"), includes the Company's
consolidated financial statements and related notes for 1997.
9
<PAGE>
INNOVATIVE VALVE TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
2. NEW ACCOUNTING PRONOUNCEMENT:
Statement of Financial Accounting Standards ("SFAS") No. 130,
"Reporting
Comprehensive Income" requires the presentation of comprehensive income in an
entity's financial statements. Comprehensive income represents all changes in
equity of an entity during the reporting period, including net income and
charges directly to equity which are excluded from net income (such as
additional minimum pension liability changes, currency translation adjustments
and unrealized gains and losses on available for sale securities). The Company
adopted this standard effective January 1, 1998. The adoption of SFAS No. 130
did not have a material impact on the Company's consolidated financial
statements. For the three- and six-month periods ended June 30, 1998, there were
no material items of comprehensive income other than net income.
3. CREDIT FACILITY:
The Company has a revolving credit facility (the "Credit Facility") of up to
$90 million (as amended). Currently, the Company may use borrowings under the
Credit Facility only for working capital purposes. Invatec's present and future
subsidiaries will guarantee the repayment of all amounts due under the facility,
and the facility is secured by the capital stock of those subsidiaries and the
Company's accounts receivable and inventories. The Credit Facility prohibits the
payment of cash dividends by Invatec, restricts the ability of the Company to
incur other indebtedness and requires the Company to comply with certain
financial covenants. It is scheduled to mature in June 2001.
As of August 14, 1998, the Company was not in compliance with certain of its
loan covenants under the Credit Facility. The Company has therefore classified
amounts due under the Credit Facility as of June 30, 1998, as a current
liability. The Company has obtained a waiver of the covenant violations for 30
days (terminating August 21, 1998) and is in the process of negotiating an
amendment to the Credit Facility to address future compliance with these
covenants. At August 14, 1998, approximately $65.9 million of borrowings were
outstanding under the Credit Facility.
Management believes that the Credit Facility will be amended within the
next 60 days to bring the Company in compliance with the amended covenants.
Management further believes that in the event that an amendment is not in place
at the time the current waiver expires, additional waivers or extensions will be
granted. However, there can be no assurance that such waivers or extensions will
be obtained. In the event that the terms of the Credit Facility are not amended
so that the Company is in compliance with that agreement, the Company would need
to seek additional debt or equity financings to repay the amounts due under the
Credit Facility.
4. INCOME TAXES:
Certain of the Acquired Businesses were subject to the provisions of
subchapter S of the Internal Revenue Code prior to their acquisition by the
Company. Under these provisions, their former stockholders paid income taxes on
their proportionate share of the earnings of these businesses. Because the
stockholders were taxed directly, their businesses paid no federal income tax
and only certain state income taxes.
The Company files a consolidated federal income tax return that includes the
operations of the Acquired Businesses for periods subsequent to their respective
acquisition dates.
The provision for income taxes included in the unaudited consolidated
statement of operations for the three and six months ended June 30, 1997 differs
from statutory federal and state rates primarily because of the partial
recognition of certain net operating loss benefits carried forward by SSI.
10
<PAGE>
INNOVATIVE VALVE TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
5. EARNINGS (LOSS) PER SHARE:
The computation of earnings (loss) per share of common stock for the
interim periods is presented in accordance with SFAS No. 128, "Earnings Per
Share," based on the following shares of Common Stock outstanding:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
--------------------- ---------------------
1997 1998 1997 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Issued and outstanding at January 1 . 1,481,919 7,890,198 1,481,919 7,890,198
Issued to acquire a business in the
first quarter of 1998 (weighted) . -- 807,828 -- 473,093
Issued for stock options exercised
and warrants exercised ........... 937,419 18,389 759,645 11,375
--------- --------- --------- ---------
Weighted average shares
outstanding - Basic ............... 2,419,338 8,716,415 2,241,564 8,374,666
Dilutive effect of shares issuable
on exercise of stock options .... -- 128,795 -- 211,385
--------- --------- --------- ---------
Weighted average shares
outstanding - Diluted ............. 2,419,338 8,845,210 2,241,564 8,586,051
========= ========= ========= =========
</TABLE>
6. ACQUISITIONS:
During the quarter ended June 30, 1998, the Company acquired two businesses
for $2.4 million in cash and assumed debt and 500,024 shares of Common Stock. Of
the total purchase price paid for these acquisitions, $1.1 million has been
allocated to the net assets acquired and the remaining $5.7 million has been
recorded as goodwill. These acquisitions were accounted for as purchases and the
accompanying balance sheet as of June 30, 1998 includes preliminary allocations
of the respective purchase prices which are subject to final adjustment.
For one business acquired during the quarter ended June 30, 1998, the
Company guaranteed a Common Stock price target to the sellers at specified
future dates. If the guaranteed price target is not met or exceeded, the Company
is required, at the option of the Company, to either issue additional shares of
Common Stock or pay additional funds to the sellers for the difference between
the price at the acquisition date and the guaranteed price target. Using the
Common Stock price at August 13, 1998 ($3.625), the total additional
consideration would be $1,000,048. The net present value of the price guarantee
is reflected in the accompanying balance sheet at June 30, 1998. This guarantee
is subject to adjustment within the next twelve months.
The following table reflects, on an unaudited pro forma basis, certain
results of the combined operations of the Company as if the IPO, the SSI Merger,
the Company's acquisitions of Acquired Businesses in 1997 and the
11
<PAGE>
INNOVATIVE VALVE TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
first and second quarters of 1998 and certain other events and transactions
discussed in Note 1 had taken place on January 1, 1997. These pro forma results
have been prepared for comparative purposes only and do not purport to be
indicative of the results of operations the Company would have obtained had the
acquisitions taken effect on January 1, 1997, has obtained since the dates of
acquisition or may obtain in the future.
June 30
-----------------------
1997 1998
------- ------
(Unaudited and in thousands,
except per share data)
Revenues ...................................... $74,592 $82,321
Income before income taxes .................... 3,531 2,694
Net income .................................... 2,013 1,536
Earnings per share - basic .................... $ 0.22 $ 0.17
Earnings per share - diluted .................. $ 0.22 $ 0.16
7. SUBSEQUENT EVENTS:
In July 1998, the Company acquired four additional businesses providing
services in the industrial valve services industry for total consideration
(subject to certain adjustments) consisting of approximately $5.9 million in
cash and assumed debt and 441,020 shares of Common Stock. The Company used
borrowings under the Credit Facility to fund the cash portions of the purchase
prices.
For one of the businesses acquired in July 1998, the Company guaranteed to the
sellers a Common Stock price target at a specified future date. If the
guaranteed price target is not met or exceeded, the Company is required to issue
additional shares of Common Stock and pay additional funds to the sellers for
the difference between the price at the acquisition date and the guaranteed
price target. Using the Common Stock price at August 13, 1998 ($3.625), the
total additional consideration to the sellers on the specified future date would
be $483,660 and 168,230 additional shares of Common Stock. This guarantee is
subject to adjustment within the next twelve months.
12
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following discussion should be read in conjunction with the historical
consolidated and unaudited pro forma combined financial statements and the notes
thereto which are included in Item 1 of this Part I. This report contains
"forward-looking" statements that involve a number of risks, uncertainties and
assumptions. No assurance can be given that actual results will not differ
materially from these statements as a result of various factors. See "Factors
That May Affect Future Results" in Item 1 of the Company's Annual Report on Form
10-K/A for the year ended December 31, 1997.
OVERVIEW
The Company derives its revenues principally from (i) sales of industrial
valves and related process-system components to its process-industry customers
and commissions paid by the manufacturers of these products in connection with
the Company's direct sales of these products and (ii) performance of
comprehensive, maintenance, repair, services of industrial valves and related
process-system components for its customers. Cost of operations consists
principally of direct costs of valves and components sold, coupled with labor
and overhead costs connected with the performance of repair services. Selling,
general and administrative expenses consist principally of compensation and
benefits payable to owners and to sales, management and administrative
personnel, insurance, depreciation and amortization and other related expenses.
RESULTS OF OPERATIONS -- PRO FORMA COMBINED (Unaudited)
The unaudited pro forma combined results of operations for the interim
periods presented below do not purport to be comparable to and may not be
indicative of the Company's post-combination results of operations because (i)
SSI and the Acquired Businesses were not under common control or management
throughout the periods presented and (ii) the Company established a new basis of
accounting to record the purchase of the Acquired Businesses under the purchase
method of accounting. See Note 1 in Item 1 of this Part I.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
------------------------------------ -----------------------------------
1997 1998 1997 1998
----------------------------------- -----------------------------------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues ................ $ 24,394 100% $ 40,367 100% $ 46,701 100% $ 73,871 100%
Cost of operations ...... 16,210 66 27,308 68 32,191 69 49,856 68
-------- --- -------- ---- -------- --- -------- ----
Gross profit ............ 8,184 34 13,059 32 14,510 31 24,015 32
Selling, general and
administrative expenses 6,229 26 11,423 28 11,707 25 19,482 26
-------- --- -------- ---- -------- --- -------- ----
Income from operations .. 1,955 8 1,636 4 2,803 6 4,533 6
Interest expense, net ... (83) -- (1,423) (3) (166) -- (2,132) (3)
Other income (expense) .. (4) -- 87 -- 4 -- 99 --
-------- --- -------- ---- -------- --- -------- ----
Income from operations
before Income taxes .... $ 1,868 8% $ 300 1% $ 2,641 6% $ 2,500 3%
======== === ======== ==== ======== === ======== ====
</TABLE>
13
<PAGE>
THREE MONTHS ENDED JUNE 30
REVENUES -- Revenues increased $16.0 million, or 66%, from $24.4 million in
the three months ended June 30, 1997 to $40.4 million in the corresponding
period in 1998. Approximately $16.4 million of this increase primarily resulted
from the inclusion in the 1998 period of the results of the businesses acquired
during the fourth quarter of 1997 and the first quarter of 1998 ("the
Acquisitions") offset slightly by a decrease in revenues at three of the
Founding Companies. This decrease is primarily the result of cost deferral
programs implemented by the companies' customers in response to a downturn in
the industries they serve.
GROSS PROFIT -- Gross profit increased $4.9 million, or 60%, from $8.2
million in the three months ended June 30, 1997 to $13.1 million in the
corresponding period in 1998, primarily as a result of the incremental gross
margins generated in the 1998 period by the Acquisitions. As a percentage of
revenues, gross profit decreased to 32% in the three months ended June 30, 1998
from 34% in the same period in 1997. The decrease in gross profit percentage
primarily resulted from certain relatively larger service jobs at two Acquired
Businesses being competitively bid, resulting in lower than normal gross
margins.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES -- Selling, general and
administrative expenses increased $ 5.2 million, or 83%, from $6.2 million in
the three months ended June 30, 1997 to $11.4 million in the corresponding
period in 1998, primarily as a result of the incremental selling, general and
administrative expenses in the 1998 period of the Acquisitions. As a percentage
of revenues, selling, general and administrative expenses increased from 26% in
the second quarter of 1997 to 28% in the second quarter of 1998. For the
Founding Companies, as a percentage of revenues, these expenses were 24% in the
second quarter of 1998, down from 26% in the same period in 1997. These expenses
for the Acquisitions were approximately 33% of revenues. This spending level, in
actual dollars, for the acquisition is in line with historical spending levels.
However, these expenses for the Acquisitions as a percentage of revenues are
higher in the quarter ended June 30, 1998, as compared with the same period in
1997 as a result of lower revenue volumes in the 1998 period.
INTEREST EXPENSE, NET -- Interest expense increased $1.3 million, or
1,614%, from $0.1 million in the second quarter of 1997 to $1.4 million in the
second quarter of 1998. This increase is primarily the result of borrowings
under the Company's Credit Facility to fund the cash portion of the purchase
prices paid for the Acquisitions.
SIX MONTHS ENDED JUNE 30
REVENUES -- Revenues increased $27.2 million, or 58%, from $46.7 million in
the six months ended June 30, 1997, to $73.9 million in the corresponding period
in 1998. Approximately $25.7 million of this increase resulted from the
inclusion in the 1998 period of the results of the Acquisitions. The remaining
increase of approximately $1.5 million was attributable to internal growth
primarily in the first quarter of 1998.
GROSS PROFIT -- Gross profit increased $9.5 million, or 66%, from $14.5
million in the six months ended June 30, 1997 to $24.0 million in the
corresponding period in 1998, primarily as a result of the incremental gross
margins generated in the 1998 period by the Acquisitions. As a percentage of
revenues, gross profit increased to 33% in the six months ended June 30, 1998
from 31% in the same period in 1997. This overall 2% increase in gross margin as
a percentage of revenues was the result of an increase of 4% due to the
inclusion of the incremental gross profit of the Acquisitions offset by a 2%
reduction in the gross profit percentage of the Founding Companies. The decrease
in the gross profit percentage of the Founding Companies was primarily due to
the relatively fixed nature of the cost of sales structure combined with a drop
in revenues during the second quarter of 1998.
14
<PAGE>
SELLING, GENERAL, AND ADMINISTRATIVE -- Selling, general and administrative
expenses increased $7.8 million, or 66%, from $11.7 million in the six months
ended June 30, 1997 to $19.5 million in the corresponding period in 1998,
primarily as a result of the incremental selling, general and administrative
expenses of the Acquisitions. For the Founding Companies, selling, general and
administrative expenses in the six months ended June 30, 1998 decreased
approximately 11% as compared to the same period in 1997. As a percentage of
revenues, selling, general and administrative expenses increased from 25% in the
six months ended June 30, 1997 to 26% in the corresponding period in 1998. This
overall 1% increase in these expenses as a percentage of revenues in 1998
resulted from the combination of an increase of 3% due to the incremental effect
of including the selling, general and administrative expenses of the
Acquisitions offset by a 2% decrease in these expenses as a percentage of
revenues for the Founding Companies.
INTEREST EXPENSE, NET -- Interest expense, net increased $2.0 million, or
1,184%, from $0.1 million in the six months ended June 30, 1997, to $2.1 million
in the corresponding period in 1998. This increase is primarily the result of
borrowings under the Company's Credit Facility to fund the cash portion of the
purchase prices for the Acquisitions.
RESULTS OF OPERATIONS -- HISTORICAL (Unaudited)
The following table sets forth for the Company certain selected
consolidated financial data and that data as a percentage of consolidated
revenues for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
------------------------------ ----------------------------------
1997 1998 1997 1998
------------------------------ ----------------------------------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues ........... $12,815 100% $40,367 100% $ 19,760 100% $73,871 100%
Cost of operations . 8,744 68 27,308 68 13,495 68 49,856 68
------- --- ------- --- -------- ---- ------- ---
Gross profit ....... 4,071 32 13,059 32 6,265 32 24,015 32
Selling, general and
administrative
expenses ........ 2,966 23 11,423 28 4,917 25 19,482 26
Special compensation
expense ......... -- -- -- -- 2,605 13 -- --
------- --- ------- --- -------- ---- ------- ---
Income (loss) from
Operations ...... $ 1,105 9% $ 1,636 4% $ (1,257) (6)% $ 4,533 6%
======= === ======= === ======== ==== ======= ===
</TABLE>
THREE MONTHS ENDED JUNE 30
REVENUES -- Revenues increased $27.6 million, or 215%, from $ 12.8 million
in the three months ended June 30, 1997 to $40.4 million in the corresponding
period in 1998. This increase primarily resulted from the inclusion in the 1998
period of the results of the Acquired Businesses.
GROSS PROFIT -- Gross profit increased $9.0 million, or 221%, from $ 4.1
million in the three months ended June 30, 1997 to $13.1 million in the
corresponding period in 1998. This increase occurred principally as a result of
the inclusion in the 1998 period of the incremental gross profit of the Acquired
Businesses. As a percentage of revenues, gross profit remained essentially flat
at 32%.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES -- Selling, general and
administrative expenses increased $8.4 million, or 285%, from $ 3.0 million in
the three months ended June 30, 1997 to $11.4 million in the corresponding
period in 1998. This increase primarily reflected the incremental selling,
general and administrative expenses in the 1998 period of the Acquired
Businesses. As a percentage of revenues, these expenses increased from 23% in
the three months ended June 30, 1997 to 28% in the same period in 1998,
primarily as a result of the inclusion of the results of the Acquisitions
coupled with a decrease in the revenue base in the second quarter of 1998
compared with the same period in 1997.
15
<PAGE>
SIX MONTHS ENDED JUNE 30
REVENUES -- Revenues increased $54.1 million, or 274%, from $19.8 million
in the six months ended June 30, 1997, to $73.9 million in the corresponding
period in 1998. This increase primarily resulted from the inclusion in the 1998
period of the results of the Acquired Businesses.
GROSS PROFIT -- Gross profit increased $17.7 million, or 283%, from $6.3
million in the six months ended June 30, 1997 to $24.0 million in the
corresponding period in 1998, primarily as a result of the inclusion in the 1998
period of the incremental gross profit of the Acquired Businesses. As a
percentage of revenues, gross profit remained relatively flat in 1998 as
compared with 1997.
SELLING, GENERAL AND ADMINISTRATIVE -- Selling, general and administrative
expenses increased $14.6 million, or 296%, from $4.9 million in the six months
ended June 30, 1997 to $19.5 million in the corresponding period in 1998,
primarily as a result of the incremental selling, general, and administrative
expenses in the 1998 period of the Acquired Businesses. As a percentage of
revenues, selling, general and administrative expenses increased from 25% in the
six months ended June 30, 1997, to 26% in the corresponding period in 1998. This
increase primarily resulted from the inclusion of the results of the Acquired
Businesses.
SPECIAL COMPENSATION EXPENSE
In connection with the issuance of common stock to certain members of
management and a management services provider, SSI recorded a $2.6 million
non-cash, non-recurring charge in the six months ended June 30, 1997.
YEAR 2000 ISSUE
The Company is reviewing its computer programs and systems to ensure that
the programs and systems will function properly in the Year 2000 and beyond. In
this process, the Company expects to replace some existing systems and upgrade
others. The Company presently believes that, with modifications to existing
software and conversions to new software, the Year 2000 problem will not pose
significant operational problems for the Company's computer systems. The
estimated costs of these efforts are not expected to be material to the
Company's financial position or results of operations in any year.
FLUCTUATIONS IN OPERATING RESULTS
The Company's results of operations may fluctuate significantly from
quarter-to-quarter or year-to-year because of a number of factors, including the
timing of future acquisitions, seasonal fluctuations in the demand for the
Company's services and competitive factors. Accordingly, quarterly comparisons
of the Company's revenues and operating results should not be relied on as an
indication of future performance, and the results of any quarterly period may
not be indicative of results to be expected for a full year.
LIQUIDITY AND CAPITAL RESOURCES
For the six months ended June 30, 1998, the Company's operations used $8.2
million in cash primarily as a result of increased accounts receivable and
inventory levels attributable to the expected seasonal increase in the Company's
sales. Capital expenditures during the period totaled $2.1 million. The majority
of the capital expenditures were for the purchase of operating equipment for
certain locations. Also, during the six months ended June 30, 1998, the Company
had net borrowings of $44.3 million under its
16
<PAGE>
Credit Facility. These borrowings were primarily used to fund the cash portion
of the purchase prices paid for the businesses acquired during the period.
The Company's Credit Facility is a revolving credit facility of up to
$90 million. Currently, the Company may use borrowings under the Credit Facility
only for working capital purposes. Invatec's subsidiaries have guaranteed the
repayment of all amounts due under the facility, and the facility is secured by
the capital stock of those subsidiaries and the Company's accounts receivable
and inventories. The Credit Facility prohibits the payment of cash dividends by
Invatec, restricts the ability of the Company to incur other indebtedness and
requires the Company to comply with certain financial covenants.
As of August 14, 1998, the Company was not in compliance with certain of its
loan covenants under the Credit Facility. The Company has therefore classified
amounts due under the Credit Facility as of June 30, 1998 as a current
liability. The Company has obtained a waiver of the covenant violations for 30
days (terminating August 21, 1998) and is in the process of negotiating an
amendment to the Credit Facility to address future compliance with these
covenants. At August 14, 1998, approximately $65.9 million of borrowings were
outstanding under the Credit Facility.
Management believes that the Credit Facility will be amended within the
next 60 days to bring the Company in compliance with the amended covenants.
Management further believes that in the event that an amendment is not in place
at the time the current waiver expires, additional waivers or extensions will be
granted. However, there can be no assurances that such waivers or extensions
will be obtained. In the event that the terms of the Credit Facility are not
amended so that the Company is in compliance with that agreement, the Company
would need to seek additional debt or equity financing to repay the amounts due
under the Credit Facility.
At June 30, 1998, the Company's capitalization included approximately $12.9
million aggregrate principal amount of convertible subordinated notes due
2002-04 that bore a weighted average interest rate of 5.3%. The Company issued
these notes as partial consideration in acquisitions of Acquired Businesses.
These notes are convertible into Common Stock at initial conversion prices
ranging from $16.90 to $22.52 per share.
Management believes that in the event of additional cash needs required to
support the Company's working capital requirements, the Company may need to seek
additional financing through amendments to increase the borrowing capacity under
the existing Credit Facility or the public or private sale of equity or debt
securities. There can be no assurance that the Company could secure such
financing if and when it is needed or on terms the Company deems acceptable.
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 22, 1998, the Company held its 1998 Annual Meeting of Stockholders.
The matters voted on at the meeting and the results thereof are as follows:
A. Election of Class I Directors.
Stockholders elected the persons listed below as Class I directors whose
terms expire at the 2001 annual meeting of stockholders. Results by
nominee were:
VOTED VOTED
FOR AGAINST ABSTENTIONS
--------- ------- -----------
William E. Haynes 5,154,232 52,686 --
--------- ------- -----------
Arthur L. French 5,154,032 52,886 --
There were no broker non-votes in connection with the election of Class
I Directors.
17
<PAGE>
The Class II directors, whose terms expire at the 1999 annual meeting of
stockholders, are Tommy E. Knight and Pierre R. Latour. The Class III
directors, whose terms expire at the 2000 annual meeting of
stockholders, are Michael A. Baker, Robert M. Chiste and T. Wayne Wren,
Jr.
B. Ratification of Appointment of Independent Public Accountants.
Stockholders ratified the appointment of Arthur Andersen LLP as the
Company's independent public accountants for the fiscal year ending
December 31, 1998, with 5,183,693 shares voted for, 22,200 shares voted
against, and 1,025 abstentions and [no] broker non-votes.
ITEM 5. OTHER INFORMATION.
NOTICE OF SHAREHOLDER PROPOSAL DEADLINE DATE
Rule 14a-8 under the Securities and Exchange Act of 1934, as amended,
specifies the requirements for timely submission of a stockholder proposal to be
included in the Company's proxy statement for an annual or special meeting of
stockholders. As set forth in the Company's proxy statement relating to its 1998
Annual Meeting of Stockholders, proposals stockholders intend to have included
in the Company's proxy statement for the 1999 Annual Meeting of Stockholders
should be received by the Company's Corporate Secretary by December 31, 1998.
If a stockholder desires to bring a matter before an annual or special meeting
which is not the subject of a proposal timely submitted for inclusion in the
Company's proxy statement, the stockholder must follow the procedures set forth
in the Company's Bylaws.
The Company's Bylaws provide generally that stockholder proposals for an
annual meeting may be made by a stockholder only if (i) the stockholder is a
stockholder of record and is entitled to vote at the meeting and (ii) the
stockholder gives timely written notice of the proposal to the Corporate
Secretary of the Company. In the case of the Company's 1999 Annual Meeting, to
be timely, a stockholder's notice must be delivered to, or mailed and received
at, the principal executive offices of the Company no later than February 21,
1999; provided, however, that, in the event the date of the annual meeting is
not within 30 days before or 60 days after May 22, 1999, notice by the
stockholder to be timely must be so delivered not later than the close of the
business on the later of the 90th day prior to such annual meeting or the tenth
day following the day on which public announcement of the date of such meeting
is first made by the Company.
18
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
EXHIBIT
NUMBER DESCRIPTION
2.1* -- Stock Purchase Agreement dated as of December 28, 1996 by and
Among The Safe Seal Company, Inc. ("SSI"), certain stockholders
of Harley Industries, Inc. ("Harley") and Harley (Form S-1 (Reg.
No. 333-31617), Ex. 2.1).
2.2* -- Stock Transfer Agreement dated as of January 24, 1997 by and
among SSI, a stockholder of Harley, Harley and Harley Equipment
Corporation (Form S-1 (Reg. No. 333- 31617), Ex. 2.2).
2.3* -- Stock Purchase Agreement entered into on June 23, 1997 by and
among the Company, Puget Investments, Inc., Flickinger- Benicia
Inc. and the stockholders named therein (Form S-1 (Reg. No.
333-31617), Ex. 2.3).
2.4* -- Stock Purchase Agreement dated as of July 15, 1997 by and
among the Company, Industrial Controls & Equipment, Inc., Valve
Actuation & Repair Co. and the other parties thereto (Form S-1
(Reg. No. 333-31617), Ex. 2.4).
2.5* -- Stock Purchase Agreement dated as of February 26, 1997 by and
among SSI and the stockholders of GSV, Inc. (Form S-1 (Reg. No.
333-31617), Ex. 2.5).
2.6* -- Stock and Real Estate Purchase Agreement dated as of May 22,
1997 by and among SSI, Plant Specialties, Inc., and the
stockholders named therein (Form S-1 (Reg. No. 333-31617), Ex.
2.6).
2.7* -- Agreement and Plan of Reorganization dated as of June 27,
1997 by and among the Company, Southern Valve Service, Inc. and
the other parties thereto (Form S-1 (Reg. No. 333-31617), Ex.
2.7).
2.8* -- Stock Redemption and Purchase Agreement dated as of June 27,
1997 by and among the Company, Lee Roy Jordan, Ralph Buffkin and
55 Leasing and Sales, Inc. (Form S- 1 (Reg. No. 333-31617), Ex.
2.8).
2.9* -- Agreement and Plan of Merger dated as of June 27, 1997 by and
among the Company, IVT Acquisition, Inc. and SSI, as amended as
of August 15, 1997 (Form S-1 (Reg. No. 333-31617), Ex. 2.9).
2.10* -- Uniform Provisions for Acquisitions (incorporated into the
agreements incorporated herein as Exhibits 2.3, 2.4 and 2.7)
(Form S-1 (Reg. No. 333-31617), Ex. 2.10).
2.11* -- Merger Agreement dated as of December 17, 1997 by and among
the Company, DIVT Acquisition, LLC, Dalco, Inc. and the
stockholders named therein (Form 8-K dated December 17, 1997
(file No. 000-23231), Ex. 2).
2.12* -- Stock Purchase Agreement dated as of February 27, 1998 by and
among the Company, Cypress Industries, Inc. and the Stockholders
named therein (Form 8-K dated February 27, 1998 (File No.
000-23231), Ex. 2).
19
<PAGE>
2.13* -- Merger Agreement, dated as of March 16, 1998, by and among
the Company, IPSCO Acquisition, Inc., IPS Holding, Ltd. ("IPS")
and the subsidiaries and stockholders of IPS named therein (Form
8-K dated March 16, 1998 (File No. 000-23231), Ex. 2).
-- Pursuant to Item 601(b)(2) of Regulation S-K, certain
schedules and exhibits to the agreements filed or incorporated
by reference as Exhibits 2.1 through 2.13 (all of which are
listed therein) have been omitted. Invatec hereby agrees to
furnish supplementally a copy of any such omitted item to the
SEC on request.
3.1* -- Certificate of Incorporation of the Company (Form S-1 (Reg.
No. 333-31617), Ex. 3.1).
3.2* -- Bylaws of the Company (Form S-1 (Reg. No. 333-31617), Ex.
3.2).
4.1 -- Loan Agreement, dated as of July 7, 1998, by and among the
Company and Chase Bank of Texas, National Association, and
the other lenders referred to therein.
27.1 -- Financial Data Schedule.
- ---------------
* Incorporated by reference to the filing indicated.
(b) Reports on Form 8-K.
None.
20
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant, Innovative Valve Technologies, Inc., has duly caused this Report to
be signed on its behalf by the undersigned, thereunto duly authorized.
INNOVATIVE VALVE TECHNOLOGIES, INC.
/s/ Charles F. Schugart
CHARLES F. SCHUGART
CHIEF FINANCIAL OFFICER, SENIOR VICE
PRESIDENT - CORPORATE DEVELOPMENT
Dated: August 14, 1998
21
<PAGE>
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
2.1* -- Stock Purchase Agreement dated as of December 28, 1996 by and
Among The Safe Seal Company, Inc. ("SSI"), certain stockholders
of Harley Industries, Inc. ("Harley") and Harley (Form S-1 (Reg.
No. 333-31617), Ex. 2.1).
2.2* -- Stock Transfer Agreement dated as of January 24, 1997 by and
among SSI, a stockholder of Harley, Harley and Harley Equipment
Corporation (Form S-1 (Reg. No. 333- 31617), Ex. 2.2).
2.3* -- Stock Purchase Agreement entered into on June 23, 1997 by and
among the Company, Puget Investments, Inc., Flickinger- Benicia
Inc. and the stockholders named therein (Form S-1 (Reg. No.
333-31617), Ex. 2.3).
2.4* -- Stock Purchase Agreement dated as of July 15, 1997 by and
among the Company, Industrial Controls & Equipment, Inc., Valve
Actuation & Repair Co. and the other parties thereto (Form S-1
(Reg. No. 333-31617), Ex. 2.4).
2.5* -- Stock Purchase Agreement dated as of February 26, 1997 by and
among SSI and the stockholders of GSV, Inc. (Form S-1 (Reg. No.
333-31617), Ex. 2.5).
2.6* -- Stock and Real Estate Purchase Agreement dated as of May 22,
1997 by and among SSI, Plant Specialties, Inc., and the
stockholders named therein (Form S-1 (Reg. No. 333-31617), Ex.
2.6).
2.7* -- Agreement and Plan of Reorganization dated as of June 27,
1997 by and among the Company, Southern Valve Service, Inc. and
the other parties thereto (Form S-1 (Reg. No. 333-31617), Ex.
2.7).
2.8* -- Stock Redemption and Purchase Agreement dated as of June 27,
1997 by and among the Company, Lee Roy Jordan, Ralph Buffkin and
55 Leasing and Sales, Inc. (Form S- 1 (Reg. No. 333-31617), Ex.
2.8).
2.9* -- Agreement and Plan of Merger dated as of June 27, 1997 by and
among the Company, IVT Acquisition, Inc. and SSI, as amended as
of August 15, 1997 (Form S-1 (Reg. No. 333-31617), Ex. 2.9).
2.10* -- Uniform Provisions for Acquisitions (incorporated into the
agreements incorporated herein as Exhibits 2.3, 2.4 and 2.7)
(Form S-1 (Reg. No. 333-31617), Ex. 2.10).
2.11* -- Merger Agreement dated as of December 17, 1997 by and among
the Company, DIVT Acquisition, LLC, Dalco, Inc. and the
stockholders named therein (Form 8-K dated December 17, 1997
(file No. 000-23231), Ex. 2).
2.12* -- Stock Purchase Agreement dated as of February 27, 1998 by and
among the Company, Cypress Industries, Inc. and the Stockholders
named therein (Form 8-K dated February 27, 1998 (File No.
000-23231), Ex. 2).
<PAGE>
2.13* -- Merger Agreement, dated as of March 16, 1998, by and among
the Company, IPSCO Acquisition, Inc., IPS Holding, Ltd. ("IPS")
and the subsidiaries and stockholders of IPS named therein (Form
8-K dated March 16, 1998 (File No. 000-23231), Ex. 2).
-- Pursuant to Item 601(b)(2) of Regulation S-K, certain
schedules and exhibits to the agreements filed or incorporated
by reference as Exhibits 2.1 through 2.13 (all of which are
listed therein) have been omitted. Invatec hereby agrees to
furnish supplementally a copy of any such omitted item to the
SEC on request.
3.1* -- Certificate of Incorporation of the Company (Form S-1 (Reg.
No. 333-31617), Ex. 3.1).
3.2* -- Bylaws of the Company (Form S-1 (Reg. No. 333-31617), Ex.
3.2).
4.1 -- Loan Agreement, dated as of July 7, 1998, by and among the
Company and Chase Bank of Texas, National Association, and
the other lenders referred to therein
27.1 -- Financial Data Schedule.
- ---------------
* Incorporated by reference to the filing indicated.
EXHIBIT 4.1
LOAN AGREEMENT
($90,000,000 REVOLVING LOAN FACILITY)
DATED JULY 7, 1998
AMONG
INNOVATIVE VALVE TECHNOLOGIES, INC.,
AS BORROWER,
CHASE BANK OF TEXAS, NATIONAL ASSOCIATION,
AS AGENT AND AS A LENDER,
AND
THE OTHER LENDERS NOW OR HEREAFTER
PARTIES HERETO
<PAGE>
TABLE OF CONTENTS
PAGE
1. DEFINITIONS............................................................1
1.1 CERTAIN DEFINED TERMS..........................................1
1.2 MISCELLANEOUS.................................................18
2. COMMITMENTS AND LOANS.................................................19
2.1 LOANS.........................................................19
2.2 LETTERS OF CREDIT.............................................19
2.3 TERMINATIONS OR REDUCTIONS OF COMMITMENTS....................23
2.4 COMMITMENT FEES...............................................23
2.5 SEVERAL OBLIGATIONS...........................................23
2.6 NOTES.........................................................24
2.7 USE OF PROCEEDS...............................................24
3. BORROWINGS, PAYMENTS, PREPAYMENTS AND INTEREST OPTIONS................24
3.1 BORROWINGS....................................................24
3.2 PREPAYMENTS...................................................24
3.3 INTEREST OPTIONS..............................................25
3.4 CAPITAL ADEQUACY..............................................29
3.5 LIMITATION ON CHARGES; SUBSTITUTE LENDERS; NON-DISCRIMINATION.29
4. PAYMENTS; PRO RATA TREATMENT; COMPUTATIONS, ETC.......................30
4.1 PAYMENTS......................................................30
4.2 PRO RATA TREATMENT............................................31
4.3 CERTAIN ACTIONS, NOTICES, ETC.................................32
4.4 NON-RECEIPT OF FUNDS BY AGENT.................................32
4.5 SHARING OF PAYMENTS, ETC......................................33
5. CONDITIONS PRECEDENT..................................................33
5.1 INITIAL LOANS AND LETTERS OF CREDIT...........................33
5.2 ALL LOANS AND LETTERS OF CREDIT...............................35
6. REPRESENTATIONS AND WARRANTIES........................................35
6.1 ORGANIZATION..................................................36
6.2 FINANCIAL STATEMENTS..........................................36
6.3 ENFORCEABLE OBLIGATIONS; AUTHORIZATION........................36
6.4 OTHER DEBT....................................................36
6.5 LITIGATION....................................................37
6.6 TITLE.........................................................37
6.7 TAXES.........................................................37
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6.8 REGULATIONS G, U AND X........................................37
6.9 SUBSIDIARIES..................................................37
6.10 NO UNTRUE OR MISLEADING STATEMENTS............................37
6.11 ERISA.........................................................37
6.12 INVESTMENT COMPANY ACT........................................38
6.13 PUBLIC UTILITY HOLDING COMPANY ACT............................38
6.14 SOLVENCY......................................................38
6.15 FISCAL YEAR...................................................38
6.16 COMPLIANCE....................................................38
6.17 ENVIRONMENTAL MATTERS.........................................38
7. AFFIRMATIVE COVENANTS.................................................39
7.1 TAXES, EXISTENCE, REGULATIONS, PROPERTY, ETC..................39
7.2 FINANCIAL STATEMENTS AND INFORMATION..........................39
7.3 FINANCIAL TESTS...............................................40
7.4 INSPECTION....................................................40
7.5 FURTHER ASSURANCES............................................41
7.6 BOOKS AND RECORDS.............................................41
7.7 INSURANCE.....................................................41
7.8 NOTICE OF CERTAIN MATTERS.....................................41
7.9 ERISA INFORMATION AND COMPLIANCE..............................42
7.10 YEAR 2000.....................................................42
8. NEGATIVE COVENANTS....................................................43
8.1 BORROWED MONEY INDEBTEDNESS...................................43
8.2 LIENS.........................................................44
8.3 CONTINGENT LIABILITIES........................................45
8.4 MERGERS AND CONSOLIDATIONS....................................45
8.5 DISPOSITION OF ASSETS.........................................46
8.6 REDEMPTION, DIVIDENDS AND DISTRIBUTIONS.......................46
8.7 NATURE OF BUSINESS............................................46
8.8 TRANSACTIONS WITH RELATED PARTIES.............................46
8.9 LOANS AND INVESTMENTS.........................................46
8.10 ORGANIZATIONAL DOCUMENTS......................................47
8.11 UNFUNDED LIABILITIES..........................................47
8.12 CAPITAL EXPENDITURES..........................................47
8.13 ACQUISITIONS..................................................47
8.14 SUBORDINATED INDEBTEDNESS.....................................47
8.15 SUBSIDIARIES..................................................47
8.16 LIMITATION ON PROPERTY OF FOREIGN SUBSIDIARIES................48
9. DEFAULTS..............................................................48
9.1 EVENTS OF DEFAULT.............................................48
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9.2 RIGHT OF SETOFF...............................................50
9.3 COLLATERAL ACCOUNT............................................51
9.4 PRESERVATION OF SECURITY FOR UNMATURED REIMBURSEMENT
OBLIGATIONS...................................................51
9.5 REMEDIES CUMULATIVE...........................................51
10. AGENT.................................................................51
10.1 APPOINTMENT, POWERS AND IMMUNITIES............................51
10.2 RELIANCE......................................................52
10.3 DEFAULTS......................................................53
10.4 MATERIAL WRITTEN NOTICES......................................53
10.5 RIGHTS AS A LENDER............................................53
10.6 INDEMNIFICATION...............................................54
10.7 NON-RELIANCE ON AGENT AND OTHER LENDERS.......................54
10.8 FAILURE TO ACT................................................54
10.9 RESIGNATION OR REMOVAL OF AGENT...............................54
10.10 NO PARTNERSHIP................................................55
11. MISCELLANEOUS.........................................................55
11.1 WAIVER........................................................55
11.2 NOTICES.......................................................55
11.3 EXPENSES, ETC.................................................56
11.4 INDEMNIFICATION...............................................56
11.5 AMENDMENTS, ETC...............................................57
11.6 SUCCESSORS AND ASSIGNS........................................58
11.7 LIMITATION OF INTEREST........................................60
11.8 SURVIVAL......................................................61
11.9 CAPTIONS......................................................61
11.10 COUNTERPARTS..................................................61
11.11 GOVERNING LAW.................................................61
11.12 SEVERABILITY..................................................61
11.13 TAX FORMS.....................................................61
11.14 CONFLICTS BETWEEN THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS.62
11.15 DISCLOSURE TO OTHER PERSONS; CONFIDENTIALITY..................62
11.16 AMENDMENT AND RESTATEMENT.....................................62
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EXHIBITS
A -- Request for Extension of Credit
B -- Rate Designation Notice
C -- Note
D -- Assignment and Acceptance
E -- Compliance Certificate
F -- Subsidiaries as of the Effective Date
G -- Existing Borrowed Money Indebtedness
H -- Existing Liens
I -- Existing Investments
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LOAN AGREEMENT
THIS LOAN AGREEMENT is executed as of July 7, 1998 (the "EFFECTIVE DATE"),
by and among INNOVATIVE VALVE TECHNOLOGIES, INC., a Delaware corporation
(together with its permitted successors, herein called the "BORROWER"); each of
the lenders which is or may from time to time become a party hereto
(individually, a "LENDER" and, collectively, the "LENDERS"), and CHASE BANK OF
TEXAS, NATIONAL ASSOCIATION ("CHASE TEXAS"), a national banking association, as
agent for the Lenders (in such capacity, together with its successors in such
capacity, the "AGENT").
The parties hereto agree as follows:
1. DEFINITIONS.
1.1 CERTAIN DEFINED TERMS.
Unless a particular term, word or phrase is otherwise defined or the
context otherwise requires, capitalized terms, words and phrases used herein or
in the Loan Documents (as hereinafter defined) have the following meanings (all
definitions that are defined in this Agreement in the singular have the same
meanings when used in the plural and VICE VERSA):
ACCOUNTS, GENERAL INTANGIBLES, INVENTORY and EQUIPMENT shall have the
respective meanings assigned to them in the Uniform Commercial Code enacted in
the State of Texas in force on the Effective Date.
ADDITIONAL INTEREST means the aggregate of all amounts accrued or paid
pursuant to the Notes or any of the other Loan Documents (other than interest on
the Notes at the Stated Rate) which, under applicable laws, are or may be deemed
to constitute interest on the indebtedness evidenced by the Notes.
ADJUSTED LIBOR means, with respect to each Interest Period applicable to a
LIBOR Borrowing, a rate per annum equal to the quotient, expressed as a
percentage, of (a) LIBOR with respect to such Interest Period divided by (b)
1.0000 minus the Eurodollar Reserve Requirement in effect on the first day of
such Interest Period.
AFFILIATE means any Person controlling, controlled by or under common
control with any other Person. For purposes of this definition, "CONTROL"
(including "CONTROLLED BY" and "UNDER COMMON CONTROL WITH") means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of voting securities or otherwise.
AGREEMENT means this Loan Agreement, as it may from time to time be
amended, modified, restated or supplemented.
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ANNUAL FINANCIAL STATEMENTS means the annual financial statements of a
Person, including all notes thereto, which statements shall include a balance
sheet as of the end of such fiscal year and an income statement and a statement
of cash flows for such fiscal year, all setting forth in comparative form the
corresponding figures from the previous fiscal year, all prepared in conformity
with GAAP in all material respects, and accompanied by the opinion of
independent certified public accountants of recognized national standing, which
shall state that such financial statements present fairly in all material
respects the financial position of such Person and, if such Person has any
Subsidiaries, its consolidated Subsidiaries as of the date thereof and the
results of its operations for the period covered thereby in conformity with
GAAP. Such annual financial statements of Borrower shall be accompanied by a
certificate of such accountants that in making the appropriate audit and/or
investigation in connection with such report and opinion, such accountants did
not become aware of any Default relating to the financial tests set forth in
SECTION 7.3 hereof that had not been waived by Lenders or, if in the opinion of
such accountants any such Default exists, a description of the nature and status
thereof. To the extent required by Agent or the Majority Lenders, Annual
Financial Statements shall also include an unaudited consolidating balance sheet
and income statement for the applicable Person, in Proper Form, certified by the
chief financial officer or other authorized officer of such Person as true,
correct and complete in all material respects.
APPLICATIONS means all applications and agreements for Letters of Credit,
or similar instruments or agreements, in Proper Form, now or hereafter executed
by any Person in connection with any Letter of Credit now or hereafter issued or
to be issued under the terms hereof at the request of any Person. To the extent
that any Application contains provisions granting liens or security interests
not granted in the Loan Agreement or contains events of default waivers, and
cure periods (or fails to provide cure periods as provided in the Loan
Agreement) which are more restrictive than those contained in the Loan
Agreement, the provisions of the Loan Agreement shall control.
ASSIGNMENT AND ACCEPTANCE shall have the meaning ascribed to such term in
SECTION 11.6 hereof.
BANKRUPTCY CODE means the United States Bankruptcy Code, as amended, and
any successor statute.
BASE RATE means for any day a rate per annum equal to the lesser of (a)
the applicable Margin Percentage from time to time in effect plus the greater of
(1) the Prime Rate for that day or (2) the Federal Funds Rate for that day plus
1/2 of 1% or (b) the Ceiling Rate. If for any reason Agent shall have determined
(which determination shall create a rebuttable presumption as to the accuracy
thereof) that it is unable to ascertain the Federal Funds Rate for any reason,
including, without limitation, the inability or failure of Agent to obtain
sufficient quotations in accordance with the terms hereof (and in such event,
Agent shall furnish written evidence to Borrower showing how Agent made such
determination), the Base Rate shall, until the circumstances giving rise to such
inability no longer exist, be the lesser of (a) the applicable Margin Percentage
from time to time in effect plus the Prime Rate or (b) the Ceiling Rate.
BASE RATE BORROWING means that portion of the principal balance of the
Loans at any time bearing interest at the Base Rate.
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BORROWED MONEY INDEBTEDNESS means, with respect to any Person, without
duplication, (i) all obligations of such Person for borrowed money, (ii) all
obligations of such Person evidenced by bonds, debentures, notes or similar
instruments, (iii) all obligations of such Person under conditional sale or
other title retention agreements relating to Property purchased by such Person,
(iv) all obligations of such Person issued or assumed as the deferred purchase
price of property or services (excluding obligations of such Person to creditors
for raw materials, inventory, services and supplies and deferred payments for
services to employees and former employees incurred in the ordinary course of
such Person's business), (v) all capital lease obligations of such Person, (vi)
all obligations of others secured by any lien on property or assets owned or
acquired by such Person, whether or not the obligations secured thereby have
been assumed, (vii) Interest Rate Risk Indebtedness of such Person (to the
extent treated as Indebtedness under GAAP), (viii) all obligations of such
Person in respect of outstanding letters of credit issued for the account of
such Person and (ix) all guarantees of such Person of any of the foregoing.
BUSINESS DAY means any day other than a day on which commercial banks are
authorized or required to close in Houston, Texas.
CAPITAL EXPENDITURES means, with respect to any Person for any period,
expenditures in respect of fixed or capital assets by such Person, including
capital lease obligations incurred during such period (to the extent not already
included), which would be reflected as additions to Property, plant or equipment
on a balance sheet of such Person and its consolidated Subsidiaries, if any,
prepared in accordance with GAAP; but EXCLUDING expenditures during such period
for the repair or replacement of any fixed or capital asset which was destroyed
or damaged, in whole or in part, to the extent financed by the proceeds of an
insurance policy maintained by such Person. Capital Expenditures shall not
include Permitted Investments or the assets owned by any Person acquired by way
of a Permitted Investment or assets comprising substantially all of an entire
business which is acquired by the applicable Person.
CEILING RATE means, on any day, the maximum nonusurious rate of interest
permitted for that day by whichever of applicable federal or Texas (or any
jurisdiction whose usury laws are deemed to apply to the Notes or any other Loan
Documents despite the intention and desire of the parties to apply the usury
laws of the State of Texas) laws permits the higher interest rate, stated as a
rate per annum. On each day, if any, that Chapter 1D establishes the Ceiling
Rate, the Ceiling Rate shall be the "weekly rate ceiling" (as defined in ss.303
of the Texas Finance Code ) for that day. Agent may from time to time, as to
current and future balances, implement any other ceiling under Texas Finance
Code or Chapter 1D by notice to Borrower, if and to the extent permitted by
Texas Finance Code or Chapter 1D. Without notice to Borrower or any other person
or entity, the Ceiling Rate shall automatically fluctuate upward and downward as
and in the amount by which such maximum nonusurious rate of interest permitted
by applicable law fluctuates.
CHANGE OF CONTROL means a change resulting when any Unrelated Person or
any Unrelated Persons (other than Philip Services Corp. or its Affiliates)
acting together which would constitute a Group together with any Affiliates or
Related Persons thereof (in each case also constituting Unrelated Persons) shall
at any time either (i) Beneficially Own more than 50% of the aggregate voting
power of all classes of Voting Stock of Borrower or (ii) succeed in having
sufficient of its or
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their nominees elected to the Board of Directors of Borrower such that such
nominees, when added to any existing directors remaining on the Board of
Directors of Borrower after such election who is an Affiliate or Related Person
of such Person or Group, shall constitute a majority of the Board of Directors
of Borrower. As used herein (a) "BENEFICIALLY OWN" means "beneficially own" as
defined in Rule 13d-3 of the Securities Exchange Act of 1934, as amended, or any
successor provision thereto; PROVIDED, HOWEVER, that, for purposes of this
definition, a Person shall not be deemed to Beneficially Own securities tendered
pursuant to a tender or exchange offer made by or on behalf of such Person or
any of such Person's Affiliates until such tendered securities are accepted for
purchase or exchange; (b) "GROUP" means a "group" for purposes of Section 13(d)
of the Securities Exchange Act of 1934, as amended; (c) "UNRELATED PERSON" means
at any time any Person other than Borrower or any Subsidiary of Borrower and
other than any trust for any employee benefit plan of Borrower or any Subsidiary
of Borrower; (d) "RELATED PERSON" of any Person shall mean any other Person
owning (1) 5% or more of the outstanding common stock of such Person or (2) 5%
or more of the Voting Stock of such Person; and (e) "VOTING STOCK" of any Person
shall mean capital stock of such Person which ordinarily has voting power for
the election of directors (or persons performing similar functions) of such
Person, whether at all times or only so long as no senior class of securities
has such voting power by reason of any contingency.
CHAPTER 1D means Chapter 1D of Title 79, Texas Rev. Civ. Stats. 1925, as
amended.
CODE means the Internal Revenue Code of 1986, as amended, as now or
hereafter in effect, together with all regulations, rulings and interpretations
thereof or thereunder by the Internal Revenue Service.
COLLATERAL means all Property, tangible or intangible, real, personal or
mixed, now or hereafter subject to the Security Documents.
COMMITMENT FEE PERCENTAGE means (i) on any day prior to July 1, 1998,
0.50% and (ii) on and after July 1, 1998, the applicable per annum percentage
set forth at the appropriate intersection in the table shown below, based on the
Debt to Pro Forma Consolidated EBITDA Ratio as of the last day of the most
recently ended fiscal quarter of Borrower calculated by Agent as soon as
practicable after receipt by Agent of all financial reports required under this
Agreement with respect to such fiscal quarter (including a Compliance
Certificate) (provided, however, that if the Commitment Fee Percentage is
increased as a result of the reported Debt to Pro Forma Consolidated EBITDA
Ratio, such increase shall be retroactive to the date that Borrower was
obligated to deliver such financial reports to Agent pursuant to the terms of
this Agreement and provided further, however, that if the Commitment Fee
Percentage is decreased as a result of the reported Debt to Pro Forma
Consolidated EBITDA Ratio, and such financial reports are delivered to Agent not
more than ten (10) calendar days after the date required to be delivered
pursuant to the terms of this Agreement, such decrease shall be retroactive to
the date that Borrower was obligated to deliver such financial reports to Agent
pursuant to the terms of this Agreement):
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DEBT TO PRO FORMA COMMITMENT
CONSOLIDATED EBITDA RATIO FEE PERCENTAGE
Greater than 3.50 0.50
Greater than 3.00 but
less than or equal to 3.50 0.45
Greater than 2.50 but
less than or equal to 3.00 0.40
Greater than 2.00 but
less than or equal to 2.50 0.375
Greater than 1.50 but
less than or equal to 2.00 0.35
Greater than 1.00 but
less than or equal to 1.50 0.30
Less than or equal to 1.00 0.25
COMPLIANCE CERTIFICATE shall have the meaning given to it in SECTION 7.2
hereof.
CONSOLIDATED EBITDA means, without duplication, for any period the
Consolidated Net Income of Borrower PLUS, to the extent deducted in calculating
Consolidated Net Income, depreciation, amortization, other non-cash items
(including special non-cash compensation expenses associated with the issuance
of stock to certain members of executive management), Interest Expense,
provisions for income taxes, management fees paid to Computerized Accounting &
Tax Services, Inc. for the fiscal 1997 year in an aggregate amount not to exceed
$360,000 and excess management fees charged to Subsidiaries of Borrower by
Synergistic Partners, Inc. for the calendar 1997 year (in an aggregate amount
not to exceed $500,000) as described in the Form S-1 for Borrower filed with the
Securities and Exchange Commission in October, 1997.
CONSOLIDATED NET INCOME means for any period for which the amount thereof
is to be determined the net income (or net losses) of Borrower and its
Subsidiaries on a consolidated basis as determined in accordance with GAAP after
deducting, to the extent included in computing said net income and without
duplication, (i) the income (or deficit) of any Person (other than a Subsidiary)
in which Borrower or any of its Subsidiaries has any ownership interest, except
to the extent that any such income has been actually received by Borrower or
such Subsidiary in the form of cash dividends or similar cash distribution, (ii)
any income (or deficit) of any other Person accrued prior to the date it becomes
a Subsidiary of Borrower or merges into or consolidates with Borrower or a
Subsidiary of Borrower, (iii) the gain or loss (net of any tax effect) resulting
from the sale of any capital assets (other than sales in the ordinary course of
business), (iv) any gains or losses or other income which is non-recurring or
extraordinary, (v) income resulting from the write-up of any assets,
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and (vi) any portion of the net income of any Subsidiaries of Borrower which is
not available for distribution.
CONTROLLED GROUP means all members of a controlled group of corporations
and all trades or businesses (whether or not incorporated) under common control
which, together with Borrower, are treated as a single employer under Section
414 of the Code.
CORPORATION means any corporation, limited liability company, partnership,
joint venture, joint stock association, business trust and other business
entity.
COVER for Letter of Credit Liabilities shall be effected by paying to
Agent immediately available funds, to be held by Agent in a collateral account
maintained by Agent at its Principal Office and collaterally assigned as
security for the financial accommodations extended pursuant to this Agreement
using documentation reasonably satisfactory to Agent, in the amount required by
any applicable provision hereof. Such amount shall be retained by Agent in such
collateral account until such time as in the case of the Cover being provided
pursuant to SECTIONS 2.2(A) or 9.3 hereof, the applicable Letter of Credit shall
have expired and the Reimbursement Obligations, if any, with respect thereto
shall have been fully satisfied; PROVIDED, HOWEVER, that at such time if a
Default or Event of Default has occurred and is continuing, Agent shall not be
required to release such amount in such collateral account until such Default or
Event of Default shall have been cured or waived.
DEBT TO PRO FORMA CONSOLIDATED EBITDA RATIO means, as of the end of any
fiscal quarter, the ratio of (a) Indebtedness as of such date to (b) Pro Forma
Consolidated EBITDA for the 12 months ending on such date; provided, however,
that on or after the Subordinated Notes Issuance Date but prior to December 31,
1998, the numerator of this ratio shall be reduced by an amount equal to cash
minus the aggregate unpaid principal balance of the Notes.
DEFAULT means an Event of Default or an event which with notice or lapse
of time or both would, unless cured or waived, become an Event of Default.
DOLLARS and $ means lawful money of the United States of America.
ENVIRONMENTAL CLAIM means any third party (including Governmental
Authorities and employees) action, lawsuit, claim or proceeding (including
claims or proceedings at common law or under the Occupational Safety and Health
Act or similar laws relating to safety of employees) which seeks to impose
liability for (i) noise; (ii) pollution or contamination of the air, surface
water, ground water or land or the clean-up of such pollution or contamination;
(iii) solid, gaseous or liquid waste generation, handling, treatment, storage,
disposal or transportation; (iv) exposure to Hazardous Substances; (v) the
safety or health of employees or (vi) the manufacture, processing, distribution
in commerce or use of Hazardous Substances. An "ENVIRONMENTAL CLAIM" includes,
but is not limited to, a common law action, as well as a proceeding to issue,
modify or terminate an Environmental Permit, or to adopt or amend a regulation
to the extent that such a proceeding attempts to redress violations of an
applicable permit, license, or regulation as alleged by any Governmental
Authority.
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ENVIRONMENTAL LIABILITIES includes all liabilities arising from any
Environmental Claim, Environmental Permit or Requirement of Environmental Law
under any theory of recovery, at law or in equity, and whether based on
negligence, strict liability or otherwise, including but not limited to:
remedial, removal, response, abatement, investigative, monitoring, personal
injury and damage to property or injuries to persons, and any other related
costs, expenses, losses, damages, penalties, fines, liabilities and obligations,
and all costs and expenses necessary to cause the issuance, reissuance or
renewal of any Environmental Permit including reasonable attorneys' fees and
court costs.
ENVIRONMENTAL PERMIT means any permit, license, approval or other
authorization under any applicable Legal Requirement relating to pollution or
protection of health or the environment, including laws, regulations or other
requirements relating to emissions, discharges, releases or threatened releases
of pollutants, contaminants or hazardous substances or toxic materials or wastes
into ambient air, surface water, ground water or land, or otherwise relating to
the manufacture, processing, distribution, use, treatment, storage, disposal,
transport, or handling of pollutants, contaminants or Hazardous Substances.
ERISA means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and all rules, regulations, rulings and
interpretations adopted by the Internal Revenue Service or the U.S. Department
of Labor thereunder.
EURODOLLAR RATE means for any day during an Interest Period for a LIBOR
Borrowing a rate per annum equal to the lesser of (a) the sum of (1) the
Adjusted LIBOR in effect on the first day of such Interest Period plus (2) the
applicable Margin Percentage in effect from time to time or (b) the Ceiling
Rate. Each Eurodollar Rate is subject to adjustments for reserves, insurance
assessments and other matters as provided for in SECTION 3.3 hereof.
EURODOLLAR RESERVE REQUIREMENT means, on any day, that percentage
(expressed as a decimal fraction and rounded, if necessary, to the next highest
one ten thousandth [.0001]) which is in effect on such day for determining all
reserve requirements (including, without limitation, basic, supplemental,
marginal and emergency reserves) applicable to "Eurocurrency liabilities," as
currently defined in Regulation D. Each determination of the Eurodollar Reserve
Requirement by Agent shall create a rebuttable presumption as to the accuracy
thereof, and may be computed using any reasonable averaging and attribution
method.
EVENT OF DEFAULT shall have the meaning assigned to it in SECTION 9
hereof.
FEDERAL FUNDS RATE means, for any day, a fluctuating interest rate per
annum equal for such day to the weighted average of the rates on overnight
Federal funds transactions with members of the Federal Reserve System arranged
by Federal funds brokers, as published for such day (or, if such day is not a
Business Day, for the next preceding Business Day) by the Federal Reserve Bank
of New York, or, if such rate is not so published for any such day which is a
Business Day, the average of the quotations for such day on such transactions
received by Agent from three Federal funds brokers of recognized standing
selected by Agent in its sole and absolute discretion.
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FINANCING STATEMENTS means all such Uniform Commercial Code financing
statements as Agent shall reasonably require, in Proper Form, duly executed by
Borrower (or any other applicable Obligor) to give notice of and to perfect or
continue perfection of Agent's Liens in any applicable Collateral, as any of the
foregoing may from time to time be amended, modified, supplemented or restated.
FIXED CHARGE COVERAGE RATIO means, as of the end of any fiscal quarter,
the ratio of (a) Consolidated EBITDA for the Fixed Charge Test Period LESS
provisions for income taxes to (b) Fixed Charges for the Fixed Charge Test
Period. The term "Fixed Charge Test Period" as used in this definition shall
mean (i) for any date prior to November 1, 1998, the period from and after
November 1, 1997 through the last day of the immediately preceding fiscal
quarter of Borrower and (ii) for any date thereafter, the 12 month period ending
on the last day of the immediately preceding fiscal quarter of Borrower.
FIXED CHARGES means, for any period for which the amount thereof is to be
determined, the sum of current maturities of long term debt as of the date that
"Fixed Charges" are required to be calculated, Interest Expenses and Capital
Expenditures.
FOREIGN SUBSIDIARIES means Subsidiaries of the Borrower which are
organized under the laws of a jurisdiction other than the United States of
America, any State of the United States or any political subdivision thereof.
FUNDING LOSS means, with respect to (a) Borrower's payment of principal of
a LIBOR Borrowing on a day other than the last day of the applicable Interest
Period; (b) Borrower's failure to borrow a LIBOR Borrowing on the date specified
by Borrower; (c) Borrower's failure to make any prepayment of the Loans (other
than Base Rate Borrowings) on the date specified by Borrower, or (d) any
cessation of a Eurodollar Rate to apply to the Loans or any part thereof
pursuant to SEC TION 3.3, in each case whether voluntary or involuntary, any
loss, expense, penalty, premium or liability actually incurred by any Lender
(including but not limited to any loss or expense incurred by reason of the
liquidation or reemployment of deposits or other funds acquired by any Lender to
fund or maintain a Loan), but excluding loss of margin or profit for the period
after such payment or failure to borrow or prepay and excluding losses resulting
from the gross negligence or willful misconduct of the applicable Lender.
GAAP means, as to a particular Person, such accounting practice as, in the
opinion of independent certified public accountants of recognized national
standing regularly retained by such Person, conforms at the time to generally
accepted accounting principles, consistently applied for all periods after the
Effective Date so as to present fairly the financial condition, and results of
operations and cash flows, of such Person. If any change in any accounting
principle or practice is required by the Financial Accounting Standards Board,
all reports and financial statements required hereunder may be prepared in
accordance with such change so long as Borrower provides to Agent such
disclosures of the impact of such change as Agent may reasonably require. No
such change in any accounting principle or practice shall, in itself, cause a
Default or Event of Default hereunder (but Borrower, Agent and Lenders shall
negotiate in good faith to replace any financial covenants
8
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hereunder to the extent such financial covenants are affected by such change in
accounting principle or practice).
GOVERNMENTAL AUTHORITY means any foreign governmental authority, the
United States of America, any State of the United States, and any political
subdivision of any of the foregoing, and any central bank, agency, department,
commission, board, bureau, court or other tribunal having jurisdiction over
Agent, any Lender, any Obligor or their respective Property.
GUARANTIES means, collectively, (i) the Guaranties dated on or prior to
the date hereof executed by each of the current Subsidiaries of Borrower (other
than Foreign Subsidiaries) in favor of Agent, for the benefit of Lenders, and
(ii) any and all other guaranties hereafter executed in favor of Agent, for the
benefit of Lenders, relating to the Obligations, as any of them may from time to
time be amended, modified, restated or supplemented.
HAZARDOUS SUBSTANCE means petroleum products, and any hazardous or toxic
waste or substance defined or regulated as such from time to time by any law,
rule, regulation or order described in the definition of "Requirements of
Environmental Law".
INDEBTEDNESS means, for any Person, (i) all obligations of such Person for
Borrowed Money Indebtedness or which has been incurred in connection with the
acquisition of property and (ii) preferred stock having a mandatory redemption
prior to the maturity of the Obligations. Earnouts shall not be treated as
Indebtedness except to the extent required under GAAP.
INTEREST COVERAGE RATIO means, as of any day, the ratio of (a)
Consolidated EBITDA for the Interest Coverage Test Period to (b) Interest
Expense for the Interest Coverage Test Period. The term "Interest Coverage Test
Period" as used in this definition shall mean (i) for any date prior to November
1, 1998, the period from and after November 1, 1997 through the last day of the
immediately preceding fiscal quarter of Borrower and (ii) for any date
thereafter, the 12 month period ending on the last day of the immediately
preceding fiscal quarter of Borrower.
INTEREST EXPENSE means, for any Person, the sum of (i) all interest on
Indebtedness paid or payable (including the portion of rents payable under
capital leases allocable to interest) plus (ii) all debt discount and expense
amortized or required to be amortized during such period. "Interest Expense"
shall not include fees paid to Philip Services Corp. (or its predecessors) as
consideration for guaranties provided with respect to Indebtedness of Borrower
or any of its Subsidiaries (or their respective predecessors).
INTEREST OPTIONS means the Base Rate and each Eurodollar Rate, and
"INTEREST OPTION" means any of them.
INTEREST PAYMENT DATES means (a) FOR BASE RATE BORROWINGS, July 1, 1998
and the first Business Day following each March 31, June 30, September 30 and
December 31 thereafter prior to the Revolving Loan Maturity Date and the
Revolving Loan Maturity Date; and (b) FOR LIBOR BORROWINGS, the end of the
applicable Interest Period (and if such Interest Period exceeds three
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months' duration, quarterly, commencing on the first quarterly anniversary of
the first day of such Interest Period) and the Revolving Loan Maturity Date.
INTEREST PERIOD means, for each LIBOR Borrowing, a period commencing on
the date such LIBOR Borrowing began and ending on the numerically corresponding
day which is, subject to availability as set forth in SECTION 3.3(C)(III), 1, 2,
3 or 6 months thereafter, as Borrower shall elect in accordance herewith;
PROVIDED, (1) unless Agent shall otherwise consent, no Interest Period with
respect to a LIBOR Borrowing shall commence on a date earlier than three (3)
Business Days after this Agreement shall have been fully executed; (2) any
Interest Period with respect to a LIBOR Borrowing which would otherwise end on a
day which is not a LIBOR Business Day shall be extended to the next succeeding
LIBOR Business Day, unless such LIBOR Business Day falls in another calendar
month, in which case such Interest Period shall end on the next preceding LIBOR
Business Day; (3) any Interest Period with respect to a LIBOR Borrowing which
begins on the last LIBOR Business Day of a calendar month (or on a day for which
there is no numerically corresponding day in the calendar month at the end of
such Interest Period) shall end on the last LIBOR Business Day of the
appropriate calendar month; (4) no Interest Period for a Loan shall ever extend
beyond the Revolving Loan Maturity Date, and (5) Interest Periods shall be
selected by Borrower in such a manner that the Interest Period with respect to
any portion of the Loans which shall become due shall not extend beyond such due
date.
INTEREST RATE RISK AGREEMENT means an interest rate swap agreement,
interest rate cap agreement, interest rate collar agreement or similar
arrangement entered into by Borrower for the purpose of reducing Borrower's
exposure to interest rate fluctuations and not for speculative purposes,
approved in writing by Agent (such approval not to be unreasonably withheld), as
it may from time to time be amended, modified, restated or supplemented.
INTEREST RATE RISK INDEBTEDNESS means all obligations and Indebtedness of
Borrower with respect to the program for the hedging of interest rate risk
provided for in any Interest Rate Risk Agreement.
INVESTMENT means the purchase or other acquisition of any securities or
Indebtedness of, or the making of any loan, advance, transfer of Property (other
than transfers in the ordinary course of business) or capital contribution to,
or the incurring of any liability (other than trade accounts payable arising in
the ordinary course of business), contingently or otherwise, in respect of the
Indebtedness of, any Person; PROVIDED, HOWEVER, that the purchase by Borrower or
any of its Subsidiaries of any Indebtedness of Borrower or any of its
Subsidiaries for the purpose of retiring such Indebtedness shall not be deemed
to be an Investment.
ISSUER means the issuer (or, where applicable, each issuer) of a Letter of
Credit under this Agreement.
LEGAL REQUIREMENT means any law, statute, ordinance, decree, requirement,
order, judgment, rule, or regulation (or interpretation of any of the foregoing)
of, and the terms of any license or permit issued by, any Governmental
Authority, whether presently existing or arising in the future.
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LETTER OF CREDIT shall have the meaning assigned to such term in SECTION
2.2 hereof.
LETTER OF CREDIT LIABILITIES means, at any time and in respect of any
Letter of Credit, the sum of (i) the amount available for drawings under such
Letter of Credit PLUS (ii) the aggregate unpaid amount of all Reimbursement
Obligations at the time due and payable in respect of previous drawings made
under such Letter of Credit. For the purpose of determining at any time the
amount described in clause (i), in the case of any Letter of Credit payable in a
currency other than Dollars, such amount shall be converted by Agent to Dollars
by any reasonable method, and such converted amount shall be conclusive and
binding, absent manifest error.
LIBOR means, for each Interest Period for any LIBOR Borrowing, the rate
per annum (rounded upwards, if necessary, to the nearest 1/100th of 1%)
appearing on Telerate Page 3750 (or if such Telerate Page shall not be
available, any successor or similar service as may be selected by Agent and
Borrower as the London interbank rate for deposits in United States dollars) as
of 10:00 a.m., Houston, Texas time (or as soon thereafter as practicable) on the
day two LIBOR Business Days prior to the first day of such Interest Period for
deposits in United States dollars having a term comparable to such Interest
Period and in an amount comparable to the principal amount of the LIBOR
Borrowing to which such Interest Period relates. If none of such Telerate Page
3750 nor any successor or similar service is available, then "LIBOR" shall mean,
with respect to any Interest Period for any applicable LIBOR Borrowing, the rate
of interest per annum, rounded upwards, if necessary, to the nearest 1/100th of
1%, quoted by Agent at or before 10:00 a.m., Houston, Texas time (or as soon
thereafter as practicable), on the date two LIBOR Business Days before the first
day of such Interest Period, to be the arithmetic average of the prevailing
rates per annum at the time of determination and in accordance with the then
existing practice in the applicable market, for the offering to Agent by one or
more prime banks selected by Agent in its sole discretion, in the London
interbank market, of deposits in United States dollars for delivery on the first
day of such Interest Period and having a maturity equal to the length of such
Interest Period and in an amount equal (or as nearly equal as may be) to the
LIBOR Borrowing to which such Interest Period relates. Each determination by
Agent of LIBOR shall create a rebuttable presumption as to the accuracy thereof,
and may be computed using any reasonable averaging and attribution method.
LIBOR BORROWING means each portion of the principal balance of the Loans
at any time bearing interest at a Eurodollar Rate.
LIBOR BUSINESS DAY means a Business Day on which transactions in United
States dollar deposits between lenders may be carried on in the London interbank
market.
LIEN means any mortgage, pledge, charge, encumbrance, security interest,
collateral assignment or other lien or restriction of any kind, whether based on
common law, constitutional provision, statute or contract, and shall include
reservations, exceptions, encroachments, easements, rights of way, covenants,
conditions, restrictions and other title exceptions.
LOANS means the loans provided for by SECTION 2.1 hereof.
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LOAN DOCUMENTS means, collectively, this Agreement, the Notes, the
Guaranties, all Applica tions, the Notice of Entire Agreement, all instruments,
certificates and agreements now or hereafter executed or delivered by any
Obligor to Agent or any Lender pursuant to any of the foregoing or in connection
with the Obligations or any commitment regarding the Obligations, and all
amendments, modifications, renewals, extensions, increases and rearrangements
of, and substitutions for, any of the foregoing.
MAJORITY LENDERS means Lenders having greater than 60% of the Revolving
Loan Commitments or, if the Revolving Loan Commitments are terminated, Lenders
having greater than 60% of the outstanding Loans.
MARGIN PERCENTAGE means, on any day prior to July 1, 1998, 1.00% with
respect to Base Rate Borrowings and 2.75% with respect to LIBOR Borrowings and
on and after July 1, 1998, the applicable per annum percentage set forth at the
appropriate intersection in the table shown below, based on the Debt to Pro
Forma Consolidated EBITDA Ratio as of the last day of the most recently ended
fiscal quarter of Borrower calculated by Agent as soon as practicable after
receipt by Agent of all financial reports required under this Agreement with
respect to such fiscal quarter (including a Compliance Certificate) (provided,
however, that if the Margin Percentage is increased as a result of the reported
Debt to Pro Forma Consolidated EBITDA Ratio, such increase shall be retroactive
to the date that Borrower was obligated to deliver such financial reports to
Agent pursuant to the terms of this Agreement and provided further, however,
that if the Margin Percentage is decreased as a result of the reported Debt to
Pro Forma Consolidated EBITDA Ratio, and such financial reports are delivered to
Agent not more than ten (10) calendar days after the date required to be
delivered pursuant to the terms of this Agreement, such decrease shall be
retroactive to the date that Borrower was obligated to deliver such financial
reports to Agent pursuant to the terms of this Agreement):
Debt to Pro Forma LIBOR Borrowings Base Rate Borrowings
CONSOLIDATED EBITDA RATIO MARGIN PERCENTAGE MARGIN PERCENTAGE
Greater than 3.50 2.75* 1.00*
Greater than 3.00 but
less than or equal to 3.50 2.375** 0.75**
Greater than 2.50 but
less than or equal to 3.00 2.00 0.50
Greater than 2.00 but
less than or equal to 2.50 1.75 0.25
Greater than 1.50 but
less than or equal to 2.00 1.50 0.00
Greater than 1.00 but
less than or equal to 1.50 1.25 0.00
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Less than or equal to 1.00 1.00 0.00
*On the Subordinated Notes Issuance Date, these shall each be reduced by
0.25% **On the Subordinated Notes Issuance Date, these shall each be
reduced by 0.125%
MATERIAL ADVERSE EFFECT means relative to any occurrence of whatever
nature (including any adverse determination in any litigation, arbitration or
governmental investigation or proceeding), resulting in (i) a material adverse
effect on the financial condition, business, operations, or assets of Borrower
and its Subsidiaries, on a consolidated basis, from those reflected in the
financial statements furnished to Agent referred to in SECTION 6.2 hereof or
from the facts represented or warranted in this Agreement or any other Loan
Document, (ii) a material impairment of the ability of Borrower and its
Subsidiaries, on a consolidated basis, to perform their obligations under the
Loan Documents or (iii) a material impairment of the validity or enforceability
of the Loan Documents the result of which is a material adverse effect on the
ability of Lenders to collect the Obligations when due.
NOTES shall have the meaning assigned to such term in SECTION 2.6 hereof.
NOTICE OF ENTIRE AGREEMENT means a notice of entire agreement, in Proper
Form, executed by Borrower, each other Obligor and Agent, as the same may from
time to time be amended, modified, supplemented or restated.
OBLIGATIONS means, as at any date of determination thereof, the sum of the
following: (i) the aggregate principal amount of Loans outstanding hereunder on
such date, PLUS (ii) the aggregate amount of the outstanding Letter of Credit
Liabilities hereunder on such date, PLUS (iii) all other outstanding
liabilities, obligations and indebtedness of any Obligor under any Loan Document
on such date.
OBLIGORS means Borrower, each Person (other than Agent or a Lender) now or
hereafter executing a Guaranty and each Subsidiary of Borrower.
ORGANIZATIONAL DOCUMENTS means, with respect to a corporation, the
certificate of incorporation, articles of incorporation and bylaws of such
corporation; with respect to a partnership, the partnership agreement
establishing such partnership and with respect to a trust, the instrument
establishing such trust; in each case including any and all modifications
thereof as of the date of the Loan Document referring to such Organizational
Document and any and all future modifications thereof.
PAST DUE RATE means, on any day, a rate per annum equal to the lesser of
(i) the Ceiling Rate for that day or (ii) the Base Rate plus five percent (5%).
PBGC means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
PERMITTED INVESTMENT means Investments permitted under the terms of
SECTION 8.9 hereof.
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PERMITTED LIENS means Liens permitted under the provisions of SECTION 8.2
hereof.
PERSON means any individual, Corporation, trust, unincorporated
organization, Governmental Authority or any other form of entity.
PLAN means an employee pension benefit plan which is covered by Title IV
of ERISA or subject to the minimum funding standards under Section 412 of the
Code and is either (a) maintained by Borrower or any member of the Controlled
Group for employees of Borrower or any member of the Controlled Group or (b)
maintained pursuant to a collective bargaining agreement or any other
arrangement under which more than one employer makes contributions and to which
Borrower or any member of the Controlled Group is then making or accruing an
obligation to make contributions or has within the preceding five plan years
made contributions.
PRIME RATE means, on any day, the prime rate for that day as determined
from time to time by Chase Texas. The Prime Rate is a reference rate and does
not necessarily represent the lowest or best rate or a favored rate, and Chase
Texas, Agent and each Lender disclaims any statement, representation or warranty
to the contrary. Chase Texas, Agent or any Lender may make commercial loans or
other loans at rates of interest at, above or below the Prime Rate.
PRINCIPAL OFFICE means the principal office of Agent, presently located at
712 Main Street, Houston, Harris County, Texas 77002.
PRO FORMA CONSOLIDATED EBITDA means, for any period for which the amount
thereof is to be determined, Consolidated EBITDA of Borrower plus (or minus),
without duplication, the allocable share of Consolidated EBITDA, including (i)
such adjustments, on a pooling-of-interest basis, necessary to present on a pro
forma basis, for such period of any Person acquired during such period
(calculated as if such Person had been a Subsidiary for all of such period) and
with respect to which Agent and Lenders have been provided with Annual Financial
Statements for the most recently ended fiscal year of such Person (provided,
however, that unaudited annual financial statements for any applicable Person
for the most recently ended fiscal year of such Person shall be acceptable so
long as (x) such financial statements otherwise conform to the definition of
"Annual Financial Statements", (y) such financial statements are certified by
the chief financial officer or other authorized officer of such Person as fairly
presenting, in all material respects, the financial position of such person as
of the applicable date or dates, and (z) unaudited Consolidated EBITDA does not
comprise more than 25% of Pro Forma Consolidated EBITDA, (ii) adjustments
approved by Agent and the Majority Lenders for compensation of former owners of
any Person acquired during such period in excess of compensation that will be
paid for similar management following the applicable acquisition and (iii) other
pro forma adjustments in accordance with rules and regulations of the Securities
and Exchange Commission approved by Agent and the Majority Lenders. Borrower
shall furnish to Agent supporting calculations for Pro Forma Consolidated EBITDA
and such other information as Agent may reasonably request to determine the
accuracy of such calculation.
PROPER FORM means in form reasonably satisfactory to Agent.
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PROPERTY means any interest in any kind of property or asset, whether
real, personal or mixed, tangible or intangible.
QUARTERLY DATES means the last day of each March, June, September and
December, PROVIDED that if any such date is not a Business Day, then the
relevant Quarterly Date shall be the next succeeding Business Day.
QUARTERLY FINANCIAL STATEMENTS means the quarterly financial statements of
a Person, which statements shall include a balance sheet as of the end of such
fiscal quarter, an income statement for the period ended on such fiscal quarter
and for the fiscal year to date and a statement of cash flows for the fiscal
year to date, subject to normal year-end adjustments, prepared in accordance
with GAAP in all material respects except that such statements are condensed and
exclude detailed footnote disclosures and certified by the chief financial
officer or other authorized officer of such Person as fairly presenting, in all
material respects, the financial position of such person as of such date.
Quarterly Financial Statements shall set forth in comparative form the
corresponding figures as of the end of and for the corresponding fiscal quarter
of the preceding year (except for cash flow statements, which will be year to
date comparisons). To the extent required by Agent or the Majority Lenders,
Quarterly Financial Statements shall also include an unaudited consolidating
balance sheet and income statement for the applicable Person, in Proper Form,
certified by the chief financial officer or other authorized officer of such
Person as true, correct and complete in all material respects.
RATE DESIGNATION DATE means that Business Day which is (a) in the case of
Base Rate Borrowings, 11:00 a.m., Houston, Texas time, on the date of such
borrowing and (b) in the case of LIBOR Borrowings, 11:00 a.m., Houston, Texas
time, on the date three LIBOR Business Days preceding the first day of any
proposed Interest Period.
RATE DESIGNATION NOTICE means a written notice substantially in the form
of EXHIBIT B.
REGULATION D means Regulation D of the Board of Governors of the Federal
Reserve System from time to time in effect and includes any successor or other
regulation relating to reserve requirements applicable to member banks of the
Federal Reserve System.
REGULATORY CHANGE means with respect to any Lender, any change on or after
the date of this Agreement in any Legal Requirement (including, without
limitation, Regulation D) or the adoption or making on or after such date of any
interpretation, directive or request applying to a class of lenders including
such Lender under any Legal Requirements (whether or not having the force of
law) by any Governmental Authority.
REIMBURSEMENT OBLIGATIONS means, as at any date, the obligations of
Borrower then outstanding, or which may thereafter arise, in respect of Letters
of Credit under this Agreement, to reimburse the applicable Issuers for the
amount paid by such Issuers in respect of any drawing under such Letters of
Credit, which obligations shall at all times be payable in Dollars
notwithstanding any such Letter of Credit being payable in a currency other than
Dollars.
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REQUEST FOR EXTENSION OF CREDIT means a request for extension of credit
duly executed by the chief executive officer, chief financial officer, any vice
president or treasurer of Borrower or any other officer of Borrower duly
authorized in writing by Borrower, appropriately completed and substantially in
the form of EXHIBIT A attached hereto.
REQUIREMENTS OF ENVIRONMENTAL LAW means all requirements imposed by any
law (including for example and without limitation The Resource Conservation and
Recovery Act and The Comprehensive Environmental Response, Compensation, and
Liability Act), rule, regulation, or order of any federal, state or local
executive, legislative, judicial, regulatory or administrative agency, board or
authority in effect at the applicable time which relate to (i) noise; (ii)
pollution, protection or clean-up of the air, surface water, ground water or
land; (iii) solid, gaseous or liquid waste gener ation, treatment, storage,
disposal or transportation; (iv) exposure to Hazardous Substances; (v) the
safety or health of employees or (vi) regulation of the manufacture, processing,
distribution in commerce, use, discharge or storage of Hazardous Substances.
REVOLVING LOAN AVAILABILITY PERIOD means, for each Revolving Loan Lender,
the period from and including the Effective Date to (but not including) the
Revolving Loan Termination Date.
REVOLVING LOAN LENDER means each Lender with (i) prior to the Revolving
Loan Termination Date, a Revolving Loan Commitment and (ii) on and after the
Revolving Loan Termination Date, any outstanding Revolving Loan Obligations.
REVOLVING LOAN COMMITMENT means, as to any Lender, the obligation, if any,
of such Lender to make Loans and incur or participate in Letter of Credit
Liabilities in an aggregate principal amount at any one time outstanding up to
(but not exceeding) the amount, if any, set forth opposite such Lender's name on
the signature pages hereof under the caption "Revolving Loan Commitment", or
otherwise provided for in an Assignment and Acceptance Agreement (as the same
may be reduced from time to time pursuant to SECTION 2.3 hereof).
REVOLVING LOAN COMMITMENT PERCENTAGE means, as to any Revolving Loan
Lender, the percentage equivalent of a fraction the numerator of which is the
amount of such Lender's Revolving Loan Commitment and the denominator of which
is the aggregate amount of the Revolving Loan Commitments of all Lenders.
REVOLVING LOAN MATURITY DATE means the maturity of the Notes, June 30,
2001. Upon written request from Borrower at any time after November 30, 2000 but
prior to February 28, 2001 (and thereafter annually within the same three month
period), Agent shall make request on the Lenders for approval to a one (1) year
extension of the Revolving Loan Maturity Date; PROVIDED, HOWEVER, that no such
extension shall be effective without the unanimous written consent of the
Lenders, which may be given or denied in their sole discretion, with or without
cause.
REVOLVING LOAN OBLIGATIONS means, as at any date of determination thereof,
the sum of the following (determined without duplication): (i) the aggregate
principal amount of Loans outstanding hereunder PLUS (ii) the aggregate amount
of the Letter of Credit Liabilities hereunder.
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REVOLVING LOAN TERMINATION DATE means the earlier of (a) the Revolving
Loan Maturity Date or (b) the date specified by Agent in accordance with SECTION
9.1 hereof.
SECRETARY'S CERTIFICATE means a certificate, in Proper Form, of the
Secretary or an Assistant Secretary of a corporation as to (a) the resolutions
of the Board of Directors of such corporation authorizing the execution,
delivery and performance of the documents to be executed by such corporation;
(b) the incumbency and signature of the officer of such corporation executing
such documents on behalf of such corporation, and (c) the Organizational
Documents of such corporation.
SECURITY AGREEMENTS means (i) security agreements, each in Proper Form,
executed or to be executed in favor of Agent, securing the Obligations, covering
all of the issued and outstanding equity interests in any Subsidiary of Borrower
(other than non-voting preferred stock of Puget Investments, Inc. outstanding as
of the Effective Date and other than Foreign Subsidiaries) and (ii) security
agreements, each in Proper Form, executed in favor of Agent, securing the
Obligations, covering all of the Accounts and Inventory of Borrower and its
Subsidiaries (other than Foreign Subsidiaries) and (iii) security agreements,
each in Proper Form, executed or to be executed in favor of Agent, securing the
Obligations, covering 65% of the issued and outstanding equity interests in any
Foreign Subsidiary, as the same may from time to time be amended, modified,
restated or supplemented.
SECURITY DOCUMENTS means, collectively, the Security Agreements and any
and all security documents now or hereafter executed and delivered by any
Obligor to secure all or any part of the Obligations, as any of them may from
time to time be amended, modified, restated or supplemented.
SENIOR DEBT TO PRO FORM CONSOLIDATED EBITDA RATIO means, as of the end of
any fiscal quarter, the ratio of (a) Indebtedness as of such date minus
Subordinated Indebtedness as of such date to (b) Pro Forma Consolidated EBITDA
for the 12 months ending on such date.
SENIOR SUBORDINATED NOTES means registered senior Subordinated
Indebtedness in an aggregate amount of not less than $75,000,000 and with a
maturity of at least seven (7) years.
STATED RATE means the effective weighted per annum rate of interest
applicable to the Loans; PROVIDED, that if on any day such rate shall exceed the
Ceiling Rate for that day, the Stated Rate shall be fixed at the Ceiling Rate on
that day and on each day thereafter until the total amount of interest accrued
at the Stated Rate on the unpaid principal balances of the Notes plus the
Additional Interest equals the total amount of interest which would have accrued
if there had been no Ceiling Rate. If the Notes mature (or are prepaid) before
such equality is achieved, then, in addition to the unpaid principal and accrued
interest then owing pursuant to the other provisions of the Loan Documents,
Borrower promises to pay on demand to the order of the holder of each Note
interest in an amount equal to the excess (if any) of (a) the lesser of (i) the
total interest which would have accrued on such Note if the Stated Rate had been
defined as equal to the Ceiling Rate from time to time in effect and (ii) the
total interest which would have accrued on such Note if the Stated Rate were not
so prohibited from exceeding the Ceiling Rate, over (b) the total interest
actually accrued on such Note to such maturity (or prepayment) date. Without
notice to Borrower or any other Person, the Stated
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Rate shall automatically fluctuate upward and downward in accordance with the
provisions of this definition.
STOCKHOLDERS' EQUITY means the consolidated stockholders' equity of
Borrower and its Subsidiaries determined in accordance with GAAP.
SUBORDINATED INDEBTEDNESS means all Indebtedness of a Person which has
been subordinated on terms and conditions satisfactory to the Majority Lenders,
in their sole discretion, to all Indebtedness of such Person to Lenders, whether
now existing or hereafter incurred. Indebtedness shall not be considered as
"Subordinated Indebtedness" unless and until Agent shall have received copies of
the documentation evidencing or relating to such Indebtedness together with a
subordination agreement, in Proper Form, duly executed by the holder or holders
of such Indebtedness and evidencing the terms and conditions of subordination
required by the Majority Lenders.
SUBORDINATED NOTES ISSUANCE DATE means the date that the Senior
Subordinated Notes shall have been issued and Borrower shall have received the
proceeds thereof (net of reasonable closing costs).
SUBSIDIARY means, as to a particular parent Corporation, any Corporation
of which more than 50% of the indicia of equity rights (whether outstanding
capital stock or otherwise) is at the time directly or indirectly owned by, such
parent Corporation.
TAXES shall have the meaning ascribed to it in SECTION 4.1(D).
TEXAS CREDIT CODE means Title 79, Texas Revised Civil Statutes, 1925, as
amended.
UNFUNDED LIABILITIES means, with respect to any Plan, at any time, the
amount (if any) by which (a) the present value of all benefits under such Plan
exceeds (b) the fair market value of all Plan assets allocable to such benefits,
all determined as of the then most recent actuarial valuation report for such
Plan, but only to the extent that such excess represents a potential liability
of any member of the Controlled Group to the PBGC or a Plan under Title IV of
ERISA. With respect to multi-employer Plans, the term "Unfunded Liabilities"
shall also include asserted withdrawal liability under Section 4201 of ERISA to
all multi-employer Plans to which Borrower or any member of a Controlled Group
for employees of Borrower contributes in the event of complete withdrawal from
such plans.
1.2 MISCELLANEOUS. The words "HEREOF," "HEREIN," and "HEREUNDER" and words
of similar import when used in this Agreement shall refer to this Agreement as a
whole and not any particular provision of this Agreement. The term "ANNUALIZED"
as used herein shall mean the multiplication of the applicable amount for any
given period by a fraction, the numerator of which is 365 and the denominator of
which is the number of days elapsed in such period.
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2. COMMITMENTS AND LOANS.
2.1 LOANS. Each Lender severally agrees, subject to all of the terms and
conditions of this Agreement (including, without limitation, SECTIONS 5.1 AND
5.2 hereof), to make Loans to Borrower, from time to time on or after the
Effective Date and during the Revolving Loan Availability Period, in an
aggregate principal amount at any one time outstanding (including its Revolving
Loan Commitment Percentage of all Letter of Credit Liabilities at such time) up
to but not exceeding such Lender's Revolving Loan Commitment Percentage of the
aggregate of the Revolving Loan Commitments. Subject to the conditions in this
Agreement, any such Loan repaid prior to the Revolving Loan Termination Date may
be reborrowed pursuant to the terms of this Agreement; PROVIDED, that any and
all such Loans shall be due and payable in full at the end of the Revolving Loan
Availability Period. Borrower, Agent and the Lenders agree pursuant to Chapter
346 ("CHAPTER 346") of the Texas Finance Code, that Chapter 346 (which relates
to open-end line of credit revolving loan accounts) shall not apply to this
Agreement, the Revolving Notes or any Revolving Loan Obligation and that neither
the Revolving Notes nor any revolving Loan Obligation shall be governed by
Chapter 346 or subject to its provisions in any manner whatsoever. The aggregate
of all Loans to be made by the Lenders in connection with a particular borrowing
shall be equal to an integral multiple of $250,000.
2.2 LETTERS OF CREDIT.
(a) LETTERS OF CREDIT. Subject to the terms and conditions of this
Agreement, and on the condition that aggregate Letter of Credit Liabilities
shall never exceed $5,000,000, (i) Borrower shall have the right to, in addition
to Loans provided for in SECTION 2.1 hereof, utilize the Revolving Loan
Commitments from time to time during the Revolving Loan Availability Period by
obtaining the issuance of standby letters of credit for the account of Borrower
if Borrower shall so request in the notice referred to in SECTION 2.2(B)(I)
hereof (such standby letters of credit as any of them may be amended,
supplemented, extended or confirmed from time to time, being herein collectively
called the "LETTERS OF CREDIT)" and (ii) Chase Texas agrees to issue such
Letters of Credit. Upon the date of the issuance of a Letter of Credit, the
applicable Issuer shall be deemed, without further action by any party hereto,
to have sold to each Revolving Loan Lender, and each such Lender shall be
deemed, without further action by any party hereto, to have purchased from the
applicable Issuer, a participation, to the extent of such Lender's Revolving
Loan Commitment Percentage, in such Letter of Credit and the related Letter of
Credit Liabilities, which participation shall terminate on the earlier of the
expiration date of such Letter of Credit or the Revolving Loan Termination Date.
No Letter of Credit shall have an expiration date later than one year from date
of issuance. Any Letter of Credit that shall have an expiration date after the
end of the Revolving Loan Availability Period shall be subject to Cover or
backed by a standby letter of credit in form and substance, and issued by a
Person, acceptable to Agent in its sole discretion. Chase Texas or, with the
prior approval of Borrower, Agent and the applicable Lender, another Lender
shall be the Issuer of each Letter of Credit.
(b) ADDITIONAL PROVISIONS. The following additional provisions shall apply
to each Letter of Credit:
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(i) Borrower shall give Agent notice requesting each issuance of a
Letter of Credit hereunder as provided in SECTION 4.3 hereof and shall
furnish such additional information regarding such transaction as Agent
may reasonably request. Upon receipt of such notice, Agent shall promptly
notify each Revolving Loan Lender of the contents thereof and of such
Lender's Revolving Loan Commitment Percentage of the amount of such
proposed Letter of Credit.
(ii) No Letter of Credit may be issued if after giving effect
thereto the sum of (A) the aggregate outstanding principal amount of Loans
plus (B) the aggregate Letter of Credit Liabilities would exceed the
aggregate of the Revolving Loan Commitments. On each day during the period
commencing with the issuance of any Letter of Credit and until such Letter
of Credit shall have expired or been terminated, the Revolving Loan
Commitment of each Revolving Loan Lender shall be deemed to be utilized
for all purposes hereof in an amount equal to such Lender's Revolving Loan
Commitment Percentage of the amount then available for drawings under such
Letter of Credit (or any unreimbursed drawings under such Letter of
Credit).
(iii) Upon receipt from the beneficiary of any Letter of Credit of
any demand for payment thereunder, Agent shall promptly notify Borrower
and each Lender as to the amount to be paid as a result of such demand and
the payment date therefor. If at any time prior to the earlier of the
expiration date of a Letter of Credit or the Revolving Loan Termination
Date any Issuer shall have made a payment to a beneficiary of a Letter of
Credit in respect of a drawing under such Letter of Credit, each Revolving
Loan Lender will pay to Agent immediately upon demand by such Issuer at
any time during the period commencing after such payment until
reimbursement thereof in full by Borrower, an amount equal to such
Lender's Revolving Loan Commitment Percentage of such payment, together
with interest on such amount for each day from the date of demand for such
payment (or, if such demand is made after 11:00 a.m. Houston time on such
date, from the next succeeding Business Day) to the date of payment by
such Lender of such amount at a rate of interest per annum equal to the
Federal Funds Rate for such period. To the extent that it is ultimately
determined that the Borrower is relieved of its obligation to reimburse
the applicable Issuer because of such Issuer's gross negligence or willful
misconduct in determining that documents received under any applicable
Letter of Credit comply with the terms thereof, the applicable Issuer
shall be obligated to refund to the paying Lenders all amounts paid to
such Issuer to reimburse Issuer for the applicable drawing under such
Letter of Credit.
(iv) Borrower shall be irrevocably and unconditionally obligated
forthwith to reimburse Agent, on the date on which the Agent notifies
Borrower of the date and amount of any payment by the Issuer of any
drawing under a Letter of Credit, for the amount paid by any Issuer upon
such drawing, without presentment, demand, protest or other formalities of
any kind, all of which are hereby waived. Such reimbursement may, subject
to satisfaction of the conditions in SECTIONS 5.1 and 5.2 hereof and to
the aggregate of the Revolving Loan Commitments (after adjustment in the
same to reflect the elimination of the corresponding Letter of Credit
Liability), be made by the borrowing of Loans. Agent will pay to each
Revolving Loan Lender such Lender's Revolving Loan Commitment Percentage
of all
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amounts received from Borrower for application in payment, in whole or in
part, of the Reimbursement Obligation in respect of any Letter of Credit,
but only to the extent such Lender has made payment to Agent in respect of
such Letter of Credit pursuant to CLAUSE (III) above.
(v) Borrower will pay to Agent at the Principal Office for the
account of each Revolving Loan Lender a letter of credit fee with respect
to each Letter of Credit equal to the greater of (x) $500 or (y) the then
current Margin Percentage for LIBOR Borrowings multiplied by the face
amount of such Letter of Credit (and computed on the basis of the actual
number of days elapsed in a year composed of 360 days), in each case for
the period from and including the date of issuance of such Letter of
Credit to and including the date of expiration or termination thereof,
such fee to be due and payable in advance. Agent will pay to each
Revolving Loan Lender, promptly after receiving any payment in respect of
letter of credit fees referred to in this CLAUSE (V), an amount equal to
the product of such Lender's Revolving Loan Commitment Percentage TIMES
the amount of such fees. In addition to and cumulative of the above
described fees, Borrower shall pay to Agent, for the account of the
applicable Issuer, in advance on the date of the issuance of the
applicable Letter of Credit, a fronting fee in an amount equal to 1/8% of
the face amount of the applicable Letter of Credit (such fronting fee to
be retained by the applicable Issuer for its own account).
(vi) The issuance by the applicable Issuer of each Letter of Credit
shall, in addition to the conditions precedent set forth in SECTION 5
hereof, be subject to the conditions precedent (A) that such Letter of
Credit shall be in such form and contain such terms as shall be reasonably
satisfactory to Agent, and (B) that Borrower shall have executed and
delivered such Applications and other instruments and agreements relating
to such Letter of Credit as Agent shall have reasonably requested and are
not inconsistent with the terms of this Agreement. In the event of a
conflict between the terms of this Agreement and the terms of any
Application, the terms hereof shall control.
(vii) Issuer will send to the Borrower and each Lender, immediately
upon issuance of any Letter of Credit issued by Issuer or any amendment
thereto, a true and correct copy of such Letter of Credit or amendment.
(c) INDEMNIFICATION; RELEASE. Borrower hereby indemnifies and holds
harmless Agent, each Revolving Loan Lender and each Issuer from and against any
and all claims and damages, losses, liabilities, costs or expenses which Agent,
such Lender or such Issuer may incur (or which may be claimed against Agent,
such Lender or such Issuer by any Person whatsoever), REGARDLESS OF WHETHER
CAUSED IN WHOLE OR IN PART BY THE NEGLIGENCE OF ANY OF THE INDEMNIFIED PARTIES,
in connection with the execution and delivery of any Letter of Credit or
transfer of or payment or failure to pay under any Letter of Credit; PROVIDED
that Borrower shall not be required to indemnify any party seeking
indemnification for any claims, damages, losses, liabilities, costs or expenses
to the extent, but only to the extent, caused by (i) the willful misconduct or
gross negligence of the party seeking indemnification, or (ii) the failure by
the party seeking indemnification to pay under any Letter of Credit after the
presentation to it of a request required to be paid under applicable law.
Borrower hereby releases,
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waives and discharges Agent, each Revolving Loan Lender and each Issuer from any
claims, causes of action, damages, losses, liabilities, reasonable costs or
expenses which may now exist or may hereafter arise, REGARDLESS OF WHETHER
CAUSED IN WHOLE OR IN PART BY THE NEGLIGENCE OF ANY OF THE INDEMNIFIED PARTIES,
by reason of or in connection with the failure of any other Revolving Loan
Lender to fulfill or comply with its obligations to Agent, such Lender or such
Issuer, as the case may be, hereunder (but nothing herein contained shall affect
any rights Borrower may have against such defaulting Lender); PROVIDED that
Borrower shall not be required to indemnify any party seeking indemnification
for any claims, damages, losses, liabilities, costs or expenses to the extent,
but only to the extent, caused by (i) the willful misconduct or gross negligence
of the party seeking indemnification, or (ii) the failure by the party seeking
indemnification to pay under any Letter of Credit after the presentation to it
of a request required to be paid under applicable law or (iii) disputes between
or among any and all of Agent, Lenders and Issuers. Nothing in this SECTION
2.2(C) is intended to limit the obligations of Borrower under any other
provision of this Agreement.
(d) ADDITIONAL COSTS IN RESPECT OF LETTERS OF CREDIT. If as a result of
any Regulatory Change there shall be imposed, modified or deemed applicable any
tax (other than any tax based on or measured by net income), reserve, special
deposit or similar requirement against or with respect to or measured by
reference to Letters of Credit issued or to be issued hereunder or
participations in such Letters of Credit, and the result shall be to increase
the cost to any Revolving Loan Lender of issuing or maintaining any Letter of
Credit or any participation therein, or materially reduce any amount receivable
by any Revolving Loan Lender hereunder in respect of any Letter of Credit or any
participation therein (which increase in cost, or reduction in amount
receivable, shall be the result of such Lender's reasonable allocation of the
aggregate of such increases or reductions resulting from such event), then such
Lender shall notify Borrower through Agent (which notice shall be accompanied by
a statement setting forth in reasonable detail the basis for the determination
of the amount due), and within 15 Business Days after demand therefor by such
Lender through Agent, Borrower shall pay to such Lender, from time to time as
specified by such Lender, such additional amounts as shall be sufficient to
compensate such Lender for such increased costs or reductions in amount. Such
statement as to such increased costs or reductions in amount incurred by such
Lender, submitted by such Lender to Borrower, shall create a rebuttable
presumption as to the accuracy thereof, and may be computed using any reasonable
averaging and attribution method. Each Lender will notify Borrower through Agent
of any event occurring after the date of this Agreement which will entitle such
Lender to compensation pursuant to this Section as promptly as practicable after
any executive officer of such Lender obtains knowledge thereof and determines to
request such compensation, and (if so requested by Borrower through Agent) will
designate a different lending office of such Lender for the issuance or
maintenance of Letters of Credit by such Lender or will take such other action
as Borrower may reasonably request if such designation or action is consistent
with the internal policy of such Lender and legal and regulatory restrictions,
can be undertaken at no additional cost, will avoid the need for, or reduce the
amount of, such compensation and will not, in the sole opinion of such Lender,
be disadvantageous to such Lender (PROVIDED that such Lender shall have no
obligation so to designate a different lending office which is not located in
the United States of America).
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2.3 TERMINATIONS OR REDUCTIONS OF COMMITMENTS.
(a) MANDATORY. On the Revolving Loan Termination Date, all Revolving Loan
Commitments shall be terminated in their entirety.
(b) OPTIONAL. Borrower shall have the right to terminate or reduce the
unused portion of the Revolving Loan Commitments at any time or from time to
time, PROVIDED that (i) Borrower shall give notice of each such termination or
reduction to Agent as provided in SECTION 4.3 hereof and (ii) each such partial
reduction shall be in an integral multiple of $5,000,000.
(c) NO REINSTATEMENT. No termination or reduction of the Revolving Loan
Commitments may be reinstated without the written approval of Agent and the
Lenders.
2.4 COMMITMENT FEES.
(a) Borrower shall pay to Agent for the account of each Revolving Loan
Lender revolving loan commitment fees for the period from the Effective Date to
and including the Revolving Loan Termination Date at a rate per annum equal to
the Commitment Fee Percentage. Such revolving loan commitment fees shall be
computed (on the basis of the actual number of days elapsed in a year composed
of 360 days) on each day and shall be based on the excess of (x) the aggregate
amount of each Revolving Loan Lender's Revolving Loan Commitment for such day
over (y) the sum of (i) the aggregate unpaid principal balance of such Lender's
Revolving Note on such day PLUS (ii) the aggregate Letter of Credit Liabilities
as to such Lender for such day. Accrued revolving loan commitment fees shall be
payable in arrears on the Quarterly Dates prior to the Revolving Loan
Termination Date and on the Revolving Loan Termination Date.
(b) All past due fees payable under this Section shall bear interest at
the Past Due Rate.
2.5 SEVERAL OBLIGATIONS. The failure of any Lender to make any Loan to be
made by it on the date specified therefor shall not relieve any other Lender of
its obligation to make its Loan on such date, but neither Agent nor any Lender
shall be responsible or liable for the failure of any other Lender to make a
Loan to be made by such other Lender or to participate in, or co-issue, any
Letter of Credit. Notwithstanding anything contained herein to the contrary, (a)
no Lender shall be required to make or maintain Loans at any time outstanding if
as a result the total Revolving Loan Obligations held by such Lender shall
exceed the lesser of (1) such Lender's Revolving Loan Commitment Percentage of
all Revolving Loan Obligations and (2) such Lender's Revolving Loan Commitment
Percentage of the aggregate of the Revolving Loan Commitments and (b) if a
Revolving Loan Lender fails to make a Loan as and when required hereunder, then
upon each subsequent event which would otherwise result in funds being paid to
the defaulting Lender, the amount which would have been paid to the defaulting
Lender shall be divided among the non-defaulting Lenders ratably according to
their respective shares of the outstanding Revolving Loan Commitment Percentages
until the Revolving Loan Obligations of each Revolving Loan Lender (including
the defaulting Lender) are equal to such Lender's Revolving Loan Commitment
Percentage of the total Revolving Loan Obligations.
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2.6 NOTES. The Loans made by each Lender shall be evidenced by a single
promissory note of Borrower in substantially the form of EXHIBIT C hereto
payable to the order of such Lender in a principal amount equal to the Revolving
Loan Commitment of such Lender, and otherwise duly completed. The promissory
notes described in this Section are each, together with all renewals,
extensions, modifications, amendments, increases and/or and replacements thereof
and substitutions therefor, called a "NOTE" and collectively called the "NOTES".
Each Lender is hereby authorized by Borrower to endorse on the schedule (or a
continuation thereof) that may be attached to each Note of such Lender, to the
extent applicable, the date, amount, type of and the applicable period of
interest for each Loan made by such Lender to Borrower hereunder, and the amount
of each payment or prepayment of principal of such Loan received by such Lender,
PROVIDED, that any failure by such Lender to make any such endorsement shall not
affect the obligations of Borrower under such Note or hereunder in respect of
such Loan.
2.7 USE OF PROCEEDS. The proceeds of the Loans shall be used to refinance
existing Borrowed Money Indebtedness of Borrower, to finance acquisitions and
for other working capital and general corporate purposes. Neither Agent nor any
Lender shall have any responsibility as to the use of any proceeds of the Loans.
3. BORROWINGS, PAYMENTS, PREPAYMENTS AND INTEREST OPTIONS.
3.1 BORROWINGS. Borrower shall give Agent notice of each borrowing to be
made hereunder as provided in SECTION 4.3 hereof and Agent shall promptly notify
each Lender of such request. Not later than 2:00 p.m. Houston time on the date
specified for each such borrowing hereunder, each Lender shall make available
the amount of the Loan, if any, to be made by it on such date to Agent at its
Principal Office, in immediately available funds, for the account of Borrower.
Such amounts received by Agent will be held in an account maintained by Borrower
with Agent. The amounts so received by Agent shall, subject to the terms and
conditions of this Agreement, be made available to Borrower by wiring or
otherwise transferring, in immediately available funds, such amount to an
account designated by Borrower.
3.2 PREPAYMENTS.
(a) OPTIONAL PREPAYMENTS. Except as provided in SECTION 3.3 hereof,
Borrower shall have the right to prepay, on any Business Day, in whole or in
part, without the payment of any penalty or fee, any Loans at any time or from
time to time, PROVIDED that Borrower shall give Agent notice of each such
prepayment as provided in SECTION 4.3 hereof. Each optional prepayment on a Loan
shall be in an amount equal to an integral multiple of $250,000.
(b) INTEREST PAYMENTS. Accrued and unpaid interest on the unpaid principal
balance of the Loans shall be due and payable on the Interest Payment Dates.
(c) PAYMENTS AND INTEREST ON REIMBURSEMENT OBLIGATIONS. Borrower will pay
to Agent for the account of each Lender the amount of each Reimbursement
Obligation on the date on which the Agent notifies Borrower of the date and
amount of the applicable payment by the Issuer of any drawing under a Letter of
Credit. The amount of any Reimbursement Obligation may, if the
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applicable conditions precedent specified in SECTIONS 5.1 and 5.2 hereof have
been satisfied, be paid with the proceeds of Loans. Subject to SECTION 11.7
hereof, Borrower will pay to Agent for the account of each Lender interest on
any Reimbursement Obligation (i) at the Base Rate plus the applicable Margin
Percentage from the date such Reimbursement Obligation arises until the date
five (5) Business Days thereafter and (ii) at the Past Due Rate thereafter until
the same is paid in full.
3.3 INTEREST OPTIONS
(a) OPTIONS AVAILABLE. The outstanding principal balance of the Notes
shall bear interest at the Base Rate; PROVIDED, that (1) all past due amounts,
both principal and accrued interest, shall bear interest at the Past Due Rate,
and (2) subject to the provisions hereof, Borrower shall have the option of
having all or any portion of the principal balances of the Notes from time to
time outstanding bear interest at a Eurodollar Rate. The records of Agent and
each of the Lenders with respect to Interest Options, Interest Periods and the
amounts of Loans to which they are applicable shall create a rebuttable
presumption as to the accuracy thereof, and Agent and Lenders agree to furnish
written evidence to Borrower upon request of Borrower with respect to such
matters. Interest on the Loans shall be calculated at the Base Rate except where
it is expressly provided pursuant to this Agreement that a Eurodollar Rate is to
apply. Interest on the amount of each advance against the Notes shall be
computed on the amount of that advance and from the date it is made.
Notwithstanding anything in this Agreement to the contrary, for the full term of
the Notes the interest rate produced by the aggregate of all sums paid or agreed
to be paid to the holders of the Notes for the use, forbearance or detention of
the debt evidenced thereby (including all interest on the Notes at the Stated
Rate plus the Additional Interest) shall not exceed the Ceiling Rate.
(b) DESIGNATION AND CONVERSION. Borrower shall have the right to designate
or convert its Interest Options in accordance with the provisions hereof.
PROVIDED no Event of Default has occurred and is continuing and subject to the
last sentence of SECTION 3.3(A) and the provisions of SECTION 3.3(C), Borrower
may elect to have a Eurodollar Rate apply or continue to apply to all or any
portion of the principal balance of the Notes. Each change in Interest Options
shall be a conversion of the rate of interest applicable to the specified
portion of the Loans, but such conversion shall not change the respective
outstanding principal balances of the Notes. The Interest Options shall be
designated or converted in the manner provided below:
(i) Borrower shall give Agent telephonic notice, promptly confirmed by a
Rate Designation Notice (and Agent shall promptly inform each Lender
thereof). Each such telephonic and written notice shall specify the
amount of the Loan which is the subject of the designation, if any;
the amount of borrowings into which such borrow ings are to be
converted or for which an Interest Option is designated; the
proposed date for the designation or conversion and the Interest
Period or Periods, if any, selected by Borrower. Such telephonic
notice shall be irrevocable and shall be given to Agent no later
than the applicable Rate Designation Date.
(ii) No more than eight (8) LIBOR Borrowings shall be in effect with
respect to the Loans at any time.
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(iii) Each designation or conversion of a LIBOR Borrowing shall occur on a
LIBOR Business Day.
(iv) Each request for a LIBOR Borrowing shall be in the amount equal to
an integral multiple of $250,000.
(v) Each designation of an Interest Option with respect to the Revolving
Notes shall apply to all of the Revolving Notes ratably in
accordance with their respective outstanding principal balances. If
any Lender assigns an interest in any of its Notes when any LIBOR
Borrowing is outstanding with respect thereto, then such assignee
shall have its ratable interest in such LIBOR Borrowing.
(c) SPECIAL PROVISIONS APPLICABLE TO LIBOR BORROWINGS.
(i) OPTIONS UNLAWFUL. If the adoption of any applicable Legal Requirement
after the Effective Date or any change after the Effective Date in any
applicable Legal Requirement or in the interpretation or administration thereof
by any Governmental Authority or compliance by any Lender with any request or
directive (whether or not having the force of law) issued after the Effective
Date by any central bank or other Governmental Authority shall at any time make
it unlawful or impossible for any Lender to permit the establishment of or to
maintain any LIBOR Borrowing, the commitment of such Lender to establish or
maintain such LIBOR Borrowing shall forthwith be canceled and Borrower shall
forthwith, upon demand by Agent to Borrower, (1) convert the LIBOR Borrowing of
such Lender with respect to which such demand was made to a Base Rate Borrowing;
(2) pay all accrued and unpaid interest to date on the amount so converted; and
(3) pay any amounts required to compensate each Lender for any additional cost
or expense which any Lender may incur as a result of such adoption of or change
in such Legal Requirement or in the interpretation or administration thereof and
any Funding Loss which any Lender may incur as a result of such conversion. If,
when Agent so notifies Borrower, Borrower has given a Rate Designation Notice
specifying a LIBOR Borrowing but the selected Interest Period has not yet begun,
as to the applicable Lender such Rate Designation Notice shall be deemed to be
of no force and effect, as if never made, and the balance of the Loans made by
such Lender specified in such Rate Designation Notice shall bear interest at the
Base Rate until a different available Interest Option shall be designated in
accordance herewith.
(ii) INCREASED COST OF BORROWINGS. If the adoption after the Effective
Date of any applicable Legal Requirement or any change after the Effective Date
in any applicable Legal Requirement or in the interpretation or administration
thereof by any Governmental Authority or compliance by any Lender with any
request or directive (whether or not having the force of law) issued after the
Effective Date by any central bank or Governmental Authority shall at any time
as a result of any portion of the principal balances of the Notes being
maintained on the basis of a Eurodollar Rate:
(1) subject any Lender to any Taxes, or any deduction or
withholding for any Taxes, on or from any payment due under
any LIBOR Borrowing or other amount due hereunder, other than
income and franchise taxes of the United
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States or its political subdivisions or such other
jurisdiction in which the applicable Lender has its principal
office or applicable lending office; or
(2) change the basis of taxation of payments due from Borrower to
any Lender under any LIBOR Borrowing (other than by a change
in the rate of taxation of the overall net income of such
Lender); or
(3) impose, modify, increase or deem applicable any reserve
requirement (excluding that portion of any reserve requirement
included in the calculation of the applicable Eurodollar
Rate), special deposit requirement or similar requirement
(including, but not limited to, state law requirements and
Regulation D) against assets of any Lender, or against
deposits with any Lender, or against loans made by any Lender,
or against any other funds, obli gations or other property
owned or held by any Lender; or
(4) impose on any Lender any other condition regarding any LIBOR
Borrowing;
and the result of any of the foregoing is to increase the cost to any Lender of
agreeing to make or of making, renewing or maintaining such LIBOR Borrowing, or
reduce the amount of principal or interest received by any Lender, then, within
15 Business Days after demand by the applicable Lender (accompanied by a
statement setting forth in reasonable detail the applicable Lender's basis
therefor), Borrower shall pay to Agent additional amounts which shall compensate
each Lender for such increased cost or reduced amount. The determination by any
Lender of the amount of any such increased cost, increased reserve requirement
or reduced amount shall create a rebuttable presumption as to the accuracy
thereof. Borrower shall have the right, if it receives from Agent any notice
referred to in this paragraph, upon three Business Days' notice to Agent (which
shall notify each affected Lender), either (i) to repay in full (but not in
part) any borrowing with respect to which such notice was given, together with
any accrued interest thereon, or (ii) to convert the LIBOR Borrowing which is
the subject of the notice to a Base Rate Borrowing; PROVIDED, that any such
repayment or conversion shall be accompanied by payment of (x) the amount
required to compensate each Lender for the increased cost or reduced amount
referred to in the preceding paragraph; (y) all accrued and unpaid interest to
date on the amount so repaid or converted, and (z) any Funding Loss which any
Lender may incur as a result of such repayment or conversion. Each Lender will
notify Borrower through Agent of any event occurring after the date of this
Agreement which will entitle such Lender to compensation pursuant to this
Section as promptly as practicable after it obtains knowledge thereof and
determines to request such compensation, and (if so requested by Borrower
through Agent) will designate a different lending office of such Lender for the
applicable LIBOR Borrowing or will take such other action as Borrower may
reasonably request if such designation or action is consistent with the internal
policy of such Lender and legal and regulatory restrictions, will avoid the need
for, or reduce the amount of, such compensation and will not, in the sole
opinion of such Lender, be disadvantageous to such Lender (PROVIDED that such
Lender shall have no obligation so to designate a different lending office which
is located in the United States of America).
(iii) INADEQUACY OF PRICING AND RATE DETERMINATION. If, for any reason
with respect to any Interest Period, Agent (or, in the case of CLAUSE 3 below,
the applicable Lender) shall have
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determined (which determination shall create a rebuttable presumption as to the
accuracy thereof) that:
(1) Agent is unable through its customary general practices to
determine any applicable Eurodollar Rate, or
(2) by reason of circumstances affecting the applicable market,
generally, Agent is not being offered deposits in United
States dollars in such market, for the applicable Interest
Period and in an amount equal to the amount of any applicable
LIBOR Borrowing requested by Borrower, or
(3) any applicable Eurodollar Rate will not adequately and fairly
reflect the cost to any Lender of making and maintaining such
LIBOR Borrowing hereunder for any proposed Interest Period,
then Agent shall give Borrower written notice thereof (accompanied by a
statement setting forth in reasonable detail the applicable Lender's basis
therefor) and thereupon, (A) any Rate Designation Notice previously given by
Borrower designating the applicable LIBOR Borrowing which has not commenced as
of the date of such notice from Agent shall be deemed for all purposes hereof to
be of no force and effect, as if never given, and (B) until Agent shall notify
Borrower that the circumstances giving rise to such notice from Agent no longer
exist, each Rate Designation Notice requesting the applicable Eurodollar Rate
shall be deemed a request for a Base Rate Borrowing, and any applicable LIBOR
Borrowing then outstanding shall be converted, without any notice to or from
Borrower, upon the termination of the Interest Period then in effect with
respect to it, to a Base Rate Borrowing.
(iv) FUNDING LOSSES. Borrower shall indemnify each Lender against and hold
each Lender harmless from any Funding Loss. This indemnity shall survive the
payment of the Notes. A certificate of such Lender (explaining in reasonable
detail the amount and calculation of the amount claimed) as to any additional
amounts payable pursuant to this paragraph submitted to Borrower shall create a
rebuttable presumption as to the accuracy thereof.
(d) FUNDING OFFICES; ADJUSTMENTS AUTOMATIC; CALCULATION YEAR. Any Lender
may, if it so elects, fulfill its obligation as to any LIBOR Borrowing by
causing a branch or affiliate of such Lender to make such Loan and may transfer
and carry such Loan at, to or for the account of any branch office or affiliate
of such Lender; PROVIDED, that in such event for the purposes of this Agreement
such Loan shall be deemed to have been made by such Lender and the obligation of
Borrower to repay such Loan shall nevertheless be to such Lender and shall be
deemed held by it for the account of such branch or affiliate. Without notice to
Borrower or any other Person, each rate required to be calculated or determined
under this Agreement shall automatically fluctuate upward and downward in
accordance with the provisions of this Agreement. Interest at the Prime Rate
shall be computed on the basis of the actual number of days elapsed in a year
consisting of 365 or 366 days, as the case may be. All other interest required
to be calculated or determined under this Agreement shall be computed on the
basis of the actual number of days elapsed in a year consisting of 360 days,
unless the Ceiling Rate would thereby be exceeded, in which event, to the extent
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necessary to avoid exceeding the Ceiling Rate, the applicable interest shall be
computed on the basis of the actual number of days elapsed in the applicable
calendar year in which accrued.
(e) FUNDING SOURCES. Notwithstanding any provision of this Agreement to
the contrary, each Lender shall be entitled to fund and maintain its funding of
all or any part of the Loans in any manner it sees fit, it being understood,
however, that for the purposes of this Agreement all determinations hereunder
shall be made as if each Lender had actually funded and maintained each LIBOR
Borrowing during each Interest Period through the purchase of deposits having a
maturity corresponding to such Interest Period and bearing an interest rate
equal to the Eurodollar Rate for such Interest Period.
3.4 CAPITAL ADEQUACY. If any Lender shall have determined that the
adoption after the Effective Date or effectiveness after the Effective Date
(whether or not previously announced) of any applicable law, rule, regulation or
treaty regarding capital adequacy, or any change therein after the Effective
Date, or any change in the interpretation or administration thereof after the
Effective Date by any Governmental Authority, central bank or comparable agency
charged with the interpretation or administration thereof, or compliance by any
Lender with any request or directive after the Effective Date regarding capital
adequacy (whether or not having the force of law) of any such Governmental
Authority, central bank or comparable agency has or would have the effect of
reducing the rate of return on such Lender's capital as a consequence of its
obligations hereunder, under the Letters of Credit, the Notes or other
Obligations held by it to a level below that which such Lender could have
achieved but for such adoption, change or compliance (taking into consideration
such Lender's policies with respect to capital adequacy) by an amount deemed by
such Lender to be material, then from time to time, upon satisfaction of the
conditions precedent set forth in this Section, after demand by such Lender
(with a copy to Agent) as provided below, Borrower shall pay (subject to SECTION
11.7 hereof) to such Lender such additional amount or amounts as will compensate
such Lender for such reduction. The certificate of any Lender setting forth such
amount or amounts as shall be necessary to compensate it and the basis thereof
and reasons therefor shall be delivered as soon as practicable to Borrower and
shall create a rebuttable presumption as to the accuracy thereof. Borrower shall
pay the amount shown as due on any such certificate within five (5) Business
Days after the delivery of such certificate. In preparing such certificate, a
Lender may employ such assumptions and allocations of costs and expenses as it
shall in good faith deem reasonable and may use any reasonable averaging and
attribution method.
3.5 LIMITATION ON CHARGES; SUBSTITUTE LENDERS; NON-DISCRIMINATION.
Anything in SECTIONS 3.3(C) or 3.4 notwithstanding:
(1) Borrower shall not be required to pay to any Lender
reimbursement with regard to any costs or expenses described in such
Sections, unless such Lender notifies Borrower of such costs or expenses
within 90 days after the date paid or incurred;
(2) none of the Lenders shall be permitted to pass through to
Borrower charges and costs under such Sections on a discriminatory basis
(i.e., which are not also passed through by such Lender to other customers
of such Lender similarly situated where such customer is subject to
documents providing for such pass through); and
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(3) if any Lender elects to pass through to Borrower any material
charge or cost under such Sections or elects to terminate the availability
of LIBOR Borrowings for any material period of time, Borrower may, within
60 days after the date of such event and so long as no Default shall have
occurred and be continuing, elect to terminate such Lender as a party to
this Agreement; PROVIDED that, concurrently with such termination Borrower
shall (i) if Agent and each of the other Lenders shall consent, pay that
Lender all principal, interest and fees and other amounts owed to such
Lender through such date of termination or (ii) have arranged for another
financial institution approved by Agent (such approval not to be
unreasonably withheld) as of such date, to become a substitute Lender for
all purposes under this Agreement in the manner provided in SECTION 11.6;
PROVIDED FURTHER that, prior to substitution for any Lender, Borrower
shall have given written notice to Agent of such intention and the Lenders
shall have the option, but no obligation, for a period of 60 days after
receipt of such notice, to increase their Revolving Loan Commitments in
order to replace the affected Lender in lieu of such substitution.
4. PAYMENTS; PRO RATA TREATMENT; COMPUTATIONS, ETC.
4.1 PAYMENTS.
(a) Except to the extent otherwise provided herein, all payments of
principal, interest, Reimbursement Obligations and other amounts to be made by
Borrower hereunder, under the Notes and under the other Loan Documents shall be
made in Dollars, in immediately available funds, to Agent at the Principal
Office (or in the case of a successor Agent, at the principal office of such
successor Agent in the United States), not later than 11:00 a.m. Houston time on
the date on which such payment shall become due (each such payment made after
such time on such due date to be deemed to have been made on the next succeeding
Business Day).
(b) Borrower shall, at the time of making each payment hereunder, under
any Note or under any other Loan Document, specify to Agent the Loans or other
amounts payable by Borrower hereunder or thereunder to which such payment is to
be applied. Each payment received by Agent hereunder, under any Note or under
any other Loan Document for the account of a Lender shall be paid promptly to
such Lender, in immediately available funds. If Agent fails to send to any
Lender the applicable amount by the close of business on the date any such
payment is received by Agent if such payment is received prior to 11:00 a.m.
Houston time (or on the next succeeding Business Day with respect to payments
which are received after 11:00 a.m. Houston time), Agent shall pay to the
applicable Lender interest on such amount from such date at the Federal Funds
Rate. Borrower, the Lenders and Agent acknowledge and agree that this provision
and each other provision of this Agreement or any of the other Loan Documents
relating to the application of amounts in payment of the Obligations shall be
subject to the provisions of SECTION 4.2(D) regarding PRO RATA application of
amounts after an Event of Default shall have occurred and be continuing.
(c) If the due date of any payment hereunder or under any Note falls on a
day which is not a Business Day, the due date for such payments (except as
otherwise provided in SECTION 3.3 hereof) shall be extended to the next
succeeding Business Day and interest shall be payable for any principal so
extended for the period of such extension.
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(d) All payments by the Borrower hereunder or under any other Loan
Document shall be made free and clear of and without deduction for or on account
of any present or future income, stamp, or other taxes, fees, duties,
withholding or other charges of any nature whatsoever imposed by any taxing
authority excluding in the case of each Lender taxes imposed on or measured by
its net income or franchise taxes imposed by the jurisdiction in which it is
organized or through which it acts for purposes of this Agreement (such
non-excluded items being hereinafter referred to as "TAXES"). If as a result of
any change in law (or the interpretation thereof) after the date that the
applicable Lender became a "Lender" under this Agreement any withholding or
deduction from any payment to be made to, or for the account of, a Lender by the
Borrower hereunder or under any other Loan Document is required in respect of
any Taxes pursuant to any applicable law, rule, or regulation, then the Borrower
will (i) pay to the relevant authority the full amount required to be so
withheld or deducted; (ii) to the extent available, promptly forward to the
Agent an official receipt or other documentation reasonably satisfactory to the
Agent evidencing such payment to such authority; and (iii) pay to the Agent, for
the account of each affected Lender, such additional amount or amounts as are
necessary to ensure that the net amount actually received by such Lender will
equal the full amount such Lender would have received had no such withholding or
deduction been required. Each Lender shall determine such additional amount or
amounts payable to it (which determination shall create a rebuttable presumption
as to the accuracy thereof), and in such event, Agent shall furnish written
evidence to Borrower showing how Agent made such determination. If a Lender
becomes aware that any such withholding or deduction from any payment to be made
by the Borrower hereunder or under any other Loan Document is required, then
such Lender shall promptly notify the Agent and the Borrower thereof stating the
reasons therefor and the additional amount required to be paid under this
Section. Each Lender shall execute and deliver to the Agent and Borrower such
forms as it may be required to execute and deliver pursuant to SECTION 11.13
hereof. To the extent that any such withholding or deduction results from the
failure of a Lender to provide a form required by SECTION 11.13 hereof (unless
such failure is due to some prohibition under applicable Legal Requirements),
the Borrower shall have no obligation to pay the additional amount required by
CLAUSE (III) above. Anything in this Section notwithstanding, if any Lender
elects to require payment by the Borrower of any material amount under this
Section, the Borrower may, within 60 days after the date of receiving notice
thereof and so long as no Default shall have occurred and be continuing, elect
to terminate such Lender as a party to this Agreement; PROVIDED that,
concurrently with such termination the Borrower shall (i) if the Agent and each
of the other Lenders shall consent, pay that Lender all principal, interest and
fees and other amounts owed to such Lender through such date of termination or
(ii) have arranged for another financial institution approved by the Agent (such
approval not to be unreasonably withheld) as of such date, to become a
substitute Lender for all purposes under this Agreement in the manner provided
in SECTION 11.6; PROVIDED FURTHER that, prior to substitution for any Lender,
the Borrower shall have given written notice to the Agent of such intention and
the Lenders shall have the option, but no obligation, for a period of 60 days
after receipt of such notice, to increase their Commitments in order to replace
the affected Lender in lieu of such substitution.
4.2 PRO RATA TREATMENT. Except to the extent otherwise provided herein:
(a) each borrowing from the Lenders under SECTION 2.1 hereof shall be made
ratably from the Revolving Loan Lenders in accordance with their respective
Revolving Loan Commitments; (b) each payment of revolving loan commitment fees
shall be made for the account of the Revolving Loan Lenders, and
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each termination or reduction of the Revolving Loan Commitments of the Revolving
Loan Lenders under SECTION 2.3 hereof shall be applied, PRO RATA, according to
the Revolving Loan Lenders' respective Revolving Loan Commitments; (c) each
payment by Borrower of principal of or interest on the Loans shall be made to
Agent for the account of the Lenders PRO RATA in accordance with the respective
unpaid principal amounts of such Loans held by the Lenders, and (d) the
Revolving Loan Lenders (other than the applicable Issuer) shall purchase from
the applicable Issuer participations in each Letter of Credit to the extent of
their respective Revolving Loan Commitment Percentages.
4.3 CERTAIN ACTIONS, NOTICES, ETC. Notices to Agent of any termination or
reduction of Revolving Loan Commitments and of borrowings and optional
prepayments of Loans and requests for issuances of Letters of Credit shall be
irrevocable and shall be effective only if received by Agent not later than
11:00 a.m. Houston time on the number of Business Days prior to the date of the
relevant termination, reduction, borrowing and/or prepayment specified below:
NUMBER OF BUSINESS DAYS
PRIOR NOTICE
Borrowing at the Base Rate same day
Repayment of Base Rate Borrowing same day
Borrowing at Eurodollar Rate 3 LIBOR Business Days
Repayment of LIBOR Borrowing
prior to last day of the applicable 1 LIBOR Business day
Interest Period
Letter of Credit issuance 3
Termination or Reduction of
Revolving Loan Commitments 3
Each such notice of termination or reduction shall specify the amount of the
applicable Revolving Loan Commitment to be terminated or reduced. Each such
notice of borrowing or prepayment shall specify the amount of the Loans to be
borrowed or prepaid and the date of borrowing or prepayment (which shall be a
Business Day). Agent shall promptly notify the affected Lenders of the contents
of each such notice. Any selection of a Eurodollar Rate with respect to a Loan
shall be subject to the advance notice requirements set forth in SECTION 3.3
hereof.
4.4 NON-RECEIPT OF FUNDS BY AGENT. Unless Agent shall have been notified
by a Lender or Borrower (the "PAYOR") prior to the date on which such Lender is
to make payment to Agent of the proceeds of a Loan (or funding of a drawing
under a Letter of Credit or reimbursement with respect to any drawing under a
Letter of Credit) to be made by it hereunder or Borrower is to make a payment to
Agent for the account of one or more of the Lenders, as the case may be (such
payment
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being herein called the "REQUIRED PAYMENT"), which notice shall be effective
upon receipt, that the Payor does not intend to make the Required Payment to
Agent, Agent may assume that the Required Payment has been made and may, in
reliance upon such assumption (but shall not be required to), make the amount
thereof available to the intended recipient on such date and, if the Payor has
not in fact made the Required Payment to Agent, the recipient of such payment
(or, if such recipient is the beneficiary of a Letter of Credit, Borrower and,
if Borrower fails to pay the amount thereof to Agent forthwith upon demand, the
Lenders ratably in proportion to their respective Revolving Loan Commitment
Percentages) shall, on demand, pay to Agent the amount made available by Agent,
together with interest thereon in respect of the period commencing on the date
such amount was so made available by Agent until the date Agent recovers such
amount at a rate per annum equal to the Federal Funds Rate for such period.
4.5 SHARING OF PAYMENTS, ETC. If a Lender shall obtain payment of any
principal of or interest on any Loan made by it under this Agreement, on any
Reimbursement Obligation or on any other Obligation then due to such Lender
hereunder, through the exercise of any right of set-off (including, without
limitation, any right of setoff or lien granted under SECTION 9.2 hereof),
banker's lien, counterclaim or similar right, or otherwise, it shall promptly
purchase from the other Lenders participations in the Loans made, or
Reimbursement Obligations or other Obligations held, by the other Lenders in
such amounts, and make such other adjustments from time to time as shall be
equitable to the end that all the Lenders shall share the benefit of such
payment (net of any expenses which may be incurred by such Lender in obtaining
or preserving such benefit) PRO RATA in accordance with the unpaid Obligations
then due to each of them. To such end all the Lenders shall make appropriate
adjustments among themselves (by the resale of participations sold or otherwise)
if such payment is rescinded or must otherwise be restored. Borrower agrees, to
the fullest extent it may effectively do so under applicable law, that any
Lender so purchasing a participation in the Loans made, or Reimbursement
Obligations or other Obligations held, by other Lenders may exercise all rights
of set-off, bankers' lien, counterclaim or similar rights with respect to such
participation as fully as if such Lender were a direct holder of Loans, or
Reimbursement Obligations or other Obligations in the amount of such
participation. Nothing contained herein shall require any Lender to exercise any
such right or shall affect the right of any Lender to exercise, and retain the
benefits of exercising, any such right with respect to any other indebtedness or
obligation of Borrower.
5. CONDITIONS PRECEDENT.
5.1 INITIAL LOANS AND LETTERS OF CREDIT. The obligation of each Lender or
each Issuer to make its initial Loans or issue or participate in a Letter of
Credit (if such Letter of Credit is issued prior to the funding of the initial
Loans) hereunder is subject to the following conditions precedent, each of which
shall have been fulfilled or waived to the satisfaction of Agent:
(a) AUTHORIZATION AND STATUS. Agent shall have received from the
appropriate Governmental Authorities certified copies of the Organizational
Documents (other than by-laws) of each Obligor, and evidence satisfactory to
Agent of all action taken by each Obligor authorizing the execution, delivery
and performance of the Loan Documents and all other documents related to this
Agreement to which it is a party (including, without limitation, a certificate
of the secretary of each
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such party which is a corporation setting forth the resolutions of its Board of
Directors authorizing the transactions contemplated thereby and attaching a copy
of its bylaws), together with such certificates as may be appropriate to
demonstrate the qualification and good standing of and payment of taxes by each
Obligor in the jurisdiction of its organization and in each other jurisdiction
where the failure in which to qualify would have a Material Adverse Effect.
(b) INCUMBENCY. Each Obligor shall have delivered to Agent a certificate
in respect of the name and signature of each of the officers (i) who is
authorized to sign on its behalf the applicable Loan Documents related to any
Loan or the issuance of any Letter of Credit and (ii) who will, until replaced
by another officer or officers duly authorized for that purpose, act as its
representative for the purposes of signing documents and giving notices and
other communications in connection with any Loan or the issuance of any Letter
of Credit. Agent and each Lender may conclusively rely on such certificates
until they receive notice in writing from the applicable Obligor to the
contrary.
(c) NOTES. Agent shall have received the appropriate Notes of Borrower for
each Lender, duly completed and executed.
(d) LOAN DOCUMENTS. Each Obligor shall have duly executed and delivered
the Loan Documents to which it is a party (in such number of copies as Agent
shall have requested). Each such Loan Document shall be in substantially the
form furnished to the Lenders prior to their execution of this Agreement,
together with such changes therein as Agent may approve.
(e) SECURITY MATTERS. All such action as Agent shall have requested to
perfect the Liens created pursuant to the Security Documents shall have been
taken, including, without limitation, where applicable, the filing and recording
of the Security Documents with the appropriate Governmental Authorities. Agent
shall also have received evidence satisfactory to it that the Liens created by
the Security Documents constitute first priority Liens, except for the
exceptions expressly provided for herein, including, without limitation,
delivery of all applicable stock certificates (with stock powers executed in
blank), Uniform Commercial Code search reports, satisfactory title evidence in
form and substance acceptable to Agent, and executed releases of any prior Liens
(except as permitted by SECTION 8.2).
(f) FEES AND EXPENSES. Borrower shall have paid to Agent all unpaid fees
in the amounts previously agreed upon in writing among Borrower and Agent; and
shall have in addition paid to Agent all amounts payable under SECTION 11.3
hereof, on or before the date of this Agreement, except for amounts which Agent,
in its sole discretion, agrees may be paid at a later date.
(g) INSURANCE. Borrower shall have delivered to Agent certificates of
insurance satisfactory to Agent evidencing the existence of all insurance
required to be maintained by each Obligor by this Agreement and the Security
Documents.
(h) OPINIONS OF COUNSEL. Agent shall have received such opinions of
counsel to Obligors as Agent shall reasonably request with respect to Obligors
and the Loan Documents.
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(i) CONSENTS. Agent shall have received evidence satisfactory to Agent
that all material consents of each Governmental Authority and of each other
Person, if any, reasonably required in connection with (a) the Loans and the
Letters of Credit and (b) the execution, delivery and performance of this
Agreement and the other Loan Documents have been satisfactorily obtained.
(j) PAYMENT OF CERTAIN OUTSTANDING INDEBTEDNESS. Agent shall have received
evidence satisfactory to Agent that, except for presently existing Subordinated
Indebtedness in an aggregate amount not to exceed $13,000,000 and except for
other Indebtedness permitted under SECTION 8.1 hereof, all existing Borrowed
Money Indebtedness owing by Borrower or any of its Subsidiaries shall have been
paid in full (or will be paid in full out of the initial advance hereunder) and
that any credit availability under any facility for Borrowed Money Indebtedness
to which Borrower or any of its Subsidiaries are a party as the borrower shall
have been terminated.
(k) OTHER DOCUMENTS. Agent shall have received such other documents
consistent with the terms of this Agreement and relating to the transactions
contemplated hereby as Agent may reasonably request.
5.2 ALL LOANS AND LETTERS OF CREDIT. The obligation of each Lender to make
any Loan to be made by it hereunder or to issue or participate in any Letter of
Credit is subject to (a) the accuracy, in all material respects, on the date of
such Loan or such issuance of all representations and warranties of each Obligor
contained in this Agreement and the other Loan Documents; (b) Agent shall have
received the following, all of which shall be duly executed and in Proper Form:
(1) a Request for Extension of Credit as to the Loan or the Letter of Credit, as
the case may be, no later than 11:00 a.m. Houston time on the Business Day on
which such Request for Extension of Credit must be given under SECTION 4.3
hereof, (2) in the case of a Letter of Credit, an Application, and (3) such
other documents as Agent may reasonably require; (c) prior to the making of such
Loan or the issuance of such Letter of Credit, there shall have occurred no
event having a Material Adverse Effect; (d) no Default or Event of Default shall
have occurred and be continuing; (e) the making of such Loan or the issuance of
such Letter of Credit shall not be illegal or prohibited by any Legal
Requirement, and (f) Borrower shall have paid all fees and expenses of the type
described in SECTION 11.3 hereof and all other fees owed to Agent or any Lender
under the Loan Documents which are due and payable, in each case, prior to or on
the date of such Loan or such issuance (except for amounts which Agent or the
applicable Lender, as the case may be, in their sole discretion, agree may be
paid at a later date). The submission by the Borrower of a Request for Extension
of Credit shall be deemed to be a representation and warranty that the
conditions precedent to the applicable Loan or Letter of Credit have been
satisfied. Selection of a new interest rate at the expiration of an Interest
Period shall not constitute a new Loan hereunder.
6. REPRESENTATIONS AND WARRANTIES.
To induce the Lenders to enter into this Agreement and to make the Loans
and issue or participate in the Letters of Credit, Borrower represents and
warrants (such representations and warranties to survive any investigation and
the making of the Loans and the issuance of any Letters of Credit) to the
Lenders and Agent as follows:
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6.1 ORGANIZATION. Each Obligor (a) is duly incorporated, validly existing
and in good standing under the laws of the jurisdiction of its organization; (b)
has all necessary power and authority to conduct its business as presently
conducted, and (c) is duly qualified to do business and in good standing in the
jurisdiction of its organization and in all jurisdictions in which the failure
to so qualify would reasonably be expected to have a Material Adverse Effect.
6.2 FINANCIAL STATEMENTS. Borrower has furnished to Agent (i) consolidated
audited financial statements (including a balance sheet) of Borrower which
fairly present in all material respects, in accordance with GAAP, the combined
financial condition and the results of operations of Borrower as at the end of
Borrower's fiscal year ending in 1997, (ii) unaudited pro forma financial
statements (including a balance sheet) as to Borrower which fairly present in
all material respects, on a pro forma basis but otherwise in accordance with
GAAP, the combined financial condition and the results of operations of Borrower
as at the end of Borrower's fiscal year ending December 31, 1997, (ii) an
unaudited pro forma balance sheet and income statement as to Borrower which
fairly present in all material respects, on a pro forma basis but otherwise in
accordance with GAAP, the combined financial position and the results of
operations of Borrower as at March 31, 1998 and (iii) unaudited interim
financial statements for each Subsidiary. No events, conditions or circumstances
have occurred from the date that the financial statements were delivered to
Agent through the Effective Date which would cause said financial statements to
be misleading in any material respect. There are no material instruments or
liabilities which should, in accordance with GAAP, be reflected in such
financial statements provided to Agent which are not so reflected.
6.3 ENFORCEABLE OBLIGATIONS; AUTHORIZATION. The Loan Documents are legal,
valid and binding obligations of each applicable Obligor, enforceable in
accordance with their respective terms, except as may be limited by bankruptcy,
insolvency and other similar laws and judicial decisions affecting creditors'
rights generally and by general equitable principles. The execution, delivery
and performance of the Loan Documents (a) have all been duly authorized by all
necessary action; (b) are within the power and authority of each applicable
Obligor; (c) to the best of Borrower's knowledge, do not and will not contravene
or violate any Legal Requirement applicable to any applicable Obligor or the
Organizational Documents of any applicable Obligor, the contravention or
violation of which would reasonably be expected to have a Material Adverse
Effect; (d) do not and will not result in the breach of, or constitute a default
under, any material agreement or instrument by which any Obligor or any of its
Property may be bound, and (e) do not and will not result in the creation of any
Lien upon any Property of any Obligor. All necessary permits, registrations and
consents for such making and performance have been obtained, except where the
failure to obtain the same would not have a Material Adverse Effect. Except as
otherwise expressly stated in the Security Documents, the Liens of the Security
Documents will constitute valid and perfected first and prior Liens on the
Property described therein, subject to no other Liens whatsoever except
Permitted Liens covering Collateral other than equity interests in the
Subsidiaries of Borrower.
6.4 OTHER DEBT. After giving effect to the initial advance hereunder (and
the payment of certain existing Indebtedness of Borrower and its Subsidiaries),
no Obligor is in default in the payment of any other Indebtedness or under any
agreement, mortgage, deed of trust, security
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agreement or lease to which it is a party and which would constitute an Event of
Default under SECTION 9.1(B).
6.5 LITIGATION. There is no litigation or administrative proceeding, to
the knowledge of any executive officer of Borrower, pending or threatened
against, nor any outstanding judgment, order or decree against, any Obligor
before or by any Governmental Authority which does or would reasonably be
expected to have a Material Adverse Effect. No Obligor is in default with
respect to any judgment, order or decree of any Governmental Authority where
such default would have a Material Adverse Effect.
6.6 TITLE. Each Obligor has good and marketable title to its material
Property, free and clear of all Liens except Permitted Liens.
6.7 TAXES. Each Obligor has filed all tax returns required to have been
filed and paid all taxes shown thereon to be due, except those for which
extensions have been obtained and those which are being contested in good faith.
6.8 REGULATIONS G, U AND X. None of the proceeds of any Loan will be used
for the purpose of purchasing or carrying directly or indirectly any margin
stock or for any other purpose which would constitute this transaction a
"purpose credit" within the meaning of Regulations G, U and X of the Board of
Governors of the Federal Reserve System, as any of them may be amended from time
to time.
6.9 SUBSIDIARIES. As of the Effective Date, Borrower has no Subsidiaries
other than those set forth on EXHIBIT F hereto.
6.10 NO UNTRUE OR MISLEADING STATEMENTS. No representation or warranty
made by Borrower in any Loan Document or in any document, instrument or other
writing furnished to the Lenders by or on behalf of any Obligor in connection
with the transactions contemplated in any Loan Document contains any untrue
material statement of fact or omits to state any such fact (of which any
executive officer of Borrower has knowledge) necessary to make the
representations, warranties and other statements contained herein or in such
other document, instrument or writing not misleading in any material respect on
the date when made or deemed made.
6.11 ERISA. With respect to each Plan, Borrower and each member of the
Controlled Group have fulfilled their obligations, including obligations under
the minimum funding standards of ERISA and the Code and are in compliance in all
material respects with the provisions of ERISA and the Code. No event has
occurred which could result in a liability of Borrower or any member of the
Controlled Group to the PBGC or a Plan (other than to make contributions in the
ordinary course) that would reasonably be expected to have a Material Adverse
Effect. There have not been any nor are there now existing any events or
conditions that would cause the Lien provided under Section 4068 of ERISA to
attach to any Property of Borrower or any member of the Controlled Group.
Unfunded Liabilities as of the date hereof do not exceed $500,000. No
"prohibited transaction" (for which there is not an exemption) has occurred with
respect to any Plan.
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6.12 INVESTMENT COMPANY ACT. No Obligor is an investment company within
the meaning of the Investment Company Act of 1940, as amended, or, directly or
indirectly, controlled by or acting on behalf of any Person which is an
investment company, within the meaning of said Act.
6.13 PUBLIC UTILITY HOLDING COMPANY ACT. No Obligor is an "affiliate" or a
"subsidiary company" of a "public utility company," or a "holding company," or
an "affiliate" or a "subsidiary company" of a "holding company," as such terms
are defined in the Public Utility Holding Company Act of 1935, as amended.
6.14 SOLVENCY. None of Borrower, any Obligor, or Borrower and its
Subsidiaries, on a consolidated basis, is "insolvent," as such term is used and
defined in (i) the Bankruptcy Code and (ii) the fraudulent conveyance statutes
of the State of Texas or of any other applicable jurisdiction.
6.15 FISCAL YEAR. The fiscal year of each Obligor ends on December 31.
6.16 COMPLIANCE. To the best knowledge of any executive officer of
Borrower, each Obligor is in compliance with all Legal Requirements applicable
to it, except to the extent that the failure to comply therewith would not
reasonably be expected to have a Material Adverse Effect.
6.17 ENVIRONMENTAL MATTERS. Each Obligor has, to the best knowledge of
Borrower's executive officers, obtained and maintained in effect all
Environmental Permits (or the applicable Person has initiated the necessary
steps to transfer the Environmental Permits into its name or obtain such
permits), the failure to obtain which would reasonably be expected to have a
Material Adverse Effect. Each Obligor and its Properties, business and
operations have been and are, to the best knowledge of Borrower's executive
officers, in compliance with all applicable Requirements of Environmental Law
and Environmental Permits, the failure to comply with which would reasonably be
expected to have a Material Adverse Effect. Each Obligor and its Properties,
business and operations are not, to the best knowledge of Borrower's executive
officers (after making reasonable inquiry of the personnel and records of their
respective Corporations), subject to any (a) Environmental Claims or (b)
Environmental Liabilities, in either case direct or contingent, arising from or
based upon any act, omission, event, condition or circumstance occurring or
existing on or prior to the date hereof which would reasonably be expected to
have a Material Adverse Effect. None of the officers of Borrower have received
nor is aware of any Obligor receiving any notice of any violation or alleged
violation of any Requirements of Environmental Law or Environmental Permit or
any Environmental Claim in connection with its Properties, liabilities,
condition (financial or otherwise), business or operations which would
reasonably be expected to have a Material Adverse Effect. Borrower does not know
of any event or condition with respect to currently enacted Requirements of
Environmental Laws presently scheduled to become effective in the future with
respect to any of the Properties of any Obligor which would reasonably be
expected to have a Material Adverse Effect, for which the applicable Obligor has
not made good faith provisions in its business plan and projections of financial
performance.
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7. AFFIRMATIVE COVENANTS.
Borrower covenants and agrees with Agent and the Lenders that prior to the
termination of this Agreement it will do or cause to be done, and cause each
other Obligor (unless limited by the language of the applicable provision to
less than all of the Obligors) to do or cause to be done, each and all of the
following:
7.1 TAXES, EXISTENCE, REGULATIONS, PROPERTY, ETC. At all times (a) pay
when due all taxes and governmental charges of every kind upon it or against its
income, profits or Property, unless and only to the extent that the same shall
be contested diligently in good faith and adequate reserves in accordance with
GAAP have been established therefor; (b) do all things necessary to preserve its
existence, qualifications, rights and franchises in all jurisdictions where such
failure to qualify would reasonably be expected to have a Material Adverse
Effect; (c) comply with all applicable Legal Requirements (including without
limitation Requirements of Environmental Law) in respect of the conduct of its
business and the ownership of its Property, the noncompliance with which would
reasonably be expected to have a Material Adverse Effect; and (d) cause its
Property to be protected, maintained and kept in good repair (ordinary wear and
tear excepted) and make all replacements and additions to such Property as may
be reasonably necessary to conduct its business properly and efficiently except
where the failure to do so would not reasonably be expected to have a Material
Adverse Effect.
7.2 FINANCIAL STATEMENTS AND INFORMATION. Furnish to Agent and each Lender
each of the following: (a) as soon as available and in any event within 120 days
after the end of each applicable fiscal year, beginning with the fiscal year
ending on December 31, 1998, Annual Financial Statements of Borrower; (b) as
soon as available and in any event within 60 days after the end of each fiscal
quarter (except for the last fiscal quarter of a fiscal year) and as soon as
available and in any event within 90 days after the end of the last fiscal
quarter of each fiscal year, Quarterly Financial Statements of Borrower; (c)
concurrently with the financial statements provided for in SUBSECTIONS 7.2(A)
and (B) hereof, (x) such schedules, computations and other information, in
reasonable detail, as may be required by Agent to demonstrate compliance with
the covenants set forth herein or reflecting any non-compliance therewith as of
the applicable date, all certified and signed by the president, chief financial
officer or treasurer of Borrower (or other authorized officer approved by Agent)
as true and correct in all material respects to the best knowledge of such
officer and (y) a compliance certificate ("COMPLIANCE CERTIFICATE") in the form
of EXHIBIT E hereto, duly executed by such authorized officer; (d) promptly upon
their becoming publicly available, each financial statement, report, notice or
definitive proxy statements sent by any Obligor to shareholders generally and
each regular or periodic report and each registration statement or prospectus
filed by any Obligor with any securities exchange or the Securities and Exchange
Commission or any successor agency, and (e) such other financial projections and
other information relating to the condition (financial or otherwise), operations
or business of any Obligor as from time to time may be reasonably requested by
Agent. Each delivery of a financial statement pursuant to this SECTION 7.2 shall
constitute a restatement of the representations contained in the last two
sentences of SECTION 6.2 with respect to the period of time from the date of
such most recently delivered financial statements.
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7.3 FINANCIAL TESTS. Borrower will have and maintain (in each case, on a
consolidated basis for Borrower and its Subsidiaries):
(a) MINIMUM NET WORTH - Stockholders' Equity at all times of not
less than Stockholders' Equity as of October 31, 1997 PLUS 80% of the
Consolidated Net Income (if positive) for the period from and after
October 31, 1997 through the date of such calculation PLUS 100% of the net
proceeds (whether cash or non-cash) realized from the issuance of any
equity securities by Borrower or its Subsidiaries (or other capital
contributions made to Borrower) after October 31, 1997.
(b) INTEREST COVERAGE RATIO - an Interest Coverage Ratio prior to
the Subordinated Notes Issuance Date of not less than 3.00 at the end of
each fiscal quarter and an Interest Coverage Ratio on or after the
Subordinated Notes Issuance Date of not less than 2.50 at the end of each
fiscal quarter.
(c) DEBT TO PRO FORMA CONSOLIDATED EBITDA RATIO - a Debt to Pro
Forma Consolidated EBITDA Ratio prior to the Subordinated Notes Issuance
Date of not greater than (i) 4.25 at the end of each fiscal quarter ending
on or before December 31, 1998 and (ii) 4.00 at the end of each fiscal
quarter thereafter and a Debt to Pro Forma Consolidated EBITDA Ratio on or
after the Subordinated Notes Issuance Date of not greater than 4.75 at the
end of each fiscal quarter.
(d) FIXED CHARGE COVERAGE RATIO - a Fixed Charge Coverage Ratio
prior to the Subordinated Notes Issuance Date of not less than 1.50 at the
end of each fiscal quarter and a Fixed Charge Coverage Ratio on or after
the Subordinated Notes Issuance Date of not less than 1.25 at the end of
each fiscal quarter.
(e) SENIOR DEBT TO PRO FORMA CONSOLIDATED EBITDA RATIO - a Senior
Debt to Pro Forma Consolidated EBITDA Ratio prior to the Subordinated
Notes Issuance Date of not greater than (i) 3.50 at the end of each fiscal
quarter ending on or before December 31, 1998 and (ii) 3.00 at the end of
each fiscal quarter thereafter and a Senior Debt to Pro Forma Consolidated
EBITDA Ratio on or after the Subordinated Notes Issuance Date of not
greater than 2.50 at the end of each fiscal quarter.
The use of historical financial results for acquired Subsidiaries in connection
with "pooling of interests" accounting shall not serve to cure any default under
the covenants set forth in this Section that would otherwise arise.
7.4 INSPECTION. Permit Agent and each Lender upon 1 day's prior notice
(unless a Default or an Event of Default has occurred which is continuing, in
which case no prior notice is required) to inspect its Property, to examine its
files, books and records, except privileged communication with legal counsel and
classified governmental material, and make and take away copies thereof, and to
discuss its affairs with its officers and accountants, all during normal
business hours and at such intervals and to such extent as Agent may reasonably
desire. Unless an Event of Default has
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occurred which is continuing, Agent or the applicable Lender, as the case may
be, shall pay its own costs and expenses relating to the exercise of the rights
under this Section.
7.5 FURTHER ASSURANCES. Promptly execute and deliver, at Borrower's
expense, any and all other and further instruments which may be reasonably
requested by Agent to cure any defect in the execution and delivery of any Loan
Document in order to effectuate the transactions contemplated by the Loan
Documents, and in order to grant, preserve, protect and perfect the validity and
priority of the security interests created by the Security Documents.
7.6 BOOKS AND RECORDS. Maintain accounting records which permit financial
statements to be prepared in accordance with GAAP.
7.7 INSURANCE. Borrower will (and will cause each of its Subsidiaries to)
maintain insurance with such insurers, on such of its Property, with responsible
companies in such amounts, with such deductibles and against such risks as are
usually carried by owners of similar businesses and properties in the same
general areas in which the applicable Person operates or as Agent may otherwise
reasonably require, and furnish Agent satisfactory evidence thereof promptly
upon request. These insurance provisions are cumulative of the insurance
provisions of the Security Documents. Agent shall be provided with copies of the
policies of insurance and a certificate of the insurer that the insurance
required by this Section may not be canceled, reduced or affected in any
material manner without thirty (30) days' prior written notice to Agent.
Wherever applicable, such insurance shall name Agent as loss payee and/or
mortgagee insured.
7.8 NOTICE OF CERTAIN MATTERS. Give Agent written notice of the following
promptly (and in any event within five Business Days) after any executive
officer of Borrower shall become aware of the same:
(a) the issuance by any court or governmental agency or authority of any
injunction, order or other restraint prohibiting, or having the effect of
prohibiting, the performance of this Agreement, any other Loan Document, or the
making of the Loans or the initiation of any litigation, or any claim or
controversy which would reasonably be expected to result in the initiation of
any litigation, seeking any such injunction, order or other restraint;
(b) the filing or commencement of any action, suit or proceeding, whether
at law or in equity or by or before any court or any Governmental Authority
involving claims in excess of $1,000,000 (exclusive of claims covered by
insurance) or which may reasonably be expected to result in a Default hereunder;
(c) any Event of Default or Default, specifying the nature and extent
thereof and the action (if any) which is proposed to be taken with respect
thereto;
(d) the incurrence of material burdensome restrictions under contracts or
applicable law which could reasonably be expected to have a Material Adverse
Effect and any other event (including strikes, labor disputes or loss of use of
material patents or trademarks) which could reasonably be expected to have a
Material Adverse Effect; and
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Borrower will also notify Agent in writing at least 30 days prior to the date
that any Obligor changes its name or the location of its chief executive office
or principal place of business or the place where it keeps its books and
records.
7.9 ERISA INFORMATION AND COMPLIANCE. Promptly furnish to Agent (i)
immediately upon receipt, a copy of any notice of complete or partial withdrawal
liability under Title IV of ERISA which could reasonably be expected to have a
Material Adverse Effect and any notice from the PBGC under Title IV of ERISA of
an intent to terminate or appoint a trustee to administer any Plan which could
reasonably be expected to have a Material Adverse Effect, (ii) if requested by
Agent, promptly after the filing thereof with the United States Secretary of
Labor or the PBGC or the Internal Revenue Service, copies of each annual and
other report with respect to each Plan or any trust created thereunder, (iii)
immediately upon becoming aware of the occurrence of any "reportable event," as
such term is defined in Section 4043 of ERISA which could reasonably be expected
to have a Material Adverse Effect, for which the disclosure requirements of
Regulation Section 2615.3 promulgated by the PBGC have not been waived, or of
any "prohibited transaction," as such term is defined in Section 4975 of the
Code, in connection with any Plan or any trust created thereunder which could
reasonably be expected to have a Material Adverse Effect, a written notice
signed by the President or the principal financial officer of Borrower or the
applicable member of the Controlled Group specifying the nature thereof, what
action Borrower or the applicable member of the Controlled Group is taking or
proposes to take with respect thereto, and, when known, any action taken by the
PBGC, the Internal Revenue Service or the Department of Labor with respect
thereto, (iv) promptly after the filing or receiving thereof by Borrower or any
member of the Controlled Group of any notice of the institution of any
proceedings or other actions which may result in the termination of any Plan
which could reasonably be expected to have a Material Adverse Effect, and (v)
each request for waiver of the funding standards or extension of the
amortization periods required by Sections 303 and 304 of ERISA or Section 412 of
the Code promptly after the request is submitted by Borrower or any member of
the Controlled Group to the Secretary of the Treasury, the Department of Labor
or the Internal Revenue Service, as the case may be. To the extent required
under applicable statutory funding requirements, Borrower will fund, or will
cause the applicable member of the Controlled Group to fund, all current service
pension liabilities as they are incurred under the provisions of all Plans from
time to time in effect, and comply with all applicable provisions of ERISA, in
each case, except to the extent that failure to do the same would not reasonably
be expected to have a Material Adverse Effect. Except to the extent that failure
to do the same would not reasonably be expected to have a Material Adverse
Effect, Borrower covenants that it shall and shall cause each member of the
Controlled Group to (1) make contributions to each Plan in accordance with the
time limits imposed by ERISA and in an amount sufficient to comply with the
contribution obligations under such Plan and the minimum funding standards
requirements of ERISA; (2) prepare and file in accordance with the time limits
imposed by ERISA all notices and reports required under the terms of ERISA
including but not limited to annual reports; and (3) pay in accordance with the
time limits imposed by ERISA all required PBGC premiums.
7.10 YEAR 2000. Any reprogramming required to permit the proper
functioning, in and following the year 2000, of (i) the Borrower's and any of
its Subsidiaries' computer systems and (ii) equipment containing embedded
microchips (including systems and equipment supplied by others or with which the
Borrower's and any of its Subsidiaries' systems interface) and the testing of
all
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such systems and equipment will be completed by January 1, 1999 (except as to
Harley Industries, Inc., which shall be completed by July 31, 1999). The cost to
the Borrower and its Subsidiaries of such reprogramming and testing and of
reasonably foreseeable consequences of year 2000 to the Borrower and its
Subsidiaries (including, without limitation, reprogramming errors and failure of
others' systems or equipment) will not result in an Event of Default or a
Material Adverse Effect. Except for such of the reprogramming referred to in the
preceding sentence as may be necessary, the computer and management systems of
the Borrower and its Subsidiaries are and, with ordinary course upgrading and
maintenance, will continue for the term of this Agreement to be, sufficient to
permit the Borrower and its Subsidiaries to conduct their business without
Material Adverse Effect.
8. NEGATIVE COVENANTS.
Borrower covenants and agrees with Agent and the Lenders that prior to the
termination of this Agreement it will not, and will not suffer or permit any
other Obligor or any Subsidiary of Borrower to, do any of the following without
the prior written consent of the Majority Lenders:
8.1 BORROWED MONEY INDEBTEDNESS. Create, incur, suffer or permit to exist,
or assume or guarantee, directly or indirectly, or become or remain liable with
respect to any Borrowed Money Indebtedness, whether direct, indirect, absolute,
contingent or otherwise, except the following:
(i) Indebtedness under this Agreement and the other Loan Documents
and Indebtedness secured by Liens permitted by SECTION 8.2
hereof;
(ii) the liabilities existing on the date of this Agreement and
disclosed in the financial statements delivered on or prior to
the Effective Date pursuant to SECTION 6.2 hereof and set
forth on EXHIBIT G hereto, and all renewals, extensions and
replacements (but not increases) of any of the foregoing;
(iii) the Interest Rate Risk Indebtedness;
(iv) current liabilities incurred in the ordinary course of
business;
(v) so long as no Event of Default has occurred which is
continuing (or would result as a result of the applicable
additional Indebtedness), (i) Subordinated Indebtedness
payable to the applicable sellers in connection with an
acquisition by an Obligor of a new Subsidiary (or the assets
of another Person in lieu of an equity stock acquisition)
providing for payment terms approved by Agent and the Majority
Lenders in writing, (ii) the Senior Subordinated Notes, (iii)
purchase money Indebtedness in an aggregate amount not to
exceed $2,000,000 at any one time outstanding (inclusive of
purchase money Indebtedness described on EXHIBIT G hereto but
exclusive of any purchase money Indebtedness permitted under
the following CLAUSE (IV)) and (iv) pre- existing
Indebtedness, not to exceed $5,000,000 in the aggregate at any
one time outstanding, of Subsidiaries of Borrower which are
acquired after the date hereof (provided, however, that no
such Indebtedness was incurred at the
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instigation of Borrower in contemplation of the acquisition of
such Subsidiary);
PROVIDED, HOWEVER, that the Indebtedness permitted under SECTIONS 8.1(V)
hereof shall be on terms and conditions no more restrictive upon Borrower
than the terms and conditions provided for herein.
8.2 LIENS. Create or suffer to exist any Lien upon any of its Property now
owned or hereafter acquired, or acquire any Property upon any conditional sale
or other title retention device or arrangement or any purchase money security
agreement; or in any manner directly or indirectly sell, assign, pledge or
otherwise transfer any of its Accounts or General Intangibles; PROVIDED,
HOWEVER, that any Obligor may create or suffer to exist the following:
(i) artisans' or mechanics' Liens arising in the ordinary course of
business, and Liens for taxes, but only to the extent that payment
thereof shall not at the time be due or if due, the payment thereof
is being diligently contested in good faith and adequate reserves
computed in accordance with GAAP have been set aside therefor;
(ii) normal encumbrances and restrictions on title which do not secure
Borrowed Money Indebtedness and which do not have a Material Adverse
Effect;
(iii) Liens in favor of Agent or any Lender under the Loan Documents,
including, without limitation, Liens securing Interest Rate Risk
Indebtedness owed to one or more of the Lenders (but not to any
Person which is not, at the time the Interest Rate Risk Indebtedness
is incurred, a Lender);
(iv) Liens incurred or deposits made in the ordinary course of business
(1) in connection with workmen's compensation, unemployment
insurance, social security and other like laws, or (2) to secure
insurance in the ordinary course of business, the performance of
bids, tenders, contracts, leases, licenses, statutory obligations,
surety, appeal and performance bonds and other similar obligations
incurred in the ordinary course of business, not, in any of the
cases specified in this clause (2), incurred in connection with the
borrowing of money, the obtaining of advances or the payment of the
deferred purchase price of Property;
(v) attachments, judgments and other similar Liens arising in connection
with court proceedings, PROVIDED that the execution and enforcement
of such Liens are effectively stayed and the claims secured thereby
are being actively contested in good faith with adequate reserves
made therefor in accordance with GAAP;
(vi) Liens imposed by law, such as carriers', warehousemen's, mechanics',
materialmen's and vendors' liens, incurred in good faith in the
ordinary course of business and securing obligations which are not
yet due or which are being contested in good faith by appropriate
proceedings if adequate reserves with respect thereto are maintained
in accordance with GAAP;
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(vii) zoning restrictions, easements, licenses, reservations, provisions,
covenants, conditions, waivers, and restrictions on the use of
Property, and which do not in any case singly or in the aggregate
materially impair the present use or value of the Property subject
to any such restriction or materially interfere with the ordinary
conduct of the business of any Obligor or any Subsidiary of Borrower
to the extent that it would cause a Material Adverse Effect;
(viii)capital leases permitted under the other provisions of this
Agreement;
(ix) Liens securing assumed purchase money Indebtedness which is
permitted under SECTION 8.1(V) hereof and which cover only the
applicable Property purchased;
(x) existing Liens as of Effective Date as set forth on EXHIBIT H
hereto; and
(xi) pre-existing Liens securing pre-existing Indebtedness permitted
under SECTION 8.1(V) hereof covering Property of the applicable
Subsidiary of Borrower acquired after the date hereof (provided,
however, that no such Liens were created and no such Indebtedness
was incurred at the instigation of Borrower in contemplation of the
acquisition of such Subsidiary);
(xii) extensions, renewals and replacements of Liens referred to in
CLAUSES (I) through (XI) above; PROVIDED that any such extension,
renewal or replacement Lien shall be limited to the Property or
assets covered by the Lien extended, renewed or replaced and that
the Borrowed Money Indebtedness secured by any such extension,
renewal or replacement Lien shall be in an amount not greater than
the amount of the Indebtedness secured by the Lien extended, renewed
or replaced.
8.3 CONTINGENT LIABILITIES. Except for indemnification and contribution
arrangements with customers, sellers of businesses and officers and directors of
Borrower and its Subsidiaries in the ordinary course of business, directly or
indirectly guarantee the performance or payment of, or purchase or agree to
purchase, or assume or contingently agree to become or be secondarily liable in
respect of, any obligation or liability of any other Person (other than
Subsidiaries) except for (a) the endorsement of checks or other negotiable
instruments in the ordinary course of business; (b) obligations disclosed to
Agent in the financial statements delivered on or prior to the Effective Date
pursuant to SECTION 6.2 hereof (but not increases of such obligations after the
Effective Date), (c) those liabilities permitted under SECTION 8.1 hereof, and
(d) earnouts incurred in connection with acquisitions.
8.4 MERGERS AND CONSOLIDATIONS. In any single transaction or series of
transactions, directly or indirectly: (a) liquidate or dissolve; (b) be a party
to any merger or consolidation unless and so long as (i) no Default or Event of
Default has occurred that is then continuing, (ii) immediately thereafter and
giving effect thereto, no event will occur and be continuing which constitutes a
Default, (iii) the applicable Obligor subject to such merger is the surviving
Person and (iv) Agent is given at least 30 days' prior notice of such merger or
consolidation. The provisions of this Section are subject to the restrictions
set forth in SECTION 8.13 hereof.
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8.5 DISPOSITION OF ASSETS. Sell, convey or lease all or any part of its
assets, except for (x) the sale of assets of, or stock owned by, Subsidiaries
acquired after the date hereof within six (6) calendar months following the
acquisition of such Subsidiary, (y) sales of Inventory in the ordinary course of
business and (z) sales of other Property in the ordinary course of business so
long as that portion of the net proceeds realized from such sales in any fiscal
year are, within one (1) year, either reinvested in assets that may be
productively used in the business of the Borrower or the applicable Subsidiary
of Borrower or used to repay Indebtedness of Borrower which has not been
subordinated to the Obligations; PROVIDED, that for purposes of this Agreement,
no sale/leaseback transaction will be deemed to be in the ordinary course of
business.
8.6 REDEMPTION, DIVIDENDS AND DISTRIBUTIONS. At any time: (a) redeem,
retire or otherwise acquire, directly or indirectly, any equity interest in
Borrower or (b) make any distributions of any Property or cash to the owner of
any of the equity interests in any Obligor other than dividends or distributions
by a Subsidiary of Borrower to Borrower.
8.7 NATURE OF BUSINESS. Change the nature of its business or enter into
any business which is substantially different from the business in which it is
presently engaged.
8.8 TRANSACTIONS WITH RELATED PARTIES. Enter into any material transaction
or agreement with any officer, director or holder of any equity interest in any
Obligor (or any Affiliate of any such Person) unless the same is upon terms
substantially similar to those obtainable from wholly unrelated sources (to the
best knowledge of the executive officers of Borrower).
8.9 LOANS AND INVESTMENTS. Make any loan, advance, extension of credit or
capital contribution to, or make or have any Investment in, any Person, or make
any commitment to make any such extension of credit or Investment, except (a)
normal and reasonable advances in the ordinary course of business to officers
and employees and (b) the following:
(i) obligations, with a maturity of less than two years, with the full
faith and credit of the United States of America;
(ii) direct obligations of any state of the United States, or
municipality therein, rated in one of the two top classifications by
Standard and Poor's Ratings Services or Moody's Investors Services,
Inc. and maturing within two years;
(iii) certificates of deposit or banker's acceptances, maturing within two
years, issued by US commercial banks having capital, surplus and
undivided profits aggregating not less than $100 million and whose
unsecured long-term debt is rated in one of the two classifications
by Standard and Poor's Ratings Services or Moody's Investors
Services, Inc.;
(iv) commercial paper of any U.S. corporation with a maturity of less
than 270 days and which is rated in one of the two top
classifications by Standard and Poor's Ratings Services or Moody's
Investors Services, Inc.;
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(v) Investments by Borrower or any of its Subsidiaries in and to
Borrower or any other Obligor, including Investments in Persons
which after giving effect thereto will become a wholly-owned
Subsidiary of Borrower (subject to compliance with the provisions of
SECTIONS 8.15 and 8.16 hereof), and
(vi) existing Investments as of Effective Date as set forth on EXHIBIT I
hereto.
8.10 ORGANIZATIONAL DOCUMENTS. Amend, modify, restate or supplement any of
its Organizational Documents if such action would reasonably be expected to have
a Material Adverse Effect, unless such action shall be consented to in writing
by Agent.
8.11 UNFUNDED LIABILITIES. Incur any Unfunded Liabilities after the
Effective Date or allow any Unfunded Liabilities in excess of $500,000, in the
aggregate, to arise or exist.
8.12 CAPITAL EXPENDITURES. Permit Capital Expenditures of Borrower and its
Subsidiaries (exclusive of Capital Expenditures prior to December 31, 1999
related to the upgrade and consolidation of accounting systems) to exceed
$5,000,000 in the aggregate for any period of 12 months or permit Capital
Expenditures prior to December 31, 1999 related to the upgrade and consolidation
of accounting systems) to exceed $3,000,000 in the aggregate.
8.13 ACQUISITIONS. Acquire any real Property or any material personal
Property (including any acquisition of equity interests in another Person) after
the Effective Date with respect to which the aggregate consideration for a
single transaction would exceed $7,500,000. Any request for approval of an
acquisition in excess of $7,500,000 must be submitted to Agent at least fifteen
(15) days in advance of such acquisition.
8.14 SUBORDINATED INDEBTEDNESS. Except as expressly permitted in writing
by the Majority Lenders, Borrower will not amend, modify or obtain or grant a
waiver of any provision of any document or instrument evidencing any
Subordinated Indebtedness or purchase, redeem, retire or otherwise acquire for
value, deposit any monies with any Person with respect to or make any payment or
prepayment of the principal of or any other amount owing in respect of, any
Subordinated Indebtedness (other than scheduled payments under the present terms
of the Senior Subordinated Notes and other scheduled payments under payment
terms approved by Agent and the Majority Lenders in writing).
8.15 SUBSIDIARIES. Form, create or acquire any Subsidiary, except that
Borrower (or any of its Subsidiaries) may form, create or acquire a wholly-owned
Subsidiary so long as (a) immediately thereafter and giving effect thereto, no
event will occur and be continuing which constitutes a Default; (i) such
Subsidiary (other than a Foreign Subsidiary) shall execute and deliver to Agent
a Guaranty in substantially the same form as the Guaranties executed prior to
the the date hereof; (ii) the applicable owner(s) of the equity interests in
such Subsidiary (other than a Foreign Subsidiary) shall execute and deliver to
Agent such Security Documents as Agent may reasonably require in order to create
a valid, perfected, first priority Lien upon all of the issued and outstanding
equity interests in such Subsidiary and the applicable owner(s) of the equity
interests in any such Subsidiary which is a Foreign Subsidiary shall execute and
deliver to Agent such Security
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Documents as Agent may reasonably require in order to create a valid, perfected,
first priority Lien upon 65% of the issued and outstanding equity interests in
such Foreign Subsidiary, and (iii) the new Subsidiary (other than a Foreign
Subsidiary) shall execute and deliver to Agent such Security Documents as Agent
may reasonably require in order to create a valid, perfected, first priority
Lien upon all of the Accounts and Inventory of such new Subsidiary and (b) Agent
is given at least 15 days' prior written notice of such formation, creation or
acquisition.
8.16 LIMITATION ON PROPERTY OF FOREIGN SUBSIDIARIES. The aggregate book
value of Property of Foreign Subsidiaries shall not exceed five percent (5%) of
the aggregate book value of all Property of the Borrower and its Subsidiaries,
on a consolidated basis.
9. DEFAULTS.
9.1 EVENTS OF DEFAULT. If any one or more of the following events (herein
called "EVENTS OF DEFAULT") shall occur, then Agent may (and at the direction of
the Majority Lenders, shall) do any or all of the following: (1) without notice
to Borrower or any other Person, declare the Revolving Loan Commitments
terminated (whereupon the Revolving Loan Commitments shall be terminated) and/or
accelerate the Revolving Loan Termination Date to a date as early as the date of
termination of the Revolving Loan Commitments; (2) terminate any Letter of
Credit allowing for such termination, by sending a notice of termination as
provided therein and require Borrower to provide Cover for outstanding Letters
of Credit; (3) declare the principal amount then outstanding of and the unpaid
accrued interest on the Loans and Reimbursement Obligations and all fees and all
other amounts payable hereunder, under the Notes and under the other Loan
Documents to be forthwith due and payable, whereupon such amounts shall be and
become immediately due and payable, without notice (including, without
limitation, notice of acceleration and notice of intent to accelerate),
presentment, demand, protest or other formalities of any kind, all of which are
hereby expressly waived by Borrower; PROVIDED that in the case of the occurrence
of an Event of Default with respect to any Obligor referred to in CLAUSE (F),
(G) or (H) of this SECTION 9.1, the Revolving Loan Commitments shall be
automatically terminated and the principal amount then outstanding of and unpaid
accrued interest on the Loans and the Reimbursement Obligations and all fees and
all other amounts payable hereunder, under the Notes and under the other Loan
Documents shall be and become automatically and immediately due and payable,
without notice (including, without limitation, notice of acceleration and notice
of intent to accelerate), presentment, demand, protest or other formalities of
any kind, all of which are hereby expressly waived by Borrower, and (4) exercise
any or all other rights and remedies available to Agent or any of the Lenders
under the Loan Documents, at law or in equity:
(a) PAYMENTS - (i) any Obligor shall fail to make any payment or
required prepayment of any installment of principal on the Loans or any
Reimbursement Obligation payable under the Notes, this Agreement or the
other Loan Documents when due or (ii) any Obligor fails to make any
payment or required prepayment of interest with respect to the Loans, any
Reimbursement Obligation or any other fee or amount under the Notes, this
Agreement or the other Loan Documents when due and such failure to pay
continues unremedied for a period of three Business Days; or
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(b) OTHER OBLIGATIONS - any Obligor shall default in the payment
when due of any principal of or interest on any Indebtedness having an
outstanding principal amount of at least $250,000 (other than the Loans
and Reimbursement Obligations) and such default shall continue beyond any
applicable period of grace; or any event or condition shall occur which
results in the acceleration of the maturity of any Indebtedness having an
outstanding principal amount of at least $250,000 (other than the Loans
and Reimbursement Obligations) or enables (or, with the giving of notice
or lapse of time or both, would enable) the holder of any such
Indebtedness or any Person acting on such holder's behalf to accelerate
the maturity thereof and such event or condition shall not be cured within
any applicable period of grace; or
(c) REPRESENTATIONS AND WARRANTIES - any representation or warranty
made or deemed made by or on behalf of any Obligor in this Agreement or
any other Loan Document or in any certificate furnished or made by any
Obligor to Agent or the Lenders in connection herewith or therewith shall
prove to have been incorrect, false or misleading in any material respect
as of the date thereof or as of the date as of which the facts therein set
forth were stated or certified or deemed stated or certified; or
(d) AFFIRMATIVE COVENANTS - (i) default shall be made in the due
observance or performance of any of the covenants or agreements contained
in SECTIONS 7.3 or 7.8(C) hereof or (ii) default is made in the due
observance or performance of any of the other covenants and agreements
contained in SECTION 7 hereof or any other affirmative covenant of any
Obligor contained in this Agreement or any other Loan Document and such
default continues unremedied for a period of 30 days after (x) notice
thereof is given by Agent to Borrower or (y) such default otherwise
becomes known to any executive officer of Borrower, whichever is earlier;
or
(e) NEGATIVE COVENANTS - default is made in the due observance or
performance by Borrower of any of the other covenants or agreements
contained in SECTION 8 of this Agreement or of any other negative covenant
of any Obligor contained in this Agreement or any other Loan Document; or
(f) INVOLUNTARY BANKRUPTCY OR RECEIVERSHIP PROCEEDINGS - a receiver,
conservator, liquidator or trustee of any Obligor or of any of its
Property is appointed by the order or decree of any court or agency or
supervisory authority having jurisdiction, and such decree or order
remains in effect for more than 60 days; or any Obligor is adjudicated
bankrupt or insolvent; or any of such Person's Property is sequestered by
court order and such order remains in effect for more than 60 days; or a
petition is filed against any Obligor under any state or federal
bankruptcy, reorganization, arrangement, insolvency, readjustment or debt,
dissolution, liquidation or receivership law or any jurisdiction, whether
now or hereafter in effect, and is not dismissed within 60 days after such
filing; or
(g) VOLUNTARY PETITIONS OR CONSENTS - any Obligor commences a
voluntary case or other proceeding or order seeking liquidation,
reorganization, arrangement, insolvency, readjustment of debt,
dissolution, liquidation or other relief with respect to itself or its
debts
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or other liabilities under any bankruptcy, insolvency or other similar law
now or hereafter in effect or seeking the appointment of a trustee,
receiver, liquidator, custodian or other similar official of it or any
substantial part of its Property, or consents to any such relief or to the
appointment of or taking possession by any such official in an involuntary
case or other proceeding commenced against it, or fails generally to, or
cannot, pay its debts generally as they become due or takes any corporate
action to authorize or effect any of the foregoing; or
(h) ASSIGNMENTS FOR BENEFIT OF CREDITORS OR ADMISSIONS OF INSOLVENCY
- any Obligor makes an assignment for the benefit of its creditors, or
admits in writing its inability to pay its debts generally as they become
due, or consents to the appointment of a receiver, trustee, or liquidator
of such Obligor or of all or any substantial part of its Property; or
(i) UNDISCHARGED JUDGMENTS - a final non-appealable judgment or
judgments for the payment of money exceeding, in the aggregate, $1,000,000
in excess of amounts covered by insurance) is rendered by any court or
other governmental body against any Obligor and such Obligor does not
discharge the same or provide for its discharge in accordance with its
terms, or procure a stay of execution thereof within 60 days from the date
of entry thereof; or
(j) SECURITY DOCUMENTS - any Security Document for any reason ceases
to create a valid and perfected Lien of the first priority (subject to the
Permitted Liens), required thereby on any of the Collateral purported to
be covered thereby and securing that portion of the Obligations which is
therein designated as being secured, or any Obligor (or any other Person
who may have granted or purported to grant such Lien) will so state in
writing; or
(k) CONCEALMENT - any Obligor shall have concealed, removed, or
permitted to be concealed or removed, any part of its Property, with
intent to hinder, delay or defraud its creditors or any of them, or shall
have made any transfer of its Property to or for the benefit of a creditor
at a time when other creditors similarly situated have not been paid; or
(l) CHANGE OF CONTROL - there should occur any Change of Control.
9.2 RIGHT OF SETOFF. Upon the occurrence and during the continuance of any
Event of Default, each Lender (with the approval of the Majority Lenders) is
hereby authorized at any time and from time to time, without notice to any
Obligor (any such notice being expressly waived by Borrower and the other
Obligors), to setoff and apply any and all deposits (general or special, time or
demand, provisional or final (but excluding the funds held in accounts clearly
designated as escrow or trust accounts held by Borrower or any other Obligor for
the benefit of Persons which are not Affiliates of any Obligor, whether or not
such setoff results in any loss of interest or other penalty, and including
without limitation all certificates of deposit) at any time held, and any other
funds or Property at any time held, and other Indebtedness at any time owing by
such Lender to or for the credit or the account of Borrower or any other Obligor
against any and all of the Obligations irrespective of whether or not such
Lender or Agent will have made any demand under this Agreement, the Notes or any
other Loan Document. Should the right of any Lender to realize funds in any
manner set forth hereinabove be challenged and any application of such funds be
reversed,
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whether by court order or otherwise, the Lenders shall make restitution or
refund to Borrower pro rata in accordance with their Revolving Loan Commitments.
Each Lender agrees to promptly notify Borrower and Agent after any such setoff
and application, provided that the failure to give such notice will not affect
the validity of such setoff and application. The rights of Agent and the Lenders
under this Section are in addition to other rights and remedies (including
without limitation other rights of setoff) which Agent or the Lenders may have.
This Section is subject to the terms and provisions of SECTIONS 4.5 and 11.7
hereof.
9.3 COLLATERAL ACCOUNT. Borrower hereby agrees, in addition to the
provisions of SECTION 9.1 hereof, that upon the occurrence and during the
continuance of any Event of Default, it shall, if requested by Agent or the
Majority Lenders (through Agent), pay to Agent an amount in immediately
available funds equal to the then aggregate amount available for drawings under
all Letters of Credit issued for the account of Borrower, which funds shall be
held by Agent as Cover.
9.4 PRESERVATION OF SECURITY FOR UNMATURED REIMBURSEMENT OBLIGATIONS. In
the event that, following (i) the occurrence of an Event of Default and the
exercise of any rights available to Agent or any Lender under the Loan
Documents, and (ii) payment in full of the principal amount then outstanding of
and the accrued interest on the Loans and Reimbursement Obligations and fees and
all other amounts payable hereunder and under the Notes, any Letters of Credit
shall remain outstanding and undrawn upon, Agent shall be entitled to hold (and
Borrower and each other Obligor hereby grants and conveys to Agent a security
interest in and to) all cash or other Property ("PROCEEDS OF REMEDIES") realized
or arising out of the exercise of any rights available under the Loan Documents,
at law or in equity, including, without limitation, the proceeds of any
foreclosure, as collateral for the payment of any amounts due or to become due
under or in respect of such Letters of Credit. Such Proceeds of Remedies shall
be held for the ratable benefit of the Lenders. The rights, titles, benefits,
privileges, duties and obligations of Agent with respect thereto shall be
governed by the terms and provisions of this Agreement. Agent may, but shall
have no obligation to, invest any such Proceeds of Remedies in such manner as
Agent, in the exercise of its sole discretion, deems appropriate. Such Proceeds
of Remedies shall be applied to Reimbursement Obligations arising in respect of
any such Letters of Credit and/or the payment of any Lender's obligations under
any such Letter of Credit when such Letter of Credit is drawn upon. Nothing in
this Section shall cause or permit an increase in the maximum amount of the
Revolving Loan Obligations permitted to be outstanding from time to time under
this Agreement.
9.5 REMEDIES CUMULATIVE. No remedy, right or power conferred upon Agent or
any Lender is intended to be exclusive of any other remedy, right or power given
hereunder or now or hereafter existing at law, in equity, or otherwise, and all
such remedies, rights and powers shall be cumulative.
10. AGENT.
10.1 APPOINTMENT, POWERS AND IMMUNITIES. Each Lender hereby irrevocably
appoints and authorizes Agent to act as its agent hereunder, under the Letters
of Credit and under the other Loan Documents with such powers as are
specifically delegated to Agent by the terms hereof and thereof, together with
such other powers as are reasonably incidental thereto. Any Loan Documents
executed
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in favor of Agent shall be held by Agent for the ratable benefit of the Lenders.
Agent ("Agent" as used in this SECTION 10 shall include reference to its
Affiliates and its own and its Affiliates' respective officers, shareholders,
directors, employees and agents) (a) shall not have any duties or
responsibilities except those expressly set forth in this Agreement, the Letters
of Credit, and the other Loan Documents, and shall not by reason of this
Agreement or any other Loan Document be a trustee or fiduciary for any Lender;
(b) shall not be responsible to any Lender for any recitals, statements,
representations or warranties contained in this Agreement, the Letters of Credit
or any other Loan Document, or in any certificate or other document referred to
or provided for in, or received by any of them under, this Agreement, the
Letters of Credit or any other Loan Document, or for the value, validity,
effectiveness, genuineness, enforceability, execution, filing, registration,
collectibility, recording, perfection, existence or sufficiency of this
Agreement, the Letters of Credit, or any other Loan Document or any other
document referred to or provided for herein or therein or any Property covered
thereby or for any failure by any Obligor or any other Person to perform any of
its obligations hereunder or thereunder, and shall not have any duty to inquire
into or pass upon any of the foregoing matters; (c) shall not be required to
initiate or conduct any litigation or collection proceedings hereunder or under
the Letters of Credit or any other Loan Document except to the extent requested
by the Majority Lenders; (d) shall not be responsible for any mistake of law or
fact or any action taken or omitted to be taken by it hereunder or under the
Letters or Credit or any other Loan Document or any other document or instrument
referred to or provided for herein or therein or in connection herewith or
therewith, including, without limitation, pursuant to its own negligence, except
for its own gross negligence or willful misconduct; (e) shall not be bound by or
obliged to recognize any agreement among or between Borrower and any Lender to
which Agent is not a party, regardless of whether Agent has knowledge of the
existence of any such agreement or the terms and provisions thereof; (f) shall
not be charged with notice or knowledge of any fact or information not herein
set out or provided to Agent in accordance with the terms of this Agreement or
any other Loan Document; (g) shall not be responsible for any delay, error,
omission or default of any mail, telegraph, cable or wireless agency or
operator, and (h) shall not be responsible for the acts or edicts of any
Governmental Authority. Agent may employ agents and attorneys-in-fact and shall
not be responsible for the negligence or misconduct of any such agents or
attorneys-in-fact selected by it with reasonable care. Without in any way
limiting any of the foregoing, each Lender acknowledges that Agent shall have no
greater responsibility in the operation of the Letters of Credit than is
specified in the Uniform Customs and Practice for Documentary Credits (1993
Revision, International Chamber of Commerce Publication No. 500). In any
foreclosure proceeding concerning any Collateral, each holder of an Obligation
if bidding for its own account or for its own account and the accounts of other
Lenders is prohibited from including in the amount of its bid an amount to be
applied as a credit against the Obligations held by it or the Obligations held
by the other Lenders; instead, such holder must bid in cash only. However, in
any such foreclosure proceeding, Agent may (but shall not be obligated to)
submit a bid for all Lenders (including itself) in the form of a credit against
the Obligations, and Agent or its designee may (but shall not be obligated to)
accept title to such collateral for and on behalf of all Lenders.
10.2 RELIANCE. Agent shall be entitled to rely upon any certification,
notice or other communication (including any thereof by telephone, telex,
telegram or cable) believed by it to be genuine and correct and to have been
signed or sent by or on behalf of the proper Person or Persons, and upon advice
and statements of legal counsel (which may be counsel for Borrower), independent
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accountants and other experts selected by Agent. Agent shall not be required in
any way to determine the identity or authority of any Person delivering or
executing the same. As to any matters not expressly provided for by this
Agreement, the Letters of Credit, or any other Loan Document, Agent shall in all
cases be fully protected in acting, or in refraining from acting, hereunder and
thereunder in accordance with instructions of the Majority Lenders, and any
action taken or failure to act pursuant thereto shall be binding on all of the
Lenders. Pursuant to instructions of the Majority Lenders, Agent shall have the
authority to execute releases of the Security Documents on behalf of the Lenders
without the joinder of any Lender. If any order, writ, judgment or decree shall
be made or entered by any court affecting the rights, duties and obligations of
Agent under this Agreement or any other Loan Document, then and in any of such
events Agent is authorized, in its sole discretion, to rely upon and comply with
such order, writ, judgment or decree which it is advised by legal counsel of its
own choosing is binding upon it under the terms of this Agreement, the relevant
Loan Document or otherwise; and if Agent complies with any such order, writ,
judgment or decree, then it shall not be liable to any Lender or to any other
Person by reason of such compliance even though such order, writ, judgment or
decree may be subsequently reversed, modified, annulled, set aside or vacated.
10.3 DEFAULTS. Agent shall not be deemed to have knowledge of the
occurrence of a Default (other than the non-payment of principal of or interest
on Loans or Reimbursement Obligations) unless Agent has received notice from a
Lender or Borrower specifying such Default and stating that such notice is a
"NOTICE OF DEFAULT." In the event that Agent receives such a Notice of Default,
Agent shall give prompt notice thereof to the Lenders (and shall give each
Lender prompt notice of each such non-payment). Agent shall (subject to SECTION
10.7 hereof) take such action with respect to such Notice of Default as shall be
directed by the Majority Lenders and within its rights under the Loan Documents
and at law or in equity, PROVIDED that, unless and until Agent shall have
received such directions, Agent may (but shall not be obligated to) take such
action, or refrain from taking such action, permitted hereby with respect to
such Notice of Default as it shall deem advisable in the best interests of the
Lenders and within its rights under the Loan Documents, at law or in equity.
10.4 MATERIAL WRITTEN NOTICES. In the event that Agent receives any
written notice of a material nature from the Borrower or any Obligor under the
Loan Documents, Agent shall promptly inform each of the Lenders thereof.
10.5 RIGHTS AS A LENDER. With respect to its Revolving Loan Commitments
and the Loans made and Letter of Credit Liabilities, Chase Texas in its capacity
as a Lender hereunder shall have the same rights and powers hereunder as any
other Lender and may exercise the same as though it were not acting in its
agency capacity, and the term "LENDER" or "LENDERS" shall, unless the context
otherwise indicates, include Agent in its individual capacity. Agent may
(without having to account therefor to any Lender) accept deposits from, lend
money to and generally engage in any kind of banking, trust, letter of credit,
agency or other business with Borrower (and any of its Affiliates) as if it were
not acting as Agent, and Agent may accept fees and other consideration from
Borrower (in addition to the fees heretofore agreed to between Borrower and
Agent) for services in connection with this Agreement or otherwise without
having to account for the same to the Lenders.
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10.6 INDEMNIFICATION. The Lenders agree to indemnify Agent (to the extent
not reimbursed under SECTION 2.2(C), SECTION 11.3 or SECTION 11.4 hereof, but
without limiting the obligations of Borrower under said SECTIONS 2.2(C), 11.3
and 11.4), ratably in accordance with the Lenders' respective Revolving Loan
Commitments, for any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any
kind and nature whatsoever, REGARDLESS OF WHETHER CAUSED IN WHOLE OR IN PART BY
THE NEGLIGENCE OF ANY INDEMNIFIED PARTIES, which may be imposed on, incurred by
or asserted against Agent in any way relating to or arising out of this
Agreement, the Letters of Credit or any other Loan Document or any other
documents contemplated by or referred to herein or therein or the transactions
contemplated hereby or thereby (including, without limitation, the costs and
expenses which Borrower is obligated to pay under SECTIONS 2.2(C), 11.3 and 11.4
hereof, interest, penalties, attorneys' fees and amounts paid in settlement, but
excluding, unless a Default has occurred and is continuing, normal
administrative costs and expenses incident to the performance of its agency
duties hereunder) or the enforcement of any of the terms hereof or thereof or of
any such other documents; PROVIDED that no Lender shall be liable for any of the
foregoing to the extent they arise from the gross negligence or willful
misconduct of the party to be indemnified. The obligations of the Lenders under
this SECTION 10.6 shall survive the termination of this Agreement and the
repayment of the Obligations.
10.7 NON-RELIANCE ON AGENT AND OTHER LENDERS. Each Lender agrees that it
has received current financial information with respect to Borrower and each
other Obligor that it has, independently and without reliance on Agent or any
other Lender and based on such documents and information as it has deemed
appropriate, made its own credit analysis of Borrower and each other Obligor and
decision to enter into this Agreement and that it will, independently and
without reliance upon Agent or any other Lender, and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
analysis and decisions in taking or not taking action under this Agreement or
any of the other Loan Documents. Agent shall not be required to keep itself
informed as to the performance or observance by any Obligor of this Agreement,
the Letters of Credit or any of the other Loan Documents or any other document
referred to or provided for herein or therein or to inspect the properties or
books of any Obligor. Except for notices, reports and other documents and
information expressly required to be furnished to the Lenders by Agent
hereunder, under the Letters of Credit or the other Loan Documents, Agent shall
not have any duty or responsibility to provide any Lender with any credit or
other information concerning the affairs, financial condition or business of any
Obligor (or any of their affiliates) which may come into the possession of
Agent.
10.8 FAILURE TO ACT. Except for action expressly required of Agent
hereunder, under the Letters of Credit or under the other Loan Documents, Agent
shall in all cases be fully justified in failing or refusing to act hereunder
and thereunder unless it shall receive further assurances to its satisfaction by
the Lenders of their indemnification obligations under SECTION 10.6 hereof
against any and all liability and expense which may be incurred by it by reason
of taking or continuing to take any such action.
10.9 RESIGNATION OR REMOVAL OF AGENT. Subject to the appointment and
acceptance of a successor Agent as provided below, Agent may resign at any time
by giving notice thereof to the
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Lenders and Borrower, and Agent may be removed at any time with or without cause
by the Majority Lenders; PROVIDED, that Agent shall continue as Agent until such
time as any successor shall have accepted appointment as Agent hereunder. Upon
any such resignation or removal, (i) the Majority Lenders without the consent of
Borrower shall have the right to appoint a successor Agent so long as such
successor Agent is also a Lender at the time of such appointment and (ii) the
Majority Lenders shall have the right to appoint a successor Agent that is not a
Lender at the time of such appointment so long as Borrower consents to such
appointment (which consent shall not be unreasonably withheld). If no successor
Agent shall have been so appointed by the Majority Lenders and accepted such
appointment within 30 days after the retiring Agent's giving of notice of
resignation or the Majority Lenders' removal of the retiring Agent, then the
retiring Agent may, on behalf of the Lenders, appoint a successor Agent. Any
successor Agent shall be a bank which has an office in the United States and a
combined capital and surplus of at least $250,000,000. Upon the acceptance of
any appointment as Agent hereunder by a successor Agent, such successor Agent
shall thereupon succeed to and become vested with all the rights, powers,
privileges and duties of the retiring Agent and the retiring Agent shall be
discharged from its duties and obligations hereunder and under any other Loan
Documents. Such successor Agent shall promptly specify by notice to Borrower its
Principal Office referred to in SECTION 3.1 and SECTION 4 hereof. After any
retiring Agent's resignation or removal hereunder as Agent, the provisions of
this SECTION 10 shall continue in effect for its benefit in respect of any
actions taken or omitted to be taken by it while it was acting as Agent.
10.10 NO PARTNERSHIP. Neither the execution and delivery of this Agreement
nor any of the other Loan Documents nor any interest the Lenders, Agent or any
of them may now or hereafter have in all or any part of the Obligations shall
create or be construed as creating a partnership, joint venture or other joint
enterprise between the Lenders or among the Lenders and Agent. The relationship
between the Lenders, on the one hand, and Agent, on the other, is and shall be
that of principals and agent only, and nothing in this Agreement or any of the
other Loan Documents shall be construed to constitute Agent as trustee or other
fiduciary for any Lender or to impose on Agent any duty, responsibility or
obligation other than those expressly provided for herein and therein.
11. MISCELLANEOUS.
11.1 WAIVER. No waiver of any Default or Event of Default shall be a
waiver of any other Default or Event of Default. No failure on the part of Agent
or any Lender to exercise and no delay in exercising, and no course of dealing
with respect to, any right, power or privilege under any Loan Document shall
operate as a waiver thereof, nor shall any single or partial exercise of any
right, power or privilege thereunder preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. The remedies
provided in the Loan Documents are cumulative and not exclusive of any remedies
provided by law or in equity.
11.2 NOTICES. All notices and other communications provided for herein
(including, without limitation, any modifications of, or waivers or consents
under, this Agreement) shall be given or made by telex, telegraph, telecopy
(confirmed by mail), cable or other writing and telexed, telecopied,
telegraphed, cabled, mailed or delivered to the intended recipient at the
"Address for Notices" specified below its name on the signature pages hereof (or
provided for in an Assignment
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and Acceptance); or, as to any party hereto, at such other address as shall be
designated by such party in a notice (given in accordance with this Section) (i)
as to Borrower, to Agent, (ii) as to Agent, to Borrower and to each Lender, and
(iii) as to any Lender, to Borrower and Agent. Except as otherwise provided in
this Agreement, all such notices or communications shall be deemed to have been
duly given when (i) transmitted by telex or telecopier or delivered to the
telegraph or cable office, (ii) personally delivered (iii) one Business Day
after deposit with an overnight mail or delivery service, postage prepaid or
(iv) three Business Days' after deposit in a receptacle maintained by the United
States Postal Service, postage prepaid, registered or certified mail, return
receipt requested, in each case given or addressed as aforesaid.
11.3 EXPENSES, ETC. Whether or not any Loan is ever made or any Letter of
Credit ever issued, Borrower shall pay or reimburse within 10 days after written
demand (a) Agent for paying the reasonable fees and expenses of legal counsel to
Agent in connection with the preparation, negotiation, execution and delivery of
this Agreement (including the exhibits and schedules hereto), the other Loan
Documents and the making of the Loans and the issuance of Letters of Credit
hereunder, and any modification, supplement or waiver of any of the terms of
this Agreement, the Letters of Credit or any other Loan Document; (b) Agent for
any lien search fees; (c) Agent for reasonable out-of-pocket expenses incurred
by Agent in connection with the preparation, documentation, administration and
syndication of the Loans or any of the Loan Documents (including, without
limitation, the marketing, printing, duplicating, mailing and similar expenses)
of the Loans and Letter of Credit Liabilities; (d) Agent for paying all
transfer, stamp, documentary or other similar taxes, assessments or charges
levied by any governmental or revenue authority in respect of this Agreement,
any Letter of Credit or any other Loan Document or any other document referred
to herein or therein; (e) Agent for paying all costs, expenses, taxes,
assessments and other charges incurred in connection with any filing,
registration, recording or perfection of any security interest contemplated by
this Agreement or any document referred to herein and (f) following the
occurrence and during the continuation of an Event of Default, any Lender or
Agent for paying all amounts reasonably expended, advanced or incurred by such
Lender or Agent to satisfy any obligation of any Obligor under this Agreement or
any other Loan Document, to protect Collateral, to collect the Obligations or to
enforce, protect, preserve or defend the rights of the Lenders or Agent under
this Agreement or any other Loan Document, including, without limitation, fees
and expenses incurred in connection with such Lender's or Agent's participation
as a member of a creditor's committee in a case commenced under the Bankruptcy
Code or other similar law, fees and expenses incurred in connection with lifting
the automatic stay prescribed in ss. 362 of the Bankruptcy Code and fees and
expenses incurred in connection with any action pursuant to ss. 1129 of the
Bankruptcy Code and all other customary out-of-pocket expenses incurred by such
Lender or Agent in connection with such matters, together with interest thereon
at the Past Due Rate on each such amount until the date of reimbursement to such
Lender or Agent.
11.4 INDEMNIFICATION. Borrower shall indemnify each of Agent, the Lenders,
and each Affiliate thereof and their respective directors, officers, employees
and agents from, and hold each of them harmless against, any and all losses,
liabilities, claims or damages to which any of them may become subject,
REGARDLESS OF WHETHER CAUSED IN WHOLE OR IN PART BY THE NEGLIGENCE OF ANY
INDEMNIFIED PARTIES, insofar as such losses, liabilities, claims or damages
arise out of or result from any (i) actual or proposed use by Borrower of the
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proceeds of any extension of credit (whether a Loan or a Letter of Credit) by
any Lender hereunder; (ii) breach by any Obligor of this Agreement or any other
Loan Document; (iii) violation by any Obligor of any Legal Requirement; (iv)
investigation, litigation or other proceeding relating to any of the foregoing,
and Borrower shall reimburse Agent, each Lender, and each Affiliate thereof and
their respective directors, officers, employees and agents, upon demand for any
reasonable expenses (including reasonable legal fees) incurred in connection
with any such investigation or proceeding, or (v) taxes (excluding income taxes
and franchise taxes) payable or ruled payable by any Governmental Authority in
respect of the Obligations or any Loan Document, together with interest and
penalties, if any; PROVIDED that Borrower shall not be required to indemnify any
party seeking indemnification for any claims, damages, losses, liabilities,
costs or expenses to the extent, but only to the extent, caused by (i) the
willful misconduct or gross negligence of the party seeking indemnification, or
(ii) the failure by the party seeking indemnification to pay under any Letter of
Credit after the presentation to it of a request required to be paid under
applicable law or (iii) disputes between or among any and all of Agent, Lenders
and Issuers.. Nothing in this Section is intended to limit the obligations of
Borrower under any other provision of this Agreement. Agent and each Lender,
respectively, shall indemnify Borrower and hold Borrower harmless from and
against the gross negligence or willful misconduct of Agent or such Lender, as
the case may be.
11.5 AMENDMENTS, ETC. No amendment or modification of this Agreement, the
Notes or any other Loan Document shall in any event be effective against
Borrower unless the same shall be agreed or consented to in writing by Borrower.
No amendment, modification or waiver of any provision of this Agreement, the
Notes or any other Loan Document, nor any consent to any departure by Borrower
therefrom, shall in any event be effective against the Lenders unless the same
shall be agreed or consented to in writing by the Majority Lenders, and each
such waiver or consent shall be effective only in the specific instance and for
the specific purpose for which given; PROVIDED, that no amendment, modification,
waiver or consent shall, unless in writing and signed by each Lender affected
thereby, do any of the following: (a) increase any Revolving Loan Commitment of
any of the Lenders (or reinstate any termination or reduction of the Revolving
Loan Commitments) or subject any of the Lenders to any additional obligations;
(b) reduce the principal of, or interest on, any Loan, Reimbursement Obligation
or fee hereunder; (c) postpone or extend the Revolving Loan Maturity Date, the
Revolving Loan Termination Date, the Revolving Loan Availability Period or any
scheduled date fixed for any payment of principal of, or interest on, any Loan,
Reimbursement Obligation, fee or other sum to be paid hereunder or waive any
Event of Default described in SECTION 9.1(A) hereof; (d) change the percentage
of any of the Revolving Loan Commitments or of the aggregate unpaid principal
amount of any of the Loans and Letter of Credit Liabilities, or the percentage
of Lenders, which shall be required for the Lenders or any of them to take any
action under this Agreement (including, without limitation, the definition of
"Majority Lenders"); (e) change any provision contained in SECTIONS 2.2(C), 3.4,
11.3 OR 11.4 hereof or this SECTION 11.5; (f) release any Person from liability
under a Guaranty or substantially all of the security for the Obligations or
release Collateral (exclusive of Collateral with respect to which Agent is
obligated to provide a release pursuant to this Agreement or any of the other
Loan Documents or by law) in any one (1) calendar year ascribed an aggregate
value on the most recent financial statements of Borrower delivered to Agent in
excess of $1,000,000, or (g) modify the provisions of SECTIONS 4.1(B) or 4.2
hereof regarding PRO RATA application of amounts after an Event of Default shall
have occurred and be continuing. Notwithstanding anything in this SECTION 11.5
to the contrary, no amendment,
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<PAGE>
modification, waiver or consent shall be made with respect to SECTION 10 without
the consent of Agent to the extent it affects Agent, as Agent.
11.6 SUCCESSORS AND ASSIGNS.
(a) This Agreement shall be binding upon and inure to the benefit of
Borrower, Agent and the Lenders and their respective successors and assigns;
PROVIDED, HOWEVER, that Borrower may not assign or transfer any of its rights or
obligations hereunder without the prior written consent of all of the Lenders,
and any such assignment or transfer without such consent shall be null and void.
Each Lender may sell participations to any Person in all or part of any Loan, or
all or part of its Notes, Revolving Loan Commitments or interests in Letters of
Credit, in which event, without limiting the foregoing, the provisions of the
Loan Documents shall inure to the benefit of each purchaser of a participation;
PROVIDED, HOWEVER, the PRO RATA treatment of payments, as described in SECTION
4.2 hereof, shall be determined as if such Lender had not sold such
participation. Any Lender that sells one or more participations to any Person
shall not be relieved by virtue of such participation from any of its
obligations to Borrower under this Agreement relating to the Loans. In the event
any Lender shall sell any participation, such Lender shall retain the sole right
and responsibility to enforce the obligations of Borrower relating to the Loans,
including, without limitation, the right to approve any amendment, modification
or waiver of any provision of this Agreement other than amendments,
modifications or waivers with respect to (i) any fees payable hereunder to the
Lenders, (ii) the amount of principal or the rate of interest payable on, or the
dates fixed for the scheduled repayment of principal of, the Loans and (iii) the
release of the Liens on all or substantially all of the Collateral.
(b) Each Lender may assign to one or more Lenders or any other Person all
or a portion of its interests, rights and obligations under this Agreement;
PROVIDED, HOWEVER, that (i) the aggregate amount of the Revolving Loan
Commitments of the assigning Lender subject to each such assignment shall in no
event be less than $5,000,000; (ii) other than in the case of an assignment to
another Lender (that is, at the time of the assignment, a party hereto) or to an
Affiliate of such Lender or to a Federal Reserve Bank, Agent and, so long as no
Event of Default shall have occurred and be continuing, Borrower must each give
its prior written consent, which consents shall not be unreasonably withheld,
and (iii) the parties to each such assignment shall execute and deliver to
Agent, for its acceptance an Assignment and Acceptance in the form of EXHIBIT D
hereto (each an "ASSIGNMENT AND ACCEPTANCE") with blanks appropriately
completed, together with any Note or Notes subject to such assignment and a
processing and recording fee of $3,000 paid by the assignee (for which Borrower
will have no liability). Upon such execution, delivery and acceptance, from and
after the effective date specified in each Assignment and Acceptance, (A) the
assignee thereunder shall be a party hereto and, to the extent provided in such
Assignment and Acceptance, have the rights and obligations of a Lender hereunder
and (B) the Lender thereunder shall, to the extent provided in such Assignment
and Acceptance, be released from its obligations under this Agreement (and, in
the case of an Assignment and Acceptance covering all or the remaining portion
of an assigning Lender's rights and obligations under this Agreement, such
Lender shall cease to be a party hereto except in respect of provisions of this
Agreement which survive payment of the Obligations and termination of the
Commitments). Notwithstanding anything contained in this Agreement to the
contrary, any Lender may at any time assign all or any portion of its rights
under
58
<PAGE>
this Agreement and the Notes issued to it as collateral to a Federal Reserve
Bank; provided that no such assignment shall release such Lender from any of its
obligations hereunder.
(c) By executing and delivering an Assignment and Acceptance, the Lender
assignor thereunder and the assignee thereunder confirm to and agree with each
other and the other parties hereto as follows: (i) other than the representation
and warranty that it is the legal and beneficial owner of the interest being
assigned thereby free and clear of any adverse claim, such Lender assignor makes
no representation or warranty and assumes no responsibility with respect to any
statements, warranties or representations made in or in connection with this
Agreement or any of the other Loan Documents or the execution, legality,
validity, enforceability, genuineness, sufficiency or value of this Agreement or
any of the other Loan Documents or any other instrument or document furnished
pursuant thereto; (ii) such Lender assignor makes no representation or warranty
and assumes no responsibility with respect to the financial condition of
Borrower or the performance or observance by Borrower of any of its obligations
under this Agreement or any of the other Loan Documents or any other instrument
or document furnished pursuant hereto; (iii) such assignee confirms that it has
received a copy of this Agreement, together with copies of the financial
statements referred to in SECTION 6.2 hereof and such other documents and
information as it has deemed appropriate to make its own credit analysis and
decision to enter into such Assignment and Acceptance; (iv) such assignee will,
independently and without reliance upon Agent, such Lender assignor or any other
Lender and based on such documents and information as it shall deem appropriate
at the time, continue to make its own credit decisions in taking or not taking
action under this Agreement and the other Loan Documents; (v) such assignee
appoints and authorizes Agent to take such action as agent on its behalf and to
exercise such powers under this Agreement and the other Loan Documents as are
delegated to Agent by the terms hereof, together with such powers as are
reasonably incidental thereto; and (vi) such assignee agrees that it will
perform in accordance with their terms all obligations that by the terms of this
Agreement and the other Loan Documents are required to be performed by it as a
Lender.
(d) The entries in the records of Agent as to each Assignment and
Acceptance delivered to it and the names and addresses of the Lenders and the
Revolving Loan Commitments of, and principal amount of the Loans owing to, each
Lender from time to time shall create a rebuttable presumption as to the
accuracy thereof and Borrower, Agent and the Lenders may treat each Person the
name of which is recorded in the books and records of Agent as a Lender
hereunder for all purposes of this Agreement and the other Loan Documents.
(e) Upon Agent's receipt of an Assignment and Acceptance executed by an
assigning Lender and the assignee thereunder, together with any Note or Notes
subject to such assignment and the written consent to such assignment (to the
extent consent is required), Agent shall, if such Assignment and Acceptance has
been completed with blanks appropriately filled, (i) accept such Assignment and
Acceptance, (ii) record the information contained therein in its records and
(iii) give prompt notice thereof to Borrower. Within ten (10) Business Days
after receipt of notice, Borrower, at its own expense, shall execute and deliver
to Agent in exchange for the surrendered Notes new Notes to the order of such
assignee in an amount equal to the Revolving Loan Commitments assumed by it
pursuant to such Assignment and Acceptance and, if the assigning Lender has
retained Revolving Loan Commitments hereunder, new Notes to the order of the
assigning Lender in an
59
<PAGE>
amount equal to the Revolving Loan Commitment retained by it hereunder. Such new
Notes shall be in an aggregate principal amount equal to the aggregate principal
amount of such surrendered Notes, shall be dated the effective date of such
Assignment and Acceptance and shall otherwise be in substantially the form of
the respective Note. Thereafter, such surrendered Notes shall be marked renewed
and substituted and the originals thereof delivered to Borrower (with copies,
certified by Borrower as true, correct and complete, to be retained by Agent).
(f) Any Lender may, in connection with any assignment or participation or
proposed assignment or participation pursuant to this SECTION 11.6, disclose to
the assignee or participant or proposed assignee or participant, any information
relating to Borrower furnished to such Lender by or on behalf of Borrower.
11.7 LIMITATION OF INTEREST. Borrower and the Lenders intend to strictly
comply with all applicable federal and Texas laws, including applicable usury
laws (or the usury laws of any jurisdiction whose usury laws are deemed to apply
to the Notes or any other Loan Documents despite the intention and desire of the
parties to apply the usury laws of the State of Texas). Accordingly, the
provisions of this SECTION 11.7 shall govern and control over every other
provision of this Agreement or any other Loan Document which conflicts or is
inconsistent with this Section, even if such provision declares that it
controls. As used in this Section, the term "interest" includes the aggregate of
all charges, fees, benefits or other compensation which constitute interest
under applicable law, PROVIDED that, to the maximum extent permitted by
applicable law, (a) any non-principal payment shall be characterized as an
expense or as compensation for something other than the use, forbearance or
detention of money and not as interest, and (b) all interest at any time
contracted for, reserved, charged or received shall be amortized, prorated,
allocated and spread, in equal parts during the full term of the Obligations. In
no event shall Borrower or any other Person be obligated to pay, or any Lender
have any right or privilege to reserve, receive or retain, (a) any interest in
excess of the maximum amount of nonusurious interest permitted under the laws of
the State of Texas or the applicable laws (if any) of the United States or of
any other jurisdiction, or (b) total interest in excess of the amount which such
Lender could lawfully have contracted for, reserved, received, retained or
charged had the interest been calculated for the full term of the Obligations at
the Ceiling Rate. The daily interest rates to be used in calculating interest at
the Ceiling Rate shall be determined by dividing the applicable Ceiling Rate per
annum by the number of days in the calendar year for which such calculation is
being made. None of the terms and provisions contained in this Agreement or in
any other Loan Document (including, without limitation, SECTION 9.1 hereof)
which directly or indirectly relate to interest shall ever be construed without
reference to this SECTION 11.7, or be construed to create a contract to pay for
the use, forbearance or detention of money at an interest rate in excess of the
Ceiling Rate. If the term of any Obligation is shortened by reason of
acceleration of maturity as a result of any Default or by any other cause, or by
reason of any required or permitted prepayment, and if for that (or any other)
reason any Lender at any time, including but not limited to, the stated
maturity, is owed or receives (and/or has received) interest in excess of
interest calculated at the Ceiling Rate, then and in any such event all of any
such excess interest shall be canceled automatically as of the date of such
acceleration, prepayment or other event which produces the excess, and, if such
excess interest has been paid to such Lender, it shall be credited PRO TANTO
against the then-outstanding principal balance of Borrower's obligations to such
Lender, effective as of the date or dates when the event occurs
60
<PAGE>
which causes it to be excess interest, until such excess is exhausted or all of
such principal has been fully paid and satisfied, whichever occurs first, and
any remaining balance of such excess shall be promptly refunded to its payor.
11.8 SURVIVAL. The obligations of Borrower under SECTIONS 2.2(C), 2.2(D),
3.4, 11.3 AND 11.4 hereof and all other obligations of Borrower in any other
Loan Document (to the extent stated therein), the obligations of each Issuer
under the last sentence of SECTION 2.2(B)(III) and the obligations of the
Lenders under SECTION 10.5 and 11.7 hereof, shall, notwithstanding anything
herein to the contrary, survive the repayment of the Loans and Reimbursement
Obligations and the termination of the Revolving Loan Commitments and the
Letters of Credit.
11.9 CAPTIONS. Captions and section headings appearing herein are included
solely for convenience of reference and are not intended to affect the
interpretation of any provision of this Agreement.
11.10 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
agreement and any of the parties hereto may execute this Agreement by signing
any such counterpart.
11.11 GOVERNING LAW. THIS AGREEMENT AND (EXCEPT AS THEREIN PROVIDED) THE
OTHER LOAN DOCUMENTS SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
APPLICABLE LAWS OF THE STATE OF TEXAS AND THE UNITED STATES OF AMERICA FROM TIME
TO TIME IN EFFECT.
11.12 SEVERABILITY. Whenever possible, each provision of the Loan
Documents shall be interpreted in such manner as to be effective and valid under
applicable law. If any provision of any Loan Document shall be invalid, illegal
or unenforceable in any respect under any applicable law, the validity, legality
and enforceability of the remaining provisions of such Loan Document shall not
be affected or impaired thereby.
11.13 TAX FORMS. Each Lender which is organized under the laws of a
jurisdiction outside the United States shall, on the day of the initial
borrowing from each such Lender hereunder and from time to time thereafter if
requested by Borrower or Agent, provide Agent and Borrower with the forms
prescribed by the Internal Revenue Service of the United States certifying as to
such Lender's status for purposes of determining exemption from United States
withholding taxes with respect to all payments to be made to such Lender
hereunder or other documents satisfactory to such Lender, Borrower and Agent
indicating that all payments to be made to such Lender hereunder are not subject
to United States withholding tax or are subject to such tax at a rate reduced by
an applicable tax treaty. Unless Borrower and Agent shall have received such
forms or such documents indicating that payments hereunder are not subject to
United States withholding tax or are subject to such tax at a rate reduced by an
applicable tax treaty, Borrower or Agent shall withhold taxes from such payments
at the applicable statutory rate.
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<PAGE>
11.14 CONFLICTS BETWEEN THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS. In
the event of any conflict between the terms of this Agreement and the terms of
any of the other Loan Documents, the terms of this Agreement shall control.
11.15 DISCLOSURE TO OTHER PERSONS; CONFIDENTIALITY. Agent and each Lender
agree that it may deliver copies of any financial statements and other documents
or information delivered to it and disclose any other information disclosed to
it by or on behalf of Borrower or any Subsidiary of Borrower in connection with
or pursuant to this Agreement and the other Loan Documents only to:
(i) its directors, officers, employees and professional consultants;
(ii) any other Lender;
(iii) any Person to which such Lender offers to sell its Note or any
part thereof, provided that each such Person agrees in writing to observe
the confidentiality standards described in this Section;
(iv) any Person to which such Lender sells or offers to sell a
participation in all or any part of its Note, PROVIDED that each such
Person agrees in writing to observe the confidentiality standards
described in this Section;
(v) any federal or state regulatory authority having jurisdiction
over it;
(vi) any other Person to which such delivery or disclosure may be
necessary or reasonably appropriate in response to any subpoena or other
legal process or investigative demand, and
(vii) any other Person in connection with any litigation involving
any obligation, right or remedy of Agent or any Lender under the Loan
Documents.
Subject to the foregoing, Agent and each Lender hereby agrees to use its best
efforts to hold in confidence and not to disclose any Confidential Information;
PROVIDED, that such Person will be free, after notice to Borrower, to correct
any false or misleading information which may become public concerning its
relationship to Borrower. For the purpose of this Section, the term
"CONFIDENTIAL INFORMATION" shall mean information about Borrower or any
Subsidiary of Borrower furnished by Borrower or any such Subsidiary, but does
not include any information which (i) is publicly known, or otherwise known to
such holder, at the time of disclosure; (ii) subsequently becomes publicly
known, but not through any act or omission by such holder, or (iii) otherwise
becomes known to such holder other than through disclosure by Borrower or any
Subsidiary of Borrower.
11.16 AMENDMENT AND RESTATEMENT. This Agreement amends and restates in its
entirety that certain Loan Agreement executed effective as of October 17, 1997
by and among the Borrower, the Agent and certain financial institutions therein
set forth, as amended.
NOTICE PURSUANT TO TEX. BUS. & COMM. CODE SS.26.02
62
<PAGE>
THE LOAN AGREEMENT, AS AMENDED BY THIS AMENDMENT, AND ALL OTHER LOAN
DOCUMENTS EXECUTED BY ANY OF THE PARTIES PRIOR HERETO OR SUBSTANTIALLY
CONCURRENTLY HEREWITH CONSTITUTE A WRITTEN LOAN AGREEMENT WHICH REPRESENTS THE
FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF
PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE
NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the Effective Date.
INNOVATIVE VALVE TECHNOLOGIES, INC.,
a Delaware corporation
By:
Charles F. Schugart, Senior Vice
President, Chief Financial Officer,
Treasurer and Secretary
Address for Notices:
2 Northpoint Dr.
Houston, Texas 77060
Attention: Mr. Charles F. Schugart,
Senior Vice President, Chief
Financial Officer, Treasurer
and Secretary
Telecopy No.: (281) 925-0360
63
<PAGE>
CHASE BANK OF TEXAS, NATIONAL
ASSOCIATION, as Agent and as a Lender
By:
Name:
Title:
Address for Notices:
Revolving Loan Commitment: 5 CBB E-78
712 Main Street
Houston, Texas 77002
$27,500,000 Attention: Manager, Diversified Corporate
Group
Telecopy No.: (713) 216-6004
64
<PAGE>
WELLS FARGO BANK (TEXAS), NATIONAL
ASSOCIATION
By:
Name:
Title:
Address for Notices:
Revolving Loan Commitment: Wells Fargo Bank (Texas), National
Association
1000 Louisiana, 3rd Floor
$10,000,000 Houston, Texas 77002
Attention: Mr. Christopher King
Telecopy No.: (713) 250-7029
65
<PAGE>
BANK OF AMERICA TEXAS, N.A.
By:
Name:
Title:
Address for Notices:
Revolving Loan Commitment: Bank of America Texas, N.A.
333 Clay Street, Suite 3600
$17,500,000 Houston, Texas 77002
Attention: Mr. Victor N. Tekell
Telecopy No.: (713) 652-3619
66
<PAGE>
COMERICA BANK-TEXAS
By:
Name:
Title:
Address for Notices:
Revolving Loan Commitment: Comerica Bank-Texas
910 Louisiana
One Shell Plaza
$15,000,000 Houston, Texas 77002
Attention: Mr. Eric Lundquist
Telecopy No.: (713) 220-5651
67
<PAGE>
NATIONAL CITY BANK OF KENTUCKY
By:
Name:
Title:
Address for Notices:
Revolving Loan Commitment: National City Bank of Kentucky
101 South Fifth Street
Louisville, Kentucky 40402
$20,000,000 Attention: Mr. Tom Gurbach
Telecopy No.: (502) 581-4424
68
<PAGE>
The undersigned hereby join in this Agreement to evidence their consent to
execution by Borrower of this Agreement to confirm that each Loan Document now
or previously executed by the undersigned applies and shall continue to apply to
this Loan Agreement, to acknowledge that without such consent and confirmation,
Lender would not execute this Amendment and to join in the notice pursuant to
Tex. Bus. & Comm. Code ss.26.02 set forth above.
VALVE REPAIR OF SOUTH CAROLINA, INC.,
THE SAFE SEAL COMPANY (CANADA), INC.,
GSV, INC.,
PLANT SPECIALTIES, INC.,
STEAM SUPPLY & RUBBER CO., INC.,
FLICKINGER COMPANY,
FLICKINGER-BENECIA, INC.,
HARLEY INDUSTRIES, INC.,
PUGET INVESTMENTS, INC.,
THE SAFE SEAL COMPANY, INC.,
INDUSTRIAL CONTROLS & EQUIPMENT, INC.,
VALVE ACTUATION & REPAIR COMPANY, INC.,
SOUTHERN VALVE SERVICE, INC.,
L.T. KOPPL INDUSTRIES, INC.,
KOPPL COMPANY,
KOPPL COMPANY OF ARIZONA,
KOPPL INDUSTRIAL SYSTEMS, INC.,
KOPPL INDUSTRIAL SYSTEMS, INC.,
KOPPL INDUSTRIAL SYSTEMS, INC.,
69
<PAGE>
DALCO, LLC,
DIVT ACQUISITION-DELAWARE, L.L.C.,
SEELEY & JONES, INCORPORATED,
PREVENTIVE MAINTENANCE, INC.,
CYPRESS INDUSTRIES, INC., an Illinois
corporation,
IPSCO HOLDING, INC., a Delaware corporation,
INTERNATIONAL PIPING SERVICES COMPANY,
an Illinois corporation,
MID-AMERICA ENERGIES CORP., a Delaware
corporation,
IPSCO-FLORIDA, INC., a Florida corporation,
By:
Charles F. Schugart,
Chief Financial Officer, Treasurer and
Secretary
70
<PAGE>
IPSCO (U.K.) LIMITED, a United Kingdom
private company
By:
Name:
Title:
71
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<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 116,457
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<RECEIVABLES> 32,942,715
<ALLOWANCES> 1,570,586
<INVENTORY> 22,181,213
<CURRENT-ASSETS> 59,561,423
<PP&E> 36,997,879
<DEPRECIATION> 19,114,387
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0
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<SALES> 73,871,478
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