United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Quarterly Period ended June 30, 1998
Commission File Number 333-34323
HYDROCHEM INDUSTRIAL SERVICES, INC. (*)
(Exact name of registrant as specified in its charter)
Delaware 75-2503906
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
6210 Rothway
Houston, Texas 77040
(Address of principal executive offices) (Zip Code)
(713) 462-2130
(Registrant's telephone number, including area code)
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 of $.01 per
per share, outstanding on August 1, 1998 was 100 shares. The Registrant's
Common Stock is not registered under the Securities Act of 1933, as
amended, or the Securities Exchange Act of 1934, as amended.
- ------------------------------------------------------------------------------
* HydroChem International, Inc., a direct and wholly owned subsidiary of
HydroChem Industrial Services, Inc., is a Co-Registrant. It is incorporated
under the laws of the State of Delaware and its I.R.S. Employer Identification
Number is 75-2512100.
1
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TABLE OF CONTENTS
Part I Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets as of December 31, 1997 and
June 30, 1998 (unaudited)............................. 3
Consolidated Statements of Operations for each of the
three and six month periods
ended June 30, 1997 and 1998 (unaudited)............. 4
Consolidated Statement of Stockholder's Equity for the six
month period ended June 30, 1998 (unaudited).......... 5
Consolidated Statements of Cash Flows for each of the
six month periods ended
June 30, 1997 and 1998 (unaudited)................... 6
Notes to Consolidated Financial Statements (unaudited)... 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................. 10
Part II Other Information
Item 6 Exhibits and Reports on Form 8-K......................... 15
Signatures........................................................... 17
Exhibit Index........................................................ 18
2
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HYDROCHEM INDUSTRIAL SERVICES, INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
December 31, June 30,
1997 1998
------------ ---------
ASSETS
Current assets:
Cash and cash equivalents................... $33,862 $28,841
Restricted cash (Note 2).................... 2,858 -
Receivables, less allowance of $1,280 and
$961, respectively........................ 24,341 28,721
Inventories................................. 3,863 4,563
Prepaid expenses and other current assets... 1,791 3,065
Income taxes receivable..................... 407 312
Deferred income taxes ...................... 1,835 1,582
------- --------
Total current assets..................... 68,957 67,084
Property and equipment, at cost ............... 63,210 73,262
Accumulated depreciation.................... (24,872) (29,010)
------- --------
38,338 44,252
Intangible assets, net ........................ 44,798 43,989
------- --------
Total assets............................. $152,093 $155,325
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable............................ $ 4,823 $ 7,551
Income taxes payable........................ 40 24
Accrued liabilities......................... 11,770 12,245
-------- --------
Total current liabilities................ 16,633 19,820
Long-term debt (Note 3)........................ 110,000 110,000
Deferred income taxes ......................... 8,753 8,587
Commitments and contingencies (Note 7)
Stockholder's equity:
Common stock, $.01 par value:
1,000 shares authorized, 100 shares
outstanding............................ 1 1
Additional paid in-capital.................. 16,558 16,558
Retained earnings........................... 148 359
-------- --------
Total stockholder's equity............... 16,707 16,918
-------- --------
Total liabilities and stockholder's
equity................................. $152,093 $155,325
======== ========
See accompanying notes.
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HYDROCHEM INDUSTRIAL SERVICES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)
Three months ended Six months ended
June 30, June 30,
------------------- -----------------
1997 1998 1997 1998
------ ------ ------ -----
Revenue.......................... $42,326 $45,067 $80,714 $85,955
Cost of revenue.................. 24,871 28,185 47,790 53,070
------ ------ ------ ------
Gross profit.................. 17,455 16,882 32,924 32,885
Selling, general and
administrative expense........ 10,863 10,961 21,161 21,748
Depreciation..................... 1,978 2,239 3,889 4,432
------- ------- ------- ------
Operating income.............. 4,614 3,682 7,874 6,705
Other (income) expense:
Interest expense, net......... 1,925 2,599 3,787 5,116
Special charge (Note 5)....... - 300 - 300
Other expense, net............ 19 13 23 16
Amortization of intangibles... 391 374 779 750
-------- -------- -------- ------
Income before taxes.............. 2,279 396 3,285 523
Income tax provision (Note 4)... 1,091 237 1,538 312
------- -------- ------- ------
Net income ...................... $ 1,188 $ 159 $ 1,747 $ 211
======= ======== ======= ======
See accompanying notes.
4
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HYDROCHEM INDUSTRIAL SERVICES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY
(in thousands)
Additional
Common Paid-in Retained
Stock Capital Earnings Total
----- ------- -------- -----
Balance at December 31, 1997..... $ 1 $16,558 $ 148 $16,707
Net income.................... - - 211 211
------ ------- ------- -------
Balance at June 30, 1998 ........ $ 1 $16,558 $ 359 $16,918
====== ======= ======= =======
See accompanying notes.
5
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HYDROCHEM INDUSTRIAL SERVICES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Six months ended
June 30,
-------------------
1997 1998
---- ----
Operating activities:
Net income .................................. $1,747 $ 211
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation................................ 3,889 4,432
Amortization................................ 779 750
Amortization of deferred financing costs.... 288 183
Deferred income tax expense ................ 290 87
Loss (gain) on sale of property and
equipment.................................. 16 (32)
Changes in operating assets and liabilities:
Restricted cash............................. - 2,858
Receivables, net............................ (2,863) (4,380)
Inventories................................. (52) (700)
Prepaid expenses and other current assets... (798) (1,274)
Income taxes receivable..................... - 95
Accounts payable............................ 592 2,728
Income taxes payable........................ 783 (16)
Accrued liabilities......................... 1,536 475
------- --------
Net cash provided by operating activities.. 6,207 5,417
------- --------
Investing activities:
Expenditures for property and equipment...... (2,847) (10,449)
Proceeds from sale of property and equipment. 170 135
------- --------
Net cash used in investing activities...... (2,677) (10,314)
------- --------
Financing activities:
Repayments of long-term debt, net............ (2,743) (124)
------- --------
Net cash used in financing activities...... (2,743) (124)
------- --------
Net increase (decrease) in cash................. 787 (5,021)
Cash at beginning of period..................... 671 33,862
------- --------
Cash at end of period........................... $1,458 $ 28,841
======= ========
See accompanying notes
6
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HYDROCHEM INDUSTRIAL SERVICES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1998
1. Organization and Basis of Presentation
The consolidated financial statements include the accounts of
HydroChem Industrial Services, Inc. ("HydroChem") and its wholly-owned
subsidiary, HydroChem International, Inc. ("International"). HydroChem
generally conducts business outside the United States through
International. (HydroChem and International collectively are referred to as
the "Company.") HydroChem is a wholly-owned subsidiary of HydroChem
Holding, Inc. ("Holding").
The Company is engaged in the business of providing industrial
cleaning services to a wide range of processing industries, including
petrochemical plants, oil refineries, electric utilities, pulp and paper
mills, rubber plants, and aluminum plants. This type of work is typically
recurring maintenance to improve or sustain the operating efficiencies and
extend the useful lives of process equipment and facilities. Services
provided include high-pressure water cleaning (hydroblasting), chemical
cleaning, industrial vacuuming, waste minimization, and commissioning and
other specialized services.
The accompanying unaudited consolidated financial statements presented
herein have been prepared in accordance with generally accepted accounting
principles for interim financial information and the rules and regulations
of the Securities and Exchange Commission. Accordingly, they do not include
all of the information and disclosures required by generally accepted
accounting principles for complete financial statements. Certain
information and disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have
been condensed or omitted. In the opinion of management, the accompanying
unaudited interim financial statements include all adjustments, consisting
of only normal recurring accruals, necessary for a fair presentation of the
results of the interim periods. Operating results for the three and six
month interim periods ended June 30, 1998 are not necessarily indicative of
the results that may be expected for the year ending December 31, 1998.
These unaudited consolidated financial statements should be read in
conjunction with the Company's audited consolidated financial statements
included in the Company's Amendment No. 1 to Form S-4 and Form 10-K filed
with the Securities and Exchange Commission on October 3, 1997 and March
30, 1998, respectively.
2. Restricted Cash
At December 31, 1997, restricted cash represented security for letters
of credit which principally were issued in connection with the Company's
property and casualty insurance program. These letters of credit now are
secured by the Company's New Credit Facility (see Note 3).
3. Long-term Debt
On August 4, 1997, HydroChem issued $110,000,000 of its 10 3/8% Senior
Subordinated Notes due 2007 (the "Series A Notes") in a private offering
pursuant to Rule 144A under the Securities Act of 1933. HydroChem
registered a substantially identical series of notes (the "Series B Notes")
with the Securities and Exchange Commission and on November 7, 1997
completed an exchange of the Series B Notes for the Series A Notes. The
Series B Notes mature on August 1, 2007 and bear interest at 10 3/8% per
annum which is payable semi-annually in arrears on February 1 and August 1
of each year, commencing on February 1, 1998. The Series B Notes are
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redeemable at the option of HydroChem, in whole or in part, on or after
August 1, 2002 at specified redemption prices. In addition, until August 4,
2000, up to 35% of the Series B Notes are redeemable at the option of
HydroChem with the proceeds from one or more equity offerings at a
redemption price of 109.375% of the principal amount thereof. International
is a guarantor of the Series B Notes.
A portion of the net proceeds from the sale of the Series A Notes was
used to repay HydroChem's senior debt and subordinated debt and to fund a
dividend to Holding which Holding used to discharge accrued interest on its
indebtedness and accrued dividends on its preferred stock. As a result of
the early repayment of HydroChem's prior debt, an extraordinary loss was
recognized in the amount of $2,342,000 (net of a related tax benefit of
$1,435,000). The extraordinary loss consisted of the write-off of
associated deferred financing costs in the amount of $3,178,000 before
related tax benefit, as well as a prepayment premium and other related fees
and expenses.
On December 31, 1997, HydroChem entered into a participating credit
agreement with a financial institution for a credit facility (the "New
Credit Facility") which provides for unsecured borrowings of up to
$25,000,000, subject to borrowing base limitations. The term of the New
Credit Facility is three years and any borrowings thereunder bear interest
at rates adjusted quarterly. Interest rates are based on (i) a range from
LIBOR plus 1.25% to LIBOR plus 2.00%, or, at the discretion of HydroChem,
(ii) a range from the prime rate to the prime rate plus 0.25%. The specific
rate within each range depends upon the Company's operating performance. In
addition, a commitment fee of 0.25% per annum is payable quarterly on the
unborrowed portion of the New Credit Facility. The New Credit Facility
requires the Company to meet certain customary financial ratios and
covenants, and generally restricts the Company from pledging its assets. As
of June 30, 1998, the Company's borrowing base under the New Credit
Facility was $24,388,000 of which $3,250,000 had been drawn in the form of
standby letters of credit, principally issued in connection with the
Company's property and casualty insurance program. At June 30, 1998, there
were no other borrowings under the New Credit Facility. Also at such date,
HydroChem had available unused borrowings of $21,138,000 (see Note 2).
In connection with the Company's new headquarters and operating
facilities currently under construction in the Houston, Texas area,
HydroChem entered into a loan agreement with a financial institution (the
"Construction Loan Agreement") on July 17, 1998. The Construction Loan
Agreement provides for an interim financing construction loan of up to
$7,500,000 which, under certain conditions and at the option of HydroChem,
is convertible to a term loan. The loans are collateralized by first
priority liens on the land and improvements being constructed. The
construction loan matures on the earlier of July 14, 1999 or, if converted,
on the date of conversion to the term loan and requires quarterly payments
of interest. Interest rates on the construction loan are at the lender's
commercial loan rate less 0.50%. If converted, the resulting term loan
matures on June 30, 2006 and requires quarterly payments of principal and
interest. Interest rates on the term loan will be at LIBOR plus 1.75%
adjusted quarterly. On July 17, 1998, HydroChem entered into an interest
rate protection agreement with the same financial institution (the
"Interest Rate Swap"). Under the Interest Rate Swap, the Company's
effective fixed borrowing rate for the term loan will be 7.79%. The
Construction Loan Agreement requires the Company to meet certain customary
financial ratios and covenants and generally restricts the Company from
transferring or pledging the facility's assets. Subsequent to June 30,
1998, HydroChem has borrowed $3,187,000 under the Construction Loan
Agreement.
4. Income Taxes
The Company files a consolidated tax return with Holding. The
Company's effective income tax rate differs from the federal statutory
income tax rate primarily due to nondeductible permanent differences and
state income taxes.
5. Special Charge
On March 20, 1998, HydroChem signed a letter of intent to acquire all
the outstanding capital stock of an industrial cleaning company for a
purchase price of approximately $34,000,000 ($30,000,000 in cash and
$4,000,000 in promissory notes). The parties were unable to agree on the
terms of a definitive agreement and, as a result, have
8
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terminated negotiations. HydroChem incurred $300,000 of expenses relating
to legal, accounting and other services which were provided in connection
with negotiation and due diligence efforts. These expenses have been
recorded as a special charge for the three months ended June 30, 1998.
6. Summary Financial Information
Summary financial information for International as consolidated with
HydroChem is as follows (in thousands):
As of As of
December 31, June 30,
1997 1998
--------------- -----------
Current assets................... $ 1,623 $ 1,381
Noncurrent assets................ 127 112
Current liabilities.............. 131 77
Noncurrent liabilities........... - -
Three months ended Six months ended
June 30, June 30,
-------------------- -------------------
1997 1998 1997 1998
-------- -------- ------- ------
Revenue.............. $1,079 $1,051 $1,549 $1,618
Gross profit......... 482 329 692 537
Net income (loss).... 23 (143) (17) (204)
7. Commitments and Contingencies
HydroChem is a defendant in various lawsuits arising in the normal
course of business. Substantially all of these suits are being defended by
HydroChem's insurance carriers. While the results of litigation cannot be
predicted with certainty, management believes adequate provision has been
made for such claims and the final outcome of such litigation will not have
a material adverse effect on the Company's consolidated financial position.
Beginning in September 1998, the Company plans to consolidate certain
facilities into one facility currently under construction in the Houston,
Texas area. Estimated land acquisition and construction costs for this
facility are approximately $9,400,000. HydroChem has entered into a
construction loan, convertible under certain conditions to a term loan,
with a financial institution for $7,500,000 of this amount (see Note 3).
9
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HYDROCHEM INDUSTRIAL SERVICES, INC.
AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Statement Regarding Forward-Looking Information
This Form 10-Q contains forward-looking statements and information that are
based on management's beliefs, as well as assumptions made by, and information
currently available to, management. When used in this document, the words
"believe," "anticipate," "estimate," "expect," "intend," and similar expressions
are intended to identify forward- looking statements. Although the Company
believes that the expectations reflected in such forward-looking statements are
reasonable, it can give no assurance that such expectations will prove to have
been correct. Such statements are subject to certain risks, uncertainties and
assumptions. Should one or more of these risks or uncertainties materialize, or
should underlying assumptions prove incorrect, actual results may vary
materially from those anticipated. The Company undertakes no obligation to
release publicly the result of any revisions to these forward-looking statements
that may be made to reflect events or circumstances after the date hereof or to
reflect the occurrence of unanticipated events.
For supplemental information, it is suggested that "Management's Discussion
and Analysis of Financial Condition and Results of Operations" be read in
conjunction with the corresponding sections included in the Company's Amendment
No. 1 to Form S-4 and Form 10-K filed with the Securities and Exchange
Commission on October 3, 1997 and March 30, 1998, respectively. The Forms S-4
and 10-K also include the Company's Consolidated Financial Statements and the
Notes thereto for certain prior periods, as well as other relevant financial and
operating information.
Results of Operations
The following table sets forth, for the periods indicated, information
derived from the Company's consolidated statements of operations, expressed as a
percentage of revenue. There can be no assurance that the trends in operating
results will continue in the future.
Three months ended Six months ended
June 30, June 30,
--------------------- ---------------------
1997 1998 1997 1998
------ ------ ------ ------
Revenue.................... 100.0% 100.0% 100.0% 100.0%
Cost of revenue............ 58.8 62.5 59.2 61.7
------ ------ ----- ------
Gross profit............ 41.2 37.5 40.8 38.3
SG&A expense............... 25.6 24.3 26.2 25.3
Depreciation............... 4.7 5.0 4.8 5.2
------- ------- ------ -------
Operating income........ 10.9 8.2 9.8 7.8
Other (income) expense:
Interest expense, net... 4.6 5.8 4.7 6.0
Special charge.......... - 0.7 - 0.3
Other (income) expense, net - - - -
Amortization of intangibles 0.9 0.8 1.0 0.9
------- ------- ------- -------
Income before taxes........ 5.4 0.9 4.1 0.6
Income tax provision 2.6 0.5 1.9 0.4
------- ------- ------- -------
Net income ................ 2.8% 0.4% 2.2% 0.2%
======= ======= ======= =======
EBITDA(1).................. 15.6% 13.1% 14.6% 13.0%
====== ====== ====== =======
- ------------
(1) EBITDA for any relevant period presented above represents income before
taxes plus interest expense, depreciation, amortization, and other income and
expense (including a special charge of $300,000 in the three months ended June
30, 1998. EBITDA should not be construed as a substitute for operating income,
as an indicator of liquidity or as a substitute for net cash provided by
operating activities, which are determined in accordance with generally accepted
accounting principals. EBITDA is included because management believes it to be a
useful tool for analyzing operating performance; leverage, liquidity, and a
company's ability to service debt.
10
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Three Months Ended June 30, 1998 Compared to Three Months Ended June 30, 1997
- -----------------------------------------------------------------------------
Revenue. Revenue increased $2.7 million, or 6.5%, to $45.1 million for the
three months ended June 30, 1998 from $42.3 million in the prior year period.
The increase principally resulted from an increase in hydroblasting revenue of
$2.4 million, or 12.5%, from $19.2 million to $21.6 million; an increase in
industrial vacuuming revenue of $975,000, or 23.2%, from $4.2 million to $5.2
million; and an increase in chemical cleaning revenue of $341,000, or 2.2%, from
$15.8 million to $16.1 million. Partially offsetting these increases, revenue
from all other services decreased by $977,000, or 30.9% from $3.1 million to
$2.2 million. Hydroblasting revenue increased primarily due to the
implementation of sole source provider arrangements with certain existing
customers and a small number of large projects with other customers. The
increase in industrial vacuuming revenue resulted from additional vacuum trucks
placed in service by the Company in 1997 and 1998. The increase in chemical
cleaning revenue was primarily caused by a small number of projects in the
current year period, while the decrease in other services primarily resulted
from decreased pipeline cleaning.
Gross profit. Gross profit decreased $573,000, or 3.3%, to $16.9 million in
1998 from $17.5 million in the prior year period. Gross profit margins decreased
from 41.2% to 37.5%. Cost of revenue increased $3.3 million, or 13.3%, to $28.2
million for 1998 from $24.9 million in the prior year period primarily due to
the revenue increases described above and increased direct compensation costs.
SG&A expense. SG&A expense as a percentage of revenue decreased to 24.3% in
1998 from 25.6% in the prior year period, while SG&A expense increased $98,000,
or 0.9%, to $11.0 million in 1998 from $10.9 million in the prior year period.
This increase primarily resulted from increases in compensation expense which
was partially offset by decreased insurance expense.
EBITDA. Decreased gross profit and increased SG&A expense resulted in
EBITDA of $5.9 million in 1998, a decrease of $671,000, or 10.2%, from the prior
year period. As a percentage of revenue, EBITDA decreased to 13.1% in 1998,
compared to 15.6% in the prior year period.
Depreciation. Depreciation expense increased $261,000, or 13.2%, to $2.2
million in 1998 from $2.0 million in the prior year period and was 5.0% and 4.7%
of revenue, respectively. The increase in depreciation expense principally
resulted from increased capital expenditures for vacuum trucks and other
operating equipment.
Operating income. Decreased gross profit, and increased SG&A and
depreciation expense, resulted in a decrease in operating income of $932,000, or
20.2%, to $3.7 million in 1998 from $4.6 million in the prior year period. As a
percentage of revenue, operating income decreased to 8.2% in 1998, compared to
10.9% in the prior year period.
Interest expense, net. Net interest expense increased $674,000, or 35.0%,
to $2.6 million in 1998 from $1.9 million in the prior year period. Increased
interest expense resulted from an increase in debt due to the issuance in August
1997 of $110.0 million of HydroChem's 10 3/8% Senior Subordinated Notes due
2007, which was partially offset by increased interest income earned on higher
invested cash balances.
Special charge. The Company incurred $300,000 of expense in the current
period related to a terminated acquisition. (See Note 5 of Notes to Consolidated
Financial Statements).
Amortization. Amortization expense of $374,000 in 1998 was relatively
unchanged from $391,000 in the prior year period.
Income before taxes. For the reasons described above, income before taxes
decreased $1.9 million, or 82.6%, to $396,000 in 1998 from $2.3 million in the
prior year period. As a percentage of revenue, income before taxes was 0.9% in
1998, compared to 5.4% in the prior year period.
Income tax provision. The effective tax rate increased to 59.8% of income
before taxes in 1998 from 47.9% in the prior year period. This increase
principally resulted from proportionately higher nondeductible permanent
differences in 1998 than in the prior year period.
Net income. For the reasons described above, net income decreased $1.0
million, or 86.6% to $159,000 in 1998 from $1.2 million in the prior year
period.
11
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Six Months Ended June 30, 1998 Compared to Six Months Ended June 30, 1997
- -------------------------------------------------------------------------
Revenue. Revenue increased $5.2 million, or 6.5%, to $85.9 million for the
six months ended June 30, 1998 from $80.7 million in the prior year period. The
increase principally resulted from an increase in hydroblasting revenue of $4.5
million, or 11.4%, from $39.2 million to $43.6 million; and an increase in
industrial vacuuming revenue of $2.7 million, or 35.1%, from $7.7 million to
$10.5 million. These increases were partially offset by a decrease in chemical
cleaning revenue of $337,000, or 1.2%, from $28.5 million to $28.2 million; and,
a decrease in revenue from all other services of $1.6 million, or 30.2% from
$5.3 million to $3.7 million. Hydroblasting revenue increased primarily due to
the implementation of sole source provider arrangements with certain existing
customers and a small number of large projects with other customers. The
increase in industrial vacuuming revenue resulted from additional vacuum trucks
placed in service by the Company in 1997 and 1998. The decrease in chemical
cleaning revenue was primarily caused by a small number of projects in the prior
year period which did not recur, while the decrease in other services primarily
resulted from decreased pipeline cleaning.
Gross profit. Gross profit was relatively unchanged from $32.9 million in
the prior year period. Gross profit margins decreased from 40.8% to 38.3%. Cost
of revenue increased $5.3 million, or 11.0%, to $53.1 million for 1998 from
$47.8 million in the prior year period primarily due to the revenue increases
described above and increased direct compensation costs.
SG&A expense. SG&A expense as a percentage of revenue decreased to 25.3% in
1998 from 26.2% in the prior year period, while SG&A expense increased $587,000,
or 2.8%, to $21.7 million in 1998 from $21.2 million in the prior year period.
This increase primarily resulted from increases in compensation expense which
was partially offset by decreased insurance expense.
EBITDA. Decreased gross profit and increased SG&A expense resulted in
EBITDA of $11.1 million in 1998, a decrease of $626,000, or 4.7%, from the prior
year period. As a percentage of revenue, EBITDA decreased to 13.0% in 1998,
compared to 14.6% in the prior year period.
Depreciation. Depreciation expense increased $543,000, or 14.0%, to $4.4
million in 1998 from $3.9 million in the prior year period and was 5.2% and 4.8%
of revenue, respectively. The increase in depreciation expense principally
resulted from increased capital expenditures for vacuum trucks and other
operating equipment.
Operating income. Decreased gross profit and increased SG&A and
depreciation expense, resulted in a decrease in operating income of $1.2
million, or 14.8%, to $6.7 million in 1998 from $7.9 million in the prior year
period. As a percentage of revenue, operating income decreased to 7.8% in 1998,
compared to 9.8% in the prior year period.
Interest expense, net. Net interest expense increased $1.3 million, or
35.1%, to $5.1 million in 1998 from $3.8 million in the prior year period.
Increased interest expense resulted from an increase in debt due to the issuance
in August 1997 of $110.0 million of HydroChem's 10 3/8% Senior Subordinated
Notes due 2007 which was partially offset by increased interest income earned on
higher invested cash balances.
Special charge. The Company incurred $300,000 of expense in the current
period related to a terminated acquisition. (See Note 5 of Notes to Consolidated
Financial Statements.)
Amortization. Amortization expense of $750,000 in 1998 was relatively
unchanged from $779,000 in the prior year period.
Income before taxes. For the reasons described above, income before taxes
decreased $2.8 million, or 84.1%, to $523,000 in 1998 from $3.3 million in the
prior year period. As a percentage of revenue, income before taxes was 0.6% in
1998, compared to 4.1% in the prior year period.
Income tax provision. The effective tax rate increased to 59.6% of income
before taxes in 1998 from 46.8% in the prior year period. This increase
principally resulted from proportionately higher nondeductible permanent
differences in 1998 than in the prior year period.
Net income. For the reasons described above, net income decreased $1.5
million, or 87.9% to $211,000 in 1998 from $1.7 million in the prior year
period.
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Liquidity and Capital Resources
The Company principally has financed its operations through net cash
provided by operating activities, existing cash balances, available credit
facilities and capital contributions from Holding. In August 1997, HydroChem
issued $110.0 million of its 10 3/8% Senior Subordinated Notes due 2007 (the
"Series A Notes") in a private offering pursuant to Rule 144A under the
Securities Act of 1933. HydroChem registered a substantially identical series of
notes (the "Series B Notes") with the Securities and Exchange Commission and on
November 7, 1997, completed an exchange of the Series B Notes for the Series A
Notes. The Series B Notes mature on August 1, 2007 and bear interest at 10 3/8%
per annum which is payable semi-annually in arrears on February 1 and August 1
of each year, commencing on February 1, 1998. The Series B Notes are redeemable
at the option of HydroChem, in whole or in part, on or after August 1, 2002 at
specified redemption prices. In addition, until August 4, 2000, up to 35% of the
Series B Notes are redeemable at the option of HydroChem with the proceeds from
one or more equity offerings at a redemption price of 109.375% of the principal
amount thereof. A portion of the net proceeds from the sale of the Series A
Notes was used to repay indebtedness, accrued interest and fees under the
Company's existing senior debt ($45.7 million) and subordinated debt ($18.7
million). In addition, $8.5 million was used to fund a dividend to Holding which
Holding used to discharge accrued interest on its indebtedness and accrued
dividends on its preferred stock. The remaining proceeds have been invested in
commercial paper and other interest bearing deposits with short-term maturities.
These funds are intended to be used for general corporate purposes, including
expanding the Company's industrial vacuuming and other business lines through
expenditures for property and equipment, increasing the Company's marketing and
sales efforts, and funding potential acquisitions.
On December 31, 1997, HydroChem entered into a credit agreement with a
financial institution (the "New Credit Facility") which provides for unsecured
borrowings of up to $25 million, subject to borrowing base limitations. The term
of the New Credit Facility is three years, and any borrowings thereunder bear
interest at rates adjusted quarterly. Interest rates are based on (i) a range
from LIBOR plus 1.25% to LIBOR plus 2.00%, or, at the discretion of HydroChem,
(ii) a range from the prime rate to the prime rate plus 0.25%. The specific rate
within each range depends on the Company's operating performance. In addition, a
commitment fee of 0.25% per annum is payable quarterly on the unborrowed portion
of the New Credit Facility. The New Credit Facility requires the Company to meet
certain customary financial ratios and covenants and generally restricts the
Company from pledging its assets. As of June 30, 1998, the Company's borrowing
base under the New Credit Facility was $23.5 million of which $3.2 million had
been drawn in the form of standby letters of credit principally issued in
connection with the Company's property and casualty insurance program. At June
30, 1998, there were no other borrowings under the New Credit Facility. Also at
such date, HydroChem had available unused borrowings of $20.3 million.
In connection with the Company's new headquarters and operating facilities
currently under construction in the Houston, Texas area, HydroChem entered into
a loan agreement with a financial institution (the "Construction Loan
Agreement") on July 17, 1998. The Construction Loan Agreement provides for an
interim financing construction loan of up to $7.5 million which, under certain
conditions and at the option of HydroChem, is convertible to a term loan. The
loans are collateralized by first priority liens on the land and improvements
being constructed. The construction loan matures the earlier of July 14, 1999
or, if converted, on the date of conversion to the term loan and requires
quarterly payments of interest. Interest rates on the construction loan are at
the lender's commercial loan rate less 0.50%. If converted, the resulting term
loan matures on June 30, 2006 and requires quarterly payments of principal and
interest. Interest rates on the term loan will be at LIBOR plus 1.75% adjusted
quarterly. On July 17, 1998, HydroChem entered into an interest rate protection
agreement with the same financial institution (the "Interest Rate Swap"). Under
the Interest Rate Swap, the Company's effective fixed borrowing rate for the
term loan will be 7.79%. The Construction Loan Agreement requires the Company to
meet certain customary financial ratios and covenants and generally restricts
the Company from transferring or pledging the facility's assets. Subsequent to
June 30, 1998, the Company has borrowed $3.2 million under the Construction Loan
Agreement.
For the six months ended June 30, 1998, the Company used net cash of $4.9
million for operating and investing activities, which consisted of $5.4 million
provided by operating activities and $10.3 million used in investing activities.
For the six months ended June 30, 1997, $3.5 million of net cash was provided by
operating and investing activities, which consisted of $6.2 million provided by
operating activities and $2.7 million used in investing activities. Investing
activities for both periods consisted primarily of expenditures for property and
equipment.
13
<PAGE>
Expenditures for property and equipment for the six months ended June 30,
1998 were $10.4 million. Of this amount, $3.0 million was used for vacuum truck
purchases, $2.7 million for purchases of other operating property and equipment,
and $4.7 million for the purchase of land and construction of a new facility in
the Houston, Texas area. Funds expended for the new headquarters and operating
facility consisted of $1.1 million for the purchase of land and $3.6 million for
related construction costs. Construction costs for the new facility are
estimated to be approximately $8.3 million. HydroChem has entered into a
construction loan, convertible under certain conditions to a term loan, with a
financial institution for $7.5 million of this amount.
Management believes that cash and cash equivalents at June 30, 1998 and net
cash expected to be provided by operating activities and borrowings, if
necessary, under the New Credit Facility, and the construction loan and related
term loan will be sufficient to meet its cash requirements for operations and
expenditures for property and equipment for the next twelve months and the
foreseeable future thereafter. (See Notes 2 and 3 of Notes to the Consolidated
Financial Statements.)
Terminated Acquisition
On March 20, 1998, HydroChem signed a letter of intent to acquire all the
outstanding capital stock of an industrial cleaning company for a purchase price
of approximately $34.0 million ($30.0 million in cash and $4.0 million in
promissory notes). The parties were unable to agree on terms of a definitive
agreement and, as a result, have terminated negotiations. HydroChem incurred
$300,000 of expenses relating to legal, accounting and other related services
which were provided in connection with negotiation and due diligence efforts.
These expenses have been recorded as a special charge for the three months ended
June 30, 1998. (See Note 5 of Notes to the Consolidated Financial Statements.)
Impact of Year 2000
The year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Certain of the
Company's computer programs and hardware have date-sensitive software which may
recognize a date using "00" as the year 1900 rather than the year 2000. This
could result in a system failure or miscalculations causing disruptions of
certain day-to-day accounting operations. The Company has acquired new software
and hardware and is currently in the implementation phase to resolve this issue
by year end 1998. The Company estimates the costs of the new software and
hardware to be approximately $1.7 million. Although there can be no assurance,
the Company does not anticipate that any foreseeable problems would have a
material adverse impact on the Company.
14
<PAGE>
Part II. Other Information
Item 6 Exhibits and Reports on Form 8-K
(a)Exhibits
Exhibit
Number Description
3.1 Certificate of Incorporation of HydroChem Industrial
Services, Inc., as amended through December 15, 1993.
(Exhibit 3.1 to the Company's Registration Statement on Form
S-4, filed August 25, 1997, is hereby incorporated by
reference.)
3.2 Certificate of Incorporation of HydroChem International,
Inc., as amended through October 4, 1994. (Exhibit 3.2 to
the Company's Registration Statement on Form S-4, filed
August 25, 1997, is hereby incorporated by reference.)
3.3 By-Laws of HydroChem Industrial Services, Inc. (Exhibit 3.3
to the Company's Registration Statement on Form S-4, filed
August 25, 1997, is hereby incorporated by reference.)
3.4 By-Laws of HydroChem International, Inc. (Exhibit 3.4 to the
Company's Registration Statement on Form S-4, filed August
25, 1997, is hereby incorporated by reference.)
4.1 Purchase Agreement, dated as of July 30, 1997, by and among
HydroChem Industrial Services, Inc., HydroChem
International, Inc. and Donaldson, Lufkin & Jenrette
Securities Corporation, as Initial Purchaser, relating to
the 103/8% Series A Senior Subordinated Notes due 2007.
(Exhibit 4.1 to the Company's Registration Statement on Form
S-4, filed August 25, 1997, is hereby incorporated by
reference.)
4.2 Indenture, dated as of August 1, 1997, among HydroChem
Industrial Services, Inc., HydroChem International, Inc., as
Guarantor, and Norwest Bank, Minnesota, N.A., as Trustee.
(Exhibit 4.2 to the Company's Registration Statement on Form
S-4, filed August 25, 1997, is hereby incorporated by
reference.)
4.3 Registration Rights Agreement dated August 4, 1997, by and
among HydroChem Industrial Services, Inc., HydroChem
International, Inc. and Donaldson, Lufkin & Jenrette
Securities Corporation, as Initial Purchaser. (Exhibit 4.3
to the Company's Registration Statement on Form S-4, filed
August 25, 1997, is hereby incorporated by reference.)
10.1 HydroChem Holding, Inc. 1994 Stock Option Plan. (Exhibit
10.1 to the Company's Registration Statement on Form S-4,
filed August 25, 1997, is hereby incorporated by reference.)
10.2 Employment Agreement dated November 1, 1992 between
HydroChem Industrial Services, Inc. and J. Pat DeBusk.
(Exhibit 10.2 to the Company's Registration Statement on
Form S-4, filed August 25, 1997, is hereby incorporated by
reference.)
10.3 Employment Agreement dated November 1, 1992 between
HydroChem Industrial Services, Inc. and Gary Noto. (Exhibit
10.3 to the Company's Registration Statement on Form S-4,
filed August 25, 1997, is hereby incorporated by reference.)
15
<PAGE>
10.4 Employment Agreement dated November 1, 1992 between
HydroChem Industrial Services, Inc. and Craig Kaple.
(Exhibit 10.4 to the Company's Registration Statement on
Form S-4, filed August 25, 1997, is hereby incorporated by
reference.)
10.5 Employment Offer Letter dated June 3, 1996 from HydroChem
Industrial Services, Inc. to Selby F. Little, III. (Exhibit
10.6 to the Company's Registration Statement on Form S- 4,
filed August 25, 1997, is hereby incorporated by reference.)
10.6 Letter Agreement regarding severance compensation dated
October 31, 1997 between HydroChem Industrial Services, Inc.
and Pelham H. A. Smith. (Exhibit 10.7 to the Company's Form
10-Q, filed November 14, 1997, is hereby incorporated by
reference.)
10.7 Employment Agreement dated December 15, 1993 by and among
HydroChem Holding, Inc., HydroChem Industrial Services, Inc.
and B. Tom Carter, Jr., as amended through December 9, 1996.
(Exhibit 10.5 to the Company's Registration Statement on
Form S-4, filed August 25, 1997, is hereby incorporated by
reference.)
10.8 Fourth Amendment to Employment Agreement dated April 9, 1998
by and among HydroChem Holding, Inc., HydroChem Industrial
Services, Inc. and B. Tom Carter, Jr. (Filed herewith.)
10.9 Secured Promissory Note dated April 9, 1998 from B. Tom
Carter, Jr. to HydroChem Industrial Services, Inc. (Filed
herewith.)
10.10 Pledge Agreement dated April 9, 1998 between HydroChem
Industrial Services, Inc. and B. Tom Carter, Jr. (Filed
herewith.)
10.11 Lease Agreement dated December 4, 1979 between HydroChem
Industrial Services, Inc. and Gracey Corporation, as amended
through May 29, 1996. (Exhibit 10.7 to the Company's
Registration Statement on Form S-4, filed August 25, 1997,
is hereby incorporated by reference.)
10.12 Form of Indemnification Agreement entered into with
directors and officers. (Exhibit 10.8 to the Company's
Amendment No. 1 to the Registration Statement on Form S-4,
filed October 3, 1997, is hereby incorporated by reference.)
10.13 Credit Agreement dated December 31, 1997 among HydroChem
Industrial Services, Inc. and NationsBank of Texas, N. A.
and financial institutions named in the Credit Agreement.
(Exhibit 10.10 to the Company's Form 10-K, filed March 30,
1998, is hereby incorporated by reference.)
10.14 Letter Amendment to Credit Agreement dated March 6, 1998
between HydroChem Industrial Services, Inc. and NationsBank
of Texas, N.A. (Exhibit 10.11 to the Company's Form 10-K,
filed March 30, 1998, is hereby incorporated by reference.)
10.15 Loan agreement dated July 17, 1998 between HydroChem
Industrial Services, Inc and Bank One, Texas, National
Association. (Filed herewith.)
10.16 International Swap Dealers Association, Inc. Master
Agreement and Schedule dated July 17, 1998 between HydroChem
Industrial Services, Inc. and Bank One, Texas, National
Association. (Filed herewith.)
27.1 Financial Data Schedule. (Filed herewith.)
(b) Reports on Form 8-K
None
16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, each
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HYDROCHEM INDUSTRIAL SERVICES, INC.
Date: August 14, 1998 By: /S/ Selby F. Little, III
-------------------------
Selby F. Little, III,
Executive Vice President
and Chief Financial Officer
HYDROCHEM INTERNATIONAL, INC.
Date: August 14, 1998 By: /S/ Selby F. Little, III
-------------------------
Selby F. Little, III,
Executive Vice President
and Chief Financial Officer
17
<PAGE>
EXHIBIT INDEX
10.15 Loan agreement dated July 17, 1998 between HydroChem
Industrial Services, Inc and Bank One, Texas, National
Association.
10.16 International Swap Dealers Association, Inc. Master
Agreement and Schedule dated July 17, 1998 between HydroChem
Industrial Services, Inc. and Bank One, Texas, National
Association.
27.1 Financial Data Schedule.
18
LOAN AGREEMENT
Dated as of
July 17, 1998
Between
HYDROCHEM INDUSTRIAL SERVICES, INC.
AND
BANK ONE, TEXAS, NATIONAL ASSOCIATION
<PAGE>
TABLE OF CONTENTS
SECTION 1. DEFINITIONS; INTERPRETATION.................................1
Section 1.1. Definitions........................................1
Section 1.2. Interpretation.....................................9
SECTION 2. LOAN.......................................................10
Section 2.1. Construction Loan.................................10
Section 2.2. The Note..........................................12
Section 2.3. Repayment of Loan.................................12
Section 2.4. Loan Interest Rate................................13
Section 2.5. Conversion and Extension..........................14
Section 2.6. Use of Proceeds...................................15
Section 2.7. Notice of Change in Interest Rate.................15
Section 2.8. Collateral........................................15
SECTION 3. PAYMENTS AND FEES..........................................16
Section 3.1. Method of Payment.................................16
Section 3.2. Prepayment........................................16
Section 3.3. Commitment Fee....................................16
SECTION 4 CONDITIONS TO LOAN.........................................16
Section 4.1. Initial Advance...................................16
Section 4.2 Conditions to Subsequent Advances.................19
Section 4.3 Waiver of Conditions..............................20
SECTION 5. REPRESENTATIONS AND WARRANTIES.............................20
Section 5.1. Corporate Organization............................20
Section 5.2. Corporate Power and Authority; Validity...........20
Section 5.3. No Violation......................................20
Section 5.4. Litigation........................................20
Section 5.5. Investment Company Act............................21
Section 5.6. Public Utility Holding Company Act................21
Section 5.7. True and Complete Disclosure......................21
Section 5.8. Financial Statements..............................21
Section 5.9. No Material Adverse Effect........................21
Section 5.10. Taxes.............................................21
Section 5.11. ERISA.............................................22
Section 5.12. Consents..........................................22
Section 5.13. Ownership of Project..............................22
Section 5.14. Compliance with Statutes..........................22
Section 5.15. Year 2000 Requirement.............................22
Section 5.16. Place of Business.................................23
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<PAGE>
SECTION 6. COVENANTS..................................................23
Section 6.1. Existence.........................................23
Section 6.2. Maintenance.......................................23
Section 6.3. Taxes.............................................23
Section 6.4. ERISA.............................................23
Section 6.5. Insurance.........................................24
Section 6.6. Construction Contract and Retainage...............24
Section 6.7. Consent to Leases.................................24
Section 6.8. Financial Reports and Other Information...........24
Section 6.9. Lender Inspection Rights..........................26
Section 6.10. Restricted Payments...............................26
Section 6.11. Environmental Laws................................26
Section 6.12. Restrictions on Fundamental Changes...............26
Section 6.13. Liens.............................................27
Section 6.14. Debt..............................................27
Section 6.15. Transfer of Assets................................27
Section 6.16. Completion Deadline...............................27
Section 6.17. Compliance with Laws..............................27
Section 6.18 Intentionally Omitted.............................27
Section 6.19. Minimum Consolidated Net Worth....................27
Section 6.20. Fixed Charge Coverage Ratio.......................27
SECTION 7. EVENTS OF DEFAULT AND REMEDIES.............................28
Section 7.1. Events of Default.................................28
Section 7.2. Non-Bankruptcy Defaults...........................30
Section 7.3. Bankruptcy Defaults...............................31
Section 7.4. Application of Proceeds from Collateral...........31
Section 7.5. Deficiency........................................31
SECTION 8. MISCELLANEOUS..............................................32
Section 8.1. No Waiver of Rights...............................32
Section 8.2 Non-Business Day..................................32
Section 8.3. Documentary Taxes.................................32
Section 8.4. Survival of Representations.......................32
Section 8.5. Survival of Indemnities...........................32
Section 8.6. Setoff............................................32
Section 8.7. Notices...........................................33
Section 8.8. Counterparts......................................34
Section 8.9. Successors and Assigns............................34
Section 8.10. Participations in Borrowings and Notes;
Transfers of Borrowings and
Notes.............................................34
Section 8.11. Amendments........................................36
Section 8.12. Headings..........................................36
Section 8.13. Legal Fees, Other Costs and Indemnification.......36
Section 8.14 GOVERNING LAW; ARBITRATION; SUBMISSION TO
JURISDICTION......................................36
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<PAGE>
Section 8.15. Severability......................................38
Section 8.16. Change in Accounting Principles or Tax Laws.......38
Section 8.17. Notice............................................39
EXHIBITS
Exhibit 2.1A - Form of Request for Advance
Exhibit 2.1B - Form of Affidavit of Bills Paid
Exhibit 2.1C - Form of Waiver of Lien
Exhibit 2.3 - Term Loan Amortization Schedule
Exhibit 6.8 - Form of Compliance Certificate
-iii-
<PAGE>
LOAN AGREEMENT, dated as of July 17, 1998, between HydroChem Industrial
Services, Inc., a Delaware corporation (the "Borrower"), and Bank One, Texas,
National Association (the "Lender").
WITNESSETH:
WHEREAS, the Borrower desires to obtain a commitment from the Lender to
make a construction loan to the Borrower; and
WHEREAS, the Lender is willing to extend such commitment to the Borrower on
the terms and subject to the conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants herein contained, the parties hereto agree as follows:
SECTION 1. DEFINITIONS; INTERPRETATION.
Section 1.1. Definitions. Unless otherwise defined herein, the following
terms shall have the following meanings:
"Acquisition" means the direct or indirect purchase or acquisition, whether
in one or more related transactions, of any Person or group of Persons or any
related group of assets, liabilities, or securities of any Person or group of
Persons, but excluding those acquisitions that constitute capital expenditures
under GAAP.
"Advance" means an advance of funds by the Lender to the Borrower pursuant
to Section 2.1.
"Advance Request" means a draw request substantially in the form of Exhibit
2.1A.
"Agreement" means this Loan Agreement, as amended, restated or supplemented
from time to time.
"Architect" means House Reh Burwell.
"Base Rate" means, for any day, the fluctuating commercial loan rate
announced by the Lender from time to time as its base rate for Dollar loans in
the United States of America in effect on such day (which base rate may not be
the lowest rate charged by the Lender on loans to any of its customers), with
any change in the Base Rate resulting from a change in such announced rate to be
effective on the date of the relevant change.
"Benefit Plan" means an employee pension benefit plan covered by Title IV
of ERISA or subject to the minimum funding standards under Section 412 of the
Code that is either (i)
<PAGE>
maintained by the Borrower or the Guarantor or (ii) maintained pursuant to a
collective bargaining agreement or any other arrangement under which more than
one employer makes contributions and to which any of such entities is then
making or accruing an obligation to make contributions or has within the
preceding five (5) plan years made or had an obligation to make contributions.
"Borrower" means HydroChem Industrial Services, Inc., a Delaware
corporation.
"Borrower's Credit Facility" means that certain $25,000,000 Credit
Agreement dated as of December 31, 1997, by and among the Borrower, certain
financial institutions and NationsBank, N.A., successor by merger to NationsBank
of Texas, N.A., as agent for such financial institutions, as amended, restated
or supplemented from time to time, or any replacement credit facility therefor
or supplemental credit facility thereto.
"Budget" means the budget prepared by the Borrower, and approved by the
Lender, setting forth in detail all direct and indirect costs for the
construction of the Improvements.
"Business Day" means any day other than a Saturday, Sunday or a day on
which banking institutions are generally authorized or obligated by law or
executive order to close in Houston, Texas.
"Capital Expenditures" means, with respect to any Person and with respect
to any period of its determination, the consolidated expenditures of such Person
during such period that are required to be included in or are reflected by the
consolidated property, plant, or equipment accounts of such Person, or any
similar fixed asset or long term capitalized asset accounts of such Person, on
the consolidated balance sheet of such Persons in conformity with GAAP, but
excluding in every instance those expenditures made in connection with an
Acquisition, the Project and industrial vacuum services as permitted by the
Borrower's Credit Facility.
"Capital Leases" means, with respect to any Person, any lease of any
property by such Person which would, in accordance with GAAP, be required by
GAAP to be classified and accounted for as a capital lease on the balance sheet
of such Person.
"Closing Date" means the date the Lender and the Borrower execute the Loan
Documents.
"Code" means the Internal Revenue Code of 1986, as amended.
"Collateral" has the meaning specified in Section 2.8.
"Collateral Assignment" means the Collateral Assignment of Agreements of
even date herewith by the Borrower in favor of the Lender, as amended, restated
or supplemented from time to time.
"Compliance Certificate" means a certificate substantially in the form of
Exhibit 6.8.
2
<PAGE>
"Consolidated Interest Expense" means, as of any date of determination,
total interest expense of the Borrower and its Subsidiaries, as determined in
accordance with GAAP.
"Consolidated Interest Income" means, with respect to any Person and for
any period of its determination, total interest income of such Person, as
determined in accordance with GAAP.
"Consolidated Net Income" means, with respect to any Person and for any
period of its determination, the net income (or loss), after provision for
Taxes, of such Person, as determined in accordance with GAAP.
"Consolidated Net Worth" means, as of any date of determination, the
Borrower's consolidated stockholders equity as determined in accordance with
GAAP.
"Construction Consultant" means any entity to be chosen by the Lender as
the construction consultant pursuant to Section 2.1.
"Construction Loan" means the Construction Loan described in Section 2.1
that matures on the Construction Loan Maturity Date.
"Construction Loan Maturity Date" means July 16, 1999.
"Construction Loan Rate" means the Base Rate minus one-half of one percent
(0.5%) per annum.
"Construction Contract" means the Standard Form of Agreement Between Owner
and Design/Builder by and between the Borrower and the Contractor, as amended,
restated or supplemented from time to time with the consent of the Lender.
"Contractor" means D.E. Harvey Builders, Inc. and each other general
contractor and/or construction consultant, whether one or more, engaged by the
Borrower, and approved in writing by the Lender, to construct or supervise the
construction of the Improvements.
"Contractor Agreement" means the Contractor's Agreement and Subordination
of even date herewith, as amended, restated or supplemented from time to time.
"Conversion Date" has the meaning specified in Section 2.5.
"Credit Party" means the Borrower, the Guarantor and any other Person which
is a party to any Loan Document.
"Debt" means, with respect any Person, without duplication, (i)
indebtedness of such Person for borrowed money, which under GAAP is shown on the
balance sheet as a liability (excluding reserves for deferred income taxes,
deferred pension liability, trade and other accounts
3
<PAGE>
payable, and other deferred revenue, deferred expenses and reserves); (ii)
obligations of such Person evidenced by bonds, debentures, notes, or other
similar instruments and which constitute liabilities under GAAP; (iii)
obligations of such Person to pay the deferred purchase price of property or
services (other than trade debt and normal operating liabilities incurred in the
ordinary course of business) and which constitute liabilities under GAAP; (iv)
obligations of such Person as lessee under Capital Leases; (v) obligations of
such Person under any swap, hedge, cap, collar or similar agreement; (vi)
obligations of such Person under or relating to letters of credit, guaranties,
purchase agreements, endorsements, or other creditor assurances assuring a
creditor against loss in respect of indebtedness or obligations of others of the
kinds referred to in clauses (i) through (v) of this definition (other than
endorsements of negotiable instruments for collection in the ordinary course of
business and other contractual commitments), whether direct or indirect in
connection with obligations, stocks, or dividends of any Person; and (vii)
nonrecourse indebtedness or obligations of others of the kinds referred to in
clauses (i) through (vi) of this definition secured by any Lien on or in respect
of any property of such Person, whether or not the indebtedness or obligations
secured thereby shall have been assumed. For the purposes of determining the
amount of any Debt, the amount of any Debt described in clause (vi) of the
definition of Debt shall be valued at the maximum amount of the contingent
liability thereunder, and the amount of any Debt described in clause (vii) that
is not covered by clause (vi) shall be valued at the lesser of the amount of the
Debt secured or the book value of the property securing such Debt.
"Debt Service" means, for any period of its determination, the sum of (i)
scheduled principal payments on long term Debt during such period plus (ii)
Interest Charges accrued during such period.
"Deed of Trust" means the Deed of Trust (with Security Agreement and
Assignment of Rents and Leases) of even date herewith covering, among other
things, the Land and the Improvements, as amended, restated or supplemented from
time to time.
"Default" means any event or condition the occurrence of which would, with
the passage of time or the giving of notice, or both, constitute an Event of
Default.
"Default Rate" means the sum of two percent (2%) plus the Construction Loan
Rate or the Term Loan Rate, as applicable, during the period for which the
Default Rate applies.
"Dollar" and "U.S. Dollar" and the sign "$" means lawful money of the
United States of America.
"EBITDA" means, with respect to any Person and for any period of its
determination, the Consolidated Net Income of such Person for such period, plus
the Consolidated Interest Expense, Taxes based on income or revenues, and minus
any Consolidated Interest Income and extraordinary gains of such Person for such
period and included in the calculation of Consolidated Net Income, plus the
consolidated depreciation and amortization of such Person for such period.
4
<PAGE>
"Environmental Claims" means any and all administrative, regulatory or
judicial actions, suits, demands, demand letters, claims, liens, notices of
non-compliance or violations, investigations or proceedings relating to any
Environmental Law ("Claims") or any permit issued under any Environmental Law,
including, without limitation, (i) any and all Claims by governmental or
regulatory authorities for enforcement, cleanup, removal, response, remedial or
other actions or damages pursuant to any applicable Environmental Law, and (ii)
any and all Claims by any third party seeking damages, contribution,
indemnification, cost recovery, compensation or injunctive relief resulting from
Hazardous Materials or arising from alleged injury or threat of injury to health
or safety in relation to the environment.
"Environmental Indemnity" means the Certificate and Indemnification
Regarding Hazardous Substances executed by the Borrower and the Guarantor in
favor of the Lender of even date herewith, as amended, restated or supplemented
from time to time.
"Environmental Law" means any federal, state or local statute, law, rule,
regulation, ordinance, code, policy or rule of common law now or hereafter in
effect, including any judicial or administrative order, consent, decree or
judgment relating to (i) the environment, (ii) health or safety in relation to
the environment or (iii) Hazardous Materials.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Event of Default" means any of the events or circumstances specified in
Section 7.1.
"Fixed Charge Coverage Ratio" means as of the last day of each fiscal
quarter of the Borrower, the ratio of (i) the consolidated EBITDA of the
Borrower and its Subsidiaries for the preceding four fiscal quarters then ended,
less consolidated cash Taxes paid and Capital Expenditures made by the Borrower
and its Subsidiaries during such period, to (ii) Debt Service, plus any cash
dividends made by the Borrower during the preceding four fiscal quarters then
ended.
"GAAP" means generally accepted accounting principles from time to time in
effect as set forth in the opinions and pronouncements of the Accounting
Principles Board of the American Institute of Certified Public Accountants and
the statements and pronouncements of the Financial Accounting Standards Board or
in such other statements, opinions and pronouncements by such other entity as
may be approved by a significant segment of the U.S. accounting profession.
"Guarantor" means HydroChem International, Inc., a Delaware corporation.
"Guaranty" by any Person means all obligations (other than endorsements in
the ordinary course of business of negotiable instruments for deposit or
collection) of such Person guarantying or in effect guarantying any Debt,
dividend or other obligation (including, without limitation, obligations in
connection with sales of any property) of any other Person (the "primary
obligor") in any manner, whether directly or indirectly, including, without
limitation, all obligations
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incurred through an agreement, contingent or otherwise, by such Person: (i) to
purchase such Debt or obligation, or to purchase any property or assets
constituting security therefor, primarily for the purpose of assuring the owner
of such Debt or obligations of the ability of the primary obligor to make
payment of the Debt or obligation; or (ii) to advance or supply funds (x) for
the purchase or payment of such Debt or obligation or (y) to maintain working
capital or other balance sheet condition or otherwise to advance or make
available funds for the purchase or payment of such Debt or obligation, in each
case primarily for the purpose of assuring the owner of such Debt or obligation
of the ability of the primary obligor to make payment of the Debt or obligation;
or (iii) to lease property or to purchase securities or other property or
services of the primary obligor primarily for the purpose of assuring the owner
of such Debt or obligation of the ability of the primary obligor to make payment
of the Debt or obligation; or (iv) otherwise to assure the owner of the Debt or
obligation of the primary obligor against loss in respect thereof. For the
purpose of all computations made under this Agreement, the amount of a Guaranty
in respect of any obligation shall be deemed to be equal to the amount that
would apply if such obligation were the direct obligation of such Person rather
than the primary obligor or, if less, the maximum aggregate potential liability
of such Person under the terms of the Guaranty.
"Hazardous Material" shall have the meaning assigned to that term in the
Comprehensive Environmental Response Compensation and Liability Act of 1980, as
amended by the Superfund Amendments and Reauthorization Acts of 1986, and shall
include any substance defined as "hazardous" or "toxic" or words used in place
thereof under any Environmental Law applicable to the Borrower.
"Hedge Agreement" means that certain ISDA Master Agreement dated as of July
17, 1998, between the Borrower and the Lender.
"Highest Lawful Rate" means the maximum nonusurious interest rate, if any,
that at any time or from time to time may be contracted for, taken, reserved,
charged or received on the Loan or under laws applicable to the Lender, which
are presently in effect or, to the extent allowed by applicable law, under such
laws which may hereafter be in effect and which allow a higher maximum
nonusurious interest rate than applicable laws now allow. Determination of the
rate of interest for the purpose of determining whether the Loan is usurious
under all applicable laws shall be made by amortizing or spreading using the
actuarial method during the stated term of the Loan, all interest at any time
contracted for, taken, reserved, charged or received from the Borrower in
connection with the Loan, as applicable.
"Improvements" means the office, laboratory and warehouse building
containing approximately 130,000 square feet and other capital improvements to
be constructed on the Land in accordance with the Plans.
"Indenture" means the Indenture dated as of August 1, 1997, by and among
the Borrower, Norwest Bank, Minnesota, N.A., as Trustee, and the Guarantor.
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"Initial Borrowing Date" means the date on which all conditions precedent
set forth herein to the initial Advance are satisfied or waived in writing and
the initial Advance hereunder occurs.
"Interest Charges" means, with respect to any Person and for any period of
its determination, the Consolidated Interest Expense of such Person during such
period plus its capitalized interest during such period, but without adjustment
for its interest income during such period determined in accordance with GAAP.
"Interest Rate Adjustment Date" means the Conversion Date and the last
Business Day of each succeeding full three (3) month period thereafter until the
Term Loan Maturity Date.
"Interest Rate Protection Agreement" means any interest rate swap, interest
rate cap, interest rate collar or other interest rate hedging agreement or
arrangement designed to protect against fluctuations in interest rates.
"Land" means the tract of land among two (2) contiguous parcels containing
approximately 19.4375 acres located at 900 Georgia Avenue, Deer Park, Texas,
more particularly described in Exhibit "A" to the Deed of Trust.
"Lender" is defined in the preamble.
"LIBOR Rate" means a rate of interest per annum (rounded upwards, if
necessary, to the nearest whole multiple of 1/100 of 1%), equal to the offered
rate for U.S. Dollar deposits of not less than $1,000,000 for a three (3) month
period of time as of 11:00 a.m. City of London, England time two (2) London
Business Days prior to the applicable Interest Rate Adjustment Date as shown on
the display designated as "British Bankers Assoc. Interest Settlement Rates" on
the Telerate System ("Telerate"), Page 3750 or Page 3740 or such other page or
pages as may replace such pages on Telerate for the purpose of displaying such
rate; provided, however, that if such rate is not available on Telerate then
such offered rate shall be otherwise independently determined by the Lender from
an alternate, substantially similar independent source available to the Lender
or shall be calculated by the Lender by a substantially similar methodology as
that theretofore used to determine such offered rate in Telerate.
"Lien" means any interest in any property or asset in favor of a Person
other than the owner of the property or asset and securing an obligation owed to
such Person, whether such interest is based on the common law, statute or
contract, including, but not limited to, the security interest lien arising from
a mortgage, encumbrance, pledge, conditional sale, security agreement or trust
receipt, or a lease, consignment or bailment for security purposes.
"Loan" means the loan in the original principal amount of Seven Million
Five Hundred Thousand and No/100 Dollars ($7,500,000.00) made or to be made by
the Lender pursuant to Section 2.1, and shall include the Construction Loan and
the Term Loan, as applicable.
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"Loan Documents" means this Agreement, the Note, the Subsidiary Guaranty,
the Deed of Trust, the Collateral Assignment, the Contractor Agreement, the
Hedge Agreement, the Advance Requests and any other documents or instruments
executed by a Credit Party in connection with this Agreement.
"London Business Day" means any day other than a Saturday, Sunday or a day
on which banking institutions are generally authorized or obligated by law or
executive order to close in the City of London, England.
"Material Adverse Effect" means an effect that results in a material
adverse change since March 31, 1998, in (i) the business, properties, assets,
financial condition or prospects of the Borrower or the Guarantor or (ii) in the
ability of the Borrower or the Guarantor to perform its Obligations under this
Agreement, the Note or the other Loan Documents to which it is a party.
"Note" means the promissory note of the Borrower described in Section 2.2.
"Obligations" means all obligations of any Credit Party to pay fees, costs
and expenses hereunder, to pay principal or interest on the Loan and to pay any
other obligations to the Lender arising under or in relation to any Loan
Document.
"PBGC" means the Pension Benefit Guaranty Corporation or any successor
thereto.
"Permitted Liens" means the Liens described in Section 6.13.
"Person" means an individual, partnership, corporation, limited liability
company, association, trust, unincorporated organization or any other entity or
organization, including a government or any agency or political subdivision
thereof.
"Personalty" means all equipment, fixtures, furnishings, and other articles
of personal property now owned or hereafter acquired and attached to or used in
or about the Improvements that are necessary for the use and occupancy of the
Improvements for the purposes for which they were or are to be attached, placed,
erected, constructed or developed, or which personal property is or may be used
in or related to the planning, development, financing or operation of the
Improvements (excluding furniture, office equipment, corporate files, books and
records, tools, work in progress, finished goods and inventory, computers and
computer software, vehicles and trailers situated on the Property), and all
renewals of or replacements or substitutions for any of the foregoing.
"Plans" means the plans (including all change orders prior to the Closing
Date) relating to the Improvements prepared by the Architect approved by the
Lender, as amended from time to time with the consent of the Lender if required
hereby.
"Project" means the Improvements, the Land and the Personalty.
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"Restricted Payment" shall have the meaning assigned to such term in the
Indenture.
"Senior Subordinated Notes" means the 10 3/8% Series B Senior Subordinated
Notes due August 1, 2007, issued pursuant to the Indenture.
"Subsidiary" means, for any Person, any corporation or other entity of
which more than fifty percent (50%) of the outstanding stock or comparable
equity interests having ordinary voting power for the election of the board of
directors of such corporation, any managers of such limited liability company or
similar governing body (irrespective of whether or not, at the time, stock or
other equity interests of any other class or classes of such corporation or
other entity shall have or might have voting power by reason of the happening of
any contingency) is at the time directly or indirectly owned by such Person, as
applicable.
"Subsidiary Guaranty" means the Guaranty of the Guarantor in favor of the
Lender of even date herewith, as amended, restated or supplemented from time to
time.
"Taxes" has the meaning specified in Section 5.10 hereof.
"Term Loan" means the Term Loan described in Section 2.5 that matures on
the Term Loan Maturity Date, provided the Borrower qualifies for and elects to
convert the Construction Loan to the Term Loan.
"Term Loan Maturity Date" has the meaning specified in Section 2.3(b)
hereof.
"Term Loan Rate" means the LIBOR Rate, as adjusted every three (3) month
period and in effect on each Interest Rate Adjustment Date, plus 1.75% per
annum.
"Title Agent" means Charter Title Company.
"Title Commitment" means the Commitment for Title Insurance described in
Section 4.1(j) hereof.
"Title Company" means Lawyers Title Insurance Company.
"Title Policy" means the Mortgage Policy of Title Insurance described in
Section 4.1(j) hereof.
"Unfunded Vested Liabilities" means, for any Benefit Plan at any time, the
amount (if any) by which the present value of all vested nonforfeitable accrued
benefits under such Benefit Plan exceeds the fair market value of all Benefit
Plan assets allocable to such benefits, determined as of the then most recent
valuation date for such Benefit Plan, but only to the extent that such excess
represents a potential liability of the Borrower to the PBGC or such Benefit
Plan.
Section 1.2. Interpretation. The foregoing definitions shall be equally
applicable to the singular and plural forms of the terms defined. All references
to times of day in this Agreement shall be references to Houston, Texas time
unless otherwise specifically provided.
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SECTION 2. LOAN.
Section 2.1. Construction Loan. Subject to the terms and conditions hereof,
the Lender agrees to make the Construction Loan to the Borrower in Advances in
an aggregate amount not to exceed $7,500,000 as follows:
(a) An initial Advance in the amount of $3,186,606 shall be made on
the Closing Date. The remaining Construction Loan proceeds shall be
advanced to the Borrower by the Lender (i) during the course of the
construction of the Improvements in accordance with the terms herein and
the other Loan Documents, and (ii) in accordance with a schedule to be
submitted by the Borrower and approved by the Lender which will allow that
disbursements be made upon a percentage of completion basis.
(b) Disbursements (other than the Initial Advance) shall be made not
more frequently than once a month. Disbursements shall be made only after
notice is given to the Lender five (5) Business Days prior to the requested
date for each such disbursement and in the draw request form attached
hereto as Exhibit 2.1A (an "Advance Request"). Such form shall be
accompanied by an Affidavit of Bills Paid in the form attached hereto as
Exhibit 2.1B, and a Waiver of Lien in the form attached hereto as Exhibit
2.1C, executed by the Contractor and each subcontractor, respectively.
Disbursement requests shall be submitted by the Borrower and the Contractor
on AIA forms for review and approval of the Construction Consultant, if one
has been retained by the Lender, which will report to the Lender, or
otherwise directly to the Lender. All disbursements must conform to the
Budget for the materials and/or services covered by such disbursement
request; no variances will be permitted without the Lender's prior written
approval which shall not be unreasonably withheld or delayed.
(c) Bills or statements for all expenses for which a disbursement is
requested shall be presented to the Lender along with the request for
disbursement. All requests for disbursement shall include certification by
the Borrower, and, if the draw is in excess of $50,000, the Construction
Consultant, if any, that all labor and material for which disbursement is
requested have gone into the construction of the Improvements according to
the Plans in accordance with the Budget and that the remaining undisbursed
portion of the Construction Loan are adequate to complete the construction
of the Improvements.
(d) Unless otherwise approved by the Lender, no disbursements of the
Construction Loan proceeds shall be made if Default or an Event of Default
has occurred and is continuing. The Lender shall not be obligated at any
time to disburse proceeds of the Construction Loan in excess of the Budget
or that recommended by the Construction Consultant nor shall the Lender be
obligated to disburse proceeds of the Loan for materials stored off of the
Land. As a condition of each draw, the Lender must be satisfied that
sufficient funds are available to complete the Improvements.
(e) Each disbursement must be accompanied by an endorsement to the
Title Policy, obtained by the Borrower at the Borrower's sole expense,
which endorsement shall
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provide that the coverage afforded by the Title Policy reflects the amounts
that have been advanced.
(f) All interim disbursements of Construction Loan proceeds for
construction work shall be subject to a ten percent (10%) retainage
requirement, except as provided in Section 5.1.1.1 of the Construction
Contract. Any retainage with respect to a subcontract will be released in
accordance with the terms of the Construction Contract, conditioned upon no
Default or Event of Default having occurred and be continuing, and receipt
by the Lender of a lien waiver from such subcontractor. Final disbursement
to the Contractor, including retainage, shall be subject and conditioned
upon the Lender having secured the following, in addition to any
requirements under the Construction Contract: (i) a certificate of
completion prepared and submitted by the Borrower and approved by the
Construction Consultant, if any, which certificate shall contain only such
qualifications as are acceptable to the Lender, in the Lender's sole
discretion, and indicating that the construction on the Land has been
completed substantially in accordance with the Budget, all construction has
been completed in a good and workmanlike manner, all applicable zoning,
building or other governmental codes or regulations have been complied
with, there are no known structural deficiencies, and all mechanical
equipment, including, without limitation, plumbing, air conditioning and
heating, electrical, and kitchen equipment, if any, is in good working
order, normal wear and tear accepted, and any and all subcontractors,
suppliers and laborers have been paid in full or will be paid with the
final disbursement for all labor and materials provided to the Borrower for
the construction of the Project; (ii) a certificate of completion executed
by the Contractor and filed with the Office of the Recorder of Harris
County, Texas, (iii) an affidavit executed by the Contractor satisfactory
to the Lender, the Lender's counsel and the Title Company in their sole
discretion, stating, among other things, that all work has been completed
in accordance with the Budget approved by the Lender; (iv) lien waivers
from any and all subcontractors, in form and substance satisfactory to the
Lender, the Lender's counsel and the Title Company in their sole
discretion; (v) a certificate of occupancy for the Improvements; (vi) if
required by the Lender, an "as-built" Survey, approved by the Lender,
showing the location of the Improvements and showing no encroachment by any
of the Improvements, any boundary line, easement, building setback line or
other restricted area; (vii) if required by the Lender, a complete set of
"as-built" plans and specifications, certified as accurate in all material
respects by the Contractor; and (viii) any and all other additional
documents as the Lender may reasonably request.
The Lender shall retain the services of the Construction Consultant in
order to monitor the progress of the construction of the Improvements. The
Construction Consultant shall approve the Plans, perform inspections of the
Improvements during construction, including, without limitation, at the time of
each Advance, and perform a final inspection at completion (which final
inspection shall be an additional condition to payment of the Advance for
retainage withheld from the Contractor under this Section 2.1). The Borrower
shall pay directly to the Construction Consultant, within ten (10) days after
written request therefor, the fees and expenses of the Construction Consultant
incurred by the Lender. The Borrower shall cooperate with the Construction
Consultant and shall cause the Contractor, each subcontractor, and the employees
of each of them to cooperate with the Construction Consultant and, upon request,
shall furnish the
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Construction Consultant whatever the Construction Consultant may consider
necessary or useful in connection with the performance of the Construction
Consultant's duties. Without limiting the generality of the foregoing, the
Borrower shall furnish or cause to be furnished such items as working details,
the Plans and details thereof, samples of materials, licenses, permits,
certificates of public authorities, building codes, and copies of the contracts
between the Borrower and the Contractor.
Section 2.2. The Note. The obligation of the Borrower to repay the Loan
shall be evidenced by a promissory note executed by the Borrower, payable to the
order of the Lender, in the principal amount of the Loan and dated of even date
herewith, and shall be full recourse to the Borrower and to the Guarantor.
Section 2.3. Repayment of Loan.
(a) Construction Loan. The Borrower shall repay the unpaid principal
amount of the Construction Loan, plus interest thereon, as follows:
(i) Commencing on the last Business Day of October, 1998, and
continuing regularly and quarterly thereafter on the last Business Day
of each fiscal quarter until the earlier of July 16, 1999 (the
"Construction Loan Maturity Date") or the Conversion Date, interest
only at the Construction Loan Rate on the outstanding principal, shall
be due and payable; and
(ii) A final installment in the amount of all outstanding
principal, plus accrued and unpaid interest, shall be due and payable
on the Construction Loan Maturity Date, unless the Borrower satisfies
the conditions of converting the Construction Loan to the Term Loan
described in Section 2.5 and elects to convert the Construction Loan
to the Term Loan in the manner hereafter described, in which case the
Borrower shall pay interest only at the Construction Loan Rate on the
outstanding principal on the Conversion Date.
(b) Term Loan. If the Borrower satisfies the conditions of converting
the Construction Loan to the Term Loan described in Section 2.5 hereof, and
elects to convert the Construction Loan to the Term Loan in the manner
hereinafter described, the Borrower shall repay the unpaid principal amount
of the Term Loan, plus interest thereon, as follows:
(i) On the last Business Day of the first full three (3) month
period after the Conversion Date, and continuing regularly and
quarterly thereafter on the last Business Day of each and every three
(3) month period until July 16, 2006 (the "Term Loan Maturity Date"),
quarterly payments of principal shall be made as set forth in Exhibit
2.3, together with all accrued and unpaid interest on the Term Loan at
the Term Loan Rate; and
(ii) A final installment in the amount of all outstanding
principal, plus all accrued and unpaid interest thereon at the Term
Loan Rate and any other unpaid
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amounts due and payable to the Lender, shall be due and payable on the
Term Loan Maturity Date.
Section 2.4. Loan Interest Rate.
(a) Construction Loan. Prior to the Conversion Date, the unpaid
principal amount of Advances on the Construction Loan shall bear interest
prior to maturity at a per annum rate equal to the lesser of (i) the
Highest Lawful Rate or (ii) the Construction Loan Rate.
(b) Term Loan. If the Borrower satisfies the conditions of converting
the Construction Loan to the Term Loan described in Section 2.5 hereof and
elects to convert the Construction Loan to the Term Loan in the manner
hereinafter described, during the period commencing on the first day after
the Conversion Date and ending on the Term Loan Maturity Date, the unpaid
principal amount of the Term Loan shall bear interest prior to maturity at
a per annum rate equal to the lesser of (i) the Highest Lawful Rate or (ii)
the Term Loan Rate.
(c) Default Rate. So long as an Event of Default shall have occurred
and be continuing, the unpaid balance of the Loan shall thereafter bear
interest at the lesser of (i) the Highest Lawful Rate or (ii) the Default
Rate.
(d) Usury Savings Clause. It is the intention of the Lender to conform
strictly to usury laws applicable to it. Accordingly, if the transactions
contemplated hereby or the Loan would be usurious as to the Lender under
laws applicable to it (including the laws of the United States of America
and the State of Texas or any other jurisdiction whose laws may be
mandatorily applicable to the Lender notwithstanding the other provisions
of this Agreement, the Note or any other Loan Document), then, in that
event, notwithstanding anything to the contrary in this Agreement, the Note
or any other Loan Document, it is agreed as follows: (i) the aggregate of
all consideration which constitutes interest under laws applicable to the
Lender that is contracted for, taken, reserved, charged or received by the
Lender under this Agreement, the Note or any other Loan Document or
otherwise shall under no circumstances exceed the Highest Lawful Rate, and
any excess shall be credited by the Lender on the principal amount of the
Note (or, if the principal amount of the Note shall have been paid in full,
refunded by the Lender to the Borrower); (ii) in the event that the
maturity of the Note is accelerated by reason of an election of the holder
or holders thereof resulting from any Event of Default hereunder or
otherwise, or in the event of any required or permitted prepayment, then
such consideration that constitutes interest under laws applicable to the
Lender may never include more than the Highest Lawful Rate, and excess
interest, if any, provided for in this Agreement, the Note or any other
Loan Document or otherwise shall be automatically canceled by the Lender as
of the date of such acceleration or prepayment and, if theretofore paid,
shall be credited by the Lender on the principal amount of the Note (or if
the principal amount of the Note shall have been paid in full, refunded by
the Lender to the Borrower); and (iii) if at any time the interest provided
under this Agreement, the Note or any other Loan Document, together with
any other fees payable pursuant to this Agreement, the Note or any other
Loan Document and
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deemed interest under applicable law, exceeds the amount that would have
accrued at the Highest Lawful Rate, the amount of interest and any such
fees to accrue to the Lender hereunder and thereunder shall be limited to
the amount which would have accrued at the Highest Lawful Rate, but any
subsequent reductions shall not reduce the interest to accrue to the Lender
hereunder and thereunder below the Highest Lawful Rate until the total
amount of interest accrued pursuant hereto and thereto and such fees deemed
to be interest equals the amount of interest which would have accrued to
the Lender if a varying rate per annum equal to the interest hereunder had
at all times been in effect plus the amount of fees which would have been
received but for the effect hereof; and in each case, to the extent
permitted by applicable law, the Lender shall not be subject to any of the
penalties provided by law for contracting for, taking, reserving, charging
or receiving interest in excess of the Highest Lawful Rate. The Lender
hereby elects to determine the applicable rate ceiling under Chapter 1D of
Article 5069 of the Texas Credit Title Act, Title 79, Texas Revised Civil
Statutes by the weekly rate ceiling from time to time in effect, subject to
the Lender's right subsequently to change such method in accordance with
applicable law.
Section 2.5. Conversion and Extension.
(a) The Borrower shall have the option to convert the Construction
Loan to the Term Loan, and, thereby, extend the maturity of the Loan to the
Term Loan Maturity Date upon satisfaction of the following requirements:
(i) No Default or Event of Default exists and is continuing;
(ii) The construction of the Improvements has been completed,
substantially in accordance with the Plans and all of the certificates
required under Section 2.1(f) hereof have been provided to the Lender;
(iii) The Borrower provides the Lender with an endorsement to the
Title Policy extending the coverage thereof to the Term Loan and that
insures that no Liens have been filed against the Project other than
the Liens created by the Loan Documents; and
(iv) The Borrower executes such amendments, extensions, notes or
other instruments as may be reasonably required by the Lender to
evidence the conversion of the Construction Loan to the Term Loan.
(b) The Borrower shall exercise its option to convert the Loan
hereunder by providing the Lender with written notice no later than ten
(10) days prior to the Construction Loan Maturity Date that all of the
foregoing conditions have or will be satisfied by the Construction Loan
Maturity Date. Once the Lender confirms that the Borrower has satisfied all
of the conditions to exercising such conversion, and the Borrower has
executed any documents described in subsection (a) (iv) foregoing to
evidence the conversion, the Lender will notify the Borrower, of that fact
which notice will set forth the date (the "Conversion Date") upon which the
conversion shall be deemed
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effective, provided that the Conversion Date shall be no later than the
Construction Loan Maturity Date. If the Conversion Date does not occur
prior to the Construction Loan Maturity Date, the Loan will be due and
payable, in full, on the Construction Loan Maturity Date.
Section 2.6. Use of Proceeds. The proceeds of the Loan shall be used for
the sole purposes of financing the construction of the Improvements on the Land
and related costs as set forth in the Budget.
Section 2.7. Notice of Change in Interest Rate. The Lender shall use its
best efforts to notify the Borrower of any change in the Construction Loan
Interest Rate or the Term Loan Interest Rate, and until the Borrower is notified
by the Lender of such change, the Borrower may continue to make loan payments at
the prior applicable interest rate; provided, however, nothing contained herein
shall be construed as limiting the Lender's right to collect interest at the
applicable rate stated herein and in the Note and the Borrower will promptly pay
any shortfall occasioned by the Borrower's underpayment of interest on demand.
In the event of an overpayment, the Lender will refund such amount to the
Borrower.
Section 2.8. Collateral. To secure full and complete payment and
performance of the Obligations, the Borrower shall execute and deliver or cause
to be executed and delivered, effective as of the Closing Date, the documents
described below covering the property and collateral described in this Section
(which, together with any other property and collateral which may now or
hereafter secure the Obligations or any part thereof, is sometimes herein called
the "Collateral"):
(a) The Borrower shall grant to the Lender a first priority lien on
the Land, Improvements and Personalty and assign all rents, income, and
profits relating to the Project pursuant to the Deed of Trust;
(b) The Borrower shall collaterally assign, without limitation, all
management agreements, construction contracts, architects and engineering
contracts and agreements, waste water capacity reservation agreements, and
any other contracts, architects and engineering contracts, and agreements
pertaining to the Project pursuant to the Collateral Assignment;
(c) The Borrower shall execute and cause to be executed such further
documents and instruments, including without limitation, Uniform Commercial
Code financing statements, necessary to evidence and perfect the Lender's
Liens in the Collateral; and
(d) The Guarantor shall guaranty payment of the Obligations and
performance by the Borrower of all of the Borrower's agreements under the
Loan Documents pursuant to and subject to the limitations set forth in the
Subsidiary Guaranty.
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SECTION 3. PAYMENTS AND FEES.
Section 3.1. Method of Payment. All payments of principal, interest, and
other amounts to be made by the Borrower hereunder and under the Note shall be
made to the Lender by 2:00 p.m. at its office at 910 Travis, Houston, Texas
77002, in Dollars and in immediately available funds. Whenever any payment
hereunder or under the Note shall be stated to be due on a day that is not a
Business Day, such payment may be made on the next succeeding Business Day and
interest shall continue to accrue during such extension.
Section 3.2. Prepayment. Following five (5) days' prior written notice, the
Borrower shall have the right to prepay, at any time and from time to time
without premium or penalty, the entire unpaid principal balance of the Note or
any portion thereof, with accrued interest to the date of prepayment on the
amounts prepaid.
Section 3.3. Commitment Fee. On the Closing Date, the Borrower will pay to
the Lender a commitment fee of $37,500.
SECTION 4 CONDITIONS TO LOAN.
Section 4.1. Initial Advance. The obligation of the Lender to make the
initial Advance of the Loan is subject to the condition precedent that the
Lender shall have received all of the following, each in form and substance
satisfactory to the Lender on or before the Closing Date (unless otherwise
indicated):
(a) Borrower's and the Guarantor's Organizational Documents. The
Borrower will furnish:
(i) The Certificates of Incorporation of the Borrower and the
Guarantor, together with all amendments thereto, certified as true,
complete and correct by the Secretary of State of the State of
Delaware;
(ii) The Bylaws of each of the Borrower and the Guarantor,
together with all amendments thereto;
(iii) Resolutions of the Borrower and the Guarantor which
authorize the execution, delivery and performance by such Person of
the Loan Documents to which it is a party; and
(iv) a Certificate of Good Standing for each of the Borrower and
the Guarantor issued by the State of Delaware;
(b) Incumbency Certificates. Certificates of Incumbency certified by
the authorized officer of each of the Borrower and the Guarantor certifying
the names of the respective officers of such Person authorized to sign the
Loan Documents to which it is a party together with specimen signatures of
such officers;
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(c) Note. The Note executed by the Borrower;
(d) Collateral Assignment. The Collateral Assignment executed by the
Borrower;
(e) Environmental Indemnity. The Environmental Indemnity executed by
the Borrower and the Guarantor;
(f) Deed of Trust. The Deed of Trust executed by the Borrower;
(g) Financing Statements. Uniform Commercial Code financing statements
executed by the Borrower and covering such Collateral as the Lender may
request;
(h) Contractor Agreement. The Contractor Agreement executed by the
Contractor;
(i) Subsidiary Guaranty. The Subsidiary Guaranty executed by the
Guarantor;
(j) Title Commitment; Insured Closing Letter. A commitment (the "Title
Commitment") for mortgagee policy of title insurance (the "Title Policy")
issued by the Title Agent, as agent for the Title Company in favor of the
Lender showing a policy amount equal to the aggregate amount of the Loan,
insuring that the Lender has a valid first lien against the Land, subject
to exceptions, if any, acceptable to the Lender. The exception regarding
restrictive covenants shall be deleted or shall list such restrictive
covenants and insure that they will not affect the validity or priority of
the Lender's Lien. To the extent available based on the existing surveys,
the standard pre-printed exception regarding any discrepancies, conflicts
or shortages in area or boundary lines shall be modified to read only
"shortages in area." The standard pre-printed exception regarding taxes
shall be modified to read "Standby fees and taxes for the year 1998 and
subsequent years not yet due and payable." The Title Policy shall contain
the standard pre-printed "pending completion" and "pending disbursements"
exceptions and the Borrower shall, at the Borrower's cost and expense,
obtain endorsements to the Title Policy as advances are made so that the
coverage reflects the amounts that have been advanced under the terms of
the Loan Documents. The Title Policy shall also insure access to the
Project from a public street. The Title Company shall execute and deliver
to the Lender an insured closing letter covering the Title Agent;
(k) Appraisal. An MAI appraisal of the Project in form and substance
satisfactory to the Lender and conducted by an appraiser selected or
approved by the Lender. The appraisal shall be commissioned by the Lender
but the costs thereof shall be borne by the Borrower;
(l) Environmental Report. A Phase I Environmental Report and asbestos
survey covering the Land in form and substance satisfactory to the Lender
and conducted by a firm selected or approved by the Lender, the cost of
which report shall be borne by the Borrower, and which report verifies that
the Land is free from any Hazardous
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Materials and Hazardous Waste, as those terms are defined by Environmental
Laws (as defined in the Environmental Indemnity), including, without
limitation, asbestos and diesel fuel (as reflected on the Phase I
Environmental Assessment). Such Environmental Report shall include a
determination action of "wetlands" status and condition. The Borrower shall
provide the Lender with evidence in form and substance acceptable to the
Lender, in the Lender's sole discretion, indicating that any Hazardous
Materials or Hazardous Waste previously located on the Land have been
properly disposed of in accordance with all applicable laws and
regulations;
(m) Land Use Compliance. Evidence satisfactory to the Lender that the
Improvements on the Land comply with the present zoning classification for
the Land, if any, and with all subdivision, land use, planning and building
and environmental laws, rules, regulations and ordinances;
(n) Survey. A current survey (the "Survey") of the Land dated not less
than one (1) year prior to the Closing Date, which Survey shall be prepared
by a professional engineer or surveyor acceptable to the Lender and the
Title Company and shall contain, among other matters, the following
information: (1) metes and bounds description of the Land showing all
corners and points of course changes and/or marked with iron pins or rods;
(2) the location of all existing and proposed roads, highways, and streets
adjoining the Land and the access thereto and all improvements,
encroachments, easements, drainage ditches, utilities, parking areas,
rights-of-ways, set-back lines and all other matters located upon or
effecting the Land; (3) a certification that the Land is not located in any
flood hazard area; and (4) a certification on the face of the survey which
shall be approved in both form and substance by the Lender and the Lender's
legal counsel, and in favor of both the Lender and the Title Company shall
have been delivered to the Lender;
(o) Insurance Policies. Certificates of Insurance evidencing the
insurance coverages specified in Section 6.5 hereof;
(p) UCC Search. The results of a Uniform Commercial Code search (which
search shall be ordered by the Lender's counsel but paid for by the
Borrower) showing no financing statements or other documents or instruments
on file, which have not been previously approved in writing by the Lender,
against the Borrower or the Guarantor in the Offices of the Secretary of
States of each of Texas and Delaware or Harris County, Texas, such searches
to be as of a date no more than ten (10) days prior to the Closing Date;
(q) Opinion of Counsel. Favorable opinions of legal counsel to the
Borrower and the Guarantor in form and substance acceptable to the Lender,
as to such matters as the Lender may reasonably request;
(r) Lien Waivers. An Affidavit of Bills paid executed by the Borrower
and a Partial Release of Lien executed by the Contractor and each
subcontractor with respect to all work on the construction of the
Improvements prior to the Closing Date, together with a list of all
subcontractors employed by the Contractor prior to the Closing Date;
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(s) Contracts. Copies of all contracts executed by the Borrower with
engineers, the Architect and the Contractor. The Borrower will not agree or
consent to any material amendment thereto without the Lender's prior
written consent;
(t) Budget. The Borrower shall furnish the Lender a Budget;
(u) Soils Test. The Lender shall have been furnished soil compaction
and percolation test report, which satisfies the Lender and the
Construction Consultant, if any, that the soil conditions are satisfactory
for the construction of the Improvements in accordance with the Budget;
(v) Availability of Utilities. The Borrower shall use best efforts to
furnish the Lender with Letters from authorized officials or agents of each
governmental entity or public utility furnishing any utility service,
including water, sewer, telephone, gas and electricity, to the Project,
stating that such service will be made available to the Project within the
time required by the proposed schedule of construction in amounts adequate
to serve the Project after its completion;
(w) Plans. The Lender shall have been supplied, and approved, the
Plans; and
(x) Additional Information. Such additional documents, instruments and
information as the Lender or the Lender's legal counsel may reasonably
request.
Section 4.2 Conditions to Subsequent Advances. The Lender's obligation to
make Advances (after the initial Advance) under this Agreement is further
conditioned upon the Borrower satisfying the following conditions:
(a) Mortgagee Policy. The original Title Policy, issued in strict
accordance with the Title Commitment as described in Section 4.1(j), shall
be delivered to the Lender within thirty (30) days after the Closing Date,
provided that the Borrower can obtain a second Advance prior to such date
if the other conditions to such Advance are fulfilled.
(b) Sufficient Loan Funds. The Borrower shall satisfy the Lender, as a
condition of each Advance, that remaining Loan funds are sufficient to
complete the Improvements in accordance with the Budget.
(c) No Liens. No mechanic's or materialman's lien claim or other
encumbrance shall have been filed and be in effect against the Land or the
Improvements.
(d) No Casualty. The Improvements shall not have been damaged by fire
or other casualty or, in such event, if permitted under the terms and
provisions of this Agreement, and the Deed of Trust, the Improvements shall
not have been fully repaired and restored or be in the process of being
fully repaired and restored, to the state of completion achieved
immediately before the casualty.
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Section 4.3 Waiver of Conditions. The Lender may defer any of the foregoing
conditions to the Loan and the fact that all of the conditions may not have been
satisfied at the time the Lender executes this Agreement or advances any funds
pursuant to the Loan shall in no circumstances be considered evidence that the
Lender has waived any of such conditions. Any waiver of such conditions must be
in writing.
SECTION 5. REPRESENTATIONS AND WARRANTIES.
The Borrower represents and warrants to the Lender as follows:
Section 5.1. Corporate Organization. Each of the Borrower and the
Guarantor(i) is a duly organized and incorporated corporation in good standing
under the laws of the State of Delaware, (ii) has all necessary corporate power
to own the property and assets it uses in its business and otherwise to carry on
its present business and the business it currently proposes to transact, and
(iii) is duly licensed or qualified and in good standing in the States of
Delaware and Texas and each other jurisdiction in which the nature of the
business transacted by it or the nature of the property owned or leased by it
makes such licensing or qualification necessary except where the failure to so
qualify could not reasonably be expected to have a Material Adverse Effect.
Section 5.2. Corporate Power and Authority; Validity. Each of the Borrower
and the Guarantor has the corporate power and authority to execute, deliver and
carry out the terms and provisions of the Loan Documents and has taken all
necessary corporate action, as applicable, to authorize the execution, delivery
and performance of the Loan Documents. Each of the Borrower and the Guarantor
has duly executed and delivered each Loan Document to which it is a party and
each such Loan Document constitutes the legal, valid and binding obligation of
such Credit Party enforceable in accordance with its terms, subject as to
enforcement only to bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting the enforcement of creditors' rights generally.
Section 5.3. No Violation. Neither the execution, delivery nor performance
by the Borrower nor the Guarantor of the Loan Documents to which it is a party
nor compliance by each of such Persons with the terms and provisions thereof,
nor the consummation by each of such Persons of the transactions contemplated
herein or therein, will (i) contravene any applicable provision of any law,
statute, rule or regulation, or any applicable order, writ, injunction or decree
of any court or governmental instrumentality, (ii) conflict with or result in
any breach of any term, covenant, condition or other provision of, or constitute
a default under, or result in the creation or imposition of (or the obligation
to create or impose) any Lien other than any Permitted Lien upon any of the
property or assets of such Person under the terms of any contractual obligation
to which such Person is a party or by which it or any of its properties or
assets are bound or to which it may be subject which could not reasonably be
expected to have a Material Adverse Effect or (iii) violate or conflict with any
provision of the corporate governance documents, as applicable, of such Person.
Section 5.4. Litigation. There are no lawsuits (including, without
limitation, derivative or injunctive actions), arbitration proceedings or
governmental proceedings pending or, to the best
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knowledge of the Borrower, overtly threatened, involving any Credit Party which
could reasonably be expected to have a Material Adverse Effect.
Section 5.5. Investment Company Act. Neither the Borrower nor the Guarantor
is an "investment company" or a company "controlled" by an "investment company,"
within the meaning of the Investment Company Act of 1940, as amended.
Section 5.6. Public Utility Holding Company Act. Neither the Borrower nor
the Guarantor is a "holding company," or a "subsidiary company" of a "holding
company," or an "affiliate" of a "holding company" or of a "subsidiary company"
of a "holding company," within the meaning of the Public Utility Holding Company
Act of 1935, as amended.
Section 5.7. True and Complete Disclosure. All factual information
heretofore or contemporaneously furnished by the Borrower or the Guarantor in
writing to the Lender in connection with any Loan Document or any transaction
contemplated therein is, and all other such factual information hereafter
furnished by any such Persons in writing to the Lender in connection herewith,
any of the other Loan Documents or the Loan will be, true and accurate in all
material respects, taken as a whole, on the date of such information and not
incomplete by omitting to state any material fact necessary to make the
information therein not misleading at such time in light of the circumstances
under which such information was provided.
Section 5.8. Financial Statements. The financial statements heretofore
delivered to the Lender for the Borrower have been prepared in accordance with
GAAP applied on a basis consistent with the Borrower's financial statements for
the previous fiscal year or quarter, as the case may be, except as otherwise
noted therein. Each of such annual and interim financial statements fairly
presents, or shall fairly present, as the case may be, the financial position of
the Borrower and its Subsidiaries as of the dates thereof, and the results of
operations for the periods covered thereby, subject in the case of interim
financial statements to normal year-end audit adjustments. The Borrower and its
Subsidiaries, on a consolidated basis, have no material contingent liabilities
or Debt other than those disclosed in the financial statements referred to in
this Section 5.8.
Section 5.9. No Material Adverse Effect. There has occurred no event or
effect that has had, or to the best knowledge of the Borrower could reasonably
be expected to have, a Material Adverse Effect.
Section 5.10. Taxes. Each of the Borrower and the Guarantor has filed all
tax returns and all other tax returns required to be filed, and have paid all
governmental taxes, rates, assessments, fees, charges and levies (collectively,
"Taxes") except such Taxes, if any, as are being contested in good faith and for
which reserves have been provided in accordance with GAAP. No tax liens have
been filed and no claims are being asserted for Taxes, which liens or claims
could reasonably be foreseen to have a Material Adverse Effect. The charges,
accruals and reserves on the books of each of the Borrower and the Guarantor for
Taxes and other governmental charges have been determined in accordance with
GAAP.
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Section 5.11. ERISA. With respect to each Benefit Plan, each of the
Borrower and the Guarantor has fulfilled its obligations under the minimum
funding standards of, and are in compliance in all material respects with, ERISA
and with the Code to the extent applicable to it, and have not incurred any
liability under Title IV of ERISA to the PBGC or a Benefit Plan other than a
liability to the PBGC for premiums under Section 4007 of ERISA. Neither the
Borrower nor the Guarantor has any contingent liability with respect to any
post-retirement benefits under a welfare plan as defined in ERISA other than
liability for continuation coverage described in Part 6 of Title I of ERISA and
as disclosed in the financial statements of the Borrower for the fiscal quarter
ending March 31, 1998, described in Section 5.8.
Section 5.12. Consents. All consents and approvals of, and licenses,
filings and registrations with, and all other actions of, all governmental
agencies, authorities or instrumentalities required to consummate Advances
hereunder, on the date of each such Advance, have been obtained or made and are
or will be in full force and effect.
Section 5.13. Ownership of Project. Each of the Borrower and the Guarantor
has good title to or a valid leasehold interest in all of its property except to
the extent, in the aggregate, no Material Adverse Effect could reasonably be
expected to result therefrom, subject to no Liens except Permitted Liens. Each
of the Borrower and the Guarantor own or hold valid licenses to use all the
material patents, trademarks, permits, service marks and trade names that are
necessary to the operation of the business of the Borrower and the Guarantor as
presently conducted and contemplated. There are no leases of the Land in effect.
Access necessary for the construction and full utilization of the Project for
its intended purposes is presently available to the Project over streets or
roads which have been dedicated to public use and accepted therefor by
appropriate governmental authorities and any permits necessary for connecting
the driveways on the Project to such streets or roads have been obtained.
Section 5.14. Compliance with Statutes. Each of the Borrower and the
Guarantor are in compliance in all material respects with all applicable
statutes, regulations and orders of, and all applicable restrictions imposed by,
all governmental bodies and have all necessary permits, licenses and other
necessary authorizations with respect to the conduct of their businesses and the
ownership and operation of their properties.
Section 5.15. Year 2000 Requirement. All devices, systems, machinery,
information technology, computer software and hardware, and other date sensitive
technology (jointly and severally its "systems") necessary for the Borrower and
the Guarantor to carry on their business as presently contemplated to be
conducted, will be Year 2000 Compliant within a period of time calculated to
result in no material disruption of any of their business operations. For
purposes hereof, "Year 2000 Compliant" means that such systems are designed to
be used prior to and after December 31, 1999, and will operate during each such
time period without error relating to date data, specifically including any
error relating to, or the product of, date data which represents or references
different centuries or more than one century. The Borrower and the Guarantor
will (i) undertake a detailed inventory, review, and assessment of all areas
within their businesses and operations that could be adversely affected by the
failure of the Borrower and the Guarantor to be Year 2000 Compliant on a timely
basis; and (ii) if such review reveals such a possible adverse effect, develop a
detailed plan and timeline for becoming Year 2000 Compliant on a timely basis.
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The Borrower and the Guarantor will, as soon as reasonably practicable, make
written inquiry of each of its and its Subsidiaries' key suppliers and vendors,
and will use reasonable efforts to obtain in writing confirmations from all such
Persons, as to whether such Persons have initiated programs to become Year 2000
Compliant. For purposes hereof, "key suppliers and vendors" refers to those
suppliers and vendors of the Borrower and the Guarantor whose business failure
could reasonably be expected to have a Material Adverse Effect.
Section 5.16. Place of Business. Until completion of the Project, the
Borrower's chief executive office is located at 6210 Rothway, Houston, Texas
77040 and thereafter at 900 Georgia Avenue, Deer Park, Texas 77536.
SECTION 6. COVENANTS.
The Borrower covenants and agrees that, so long as the Note or any other
Obligation is outstanding hereunder:
Section 6.1. Existence. Each of the Borrower and the Guarantor will at all
times preserve and maintain its corporate existence. The Borrower will at all
times own one hundred percent (100%) of the capital stock of the Guarantor and
will have the sole right to vote such stock.
Section 6.2. Maintenance. Each of the Borrower and the Guarantor will
maintain, preserve and keep its plants, properties and equipment necessary to
the proper conduct of its businesses in reasonably good repair, working order
and condition (normal wear and tear excepted) and will from time to time make
all reasonably necessary repairs, renewals, replacements, additions and
betterments thereto so that at all times such plants, properties and equipment
are reasonably preserved and maintained; provided, however, that nothing in this
Section 6.2 shall prevent the Borrower and the Guarantor from discontinuing the
operation or maintenance of any such plants, properties or equipment if such
discontinuance is, in the judgment of the Borrower or the Guarantor, as
applicable, desirable in the conduct of its business and not materially
disadvantageous to the Lender.
Section 6.3. Taxes. Each of the Borrower and the Guarantor will duly pay
and discharge all Taxes upon or against it or its properties before payment is
delinquent and before penalties accrue thereon, unless and to the extent that
the same is being contested in good faith and by appropriate proceedings and
reserves have been established in conformity with GAAP.
Section 6.4. ERISA. Each of the Borrower and the Guarantor will promptly
pay and discharge all obligations and liabilities arising under ERISA or
otherwise with respect to each Benefit Plan of a character which if unpaid or
unperformed might result in the imposition of a material Lien against any
properties or assets of the Borrower or the Guarantor and will promptly notify
the Lender of (i) the occurrence of any reportable event (as defined in ERISA)
relating to a Benefit Plan other than any such event with respect to which the
PBGC has waived notice by regulation; (ii) receipt of any notice from PBGC of
its intention to seek termination of any Benefit Plan or appointment of a
trustee therefor; (iii) the Borrower's or the Guarantor's intention to terminate
or withdraw from any Benefit Plan; and (iv) the occurrence of any event that
could result
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in the incurrence of any material liability, fine or penalty, or any material
increase in the contingent liability of the Borrower or the Guarantor in
connection with any post-retirement benefit under a welfare plan benefit (as
defined in ERISA).
Section 6.5. Insurance. The Borrower will maintain (or with respect to all
builders risk coverage, cause the Contractor to maintain and in an amount equal
to the greater of 100% of the full insurable value of the insurable portions of
the Improvements or the Loan amount), with financially sound and reputable
insurance companies reasonably acceptable to the Lender, workmen's compensation
insurance, and insurance on the Borrower's property, assets, and business in
amounts, and with deductibles, acceptable to the Lender and against such risks
as reasonably required by the Lender, and the Borrower shall provide the Lender
with evidence satisfactory to the Lender in the Lender's sole discretion of such
insurance coverage. From and after the Closing Date, and at all times
thereafter, the Borrower will maintain liability insurance as reasonably
required by the Lender. All such insurance policies shall be issued by insurers
reasonably satisfactory to the Lender. The comprehensive general liability
policy shall provide for liability limits of at least $1,000,000.00 per
occurrence, and $2,000,000.00 in the aggregate. Each insurance policy covering
Collateral shall name the Lender as loss payee, as its interests may appear, and
provide that such policy will not be canceled or modified in any way without
thirty (30) days' prior written notice. At any time during the term of the Loan,
the Lender may require the Borrower to purchase flood insurance (if the Project
is located within a flood risk area as designated in the Flood Disaster
Protection Act of 1973) in an amount equal to the greater of 100% of the full
insurable value of the insurable portions of the Improvements or the Loan
amount, with a financially sound and reputable insurance company reasonably
acceptable to the Lender.
Section 6.6. Construction Contract and Retainage. The Borrower shall
withhold retainage as required by all requirements of law and the Construction
Contract in connection with the construction of the Improvements. The Borrower
shall not amend the Construction Contract or the Plans without the prior written
consent of the Lender, which consent shall not be unreasonably withheld or
delayed, provided that the Borrower may enter into change orders in an amount of
less than $50,000 and aggregating less than $400,000 (exclusive of change orders
prior to the date hereof) without such approval.
Section 6.7. Consent to Leases. The Borrower shall not enter into any
leases or occupancy agreements affecting the Project, or any amendments or
renewals thereof, without the prior written consent of the Lender.
Section 6.8. Financial Reports and Other Information.
(a) Each of the Borrower and the Guarantor will maintain a system of
accounting in such manner as will enable preparation of financial
statements in accordance with GAAP and will furnish to the Lender and its
authorized representatives such information about the business and
financial condition of the Borrower and the Guarantor, including, without
limitation, any corporate documents and records, within such time period as
the Lender may reasonably request; and, without any request, will furnish
to the Lender:
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(i) as soon as available, and in any event not later than
forty-five (45) days after the end of each fiscal quarter of each
fiscal year of the Borrower the consolidated balance sheet of the
Borrower as at the end of such fiscal quarter and the related
statements of operations and stockholders' equity for such fiscal
quarter and for the portion of the fiscal year ended with the last day
of such fiscal quarter and cash flows for the portion of the fiscal
year ended with the last day of such fiscal quarter, all of which
shall be in reasonable detail and certified by an officer of the
Borrower acceptable to the Lender that they fairly present the
consolidated financial condition of the Borrower as of the dates
indicated and the results of its operations for the periods indicated
and that they have been prepared in accordance with GAAP, in each
case, subject to normal year-end audit adjustments and the absence of
footnotes; and
(ii) as soon as available, and in any event not later than ninety
(90) days after the end of each fiscal year of the Borrower,
consolidated balance sheets of the Borrower as at the end of such
fiscal year and the related statements of operations and stockholders'
equity and cash flows for such fiscal year and setting forth
comparative figures for the preceding fiscal year and certified by an
officer of the Borrower acceptable to the Lender, to the effect that
such statements fairly present the consolidated financial condition of
the Borrower as of the dates indicated and the results of its
operations for the periods indicated, and audited by an independent
accounting firm of recognized national standing.
(b) Each financial statement furnished to the Lender pursuant to
subsection (i) of Section 6.6(a) shall be accompanied by (i) a written
certificate signed by an officer of the Borrower acceptable to the Lender
on behalf of the Borrower to the effect that (x) no Default or Event of
Default has occurred during the period covered by such statements or, if
any such Default or Event of Default has occurred during such period,
setting forth a description of such Default or Event of Default and
specifying the action, if any, taken by the Borrower to remedy the same,
and (y) the representations and warranties contained herein are true and
correct in all material respects as though made on the date of such
certificate, except to the extent that any such representation or warranty
relates solely to an earlier date, in which case it was true and correct as
of such earlier date and except as otherwise described therein, as a result
of the transactions expressly permitted hereunder or as previously
disclosed to the Lender, and (ii) a Compliance Certificate in the form of
Exhibit 6.8 showing the Borrower's compliance with the financial covenants
set forth herein.
(c) Promptly upon receipt thereof, the Borrower will provide the
Lender with a copy of each report or "management letter" submitted to the
Borrower by its independent accountants or auditors in connection with any
annual, interim or special audit made by them of the books and records of
the Borrower.
(d) The Borrower will promptly and in any event, within ten (10) days
after an executive officer of the Borrower has knowledge thereof, give
written notice to the Lender of: (i) any pending or threatened litigation
or proceeding against the Borrower asserting
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any claim or claims against any of same in excess of $1,000,000 in the
aggregate; (ii) the occurrence of any Default or Event of Default under
this Agreement, under the Borrower's Credit Facility or under the
Indenture; (iii) any circumstance that has had or reasonably threatens a
Material Adverse Effect; and (iv) any event which results in a breach of
Sections 6.19 or 6.20.
(e) The Borrower will furnish such additional information, statements
and other reports with respect to the Borrower's compliance (and its
approach to and progress towards achieving compliance) with Section 5.15 as
the Lender may reasonably request from time to time; (ii) in the event of
any change in circumstances that causes or will likely cause any of the
Borrower's representations and warranties set forth in Section 5.15, to no
longer be true, the Borrower shall promptly, and in any event within thirty
(30) days of receipt of information regarding a change in circumstances,
provide the Lender with written notice that describes in reasonable detail
the change in circumstances and any additional information the Lender
reasonably requests of the Borrower in connection therewith.
Section 6.9. Lender Inspection Rights. Upon reasonable notice from the
Lender, each of the Borrower and the Guarantor will permit the Lender (and such
Persons as the Lender may designate) at the Borrower's expense and during normal
business hours following reasonable notice to visit and inspect any of the
properties of the Borrower or the Guarantor, to examine all of its books and
records, to make copies and extracts therefrom, and to discuss its affairs,
finances and accounts with its management, employees and independent public
accountants (and by this provision, each of the Borrower and the Guarantor
authorizes such accountants to discuss with the Lender (and such Persons as the
Lender may designate) the affairs, finances and accounts of the Borrower or the
Guarantor), all at such reasonable times and as often as may be reasonably
requested.
Section 6.10. Restricted Payments. The Borrower shall not pay or make any
Restricted Payment except the Borrower may, if no Default or Event of Default
shall have occurred and be continuing, make any Restricted Payment permitted by
the Indenture. The Borrower may not prepay, purchase or redeem the Senior
Subordinated Notes except as permitted by the Borrower's Credit Facility and by
the Indenture.
Section 6.11. Environmental Laws. Each of the Borrower and the Guarantor
shall comply in all material respects with all Environmental Laws (including,
without limitation, obtaining and maintaining all necessary permits, licenses
and other necessary authorizations) applicable to or affecting the properties or
business operations of the Borrower or the Guarantor.
Section 6.12. Restrictions on Fundamental Changes. Neither the Borrower nor
the Guarantor shall be a party to any merger into or consolidation with, or
purchase or otherwise acquire all or substantially all of the assets or stock
of, any other Person, or sell all or substantially all of its assets or stock,
except as permitted by the Borrower's Credit Facility and by the Indenture.
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Section 6.13. Liens. The Borrower shall not create, incur, assume or suffer
to exist any Lien (other than as contemplated by the Loan Documents) of any kind
on the Project. Neither the Borrower nor the Guarantor shall create, incur,
assume or suffer to exist any Lien of any kind on any of its other properties or
assets of any kind except as permitted by the Borrower's Credit Facility and by
the Indenture (a "Permitted Lien").
Section 6.14. Debt. Neither the Borrower nor the Guarantor shall contract,
assume or suffer to exist any Debt (including, without limitation, any
Guaranties), except:
(a) Debt under the Loan Documents; and
(b) other Debt permitted by the Borrower's Credit Facility and by the
Indenture.
Section 6.15. Transfer of Assets. The Borrower shall not sell, transfer,
convey, assign or dispose of any of the Project except for Personalty in the
ordinary course of business without the Lender's prior written approval. Neither
the Borrower nor the Guarantor shall permit any sale, transfer, conveyance,
assignment or other disposition of any other asset of the Borrower or the
Guarantor except as permitted by the Indenture.
Section 6.16. Completion Deadline. The Borrower shall cause the
construction of the Improvements to be pursued with reasonable diligence. The
Borrower shall cause the Improvements to be completed no later than twelve (12)
months from the Closing Date, regardless of whether the proceeds of the Loan are
sufficient for that purpose.
Section 6.17. Compliance with Laws. Each of the Borrower and the Guarantor
shall conduct its businesses and otherwise be in compliance in all material
respects with all applicable laws, regulations, ordinances and orders of all
governmental, judicial and arbitral authorities applicable to it and shall
obtain and maintain all necessary permits, licenses and other authorizations
necessary to conduct its businesses and own and operate its properties.
Section 6.18 Intentionally Omitted.
Section 6.19. Minimum Consolidated Net Worth. The Borrower shall not permit
the Consolidated Net Worth of the Borrower as of the last day of each fiscal
quarter to be less than the sum of (i) $15,000,000, plus (ii) fifty percent
(50%) of the cumulative quarterly Consolidated Net Income of the Borrower since
September 30, 1997, for each fiscal quarter ending after that date during which
the Borrower has positive Consolidated Net Income, plus (iii) eighty percent
(80%) of the net proceeds resulting from any sale or issuance of any stock of
the Borrower or its Subsidiaries since September 30, 1997.
Section 6.20. Fixed Charge Coverage Ratio. The Borrower will maintain a
Fixed Charge Coverage Ratio of at least 1.0 to 1.0.
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SECTION 7. EVENTS OF DEFAULT AND REMEDIES.
Section 7.1. Events of Default. Any one or more of the following shall
constitute an Event of Default:
(a) default by the Borrower in the payment of the principal amount of
the Loan, any interest thereon or any fees payable hereunder within five
(5) days of the date such payment is due;
(b) default in the observance or performance of any covenant set forth
in Sections 6.8(d), 6.10, 6.12, 6.15, 6.19 or 6.20;
(c) default by any Credit Party in the observance or performance of
any provision hereof or of any other Loan Document not mentioned in (a) or
(b) above, which is not remedied within thirty (30) days after the earlier
of (i) such default or event of default first becoming known to any
executive officer of the Borrower or (ii) notice to the Borrower by the
Lender of the occurrence of such default or event of default;
(d) any representation or warranty or other written statement made or
deemed made herein, in any other Loan Document or in any financial or other
report or document furnished in compliance herewith or therewith by any
Credit Party proves untrue in any material respect as of the date of the
issuance or making, or deemed issuance or making thereof;
(e) default occurs in the payment when due (after any applicable grace
or cure period) of Debt in an aggregate principal amount of $1,000,000 or
more of any Credit Party or all Credit Parties, an Event of Default shall
occur under the Borrower's Credit Facility or the Indenture, or the
occurrence of any other default, which with the passage of time or notice,
would permit the holder or beneficiary of such Debt, or a trustee therefor,
to cause the acceleration of the maturity of any such Debt or any mandatory
unscheduled prepayment, purchase or other early funding thereof;
(f) any Credit Party (i) has entered involuntarily against it an order
for relief under the United States Bankruptcy Code or a comparable action
is taken under any bankruptcy or insolvency law of another country or
political subdivision of such country, (ii) generally does not pay, or
admits its inability generally to pay, its debts as they become due, (iii)
makes a general assignment for the benefit of creditors, (iv) applies for,
seeks, consents to or acquiesces in, the appointment of a receiver,
custodian, trustee, examiner, liquidator or similar official for it or any
substantial part of its property, (v) institutes any proceeding seeking to
have entered against it an order for relief under the United States
Bankruptcy Code or any comparable law, to adjudicate it insolvent, or
seeking dissolution, winding up, liquidation, reorganization, arrangement,
adjustment or composition of it or its debts under any law relating to
bankruptcy, insolvency or reorganization or relief of debtors or fails to
file an answer or other pleading denying the material allegations of any
such proceeding filed against it, (vi) makes any board of directors
resolution in direct
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furtherance of any matter described in clauses (i)-(v) above, or (vii)
fails to contest in good faith any appointment or proceeding described in
this Section 7.1(f);
(g) a custodian, receiver, trustee, examiner, liquidator or similar
official is appointed for any Credit Party or any substantial part of its
property, or a proceeding described in Section 7.1(f)(v) is instituted
against any Credit Party, and such appointment continues undischarged or
such proceeding continues undismissed or unstayed for a period of sixty
(60) days;
(h) any Credit Party fails within thirty (30) days (or such earlier
date as any steps to execute on such judgment or order take place) to pay,
bond or otherwise discharge, or to obtain an indemnity against on terms and
conditions satisfactory to the Lender in its sole discretion, any judgment
or order for the payment of money in excess of $1,000,000 for all such
Credit Parties which is uninsured or underinsured by at least such amount
(provided that there is adequate assurance, in the sole discretion of the
Lender, that the insurance proceeds attributable thereto shall be paid
promptly upon the expiration of such time period or resolution of such
proceeding), which is not stayed on appeal or otherwise being appropriately
contested in good faith in a manner that stays execution;
(i) any Credit Party fails to pay when due an amount aggregating in
excess of $1,000,000 that it is liable to pay to the PBGC or to a Benefit
Plan under Title IV of ERISA; or a notice of intent to terminate a Benefit
Plan having Unfunded Vested Liabilities of any Credit Party in excess of
$1,000,000 (a "Material Plan") is filed under Title IV of ERISA; or the
PBGC institutes proceedings under Title IV of ERISA to terminate or to
cause a trustee to be appointed to administer any Material Plan; or a
proceeding is instituted by a fiduciary of any Material Plan against any
Credit Party to collect any liability under Section 515 or 4219(c)(5) of
ERISA and such proceeding is not dismissed within thirty (30) days
thereafter; or a condition exists by reason of which the PBGC would be
entitled to obtain a decree adjudicating that any Material Plan must be
terminated;
(j) any Credit Party, any Person acting on behalf of any Credit Party
or any governmental, judicial or arbitral authority challenges the validity
of any Loan Document or any Credit Party's obligations thereunder, or any
Loan Document ceases to be in full force and effect or ceases to give to
the Lender the Liens, rights, and powers purported to be granted in its
favor thereby;
(k) in connection with any request for an Advance of proceeds of the
Construction Loan, the Borrower shall be unable to satisfy any of the
conditions to the Advance listed in this Agreement;
(l) a determination by the Lender (or its Construction Consultant)
that the construction of the Improvements will not be completed on or
before the Construction Loan Maturity Date (regardless of whether or not as
a result of any casualty or condemnation);
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(m) failure of the Borrower or any Contractor to perform, observe or
comply with any of the terms, covenants, conditions or provisions of any of
the applicable construction contracts; provided, however, that in the case
of such a failure by such Contractor, if the Borrower is diligently and in
good faith pursuing all appropriate remedies under the pertinent
Construction Contract relating to such Contractor's failure thereunder and
the Borrower terminates the Construction Contract in good faith within
thirty (30) days after the occurrence of such failure, then the Borrower
shall not be deemed to be in default under this Agreement if another
Contractor satisfactory to the Lender is selected by the Borrower and
placed under contract with the Borrower within sixty (60) days after
terminating said defaulting Contractor and such substitute Contractor
promptly proceeds to fully cure the defaulting Contractor's default and to
construct the Improvements in accordance with the Budget and the Plans
provided to the Lender for the Improvements, in a diligent manner and in
accordance with this Agreement;
(n) if any act or occurrence of any kind or nature (including any
casualty for which insurance was not obtained or obtainable) shall result
in material damage to or material loss or material destruction of the
Improvements; or
(o) an Event of Default or a Termination Event occurs under any
Interest Rate Protection Agreement by and between the Borrower and the
Lender.
Section 7.2. Non-Bankruptcy Defaults. When any Event of Default other than
those described in subsections (f) or (g) of Section 7.1 has occurred and is
continuing with respect to the Borrower, the Lender may, by notice to the
Borrower: (a) terminate the remaining commitment and all other obligations of
the Lender hereunder on the date stated in such notice (which may be the date
thereof); (b) declare the principal of and the accrued interest on the Note to
be forthwith due and payable and thereupon the Note, including both principal
and interest thereon, shall be and become immediately due and payable together
with all other amounts payable under the Loan Documents without further demand,
presentment, protest or notice of any kind, including, but not limited to,
notice of intent to accelerate and notice of acceleration, each of which is
expressly waived by the Borrower; and the Borrower agrees to immediately make
such payment and acknowledges and agrees that the Lender would not have an
adequate remedy at law for failure by the Borrower to honor any such demand. The
Lender may also, at the risk, cost, and expense of the Borrower: (i) enter upon
and take possession of the Project and the materials and equipment being used in
the construction of the Improvements; (ii) take such action as the Lender shall
deem appropriate to protect the Project; and (iii) take such action as the
Lender shall deem appropriate to continue construction of the Improvements with
such changes therein as the Lender may elect to make. If the Lender shall elect
to continue construction, the Lender may: (i) assume or reject any construction
or other contracts made by the Borrower in connection with the construction or
operation of the Improvements; (ii) engage or employ contractors,
subcontractors, architects, engineers and others for the construction of the
Improvements; (iii) pay, settle or compromise existing or future bills or claims
relating to the construction of the Improvements or the Project or affecting
title thereto; (iv) and take or refrain from taking such other action
(including, without limitation, discontinuing construction), in its name or in
the name of the Borrower, as the Lender may determine. All costs and expenses
incurred by the Lender in taking and protecting the Project and in constructing
the Improvements shall be paid by the Borrower to
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the Lender upon demand, with interest at the Default Rate from the date of
disbursement to the date of payment to the Lender, and the payment of such sums
shall be secured by the Loan Documents. The Lender shall have no obligation to
take any of the foregoing actions, and if the Lender should do so, it shall have
no liability to the Borrower or any other obligor for the sufficiency of any
such actions or otherwise, provided such actions are taken in good faith.
Section 7.3. Bankruptcy Defaults. When any Event of Default described in
subsections (f) or (g) of Section 7.1 has occurred and is continuing with
respect to the Borrower, then (i) the Note shall immediately become due and
payable together with all other amounts payable under the Loan Documents without
presentment, demand, protest or notice of any kind, each of which is expressly
waived by the Borrower, (ii) and all obligations of the Lender to extend further
credit pursuant to any of the terms hereof shall immediately terminate, the
Borrower acknowledging and agreeing that the Lender would not have an adequate
remedy at law for failure by the Borrower to honor this provision and that the
Lender shall have the right to require the Borrower to specifically perform such
undertaking.
Section 7.4. Application of Proceeds from Collateral. After the occurrence
of and during the continuance of an Event of Default, any payment to the Lender
hereunder or from the proceeds of any Collateral or any cash Collateral shall be
applied as the Lender shall elect in its sole discretion.
Section 7.5. Deficiency. The following shall be the basis for the finder of
fact's determination of the fair market value of the Project as of the date of
the foreclosure sale in proceedings governed by sections 51.003, 51.004, and
51.005 of the Texas Property Code (as amended from time to time):
(a) The Project shall be valued in an "as is" condition as of the date
of the foreclosure sale, without any assumption or expectation that the
Project will be repaired or improved in any manner before a resale of the
Project after foreclosure;
(b) The valuation shall be based upon an assumption that the
foreclosure purchaser desires a prompt resale of the Project for cash
promptly (but no later than twelve months) following the foreclosure sale;
(c) All reasonable closing costs customarily borne by the seller in a
commercial real estate transaction should be deducted from the gross fair
market value of the Project, including, without limitation, brokerage
commissions, title insurance, a survey of the Project, tax prorations,
attorney's fees, and marketing costs;
(d) The gross fair market value of the Project shall be further
discounted to account for any estimated holding costs associated with
maintaining the Project pending sale, including, without limitation,
utilities expenses, property management fees, taxes and assessments (to the
extent not accounted for in subsection (c) immediately above), and other
maintenance expenses; and
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(e) Any expert opinion testimony given or considered in connection
with a determination of the fair market value of the Project must be given
by persons having at least five years experience in appraising property
similar to the Project and who have conducted and prepared a complete
written appraisal of the Project taking into consideration the factors set
forth above.
SECTION 8. MISCELLANEOUS.
Section 8.1. No Waiver of Rights. No delay or failure on the part of the
Lender or on the part of the holder or holders of any Note, in the exercise of
any power, right or remedy under any Loan Document shall operate as a waiver
thereof or as an acquiescence in any default, nor shall any single or partial
exercise thereof preclude any other or further exercise of any other power,
right or remedy. To the fullest extent permitted by applicable law, the powers,
rights and remedies under the Loan Documents of the Lender and the holder or
holders of the Note are cumulative to, and not exclusive of, any rights or
remedies any of them would otherwise have.
Section 8.2 Non-Business Day. If any payment of principal or interest on
the Loan or of any other Obligation shall fall due on a day which is not a
Business Day, interest or fees (as applicable) at the rate, if any, the Loan or
other Obligation bears for the period prior to maturity shall continue to accrue
in the manner set forth herein on such Obligation from the stated due date
thereof to and including the next succeeding Business Day on which the same
shall be payable.
Section 8.3. Documentary Taxes. The Borrower agrees that it will pay any
documentary, stamp or similar taxes payable with respect to any Loan Document,
including interest and penalties, in the event any such taxes are assessed
irrespective of when such assessment is made and regardless whether any credit
is then in use or available hereunder.
Section 8.4. Survival of Representations. All representations and
warranties made herein or in certificates given pursuant hereto shall survive
the execution and delivery of this Agreement and the other Loan Documents and
shall continue in full force and effect with respect to the date as of which
they were made as long as any Credit Party has any Obligation hereunder or under
any other Loan Document or any Commitment hereunder is in effect.
Section 8.5. Survival of Indemnities. All indemnities and all other
provisions relative to reimbursement to the Lender of amounts sufficient to
protect the yield of the Lender with respect to the Loan shall survive the
termination of this Agreement and the other Loan Documents and the payment of
the Loan and all other Obligations for a period of one (1) year.
Section 8.6. Setoff. In addition to any rights now or hereafter granted
under applicable law and not by way of limitation of any such rights, upon the
occurrence of, and throughout the continuance of, any Default or Event of
Default, the Lender and each subsequent holder of any of the Note is hereby
authorized by the Borrower at any time or from time to time, without notice to
the Borrower, any other Credit Party or to any other Person, any such notice
being hereby expressly waived, to set off and to appropriate and to apply any
and all deposits (general or special, including, but not limited to, Debt
evidenced by certificates of deposit, whether matured or unmatured, but not
including trust accounts, and in whatever currency denominated) and any
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other Debt at any time held or owing by the Lender or that subsequent holder to
or for the credit or the account of the Borrower, whether or not matured,
against and on account of the obligations and liabilities of the Borrower to the
Lender or that subsequent holder under the Loan Documents, including, but not
limited to, all claims of any nature or description arising out of or connected
with the Loan Documents, irrespective of whether or not (i) the Lender or that
subsequent holder shall have made any demand hereunder or (ii) the principal of
or the interest on the Loan or the Note and other amounts due hereunder shall
have become due and payable hereunder and although said obligations and
liabilities, or any of them, may be contingent or unmatured. The Lender agrees,
if there shall be any other Lender pursuant to Section 8.10(b), that if the
Lender receives and retains any payment, whether by setoff or application of
deposit balances or otherwise, on any of the Loan in excess of its ratable share
of payments on all such Obligations then owed to the Lender hereunder, then the
Lender shall purchase for cash at face value, but without recourse, ratably from
each of the other Lenders such amount of the Loan or participations therein,
held by each such other Lenders (or interest therein) as shall be necessary to
cause the Lender to share such excess payment ratably with all the other
Lenders; provided, however, that if any such purchase is made by any Lender, and
if such excess payment or part thereof is thereafter recovered from such
purchasing Lender, the related purchases from the other Lenders shall be
rescinded ratably and the purchase price restored as to the portion of such
excess payment so recovered, but without interest.
Section 8.7. Notices. Except as otherwise specified herein, all notices
under the Loan Documents shall be in writing (including cable, telecopy or
telex) and shall be given to a party hereunder at its address, telecopier number
or telex numbers set forth below or such other address, telecopier number or
telex as such party may hereafter specify by notice to the Lender or the
Borrower, as applicable, given by courier, by United States certified or
registered mail, by telegram or by other telecommunication device capable of
creating a written record of such notice and its receipt. Notices under the Loan
Documents shall be addressed to the Lender and to the Borrower as follows:
Bank One, Texas, National Association
Attention: Mr. John E. Elam, Jr.
910 Travis
Houston, Texas 77002
Telephone: (713) 751-3828
Fax No.: (713) 751-6199
with a copy to:
Gardere Wynne Sewell & Riggs, L.L.P.
Attention: Ms. Lisa J. Mellencamp
333 Clay Ave., Suite 800
Houston, Texas 77002
Telephone: (713) 308-5576
Fax No.: (713) 308-5555
and
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HydroChem Industrial Services, Inc.
6210 Rothway, Suite 150
Houston, Texas 77040
Attention: Mr. Selby F. Little, III, Executive
Vice President and Chief
Financial Officer
Telephone: (713) 329-2305
Fax No.: (713) 329-2440
with a copy to:
Haynes and Boone, L.L.P.
1000 Louisiana, Suite 4300
Houston, Texas 77002-5012
Attention: Mr. Robert S. Ladd
Telephone: (713) 547-2023
Fax No.: (713) 236-5534
Each such notice, request or other communication shall be effective (i) if
given by telecopier, when such telecopy is transmitted to the telecopier number
specified in this Section 8.7 and a confirmation of receipt of such telecopy has
been received by the sender, (ii) if given by telex, when such telex is
transmitted to the telex number specified in this Section 8.7 and the answer
back is received by sender, (iii) if given by courier, when delivered, (iv) if
given by mail, five (5) days after such communication is deposited in the mail,
registered with return receipt requested, addressed as aforesaid or (v) if given
by any other means, when delivered at the addresses specified in this Section
8.7; provided that any notice given pursuant to Section 2 shall be effective
only upon receipt and, provided further, that any notice that but for this
provision would be effective after the close of business on a Business Day or on
a day that is not a Business Day shall be effective at the opening of business
on the next Business Day.
Section 8.8. Counterparts. This Agreement may be executed in any number of
counterparts, and by the different parties on different counterpart signature
pages, each of which when executed shall be deemed an original but all such
counterparts taken together shall constitute one and the same Agreement.
Section 8.9. Successors and Assigns. This Agreement shall be binding upon
the Borrower and the Lender and their respective successors and assigns, and
shall inure to the benefit of the Borrower and the Lender and their respective
successors and assigns, including any subsequent holder of the Note. The
Borrower may not assign any of its rights or obligations under any Loan Document
without the consent of the Lender.
Section 8.10. Participations in Borrowings and Notes; Transfers of
Borrowings and Notes.
(a) The Lender may at any time sell to one or more banks
("Participants"), participating interests in any Advance owing to the
Lender, the Note, the Commitment or any other interest of the Lender
hereunder, provided that the Lender shall not transfer, grant or assign any
participation under which the Participant shall have rights to vote upon
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or consent to any matter to be decided by the Lender hereunder or under any
Loan Document or approve any amendment to or waiver of this Agreement or
any other Loan Document except to the extent such amendment or waiver would
(i) increase the amount of the Lender's Commitment and such increase would
affect such Participant, (ii) reduce the principal of or interest on, any
of the Lender's Loan or any fees or other amounts payable to the Lender
hereunder and such reduction would affect such Participant or (iii)
postpone any date fixed for any scheduled payment of principal of or
interest on, any of the Lender's Loan or any fees or other amounts payable
to the Lender hereunder and such postponement would affect such
Participant. In the event of any such sale by the Lender of participating
interests to a Participant, the Lender's obligations under this Agreement
to the other parties to this Agreement shall remain unchanged, the Lender
shall remain solely responsible for the performance thereof, the Lender
shall remain the holder of the Note for all purposes under this Agreement
and the Borrower shall continue to deal solely and directly with the Lender
in connection with the Lender's rights and obligations under this
Agreement. The Borrower agrees that if amounts outstanding under this
Agreement and the Note are due and unpaid or shall have been declared or
shall have become due and payable upon the occurrence of an Event of
Default, each Participant shall be deemed to have the right of setoff in
respect of its participating interest in amounts owing under this Agreement
and the Note to the same extent as if the amount of its participating
interest were owing directly to it as a Lender under this Agreement or any
Note.
(b) The Lender may sell all or any part of its rights and obligations
under this Agreement and the Note to any Affiliate of the Lender at any
time or, if an Event of Default shall have occurred and be continuing, to
one or more financial institutions or other Persons. If any such sale
occurs, the purchasing Lender shall be considered for all purposes as a
Lender hereunder.
(c) The provisions of the foregoing subsections (a) and (b) shall not
apply to or restrict or require the consent of or any notice to any Person
to effectuate, the pledge or assignment by the Lender of its rights under
this Agreement and the Note to any Federal Reserve Bank.
(d) If, pursuant to this Section 8.10, any interest in this Agreement
or the Note is transferred to any transferee which is organized under the
laws of any jurisdiction other than the United States of America or any
State thereof, the transferor Lender shall cause such transferee,
concurrently with the effectiveness of such transfer, (i) to represent to
the transferor Lender (for the benefit of the transferor Lender and the
Borrower) that under applicable law and treaties no taxes will be required
to be withheld by the Lender or the Borrower with respect to any payments
to be made to such transferee in respect of the Loan, (ii) to furnish to
the transferor Lender (and, in the case of any purchasing Lender, the
Borrower) either U.S. Internal Revenue Service Form 4224 or U.S. Internal
Revenue Service Form 1001 or such successor forms as shall be adopted from
time to time by the relevant United States taxing authorities (wherein such
transferee claims entitlement to complete exemption from U.S. federal
withholding tax on all interest payments hereunder), and (iii) to agree
(for the benefit of the transferor Lender and the Borrower) to provide the
transferor Lender (and, in the case of any purchasing Lender, the Borrower)
a new Form
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4224 or Form 1001 upon the expiration or obsolescence of any previously
delivered form and comparable statements in accordance with applicable U.S.
laws and regulations and amendments dully executed and completed by such
transferee, and to comply from time to time with all applicable U.S. laws
and regulations with regard to such withholding tax exemption.
Section 8.11. Amendments. Any provision of this Agreement may be amended or
waived if, but only if, such amendment or waiver is in writing and is signed by
the Borrower and the Lender.
Section 8.12. Headings. Section headings used in this Agreement are for
reference only and shall not affect the construction of this Agreement.
Section 8.13. Legal Fees, Other Costs and Indemnification. The Borrower,
upon demand by the Lender, agrees to pay the reasonable fees and disbursements
of legal counsel to the Lender in connection with the preparation and execution
of the Loan Documents, any amendment, waiver or consent related thereto, whether
or not the transactions contemplated therein are consummated, any Default or
Event of Default by the Borrower hereunder and any enforcement of any of the
Loan Documents. The Borrower further agrees to indemnify the Lender and its
respective directors, officers, shareholders, employees and attorneys
(collectively, the "Indemnified Parties"), against all losses, claims, damages,
penalties, judgments, liabilities and expenses (including, without limitation,
all reasonable attorneys' fees and other reasonable expenses of litigation or
preparation therefor, whether or not the Indemnified Party is a party thereto)
which any of them may pay or incur arising out of or relating to (a) any Loan
Document, the Loan or the application or proposed application by any of the
Borrower of the proceeds of any Loan, REGARDLESS OF WHETHER SUCH CLAIMS OR
ACTIONS ARE FOUNDED IN WHOLE OR IN PART UPON THE ALLEGED SIMPLE, SOLE OR
CONTRIBUTORY NEGLIGENCE OF ANY OF THE INDEMNIFIED PARTIES AND/OR ANY OF THEIR
RESPECTIVE DIRECTORS, OFFICERS, SHAREHOLDERS, EMPLOYEES OR ATTORNEYS, and (b)
any investigation of any third party or any governmental authority involving the
Lender and related to any use made or proposed to be made by the Borrower of the
proceeds of the Advance or any transaction financed or to be financed in whole
or in part, directly or indirectly with the proceeds of any Advance; provided,
however, that the Borrower shall not be obligated to indemnify any Indemnified
Party for any of the foregoing arising out of such Indemnified Party's gross
negligence or willful misconduct. The Borrower, upon demand by the Indemnified
Party at any time, shall reimburse the Indemnified Party for any legal or other
expenses incurred in connection with investigating or defending against any of
the foregoing except if the same is excluded from indemnification pursuant to
the provisions of the foregoing sentence.
Section 8.14 GOVERNING LAW; ARBITRATION; SUBMISSION TO JURISDICTION.
(a) This Agreement and the other Loan Documents, and the rights and
duties of the parties thereto, shall be construed in accordance with and
governed by the internal laws of the State of Texas.
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(b) EACH PARTY HERETO HEREBY WAIVES ITS RIGHT TO RESOLVE DISPUTES,
CLAIMS, AND CONTROVERSIES ARISING FROM THIS AGREEMENT, ANY OTHER LOAN
DOCUMENT OR ANY MATTER IN CONNECTION THEREWITH, INCLUDING, WITHOUT
LIMITATION, CONTRACT DISPUTES AND TORT CLAIMS, THROUGH ANY COURT PROCEEDING
OR LITIGATION AND ACKNOWLEDGES THAT ALL SUCH DISPUTES, CLAIMS AND
CONTROVERSIES SHALL BE RESOLVED PURSUANT TO THIS SECTION, EXCEPT THAT
EQUITABLE RELIEF AND CERTAIN OTHER RIGHTS AND REMEDIES SET FORTH BELOW MAY
BE SOUGHT FROM ANY COURT OF COMPETENT JURISDICTION. The Borrower represents
to the Lender and the Lender represents to the Borrower that this waiver is
made knowingly and voluntarily after consultation with and upon advice of
counsel and is a material part of this Agreement. All such disputes, claims
and controversies shall be resolved by binding arbitration pursuant to the
commercial rules of the American Arbitration Association ("AAA"). Any
arbitration proceeding held pursuant to this arbitration provision shall be
conducted in Houston, Texas or at any other place selected by mutual
agreement of the Lender and the Borrower. No act to take or dispose of any
collateral shall constitute a waiver of this arbitration agreement or be
prohibited by this arbitration agreement. This arbitration provision shall
not limit the right of either party during any dispute, claim or
controversy to seek, use, and employ ancillary or preliminary rights and/or
remedies, judicial or otherwise, for the purposes of realizing upon,
preserving, protecting, foreclosing upon or proceeding under forcible entry
and detainer for possession of, any real or personal property, and any such
action shall not be deemed an election of remedies. Such remedies include,
without limitation, obtaining injunctive relief or a temporary restraining
order, invoking a power of sale under any deed of trust or mortgage,
obtaining a writ of attachment or imposition of a receivership or
exercising any rights relating to personal property, including exercising
the right of set-off or taking or disposing of such property with or
without judicial process pursuant to the uniform commercial code. Any
disputes, claims or controversies concerning the lawfulness or
reasonableness of an act or exercise of any right or remedy concerning any
collateral, including any claim to rescind, reform or otherwise modify any
agreement relating to the collateral, shall also be arbitrated; provided,
however that no arbitrator shall have the right or the power to enjoin or
restrain any act of either party. Judgment upon any award rendered by any
arbitrator may be entered in any court having jurisdiction. The statute of
limitations, estoppel, waiver, laches and similar doctrines which would
otherwise be applicable in an action brought by a party shall be applicable
in any arbitration proceeding, and the commencement of an arbitration
proceeding shall be deemed the commencement of any action for these
purposes. The Federal Arbitration Act (Title 9 of the United States Code)
shall apply to the construction, interpretation, and enforcement of this
arbitration provision.
(c) To the fullest extent permitted by applicable law, each of the
Borrower and the Lender agrees that any court proceeding or litigation
permitted by Section 8.14(b) may be brought and maintained in the courts of
the State of Texas sitting in Harris County or the United States District
Court for the Southern District of Texas. To the fullest extent permitted
by applicable law, each of the Borrower and the Lender hereby expressly and
37
<PAGE>
irrevocably submits to the jurisdiction of the courts of the State of Texas
and the United States District Court for the Southern District of Texas for
the purpose of any such litigation as set forth above and irrevocably
agrees to be bound by any judgment rendered thereby in connection with such
litigation. To the fullest extent permitted by applicable law, each of the
Borrower and the Lender further irrevocably consents to the service of
process, by registered mail, postage prepaid or by personal service within
or without the State of Texas. To the fullest extent permitted by
applicable law, each of the Borrower and the Lender hereby expressly and
irrevocably waives any objection which it may have or hereafter may have to
the laying of venue of any such litigation brought in any such court
referred to above and any claim that any such litigation has been brought
in an inconvenient forum. To the extent that the Borrower or the Lender has
or hereafter may acquire any immunity from jurisdiction of any court or
from any legal process (whether through service of notice, attachment prior
to judgment, attachment in aid of execution or otherwise) with respect to
itself or its property, each of the Borrower and the Lender hereby
irrevocably waives to the fullest extent permitted by applicable law, such
immunity in respect of its obligations under this Agreement.
(D) TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, EACH PARTY
HERETO VOLUNTARILY, KNOWINGLY, IRREVOCABLY AND UNCONDITIONALLY (BY ITS
ACCEPTANCE HEREOF) WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY COURT
PROCEEDING OR LITIGATION PERMITTED BY SECTION 3.1(B) AND WAIVES ANY RIGHT
TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE (WHETHER BASED ON
CONTRACT, TORT OR OTHERWISE) ARISING OUT OF THIS AGREEMENT OR ANY OTHER
LOAN DOCUMENT, ANY OTHER RELATED DOCUMENT OR ANY RELATIONSHIP BETWEEN THE
LENDER, THE BORROWER, AND/OR THE GUARANTOR, AND AGREES THAT ANY SUCH
ACTION, PROCEEDING OR DISPUTE TO THE EXTENT PERMITTED BY SECTION 8.14(B)
SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY. THIS PROVISION IS A
MATERIAL INDUCEMENT TO THE LENDER TO PROVIDE THE LOAN.
Section 8.15. Severability. Any provision of this Agreement that is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
Section 8.16. Change in Accounting Principles or Tax Laws. If (i) any
change in accounting principles from those used in the preparation of the
financial statements referred to in Section 5.9 is hereafter occasioned by the
promulgation of rules, regulations, pronouncements and opinions by or required
by the Financial Accounting Standards Board or the American Institute of
Certified Public Accounts (or successors thereto or agencies with similar
functions) and such change materially affects the calculation of any component
of any financial covenant, standard or term found in this Agreement or (ii)
there is a material change in federal or foreign tax laws which materially
affects the Borrower's ability to comply with the financial covenants, standards
or terms found in this Agreement, the Borrower and the Lender agree to enter
into negotiations in order
38
<PAGE>
to amend such provisions so as to equitably reflect such changes with the
desired result that the criteria for evaluating the Borrower's financial
condition shall be the same after such changes as if such changes had not been
made. Unless and until such provisions have been so amended, the provisions of
this Agreement shall govern.
Section 8.17. Notice. The Loan Documents constitute the entire
understanding among the Borrower and the Lender and supersede all earlier or
contemporaneous agreements, whether written or oral, concerning the subject
matter of the Loan Documents. THIS WRITTEN AGREEMENT TOGETHER WITH THE OTHER
LOAN DOCUMENTS REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS
OF THE PARTIES. THIS WRITTEN AGREEMENT 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 caused this Agreement to be
duly executed and delivered by their duly authorized officers as of the day and
year first above written.
BORROWER:
HYDROCHEM INDUSTRIAL SERVICES, INC.,
a Delaware corporation
By: /S/ Selby F. Little, III
-----------------------------
Name: Selby F. Little, III
Title: Executive Vice President
and Chief Financial Officer
LENDER:
BANK ONE, TEXAS, NATIONAL ASSOCIATION
By: /S/ John E. Elam, Jr.
-------------------------
Name: John E. Elam, Jr.
Title: Vice President
39
<PAGE>
EXHIBIT 2.1A
REQUEST FOR ADVANCE
<PAGE>
EXHIBIT "2.1A"
REQUEST FOR ADVANCE
Bank One Southern Region Date:_________________________
Construction Risk - Real Estate Loan Administration
1717 Main, Lower Level 1 (TX1-2424) Draw #:_______________________
Dallas, Texas 75201
ATTN: ___________________________
RE: Borrower Name : HydroChem Industrial Services, Inc.
Project Name : Corporate Headquarters
Loan Amount : $7,500,000
1. Pursuant to that certain Loan Agreement dated July 17, 1998 (the "Loan
Agreement") between the Borrower and Bank One, Texas, National
Association ("Bank"), the Borrower hereby requests an advance in the
amount of $___________________. The Borrower hereby acknowledges that
this amount is subject to inspection, verification and available
funds.
2. The Borrower also hereby covenants and agrees that:
(a) It has complied with all duties and obligations required to date
to be carried out and performed by it pursuant to the terms of
the Loan Agreement;
(b) No Default or Event of Default as defined in the Loan Agreement
has occurred and is continuing;
(c) All change orders have been submitted to and approved by Bank as
required under the terms of the Loan Agreement;
(d) All funds previously disbursed have been used for the purposes as
set forth in the Loan Documents;
(e) All outstanding claims for labor, materials and/or services
furnished prior to this draw period have been paid;
(f) All construction prior to the date of this request for advance
has been accomplished in accordance with the Plans, or as
modified by Bank approved change orders;
(g) All sums advanced by Bank on account of this draw will be used
solely for the purpose of paying obligations owing as on the
attached documentation and no other reason;
(h) There are no Liens outstanding against the subject project or its
equipment except for Bank's Liens as agreed upon in the Loan
Documents;
<PAGE>
(i) The amount of undisbursed Loan proceeds is sufficient to pay the
cost of completing the Project in accordance with the Plans
originally submitted to Bank, or as modified by Bank approved
change orders; and
(j) The undersigned affiant understands that this affidavit, is made
for the purpose of inducing Bank to make an advance to Borrower
and that, in making such advance, Bank will rely upon the
accuracy of the matters stated in this affidavit.
3. Disbursement of the Loan proceeds hereby requested may be subject to
the receipt by Bank of a certificate from the Title Company stating
that no claims have been filed of record which adversely affects the
title of the Borrower to the Land, subsequent to the filing of the
Bank's Deed of Trust.
4. The terms used in this Request for Advance and not otherwise defined
herein have the same meaning and definitions as those set forth in the
Loan Agreement.
5. The Borrower certifies that the statements made in this Request for
Advance and any documents submitted herewith and identified herein are
true and correct and has duly caused this Request for Advance to be
signed on its behalf by the undersigned who is duly authorized.
6. The Borrower requests that this draw be funded and that the
disbursement funds be deposited into its Bank One Account No.
________________.
OR, wired with instructions as follows:
Account # _____________________________________
ABA # _____________________________________
Bank Name _____________________________________
EXECUTED as of the date first above written.
HYDROCHEM INDUSTRIAL SERVICES, INC.,
a Delaware corporation
By:___________________________________
Name:_________________________________
Title:________________________________
<PAGE>
THE STATE OF TEXAS
COUNTY OF HARRIS
The foregoing instrument was acknowledged before me this _______ day of
___________, 199__, by _________________________ the __________________ of
HYDROCHEM INDUSTRIAL SERVICES, INC., a Delaware corporation.
IN THE WITNESS WHEREOF, I have hereunto set my hand and official seal.
[SEAL] __________________________________________
NOTARY PUBLIC IN AND FOR
THE STATE OF TEXAS
__________________________________________
Printed Name of Notary
Commission Expires:______________________
THE STATE OF TEXAS
COUNTY OF HARRIS
SUBSCRIBED AND SWORN BEFORE ME on this ____ day of ________________, 199__,
by ________________________.
[SEAL] __________________________________________
NOTARY PUBLIC IN AND FOR
THE STATE OF TEXAS
__________________________________________
Printed Name of Notary
Commission Expires:______________________
<PAGE>
EXHIBIT 2.1B
AFFIDAVIT OF BILLS PAID
<PAGE>
EXHIBIT "2.1B"
AFFIDAVIT OF BILLS PAID
THE STATE OF TEXAS
KNOW ALL PERSONS BY THESE PRESENTS:
COUNTY OF HARRIS
BEFORE ME, the undersigned authority, a Notary Public in and for the State
of Texas, on this day personally appeared __________________, the
________________ of HydroChem Industrial Services, Inc., a Delaware corporation
(the "Borrower"), who being duly sworn by me, upon oath says:
"On behalf of the Borrower, the owner of the land for
improvements being erected on the following described property, I
certify that all bills for labor and materials have been paid or will
be paid with the proceeds of this draw; that the Borrower has no
notice of any liens being in existence on the following described
property, to wit:
SEE EXHIBIT A
That the facts herein stated are within my knowledge as an
officer of the Borrower.
I further acknowledge the receipt of $___________ from Bank One,
Texas, National Association, on _______________, 199__ for
improvements on and for which the above-described property is
security."
HYDROCHEM INDUSTRIAL SERVICES, INC.,
a Delaware corporation
By:_________________________________
Name:_______________________________
Title:______________________________
SUBSCRIBED AND SWORN TO BEFORE ME, this ____ day of _______________, 199__
by _____________________.
[SEAL] ________________________________________________
Notary Public in and for the State of T E X A S
________________________________________________
Printed Name of Notary
Commission Expires:_____________________________
<PAGE>
EXHIBIT A
TRACT 1:
All that certain 15.109 acres of land, more or less, out of the 30.763 acre
tract and the 16.3959 acre tract described in the deed from Shell Oil Company to
Sesco Texas Properties Inc. recorded under Harris County Clerk File No. H542197
out of the W.C.R.R. Company Survey, A-929, and the Thomas Earl Survey, A-18, and
being more particularly described by metes and bounds as follows:
All that certain 15.109 acres of land, more or less, out of the 30.763 acre
tract and the 16.3959 acre tract described in the deed from Shell Oil
Company to Sesco Texas Properties Inc. recorded under Harris County Clerk
File No. H542197 out of the W.C.R.R. Company Survey, A-929, and the Thomas
Earl Survey, A-18, and being more particularly described by metes and as
follows: (All bearings are based on a 344.96 acre tract recorded under
Volume 1336, Page 526, H.C.D.R.)
Commencing at a 5/8" iron rod found at the southeast intersection of
Georgia Avenue (100' ROW) and Howard Avenue (80' ROW); Thence S 01 06' 49"
E - 1,000.08' along the east right-of-way line of said Georgia Avenue to a
point; Thence S 88 52' 36" W - 100.00' to a 5/8" iron rod found marking
the northeast corner and the POINT OF BEGINNING of the herein described
tract;
THENCE S 01 06' 49" E - 859.07' along the west right-of-way line of said
Georgia Avenue to a 5/8" iron rod set marking the southeast corner of the
herein described tract;
THENCE S 89 03' 18" W at 384.84' passing a found 5/8" iron rod and
continuing for a total distance of 769.02' along the north line of the
10.4683 acre tract described in a deed from Dale L. Sinor and Lou Anne
Sinor to Dale L. Sinor, Trustee recorded under H.C.C. File No. P430996 to a
3/4" iron pipe found marking the southwest corner of the herein described
tract in the east line of the 5.0304 acre tract described in a deed from
Texas Properties Inc. to Houston Marine Containers Inc. recorded under
H.C.C. File No. K668803;
THENCE N 00 52' 20" W - 856.67' along said east line to a 3/4" iron pipe
found marking the northwest corner of the herein described tract in the
south line of Deer Park Industrial Park, Section 1, according to the plat
thereof recorded under Volume 190, Page 85, Harris County Map Records;
THENCE N 88 52' 32" E - 765.41' along the south line of said Section 1 to
the northeast corner and the POINT OF BEGINNING of the herein described
tract and containing 15.109 acres of land (658,170 square feet) of land.
<PAGE>
TRACT 2:
A 4.3285 acre tract out of a 25.5098 acre tract located in Deer Park Industrial
Park Section One (1), Thomas Earl Survey, Abstract No. 18, Deer Park, Harris
County, Texas, According to the Plat as recorded in Volume 190, Page 85, Harris
County Map Records, and being more particularly described by metes and bound as
follows:
A 4.3285 acre tract out of a 25.5098 acre tract located in Deer Park
Industrial Park Section One, Thomas Earl Survey, Abstract No. 18, Deer
Park, Harris County, Texas, according to the plat as recorded in Volume
190, Page 85, Harris County Map Records:
Commencing at the southwest corner of said Deer Park Industrial Park
Section One;
Thence N 88 53' 11" E, along the south line of said Deer Park Industrial
Park Section One, a distance of 30.00 feet to the southwest corner of said
25.5098 acre tract and being the POINT OF BEGINNING of the herein described
tract;
THENCE N 00 48' 12" W, parallel to and 30 feet east of the west line of
said Deer Park Industrial Park Section One, a distance of 175.00 feet;
THENCE N 88 53' 11" E, across said 25.5098 acre tract, a distance of
1076.97 feet to a point on the easterly line of said 25.5098 acre tract;
THENCE S 01 06' 49" E, 175.00 feet to the most southerly southeast corner
of said 25.5098 acre tract and being in the south line of said Deer Park
Industrial Park Section One;
THENCE S 88 53' 11" W, along the south line of Deer Park Industrial Park
Section One, a distance of 1077.92 feet to the POINT OF BEGINNING.
<PAGE>
EXHIBIT 2.1C
WAIVER OF LIEN TO DATE
<PAGE>
EXHIBIT "2.1C"
WAIVER OF LIEN TO DATE
THE STATE OF TEXAS
COUNTY OF HARRIS
The undersigned is an original contractor or subcontractor who has
furnished labor and/or material ("Work") in the development of land owned by
HydroChem Industrial Services, Inc. ("Owner"), located in the City of Deer Park,
Harris County, Texas, and described in Exhibit A which is attached hereto and
incorporated herein by reference (the "Property").
For work in connection with the Property, the undersigned:
* received $__________________ through ____________, 19___ ("Prior Down
Date"),
* is owed $______________ through ____________, 19___ ("Down Date"),
* except for $______________ of retainage, not yet due and payable.
Except for such retainage amount, the undersigned (a) through the Prior
Down Date, and (b) additionally, upon receipt of the amount owed, through the
Down Date:
1. Has been paid in full for all sums owed for the Work concerning the
Property;
2. Acknowledges complete satisfaction of, and forever waives and releases,
all claims of every kind against Owner or the Property, including but not
limited to all liens and claims of liens, which the undersigned may have as a
result of or in connection with the Work;
3. Has represented and warranted and does hereby represent and warrant that
all persons or entities who have furnished labor and/or material to the
undersigned in connection with the work have been paid all amounts they are
owed, except agreed retainage not yet due and payable which in total does not
exceed the retainage amount set forth above; and
4. Agrees unconditionally to indemnify Owner and hold Owner harmless
against all liability, loss, cost or expense (including, but not limited to,
attorneys' fees) now or hereafter incurred, paid or suffered by or asserted
against Owner or the Property because of any claim or action by the undersigned,
or by any person or entity claiming by, through or under the undersigned, with
respect to the claims, liens and rights herein waived and released or arising
out of any breach or untruth of any representation herein made.
<PAGE>
In consideration of its funding of loan proceeds to be used to pay for work
furnished by the undersigned, the undersigned hereby agrees and acknowledges for
the benefit of Bank One, Texas, National Association that all mechanic's liens
or rights to the same now or hereafter owned or held by the undersigned are and
shall be subordinate and inferior to the lien of the deed of trust held by such
lender or any successor or assignee thereof on the Property.
The person signing this document represents that he or she is duly
authorized to do so on behalf of the undersigned original contractor or
subcontractor.
All of the provisions of this document shall bind the undersigned original
contractor or subcontractor and the undersigned's heirs, legal representatives,
successors and assigns and shall inure to the benefit of Owner and Owner's
heirs, legal representatives, successors, assigns and sureties.
EXECUTED this _____ day of ________________, 199___.
_____________________________________
By:_________________________________
Name:_______________________________
Title:______________________________
THE STATE OF TEXAS
COUNTY OF HARRIS
This instrument was acknowledged before me on _________________, 199___, by
______________________________, __________________________ of and on behalf of
_____________________, a _________________________.
[SEAL] ________________________________________________
NOTARY PUBLIC IN AND FOR
THE STATE OF TEXAS
_______________________________________
Printed Name of Notary
Commission Expires:______________________
<PAGE>
EXHIBIT A
TRACT 1:
All that certain 15.109 acres of land, more or less, out of the 30.763 acre
tract and the 16.3959 acre tract described in the deed from Shell Oil Company to
Sesco Texas Properties Inc. recorded under Harris County Clerk File No. H542197
out of the W.C.R.R. Company Survey, A-929, and the Thomas Earl Survey, A-18, and
being more particularly described by metes and bounds as follows:
All that certain 15.109 acres of land, more or less, out of the 30.763 acre
tract and the 16.3959 acre tract described in the deed from Shell Oil
Company to Sesco Texas Properties Inc. recorded under Harris County Clerk
File No. H542197 out of the W.C.R.R. Company Survey, A-929, and the Thomas
Earl Survey, A-18, and being more particularly described by metes and as
follows: (All bearings are based on a 344.96 acre tract recorded under
Volume 1336, Page 526, H.C.D.R.)
Commencing at a 5/8" iron rod found at the southeast intersection of
Georgia Avenue (100' ROW) and Howard Avenue (80' ROW); Thence S 01 06' 49"
E - 1,000.08' along the east right-of-way line of said Georgia Avenue to a
point; Thence S 88 52' 36" W - 100.00' to a 5/8" iron rod found marking
the northeast corner and the POINT OF BEGINNING of the herein described
tract;
THENCE S 01 06' 49" E - 859.07' along the west right-of-way line of said
Georgia Avenue to a 5/8" iron rod set marking the southeast corner of the
herein described tract;
THENCE S 89 03' 18" W at 384.84' passing a found 5/8" iron rod and
continuing for a total distance of 769.02' along the north line of the
10.4683 acre tract described in a deed from Dale L. Sinor and Lou Anne
Sinor to Dale L. Sinor, Trustee recorded under H.C.C. File No. P430996 to a
3/4" iron pipe found marking the southwest corner of the herein described
tract in the east line of the 5.0304 acre tract described in a deed from
Texas Properties Inc. to Houston Marine Containers Inc. recorded under
H.C.C. File No. K668803;
THENCE N 00 52' 20" W - 856.67' along said east line to a 3/4" iron pipe
found marking the northwest corner of the herein described tract in the
south line of Deer Park Industrial Park, Section 1, according to the plat
thereof recorded under Volume 190, Page 85, Harris County Map Records;
THENCE N 88 52' 32" E - 765.41' along the south line of said Section 1 to
the northeast corner and the POINT OF BEGINNING of the herein described
tract and containing 15.109 acres of land (658,170 square feet) of land.
<PAGE>
TRACT 2:
A 4.3285 acre tract out of a 25.5098 acre tract located in Deer Park Industrial
Park Section One (1), Thomas Earl Survey, Abstract No. 18, Deer Park, Harris
County, Texas, According to the Plat as recorded in Volume 190, Page 85, Harris
County Map Records, and being more particularly described by metes and bound as
follows:
A 4.3285 acre tract out of a 25.5098 acre tract located in Deer Park
Industrial Park Section One, Thomas Earl Survey, Abstract No. 18, Deer
Park, Harris County, Texas, according to the plat as recorded in Volume
190, Page 85, Harris County Map Records:
Commencing at the southwest corner of said Deer Park Industrial Park
Section One;
Thence N 88 53' 11" E, along the south line of said Deer Park Industrial
Park Section One, a distance of 30.00 feet to the southwest corner of said
25.5098 acre tract and being the POINT OF BEGINNING of the herein described
tract;
THENCE N 00 48' 12" W, parallel to and 30 feet east of the west line of
said Deer Park Industrial Park Section One, a distance of 175.00 feet;
THENCE N 88 53' 11" E, across said 25.5098 acre tract, a distance of
1076.97 feet to a point on the easterly line of said 25.5098 acre tract;
THENCE S 01 06' 49" E, 175.00 feet to the most southerly southeast corner
of said 25.5098 acre tract and being in the south line of said Deer Park
Industrial Park Section One;
THENCE S 88 53' 11" W, along the south line of Deer Park Industrial Park
Section One, a distance of 1077.92 feet to the POINT OF BEGINNING.
<PAGE>
EXHIBIT 2.3
TERM LOAN AMORTIZATION SCHEDULE
<PAGE>
EXHIBIT 2.3
Notional Amort
-------- -----
7,500,000
7,462,015 37,985*
7,419,937 42,078
7,378,666 41,271
7,338,200 40,466
7,296,907 41,293
7,253,148 43,759
7,208,504 44,644
7,164,559 43,945
7,119,716 44,843
7,070,792 48,924
7,022,460 48,332
6,974,712 47,748
6,925,987 48,725
6,873,188 52,799
6,820,861 52,327
6,768,991 51,870
6,716,061 52,930
6,659,064 56,997
6,602,406 56,658
6,546,070 56,336
6,488,582 57,488
6,428.477 60,105
6,367,157 61,320
6,306,011 61,146
6,243,615 62,396
6,177,169 66,446
6,110,767 66,402
6,044,380 66,387
5,976,635 67,745
Principal payments will be made in up to 28 installments with this installment
being the first payment
<PAGE>
EXHIBIT 6.8
FORM OF COMPLIANCE CERTIFICATE
<PAGE>
COMPLIANCE CERTIFICATE
HydroChem Industrial Services, Inc. (the "Borrower"), and Bank One, Texas,
National Association (the "Lender"), executed and delivered that certain Loan
Agreement dated as of July 17, 1998 (as amended, supplemented and restated from
time to time, the "Loan Agreement"). Any term defined in the Loan Agreement and
used in this Compliance Certificate shall have the meaning given to it in the
Loan Agreement.
The undersigned, solely in his or her capacity as an officer of the
Borrower hereby certifies to the Lender that:
A. The attached financial statements are (check one) [ ] quarterly
financial statements dated __________________, [ ] annual financial statements
dated _____________________, and fairly present on a consolidated or
consolidating basis, as the case may be, the balance sheet, statements of
operations and stockholders equity and cash flows of the Borrower and its
Subsidiaries covered thereby as of the date thereof and for the period covered
thereby, subject to normal year-end audit adjustments and the omission of any
footnotes for any such financial statements that are quarterly financial
statements.
B. As of the date of the attached financial statements and with respect to
the Borrower and its Subsidiaries on a consolidated basis, the following are
calculated in accordance with the Loan Agreement:
1. Minimum Consolidated Net Worth
a. Starting Consolidated Net Worth $ 15,000,000
b. Fifty percent (50%) of cumulative
quarterly Consolidated Net Income
since September 30, 1997 for each
fiscal quarter ending after that
date during which the Borrower has
positive Consolidated Net Income $__________________
c. Eighty percent (80%)of net proceeds
of equity issuances from 9/30/97 $__________________
d. Minimum Consolidated Net Worth $__________________
(a plus b plus c)
e. Consolidated Net Worth $__________________
2. Fixed Charge Coverage Ratio
a. Consolidated Net Income $__________________
<PAGE>
b. Consolidated Interest Expense $__________________
c. Taxes $__________________
d. Consolidated Interest Income $__________________
e. Extraordinary Gains $__________________
f. Consolidated Depreciation and Amortization $__________________
g. EBITDA $__________________
h. Cash taxes $__________________
i. Capital Expenditures $__________________
j. Adjusted EBITDA
(g minus the sum of h and i) $__________________
k. Debt Service $__________________
l. Cash dividends $__________________
m. Fixed Charge Coverage Ratio
(Ratio of j to the sum of
k and l; not less than 1.0 to 1.0) ______ to ______
C. To the best of my knowledge after due inquiry, all of the
representations and warranties contained in the Loan Agreement are true and
correct in all material respects on the date hereof as if made on the date
hereof except, (i) to the extent such representation and warranty relates solely
to an earlier date in which case it shall have been true and correct as of such
earlier date, or (ii) as to the following matters: [Describe or attach a
schedule of all such representations and warranties that are no longer true or
correct and, if applicable, what action the Borrower has taken or proposes to
take].
_____________________________________
_____________________________________
_____________________________________
D. (Check either 1 or 2) To the best of my knowledge after due inquiry:
[__] 1. As of the date hereof, no Default or Event of Default has
occurred and is continuing.
<PAGE>
[__] 2. As of the date hereof, no Default or Event of Default has
occurred and is continuing except the following matters: [Describe all such
Defaults or Events of Default, specifying the nature, duration and status
thereof and what action the Borrower has taken or proposes to take with
respect thereto].
_____________________________________
_____________________________________
_____________________________________
Date: _________________, __
HYDROCHEM INDUSTRIAL SERVICES, INC.,
a Delaware corporation
By:___________________________________
Name:_________________________________
Title:________________________________
(Local Currency--Single,. Jurisdiction)
ISDA(R)
International Swap Dealers Association, Inc.
MASTER AGREEMENT
dated as of July 17, 1998
BANK ONE, TEXAS, N.A. and HYDROCHEM INDUSTRIAL SERVICES, INC. have entered
and/or anticipate entering into one or more transactions (each a "Transaction")
that are or will be governed by this Master Agreement, which includes the
schedule (the "Schedule"), and the documents and other confirming evidence (each
a "Confirmation" exchanged between the parties confirming those Transactions.
Accordingly, the parties agree as follows:--
1. Interpretation
(a) Definitions. The terms defined in Section 12 and in the Schedule will have
the meanings therein specified for the purpose of this Master Agreement.
(b) Inconsistency. In the event of any inconsistency between the provisions of
the Schedule and the other provisions of this Master Agreement, the Schedule
will prevail. In the event of any inconsistency between the provisions of any
Confirmation and this Master Agreement (including the Schedule), such
Confirmation will prevail for the purpose of the relevant Transaction.
(c) Single Agreement. All Transactions are entered into in reliance on the fact
that this Master Agreement and all Confirmations form a single agreement between
the parties (collectively referred to as this "Agreement"), and the parties
would not otherwise enter into any Transactions.
2. Obligations
(a) General Conditions.
(i) Each party will make each payment or delivery specified in each
Confirmation to be made by it, subject to the other provisions of this
Agreement.
(ii) Payments under this Agreement will be made on the due date for
value on that date in the place of the account specified in the relevant
Confirmation or otherwise pursuant to this Agreement, in freely
transferable funds and in the manner customary for payments in the
required currency. Where settlement is by delivery (that is, other than
by payment), such delivery will be made for receipt on the due date in
the manner customary for the relevant obligation unless otherwise
specified in the relevant Confirmation or elsewhere in this Agreement.
(iii) Each obligation of each party under Section 2(a)(i) is subject to
(1) the condition precedent that no Event of Default or Potential Event
of Default with respect to the other party has occurred and is
continuing, (2) the condition precedent that no Early Termination Date
in respect of the relevant Transaction has occurred or been effectively
designated and (3) each other applicable condition precedent specified
in this Agreement.
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(b) Change of Account. Either party may change its account for receiving a
payment or delivery by giving notice to the other party at least five Local
Business Days prior to the scheduled date for the payment or delivery to which
such change applies unless such other party gives timely notice of a reasonable
objection to such change.
(c) Netting. If on any date amounts would otherwise be payable:--
(i) in the same currency; and
(ii) in respect of the same Transaction,
by each party to the other, then, on such date, each party's obligation to make
payment of any such amount will be automatically satisfied and discharged and,
if the aggregate amount that would otherwise have been payable by one party
exceeds the aggregate amount that would otherwise have been payable by the other
party, replaced by an obligation upon the party by whom the larger aggregate
amount would have been payable to pay to the Other party the excess of the
larger aggregate amount over the smaller aggregate amount.
The parties may elect in respect of two or more Transactions that a net amount
will be determined in respect of the amounts payable on the same date in the
same currency in respect of such Transactions, regardless of whether such
amounts are payable in respect of the same Transaction. The election may be made
in the Schedule or a Confirmation by specifying that subparagraph (ii) above
will not apply to the Transactions identified as being subject to the election,
together with the starting date (in which case subparagraph (ii) above will not,
or will cease to, apply to such Transactions from such date). This election may
be made separately for different groups of Transactions and will apply
separately to each pairing of branches or offices through which the parties make
and receive payments or deliveries.
(d) Default Interest; Other Amounts. Prior to the occurrence or effective
designation of an Early Termination Date in respect of the relevant Transaction,
a party that defaults in the performance of any payment obligation will, to the
extent permitted by law and subject to Section 6(c), be required to pay interest
(before as well as after judgment) on the overdue amount to the other party on
demand in the same currency as such overdue amount, for the period from (and
including) the original due date for payment to (but excluding) the date of
actual payment, at the Default Rate. Such interest will be calculated on the
basis of daily compounding and the actual number of days elapsed. If, prior to
the occurrence or effective designation of an Early Termination Date in respect
of the relevant Transaction, a party defaults in the performance of any
obligation required to be settled b delivery, it will compensate the other party
on demand if and to the extent provided for in the relevant Confirmation or
elsewhere in this Agreement.
3. Representations
Each party represents to the other party (which representations will be deemed
to be repeated by each party on each date on which a Transaction is entered
into) that:
(a) Basic Representations.
(i) Status. It is duly organized and validly existing under the laws of
the jurisdiction of its Organization or incorporation and, if relevant
under such laws, in good standing;
(ii) Powers. It has the power to execute this Agreement and any other
documentation relating to this Agreement to which it is a party, to
deliver this Agreement and any other documentation relating to this
Agreement that it is required by this Agreement to deliver and to
perform its obligations under this Agreement end and any obligations it
has under any Credit Support Document to which it is a part, and has
taken all necessary action to authorize such execution. delivery and
performance;
(iii) No Violation or Conflict. Such execution, delivery and performance
do not violate or conflict with any law applicable to it, any provision
of its constitutional documents, any order or judgment of any court or
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other agency or government applicable to it or any of its assets or any
contractual restriction binding on or affecting it or any of its assets:
(iv) Consents. All governmental and other consents that are required to
have been obtained by it with respect to this Agreement or any Credit
Support Document to which it is a party have been obtained and are in
full force and effect and all conditions of any such consents have been
complied with; and
(v) Obligations Binding. Its obligations under this Agreement and any
Credit Support Document to which it is a party constitute its legal,
valid and binding obligations, enforceable in accordance with their
respective terms (subject to applicable bankruptcy, reorganization,
insolvency, or similar laws affecting creditors' rights generally and
subject, as to enforceability, to equitable principles of general
application (regardless of whether enforcement is sought in a proceeding
in equity or at law)).
(b) Absence of Certain Events. No Event of Default or Potential Event of Default
or, to its knowledge, Termination Event with respect to it has occurred and is
continuing and no such event or circumstance would occur as a result of its
entering into or performing its obligations under this Agreement or any Credit
Support Document to which it is a party.
(c) Absence of Litigation. There is not pending or, to its knowledge, threatened
against it or any of its Affiliates any action, suit or proceeding at law or in
equity or before any court, tribunal, governmental body, agency or official or
any arbitrator that is likely to affect the legality, validity or enforceability
against it of this Agreement or any Credit Support Document to which it is a
party or its ability to perform its obligations under this Agreement or such
Credit Support Document.
(d) Accuracy of Specified Information. All applicable information that is
furnished in writing by or on behalf of it to the other party and is identified
for the purpose of this Section 3(d) in the Schedule is, as of the date of the
information, true, accurate and complete in every material respect.
4. Agreements
Each party agrees with the other, that, so long as either party has or may have
any obligation under this Agreement or under any Credit Support Document to
which it is a party:
(a) Furnish Specified Information. It will deliver to the other party any forms,
documents or certificates specified in the Schedule or any Confirmation by the
date specified in the Schedule or such Confirmation or, if none is specified, as
soon as reasonably practicable.
(b) Maintain Authorizations. It will use all reasonable efforts to maintain in
full force and effect all consents of any governmental or other authority that
are required to be obtained by it with respect to this Agreement or any Credit
Support Document to which it is a party and will use all reasonable efforts to
obtain any that may become necessary in the future.
(c) Comply with Laws. It will comply in all material respects with all
applicable laws and orders to which it may be subject if failure so to comply
would materially impair its ability to perform its obligations under this
Agreement or any Credit Support Document to which it is a party.
5. Events of Default and Termination Events
(a) Events of Default. The occurrence at any time with respect to a party or, if
applicable, any Credit Support Provider of such party or any Specified Entity of
such party of any of the following events constitutes an event of default (an
"Event of Default") with respect to such party:
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(i) Failure to Pay or Deliver. Failure by the party to make, when due,
any payment under this Agreement or delivery under Section 2(a)(i) or
2(d) required to be made by it if such failure is not remedied on or
before the third Local Business Day after notice of such failure is
given to the party;
(ii) Breach of Agreement. Failure by the party to comply with or perform
any agreement or obligation (other than an obligation to make any
payment under this Agreement or delivery under Section 2(a)(i) or 2(d)
or to give notice of a Termination Event) to be complied with or
performed by the party in accordance with this Agreement if such failure
is not remedied on or before the thirtieth day after notice of such
failure is given to the party;
(iii) Credit Support Default.
(1) Failure by the party or any Credit Support Provider of such
party to comply with or perform any agreement or obligation to be
complied with or performed by it in accordance with any Credit
Support Document if such failure is continuing after any
applicable grace period has elapsed;
(2) the expiration or termination of such Credit Support Document
or the failing or ceasing of such Credit Support Document to be
in full force and effect for the purpose of this Agreement (in
either case other than in accordance with its terms) prior to the
satisfaction of all obligations of such party under each
Transaction to which such Credit Support Document relates without
the written consent of the other party; or
(3) the party or such Credit Support Provider disaffirms,
disclaims, repudiates or rejects, in whole or in part, or
challenges the validity of, such Credit Support Document;
(iv) Misrepresentation. A representation made or repeated or deemed to
have been made or repeated by the party or any Credit Support Provider
of such party in this Agreement or any Credit Support Document proves to
have been incorrect or misleading in any material respect when made or
repeated or deemed to have been made or repeated;
(v) Default under Specified Transaction. The party, any Credit Support
Provider of such party or any applicable Specified Entity of such party
(1) defaults under a Specified Transaction and, after giving effect to
any applicable notice requirement or grace period, there occurs a
liquidation of, an acceleration of obligations under, or an early
termination of, that Specified Transaction, (2) defaults, after giving
effect to any applicable notice requirement or grace period, in making
any payment or delivery due on the last payment, delivery or exchange
date of, or any payment on early termination of, a Specified Transaction
(or such default continues for at least three Local Business Days if
there is no applicable notice requirement or grace period) or (3)
disaffirms, disclaims, repudiates or rejects, in whole or in part, a
Specified Transaction (or such action is taken by any person or entity
appointed or empowered to operate it or act on its behalf);
(vi) Cross Default. If "Cross Default" is specified in the Schedule as
applying to the party, the occurrence or existence of (1) a default,
event of default or other similar condition or event (however described)
in respect of such party, any Credit Support Provider of such party or
any applicable Specified Entity of such party under one or more
agreements or instruments relating to Specified Indebtedness of any of
them (individually or collectively) in an aggregate amount of not less
than the applicable Threshold Amount (as specified in the Schedule)
which has resulted in such Specified Indebtedness becoming, or becoming
capable at such time of being declared, due and payable under such
agreements or instruments, before it would otherwise have been due and
payable or (2) a default by such party, such Credit Support Provider or
such Specified Entity (individually or collectively) in making one or
more payments on the due date thereof in an aggregate amount of not less
than the applicable Threshold Amount under such agreements or
instruments (after giving effect to any applicable notice requirement or
grace period);
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(vii) Bankruptcy. The party, any Credit Support Provider of such party
or any applicable Specified Entity of such party:
(1) is dissolved (other than pursuant to a consolidation,
amalgamation or merger); (2) becomes insolvent or is unable to
pay its debts or fails or admits in writing its inability
generally to pay its debts as they become due; (3) makes a
general assignment, arrangement or composition with or for the
benefit of its creditors: (4) institutes or has instituted
against it a proceeding seeking a judgment of insolvency or
bankruptcy or any other relief under any bankruptcy or insolvency
law or other similar law affecting creditors' rights, or a
petition is presented for its winding-up or liquidation, and, in
the case of any such proceeding or petition instituted or
presented against it, such proceeding or petition (A) results in
a judgment of insolvency or bankruptcy or the entry of an order
for relief or the making of an order for its winding-up or
liquidation or (B) is not dismissed, discharged, stayed or
restrained in each case within 30 days of the institution or
presentation thereof; (5) has a resolution passed for its
winding-up, official management or liquidation (other than
pursuant to a consolidation, amalgamation or merger); (6) seeks
or becomes subject to the appointment of an administrator,
provisional liquidator, conservator, receiver, trustee, custodian
or other similar official for it or for all or substantially all
its assets; (7) has a secured party take possession of all or
substantially all its assets or has a distress, execution,
attachment, sequestration or other legal process levied, enforced
or sued on or against all or substantially all its assets and
such secured party maintains possession, or any such process is
not dismissed, discharged, stayed or restrained, in each case
within 30 days thereafter; (8) causes or is subject to any event
with respect to it which, under the applicable laws of any
jurisdiction, has an analogous effect to any of the events
specified in clauses (1) to (7) (inclusive); or (9) takes any
action in furtherance of, or indicating, its consent to, approval
of, or acquiescence in, any of the foregoing acts; or
(viii) Merger Without Assumption. The party or any Credit Support
Provider of such party consolidates or amalgamates with, or merges with
or into, or transfers all or substantially all its assets to, another
entity and, at the time of such consolidation, amalgamation, merger or
transfer:--
(1) the resulting, surviving or transferee entity fails to assume all
the obligations of such party or such Credit Support Provider under this
Agreement or any Credit Support Document to which it or its predecessor
was a party by operation of law or pursuant to an agreement reasonably
satisfactory to the other party to this Agreement; or
(2) the benefits of any Credit Support Document fail to extend (without
the consent of the other party) to the performance by such resulting,
surviving or transferee entity of its obligations under this Agreement.
(b) Termination Events. The occurrence at any time with respect to a party or,
if applicable, any Credit Support Provider of such party or any Specified Entity
of such party of any event specified below constitutes an Illegality if the
event is specified in i) below, and, if specified to be applicable, a Credit
Event Upon Merger if the event is specified pursuant to (i) below or an
Additional Termination Event if the event is specified pursuant to (iii) below:
(i) Illegality. Due to the adoption of, or any change in, any applicable
law after the date on which a Transaction is entered into, or due to the
promulgation of, or any change in, the interpretation by any court,
tribunal or regulatory authority with competent jurisdiction of any
applicable law after such date, it becomes unlawful (other than as a
result of a breach by the party of Section 4(b)) for such party (which
will be the Affected Party):--
(1) to perform any absolute or contingent obligation to make a
payment or delivery or to receive a payment or delivery in
respect of such Transaction or to comply with any other material
provision of this Agreement relating to such Transaction; or
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(2) to perform, or for any Credit Support Provider of such party
to perform, any contingent or other obligation which the party
(or such Credit Support Provider) has under any Credit Support
Document relating to such Transaction;
(ii) Credit Event Upon Merger. If "Credit Event Upon Merger" is
specified in the Schedule as applying to the party, such party ("X"),
any Credit Support Provider of X or any applicable Specified Entity of X
consolidates or amalgamates with, or merges with or into, or transfers
all or substantially all its assets to, another entity and such action
does not constitute an event described in Section 5(a)(viii) but the
creditworthiness of the resulting, surviving or transferee entity is
materially weaker than that of X, such Credit Support Provider or such
Specified Entity, as the case may be, immediately prior to such action
(and, in such event, X or its successor or transferee, as appropriate,
will be the Affected Party); or
(iii) Additional Termination Event. If any "Additional Termination
Event" is specified in the Schedule or any Confirmation as applying, the
occurrence of such event (and, in such event, the Affected Party or
Affected Parties shall be as specified for such Additional Termination
Event in the Schedule or such Confirmation).
(c) Event of Default and Illegality. If an event or circumstance which would
otherwise constitute or give rise to an Event of Default also constitutes an
Illegality, it will be treated as an Illegality and will not constitute an Event
of Default.
6. Early Termination
(a) Right to Terminate Following Event of Default. If at any time an Event of
Default with respect to a party (the "Defaulting Party") has occurred and is
then continuing, the other party (the "Non-defaulting Party") may, by not more
than 20 days notice to the Defaulting Party specifying the relevant Event of
Default, designate a day not earlier than the day such notice is effective as an
Early Termination Date in respect of all outstanding Transactions. If, however,
"Automatic Early Termination" is specified in the Schedule as applying to a
party, then an Early Termination Date in respect of all outstanding Transactions
will occur immediately upon the occurrence with respect to such party of an
Event of Default specified in Section 5(a)(vii)(1), (3), (5), (6) or, to the
extent analogous thereto, (8), and as of the time immediately preceding the
institution of the relevant proceeding or the presentation of the relevant
petition upon the occurrence with respect to such party of an Event of Default
specified in Section 5(a)(vii)(4) or, to the extent analogous thereto, (8).
(b) Right to Terminate Following Termination Event.
(i) Notice. If a Termination Event occurs, an Affected Party will,
promptly upon becoming aware of it, notify the other party, specifying
the nature of that Termination Event and each Affected Transaction and
will also give such other information about that Termination Event as
the other party may reasonably require.
(ii) Two Affected Parties. If an Illegality under Section 5(b)(i)(1)
occurs and there are two Affected Parties, each party will use all
reasonable efforts to reach agreement within 30 days after notice
thereof is given under Section 6(b)(i) on action to avoid that
Termination Event.
(iii) Right to Terminate. If:--
(1) an agreement under Section 6(b)(ii) has not been effected
with respect to all Affected Transactions within 30 days after an
Affected Party gives notice under Section 6(b)(i); or
(2) an Illegality other than that referred to in Section
6(b)(ii), a Credit Event Upon Merger or an Additional Termination
Event occurs,
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either party in the case of an Illegality, any Affected Party in the
case of an Additional Termination Event if there is more than one
Affected Party, or the party which is not the Affected Party in the
case of a Credit Event Upon Merger or an Additional Termination Event
if there is only one Affected Party may, by not more than 20 days
notice to the other party and provided that the relevant Termination
Event is then continuing, designate a day not earlier than the day
such notice is effective as an Early Termination Date in respect of
all Affected Transactions.
(c) Effect of Designation.
(i) If notice designating an Early Termination Date is given under
Section 6(a) or (b), the Early Termination Date will occur on the date
so designated, whether or not the relevant Event of Default or
Termination Event is then continuing.
(ii) Upon the occurrence or effective designation of an Early
Termination Date, no further payments or deliveries under Section
2(a)(i) or 2(d) in respect of the Terminated Transactions will be
required to be made, but without prejudice to the other provisions of
this Agreement. The amount, if any, payable in respect of an Early
Termination Date shall be determined pursuant to Section 6(e).
(d) Calculations.
(i) Statement. On or as soon as reasonably practicable following the
occurrence of an Early Termination Date, each party will make the
calculations on its part, if any, contemplated by Section 6(e) and will
provide to the other party a statement (1) showing, in reasonable
detail, such calculations (including all relevant quotations and
specifying any amount payable under Section 6(e)) and (2) giving details
of the relevant account to which any amount payable to it is to be paid.
In the absence of written confirmation from the source of a quotation
obtained in determining a Market Quotation, the records of the party
obtaining such quotation will be conclusive evidence of the existence
and accuracy of such quotation.
(ii) Payment Date. An amount calculated as being due in respect of any
Early Termination Date under Section 6(e) will be payable on the day
that notice of the amount payable is effective (in the case of an Early
Termination Date which is designated or occurs as a result of an Event
of Default) and on the day which is two Local Business Days after the
day on which notice of the amount payable is effective (in the case of
an Early Termination Date which is designated as a result of a
Termination Event). Such amount will be paid together with (to the
extent permitted under applicable law) interest thereon (before as well
as after judgment), from (and including) the relevant Early Termination
Date to (but excluding) the date such amount is paid, at the Applicable
Rate. Such interest will be calculated on the basis of daily compounding
and the actual number of days elapsed.
(e) Payments on Early Termination. If an Early Termination Date occurs, the
following provisions shall apply based on the parties' election in the Schedule
of a payment measure, either "Market Quotation" or "Loss", and a payment method,
either the "First Method" or the "Second Method". If the parties fail to
designate a payment measure or payment method in the Schedule, it will be deemed
that "Market Quotation" or the "Second Method", as the case may be, shall apply.
The amount, if any, payable in respect of an Early Termination Date and
determined pursuant to this Section will be subject to any Set-off.
(i) Events of Default. If the Early Termination Date results from an
Event of Default:--
(1) First Method and Market Quotation. If the First Method and
Market Quotation apply, the Defaulting Party will pay to the
Non-defaulting Party the excess, if a positive number, of (A) the
sum of the Settlement Amount (determined by the Non-defaulting
Party) in respect of the Terminated Transactions and the Unpaid
Amounts owing to the Non-defaulting Party over (B) the Unpaid
Amounts owing to the Defaulting Party.
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(2) First Method and Loss. If the First Method and Loss apply,
the Defaulting Party will pay to the Non-defaulting Party, if a
positive number, the Non-defaulting Party's Loss in respect of
this Agreement.
(3) Second Method and Market Quotation. If the Second Method and
Market Quotation apply, an amount will be payable equal to (A)
the sum of the Settlement Amount (determined by the
Non-defaulting Party) in respect of the Terminated Transactions
and the Unpaid Amounts owing to the Non-defaulting Party less (B)
the Unpaid Amounts owing to the Defaulting Party. If that amount
is a positive number, the Defaulting Party will pay it to the
Non-defaulting Party; if it is a negative number, the
Non-defaulting Party will pay the absolute value of that amount
to the Defaulting Party.
(4) Second Method and Loss. If the Second Method and Loss apply,
an amount will be payable equal to the Non-defaulting Party's
Loss in respect of this Agreement. If that amount is a positive
number, the Defaulting Party will pay it to the Non-defaulting
Party; if it is a negative number, the Non-defaulting Party will
pay the absolute value of that amount to the Defaulting Party.
(ii) Termination Events. If the Early Termination Date results from a
Termination Event:--
(1) One Affected Party. If there is one Affected Party, the
amount payable will be determined in accordance with Section
6(e)(i)(3), if Market Quotation applies, or Section 6(e)(i)(4),
if Loss applies, except that, in either case, references to the
Defaulting Party and to the Non-defaulting Party will be deemed
to be references to the Affected Party and the party which is not
the Affected Party, respectively, and, if Loss applies and fewer
than all the Transactions are being terminated, Loss shall be
calculated in respect of all Terminated Transactions.
(2) Two Affected Parties. If there are two Affected Parties:
(A) if Market Quotation applies, each party will determine
a Settlement Amount in respect of the Terminated
Transactions, and an amount will be payable equal to (I)
the sum of (a) one-half of the difference between the
Settlement Amount of the party with the higher Settlement
Amount ("X") and the Settlement Amount of the party with
the lower Settlement Amount ("Y") and (b) the Unpaid
Amounts owing to X less (II) the Unpaid Amounts owing to
Y; and
(B) if Loss applies, each party will determine its Loss in
respect of this Agreement (or, if fewer than all the
Transactions are being terminated, in respect of all
Terminated Transactions) and an amount will be payable
equal to one-half of the difference between the Loss of
the party with the higher Loss ("X") and the Loss of the
party with the lower Loss ("Y").
If the amount payable is a positive number, Y will pay it to X;
if it is a negative number, X will pay the absolute value of that
amount to Y.
(iii) Adjustment for Bankruptcy. In circumstances where an Early
Termination Date occurs because "Automatic Early Termination" applies in
respect of a party, the amount determined under this Section 6(e) will
be subject to such adjustments as are appropriate and permitted by law
to reflect any payments or deliveries made by one party to the other
under this Agreement (and retained by such other party) during the
period from the relevant Early Termination Date to the date for payment
determined under Section 6(d)(ii).
(iv) Pre-Estimate. The parties agree that if Market Quotation applies an
amount recoverable under this Section 6(e) is a reasonable pre-estimate
of loss and not a penalty. Such amount is payable for the loss of
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bargain and the loss of protection against future risks and except as
otherwise provided in this Agreement neither party will be entitled to
recover any additional damages as a consequence of such losses.
7. Transfer
Neither this Agreement nor any interest or obligation in or under this Agreement
may be transferred (whether by way of security or otherwise) by either party
without the prior written consent of the other party, except that:--
(a) a party may make such a transfer of this Agreement pursuant to a
consolidation or amalgamation with, or merger with or into, or transfer of all
or substantially all its assets to, another entity (but without prejudice to any
other right or remedy under this Agreement); and
(b) a party may make such a transfer of all or any part of its interest in any
amount payable to it from a Defaulting Party under Section 6(e).
Any purported transfer that is not in compliance with this Section will be void.
8. Miscellaneous
(a) Entire Agreement. This Agreement constitutes the entire agreement and
understanding of the parties with respect to its subject matter and supersedes
all oral communication and prior writings with respect thereto.
(b) Amendments. No amendment, modification or waiver in respect of this
Agreement will be effective unless in writing (including a writing evidenced by
a facsimile transmission) and executed by each of the parties or confirmed by an
exchange of telexes or electronic messages on an electronic massaging system.
(c) Survival of Obligations. Without prejudice to Sections 2(a)(iii) and
6(c)(ii), the obligations of the parties under this Agreement will survive the
termination of any Transaction.
(d) Remedies Cumulative. Except as provided in this Agreement, the rights,
powers, remedies and privileges provided in this Agreement are cumulative and
not exclusive of any rights, powers, remedies and privileges provided by law.
(e) Counterparts and Confirmations.
(i) This Agreement (and each amendment, modification and waiver in
respect of it) may be executed and delivered in counterparts
(including by facsimile transmission), each of which will be deemed an
original.
(ii) The parties intend that they are legally bound by the terms of
each Transaction from the moment they agree to those terms (whether
orally or otherwise). A Confirmation shall be entered into as soon as
practicable and may be executed and delivered in counterparts
(including by facsimile transmission) or be created by an exchange of
telexes or by an exchange of electronic messages on an electronic
massaging system, which in each case, will be sufficient for all
purposes to evidence a binding supplement to this Agreement. The
parties will specify therein or through another effective means that
any such counterpart, telex or electronic message constitutes a
Confirmation.
(f) No Waiver of Rights. A failure or delay in exercising any right, power or
privilege in respect of this Agreement will not be presumed to operate as a
waiver, and a single or partial exercise of any right, power or privilege will
not be presumed to preclude any subsequent or further exercise, of that right,
power or privilege or the exercise of any other right, power or privilege.
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(g) Headings. The headings used in this Agreement are for convenience of
reference only and are not to affect the construction of or to be taken into
consideration in interpreting this Agreement.
9. Expenses
A Defaulting Party will, on demand, indemnify and hold harmless the other party
for and against all reasonable out-of-pocket expenses, including legal fees,
incurred by such other party by reason of the enforcement and protection of its
rights under this Agreement or any Credit Support Document to which the
Defaulting Party is a party or by reason of the early termination of any
Transaction, including, but not limited to, costs of collection.
10. Notices
(a) Effectiveness. Any notice or other communication in respect of this
Agreement may be given in any manner set forth below (except that a notice or
other communication under Section 5 or 6 may not be given by facsimile
transmission or electronic massaging system) to the address or number or in
accordance with the electronic massaging system details provided (see the
Schedule) and will be deemed effective as indicated:--
(i) if in writing and delivered in person or by courier, on the date
it is delivered;
(ii) if sent by telex, on the date the recipient's answerback is
received;
(iii) if sent by facsimile transmission, on the date that transmission
is received by a responsible employee of the recipient in legible form
(it being agreed that the burden of proving receipt will be on the
sender and will not be met by a transmission report generated by the
sender's facsimile machine);
(iv) if sent by certified or registered mail (airmail, if overseas) or
the equivalent (return receipt requested), on the date that mail is
delivered or its delivery is attempted; or
(v) if sent by electronic massaging system, on the date that
electronic message is received, unless the date of that delivery (or
attempted delivery) or that receipt, as applicable, is not a Local
Business Day or that communication is delivered (or attempted) or
received, as applicable, after the close of business on a Local
Business Day, in which case that communication shall be deemed given
and effective on the first following day that is a Local Business Day.
(b) Change of Addresses. Either party may by notice to the other change the
address, telex or facsimile number or electronic massaging system details at
which notices or other communications are to be given to it.
11. Governing Law and Jurisdiction
(a) Governing Law. This Agreement will be governed by and construed in
accordance with the law specified in the Schedule.
(b) Jurisdiction. With respect to any suit, action or proceedings relating to
this Agreement ("Proceedings"), each party irrevocably:-
(i) submits to the jurisdiction of the English courts, if this Agreement
is expressed to be governed by English law, or to the non-exclusive
jurisdiction of the courts of the State of New York and the United
States District Court located in the Borough of Manhattan in New York
City, if this Agreement is expressed to be governed by the laws of the
State of New York; and
(ii) waives any objection which it may have at any time to the laying of
venue of any Proceedings brought in any such court, waives any claim
that such Proceedings have been brought in an inconvenient forum and
10
<PAGE>
further waives the right to object, with respect to such Proceedings,
that such court does not have any jurisdiction over such party.
Nothing in this Agreement precludes either party from bringing Proceedings in
any other jurisdiction (outside, if this Agreement is expressed to be governed
by English law, the Contracting States, as defined in Section 1(3) of the Civil
Jurisdiction and Judgments Act 1982 or any modification, extension or
re-enactment thereof for the time being in force) nor will the bringing of
Proceedings in any one or more jurisdictions preclude the bringing of Proceeding
in any other jurisdiction.
(c) Waiver of Immunities. Each party irrevocably waives, to the fullest extent
permitted by applicable law, with respect to itself and its revenues and assets
(irrespective of their use or intended use), all immunity on the grounds of
sovereignty or other similar grounds from (i) suit, (ii) jurisdiction of any
court, (iii) relief by way of injunction, order for specific performance or for
recovery of property, (iv) attachment of its assets (whether before or after
judgment) and (v) execution or enforcement of any judgment to which it or its
revenues or assets might otherwise be entitled in any Proceedings in the courts
of any jurisdiction and irrevocably agrees, to the extent permitted by
applicable law, that it will not claim any such immunity in any Proceedings.
12. Definitions
As used in this Agreement:--
"Additional Termination Event" has the meaning specified in Section 5(b).
"Affected Party" has the meaning specified in Section 5(b).
"Affected Transactions" means (a) with respect to any Termination Event
consisting of an Illegality, all Transactions affected by the occurrence of such
Termination Event and (b) with respect to any other Termination Event, all
Transactions.
"Affiliate" means, subject to the Schedule, in relation to any person, any
entity controlled, directly or indirectly, by the person, any entity that
controls, directly or indirectly, the person or any entity directly or
indirectly under common control with the person. For this purpose, "control" of
any entity or person means ownership of a majority of the voting power of the
entity or person.
"Applicable Rate" means:--
(a) in respect of obligations payable or deliverable (or which would have been
but for Section 2(a)(iii)) by a Defaulting Party, the Default Race;
(b) in respect of an obligation to pay an amount under Section 6(e) of either
party from and after the date (determined in accordance with Section 6(d)(ii))
on which that amount is payable, the Default Rate;
(c) in respect of all other obligations payable or deliverable (or which would
have been but for Section 2(a)(iii)) by a Non-defaulting Party, the Non-default
Rate; and
(d) in all other cases, the Termination Rate.
"consent" includes a consent, approval, action, authorization, exemption,
notice, filing, registration or exchange control consent.
"Credit Event Upon Merger" has the meaning specified in Section 5(b).
11
<PAGE>
"Credit Support Document" means any agreement or instrument that is specified as
such in this Agreement.
"Credit Support Provider" has the meaning specified in the Schedule.
"Default Rate" means a rate per annum equal to the cost (without proof or
evidence of any actual cost) to the relevant payee (as certified by it) if it
were to fund or of funding the relevant amount plus 1% per annum.
"Defaulting Party" has the meaning specified in Section 6(a).
"Early Termination Date" means the date determined in accordance with Section
6(a) or 6(b)(iii).
"Event of Default" has the meaning specified in Section 5(a) and, if applicable,
in the Schedule.
"Illegality" has the meaning specified in Section 5(b).
"law" includes any treaty, law, rule or regulation and "lawful" and "unlawful"
will be construed accordingly.
"Local Business Day" means, subject to the Schedule, a day on which commercial
banks are open for business (including dealings in foreign exchange and foreign
currency deposits) (a) in relation to any obligation under Section 2(a)(i), in
the place(s) specified in the relevant Confirmation or, if not so specified, as
otherwise agreed by the parties in writing or determined pursuant to provisions
contained, or incorporated by reference, in this Agreement, (b) in relation to
any other payment, in the place where the relevant account is located, (c) in
relation to any notice or other communication, including notice contemplated
under Section 5(a)(i), in the city specified in the address for notice provided
by the recipient and, in the case of a notice contemplated by Section 2(b), in
the place where the relevant new account is to be located and (d) in relation to
Section 5(a)(v)(2), in the relevant locations for performance with respect to
such Specified Transaction.
"Loss" means, with respect to this Agreement or one or more Terminated
Transactions, as the case may be, and a party, an amount that party reasonably
determines in good faith to be its total losses and costs (or gain, in which
case expressed as a negative number) in connection with this Agreement or that
Terminated Transaction or group of Terminated Transactions, as the case may be,
including any loss of bargain, cost of funding or, at the election of such party
but without duplication, loss or cost incurred as a result of its terminating,
liquidating, obtaining or reestablishing any hedge or related trading position
(or any gain resulting from any of them). Loss includes losses and costs (or
gains) in respect of any payment or delivery required to have been made
(assuming satisfaction of each applicable condition precedent) on or before the
relevant Early Termination Date and not made, except, so as to avoid
duplication, if Section 6(e)(i)(1) or (3) or 6(e)(ii)(2)(A) applies. Loss does
not include a party's legal fees and out-of-pocket expenses referred to under
Section 9. A party will determine its Loss as of the relevant Early Termination
Date, or, if that is not reasonably practicable, as of the earliest date
thereafter as is reasonably practicable. A party may (but need not) determine
its Loss by reference to quotations of relevant rates or prices from one or more
leading dealers in the relevant markets.
"Market Quotation" means, with respect to one or more Terminated Transactions
and a party making the determination, an amount determined on the basis of
quotations from Reference Market-makers. Each quotation will be for an amount,
if any, that would be paid to such party (expressed as a negative number) or by
such party (expressed as a positive number) in consideration of an agreement
between such party (taking into account any existing Credit Support Document
with respect to the obligations of such party) and the quoting Reference
Market-maker to enter into a transaction (the "Replacement Transaction") that
would have the effect of preserving for such party the economic equivalent of
any payment or delivery (whether the underlying obligation was absolute or
contingent and assuming the satisfaction of each applicable condition precedent)
by the parties under Section 2(a)(i) in respect of such Terminated Transaction
or group of Terminated Transactions that would, but for the occurrence of the
relevant Early Termination Date, have been required after that date. For this
purpose, Unpaid Amounts in respect of the Terminated Transaction or group of
Terminated Transactions are to be excluded but, without limitation, any payment
or delivery that would, but for the relevant Early Termination Date, have been
required (assuming satisfaction of each applicable condition
12
<PAGE>
precedent) after that Early Termination Date is to be included. The Replacement
Transaction would be subject to such documentation as such party and the
Reference Market-maker may, in good faith, agree. The party making the
determination (or its agent) will request each Reference Market-maker to provide
its quotation to the extent reasonably practicable as of the same day and time
(without regard to different time zones) on or as soon as reasonably practicable
after the relevant Early Termination Date. The day and time as of which those
quotations are to be obtained will be selected in good faith by the party
obliged to make a determination under Section 6(e), and, if each party is so
obliged, after consultation with the other. If more than three quotations are
provided, the Market Quotation will be the arithmetic mean of the quotations,
without regard to the quotations having the highest and lowest values. If
exactly three such quotations are provided, the Market Quotation will be the
quotation remaining after disregarding the highest and lowest quotations. For
this purpose, if more than one quotation has the same highest value or lowest
value, then one of such quotations shall be disregarded. If fewer than three
quotations are provided, it will be deemed that the Market Quotation in respect
of such Terminated Transaction or group of Terminated Transactions cannot be
determined.
"Non-default Rate" means a rate per annum equal to the cost (without proof or
evidence of any actual cost) to the Non-defaulting Party (as certified by it) if
it were to fund the relevant amount.
"Non-defaulting Party" has the meaning specified in Section 6(a).
"Potential Event of Default" means any event which, with the giving of notice or
the lapse of time or both, would constitute an Event of Default.
"Reference Market-makers" means four leading dealers in the relevant market
selected by the party determining a Market Quotation in good faith (a) from
among dealers of the highest credit standing which satisfy all the criteria that
such party applies generally at the time in deciding whether to offer or to make
an extension of credit and (b) to the extent practicable, from among such
dealers having an office in the same city.
"Scheduled Payment Date" means a date on which a payment or delivery is to be
made under Section 2(a)(i) with respect to a Transaction.
"Set-off" means set-off, offset, combination accounts, right of retention or
withholding or similar right or requirement to which the payer of an amount
under Section 6 is entitled or subject (whether arising under this Agreement,
another contract, applicable law or otherwise) that is exercised by, or imposed
on, such payer.
"Settlement Amount" means, with respect to a party and any Early Termination
Date, the sum of:--
(a) the Market Quotations (whether positive or negative) for each Terminated
Transaction or group of Terminated Transactions for which a Market Quotation is
determined; and
(b) such party's Loss (whether positive or negative and without reference to any
Unpaid Amounts) for each Terminated Transaction or group of Terminated
Transactions for which a Market Quotation cannot be determined or would not (in
the reasonable belief of the party making the determination) produce a
commercially reasonable result.
"Specified Entity" has the meaning specified in the Schedule.
"Specified Indebtedness" means, subject to the Schedule, any obligation (whether
present or future, contingent or otherwise, as principal or surety or otherwise)
in respect of borrowed money.
"Specified Transaction" means, subject to the Schedule, (a) any transaction
(including an agreement with respect thereto) now existing or hereafter entered
into between one party to this Agreement (or any Credit Support Provider of such
party or any applicable Specified Entity of such party) and the other party to
this Agreement (or any Credit Support Provider of such other party or any
applicable Specified Entity of such other party) which is a rate swap
transaction, basis swap, forward rate transaction, commodity swap, commodity
option, equity or equity index swap, equity or equity index
13
<PAGE>
option, bond option, interest rate option, foreign exchange transaction, cap
transaction, floor transaction, collar transaction, currency swap transaction,
cross-currency rate swap transaction, currency option or any other similar
transaction (including any option with respect to any of these transactions),
(b) any combination of these transactions and (c) any other transaction
identified as a Specified Transaction in this Agreement or the relevant
confirmation.
"Terminated Transactions" means with respect to any Early Termination Date (a)
if resulting from a Termination Event, all Affected Transactions and (b) if
resulting from an Event of Default, all Transactions (in either case) in effect
immediately before the effectiveness of the notice designating that Early
Termination Date (or, if "Automatic Early Termination" applies, immediately
before that Early Termination Date).
"Termination Event" means an Illegality or, if specified to be applicable, a
Credit Event Upon Merger or an Additional Termination Event.
"Termination Rate" means a rate per annum equal to the arithmetic mean of the
cost (without proof or evidence of any actual cost) to each party (as certified
by such party) if it were to fund or of funding such amounts.
"Unpaid Amounts" owing to any party means, with respect to an Early Termination
Date, the aggregate of (a) in respect of all Terminated Transactions, the
amounts that became payable (or that would have become payable but for Section
2(a)(iii)) to such party under Section 2(a)(i) on or prior to such Early
Termination Date and which remain unpaid as at such Early Termination Date and
(b) in respect of each Terminated Transaction, for each obligation under Section
2(a)(i) which was (or would have been but for Section 2(a)(iii)) required to be
settled by delivery to such party on or prior to such Early Termination Date and
which has not been so settled as at such Early Termination Date, an amount equal
to the fair market value of that which was (or would have been) required to be
delivered as of the originally scheduled date for delivery, in each case
together with (to the extent permitted under applicable law) interest, in the
currency of such amounts, from (and including) the date such amounts or
obligations were or would have been required to have been paid or performed to
(but excluding) such
Early Termination Date, at the Applicable Rate. Such amounts of interest will be
calculated on the basis of daily compounding and the actual number of days
elapsed. The fair market value of any obligation referred to in clause (b) above
shall be reasonably determined by the party obliged to make the determination
under Section 6(e) or, if each party is so obliged, it shall be the average of
the fair market values reasonably determined by both parties.
IN WITNESS WHEREOF the parties have executed this document on the respective
dates specified below with effect from the date specified on the first page of
this document.
BANK ONE, TEXAS, N.A. HYDROCHEM INDUSTRIAL SERVICES, INC.
- --------------------- -----------------------------------
(Name of Party) a Delaware corporation
(Name of Party)
By: /s/ DAVID R. KING By:/s/ SELBY F. LITTLE, III
- --------------------- ---------------------------
Name: David R. King Name: Selby F. Little, III
Title: Vice President Title: Executive Vice President &
Date: July 17, 1998 Chief Financial Officer
Date: July 17, 1998
14
<PAGE>
(Local Currency-Single Jurisdiction)
ISDA
International Swaps and Derivatives Association, Inc.
SCHEDULE
to the
MASTER AGREEMENT
dated as of JULY 17, 1998
between
BANK ONE, TEXAS, N.A.,
a national banking association
with its main office located in Houston, Texas
("Party A")
and
HYDROCHEM INDUSTRIAL SERVICES, INC.
a Delaware corporation
with its principal place of business in Houston, Texas
("Party B")
Part 1. Termination Provisions and Certain Other Matters
In this Agreement:
(a) "Specified Entity" will not apply to Party A and for Party B will mean, for
purposes of Sections 5(a)(v), 5(a)(vi) and 5(a)(vii) of this Agreement, any
Affiliate of Party B.
(b) "Specified Transaction" includes for Party B, in addition to the
transactions specified in Section 12 of this Agreement, any transaction between
Party A (or any Affiliate of Party A), on the one hand, and Party B (or any
Affiliate of Party B), on the other.
(c) The "Cross Default" provisions of Section 5(a)(vi) of this Agreement will
not apply to Party A and will apply to Party B and, with respect thereto,
"Specified Indebtedness" will have for Party B the meaning specified in Section
12 of this Agreement and "Threshold Amount" will mean for Party B $1,000,000
(including the United States Dollar equivalent on the date of any Cross Default
of any obligation stated in any other currency).
(d) The "Credit Event upon Merger" provisions of Section 5(b)(ii) will not apply
to Party A and will apply to Party B.
(e) The "Automatic Early Termination" provision of Section 6(a) will not apply
to Party A or to Party B.
(f) Payments on Early Termination. For the purpose of Section 6(e):
S-1
<PAGE>
(i) Market Quotation will apply.
(ii) The Second Method will apply.
(g) Additional Termination Event will not apply.
Part 2. Agreement to Deliver Documents
Party B agrees to deliver to Party A, upon execution of this Agreement and upon
consummation of any Transaction, such evidence as Party A may reasonably require
(including, without limitation, an opinion reasonably acceptable in form and
substance to Party A of legal counsel reasonably acceptable to Party A) that
Party B is duly authorized to enter into this Agreement or into such
Transaction, and that the person(s) executing this Agreement or any Confirmation
on Party B's behalf is duly authorized by Party B to do so. Party A also agrees
to deliver to Party B evidence that the person(s) executing this Agreement or
any Confirmation on Party A's behalf is duly authorized by Party A to do so.
Part 3. Miscellaneous
(a) Addresses for Notices. For the purpose of Section 10(a) of this Agreement:
Address for notices or communications to Party A:
Address: 150 East Gay Street 23rd
Columbus, Ohio 43215
Attention: Tonya Melsop
Facsimile No.: 614/217-0056 Telephone No.:614/217-1619
Address for notices or communications to Party B:
Address: 6210 Rothway, Suite 150
Houston, Texas 77040
Attention: Chris Conrad
Facsimile No.: 713/329-2444 Telephone No.: 713/329-2351
(b) Calculation Agent. The Calculation Agent is Party A, unless otherwise
specified in a Confirmation in relation to the relevant Transaction.
(c) Credit Support Document. Does not apply to Party A and, with respect to
Party B, means each contract, agreement, instrument and other document listed in
Annex A hereto, each of which is intended by both Parties to secure the full and
timely performance of Party B's obligations under this Agreement. Annex A is
hereby incorporated herein in its entirety.
(d) Credit Support Provider. Does not apply to Party A and, with respect to
Party B, means each party to any Credit Support Document of Party B other than
Party A or Party B, any Affiliate of Party A, and any other secured party under
any such Credit Support Document.
(e) Governing Law. This Agreement will be governed by and construed in
accordance with the laws of the State of New York (without reference to choice
of law doctrine).
S-2
<PAGE>
(f) Netting of Payments. Subparagraph (ii) of Section 2(c) will not apply to any
Transaction unless otherwise provided in the Confirmation for such Transaction.
(g) "Affiliate" means, with respect to each Party, any entity that, directly or
indirectly, each Party controls. For this purpose, a person shall be deemed to
"control" any entity if such person, directly or indirectly or acting through
one or more other persons, (a) owns, controls or has the power to vote 50% or
more of any class of voting securities of such entity, (b) is a general partner
of such entity, (c) controls in any manner the election of a majority of the
directors, trustees or other similar officials of such entity, or (d) otherwise
exercises a controlling influence over the management or policies of such
entity.
(h) "Party" means Party A and/or Party B, as the context may require.
Part 4. Other Provisions
(a) Additional Representations. Each Party hereby represents and warrants to the
other Party (which representations will be deemed to be repeated by each Party
on each date on which a Transaction is entered into) as follows:
(i) The necessary action to authorize referred to in the
representation in Section 3(a)(ii) includes all authorizations,
if any, required by such Party under the Federal Deposit
Insurance Act, as amended, including amendments effected by the
Financial Institutions Reform, Recovery, and Enforcement Act of
1989, and under any agreement, writ, decree, or order entered
into with such party's supervisory authorities;
(ii) This Agreement is a "qualified financial contract" as defined in
Section 11 (e)(8)(D)(i) of the Federal Deposit Insurance Act, 12
U.S.C. ss.1821(e)(8)(D)(i); a "swap agreement" as defined in
Section 11(e)(8)(D)(vi) of the Federal Deposit Insurance Act, 12
U.S.C. ss.1821(e)(8)(D)(vi); and a "swap agreement" as defined in
Section 101(53B) of the Bankruptcy Code, 11 U.S.C.
ss.101(53B);
(iii) It is not relying (for purposes of making any investment decision
or otherwise) upon any advice, counsel or representations
(whether written or oral) of the other party to this Agreement,
other than the representations expressly set forth in this
Agreement, each Credit Support Document and in any Confirmation;
(iv) It has consulted with its own legal, regulatory, tax, business,
investment, financial and accounting advisors to the extent it
has deemed necessary, and has made its own investment, hedging
and trading decisions (including decisions regarding the
suitability of any Transaction pursuant to this Agreement) based
upon its own judgment and upon any advice from such advisors as
it has deemed necessary and not upon any view expressed by the
other party to this Agreement;
(v) It has a full understanding of all the terms, conditions and
risks (economic and otherwise) of this Agreement, each Credit
Support Document and each Transaction, and is capable of assuming
and willing to assume (financially and otherwise) such risks;
(vi) It is entering into this Agreement, each Credit Support Document
and each Transaction for the purposes of managing its borrowings
or investments, hedging its underlying assets or liabilities or
in connection with a line of business, and not for purposes of
speculation; and
(vii) It is entering into this Agreement and will enter into all
Transactions as principal and in connection with its business or
the management of its business, and not as agent or in any other
capacity, fiduciary or otherwise.
S-3
<PAGE>
(b) Exchange of Confirmations. On or promptly following the execution of each
Transaction, Party A will send to Party B a Confirmation. Party B will within
five (5) calendar days thereafter confirm the accuracy of, or request the
correction of, such Confirmation (in the latter case, indicating how it believes
the terms of such Confirmation should be correctly stated and such other terms
which should be added to or deleted from such Confirmation to make it correct).
The failure by Party B to confirm the accuracy of, or to correct, the
Confirmation within five (5) calendar days shall be deemed Confirmation of the
terms of the Confirmation by Party B.
(c) Right of Set-Off. If an Early Termination Date occurs as the result of (i)
an Event of Default or (ii) a Termination Event with respect to which there is
only one Affected Party, the Non-Defaulting or Non-Affected Party may Set-off
(x) against any amount due and payable by it under Section 6(e) of this
Agreement, any Other Obligations of the Defaulting or Affected Party; and (y)
against any of its Other Obligations, any amount due and payable to it under
Section 6(e) of this Agreement. A Party may exercise such Set-off rights without
prior notice to the other Party, but shall notify the other Party promptly after
any exercise of such rights. If the amount of any Other Obligation Set-off is
unascertained, the Non-Defaulting or Non-Affected Party may in good faith
estimate such amount and Set-off based on such estimate, subject to an
accounting to the other Party when such amount is ascertained, and to
appropriate adjustment. The Set-off rights of each Party hereunder shall be in
addition to, and not in lieu of, such other remedies, including such other
set-off rights, as such Party may have by contract, operation of law, in equity
or otherwise. As used herein, the term "Other Obligations" means, with respect
to either Party, any amount payable by it or any of its Affiliates to the other
Party, whether such amount is payable under this Agreement, another contract,
applicable law or otherwise, and whether such amount is due at the time in
question, in the future or subject to a contingency.
(d) Events of Default/Termination Event/Designation of Early Termination Date.
Notwithstanding the terms of Sections 5 and 6 of this Agreement, if at any time
and so long as one of the Parties to this Agreement ("X") shall have satisfied
in full all its payment and delivery obligations under Section 2(a)(i) of this
Agreement and shall at such time have no future payment or delivery obligations
thereunder, whether absolute or contingent, then unless the other Party ("Y") is
required pursuant to appropriate proceedings to return to X or otherwise returns
to X upon demand of X any portion of any such payment or delivery, (i) the
occurrence of an event described in Section 5(a) of this Agreement with respect
to X, any Credit Support Provider of X or any Specified Entity of X shall not
constitute an Event of Default with respect to X as the Defaulting Party and
(ii) Y shall be entitled to designate an Early Termination Date pursuant to
Section 6 of this Agreement only as a result of the occurrence of a Termination
Event set forth in Section 5(b)(i) with respect to Y as the Affected Party.
(e) Condition to Payments. The condition precedent in Section 2(a)(iii)(1) does
not apply to a payment and delivery owing by a Party if the other Party shall
have satisfied in full all its payment or delivery obligations under Section
2(a)(i) of this Agreement and shall at the relevant time have no future payment
or delivery obligations, whether absolute or contingent, under Section 2(a)(i).
S-4
<PAGE>
ACCEPTED AND AGREED:
BANK ONE, TEXAS, N.A. HYDROCHEM INDUSTRIAL SERVICES, INC.
By: /s/ DAVID R. KING By:/s/ SELBY F. LITTLE, III
- --------------------- ---------------------------
Name: David R. King Name: Selby F. Little, III
Title: Vice President Title: Executive Vice President &
Chief Financial Officer
S-5
<PAGE>
ANNEX A
Credit Support Documents
Each of the following is a Credit Support Document of Party B for purposes of
this Agreement, and is intended by both Parties to secure the full and timely
performance of Party B's obligations under this Agreement:
1. Loan Agreement dated as of July 17, 1998, by and between Party B and Party A;
2. Promissory Note dated as of July 17, 1998, by Party B payable to Party A;
3. Guaranty dated as of July 17, 1998, by Party B to Party A;
4. Deed of Trust (With Security Agreement and Assignment of Rents and Leases)
dated as of July 17, 1998 by Party B to Christopher T. Klimko ("Trustee");
5. Collateral Assignment of Borrower's Interest in Permits and Contracts dated
as of July 17, 1998, by Party B to Party A;
6. Financing Statement (Harris County);
7. Financing Statement (State of Texas).
Additional Provision:
Provided, however, should the loan evidenced by the Promissory Note in (2) two
above be repaid; Party B shall have the right to substitute a Letter of Credit
or other collateral of a sufficient type and value to Party A, in its sole
discretion, pursuant to the terms of a mutually acceptable Credit Support Annex
on the ISDA form.
S-6
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-START> Jun-01-1998
<PERIOD-END> Jun-30-1998
<CASH> 28,841
<SECURITIES> 0
<RECEIVABLES> 28,721
<ALLOWANCES> 0
<INVENTORY> 4,563
<CURRENT-ASSETS> 67,084
<PP&E> 73,262
<DEPRECIATION> 29,010
<TOTAL-ASSETS> 155,325
<CURRENT-LIABILITIES> 19,820
<BONDS> 0
0
0
<COMMON> 1
<OTHER-SE> 16,917
<TOTAL-LIABILITY-AND-EQUITY> 155,325
<SALES> 85,955
<TOTAL-REVENUES> 85,955
<CGS> 53,070
<TOTAL-COSTS> 53,070
<OTHER-EXPENSES> 27,246
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,116
<INCOME-PRETAX> 523
<INCOME-TAX> 312
<INCOME-CONTINUING> 211
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 211
<EPS-PRIMARY> 0.000
<EPS-DILUTED> 0.000
</TABLE>
