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United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-K
(Mark One)
(X) Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the fiscal year ended December 31, 1997
( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
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)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
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
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. (X)
The number of shares of Common Stock of the Registrant, par value of $.01 per
share, outstanding on February 28, 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.
Documents Incorporated by Reference: None
- -------------------------------------------------------------------------------
* 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.
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INDEX
<TABLE>
<CAPTION>
PAGE
<S> <C>
Part I.
Item 1. Business........................................................................... 3
Item 2. Properties......................................................................... 9
Item 3. Legal Proceedings.................................................................. 9
Item 4. Submission of Matters to a Vote of Security Holders............................... 10
Part II.
Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters.......... 10
Item 6. Selected Financial Data............................................................ 10
Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations......................................................................... 11
Item 8. Financial Statements and Supplementary Data........................................ 17
Item 9. Changes in and disagreements with Accountants on Accounting and Financial
Disclosure......................................................................... 31
Part III.
Item 10. Directors and Executive Officers of the Registrant................................. 31
Item 11. Executive Compensation............................................................. 33
Item 12. Security Ownership of Certain Beneficial Owners and Management..................... 35
Item 13. Certain Relationships and Related Transactions..................................... 37
Part IV.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.................... 38
Signatures............................................................................................. 40
Exhibit Index.......................................................................................... 42
</TABLE>
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FORWARD-LOOKING STATEMENTS
IN ADDITION TO HISTORICAL INFORMATION, THIS ANNUAL REPORT CONTAINS
FORWARD-LOOKING STATEMENTS. THESE FORWARD- LOOKING STATEMENTS ARE SUBJECT TO
CERTAIN RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER
MATERIALLY FROM THOSE REFLECTED IN THESE FORWARD-LOOKING STATEMENTS. FACTORS
THAT MIGHT CAUSE SUCH A DIFFERENCE INCLUDE, BUT ARE NOT LIMITED TO, THOSE
DISCUSSED IN THE SECTION ENTITLED "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS." READERS ARE CAUTIONED ONLY AS OF
THE DATE HEREOF. THE COMPANY UNDERTAKES NO OBLIGATION TO REVISE OR PUBLICLY
RELEASE THE RESULTS OF ANY REVISION TO THESE FORWARD-LOOKING STATEMENTS. READERS
SHOULD CAREFULLY REVIEW THE RISK FACTORS DESCRIBED IN OTHER DOCUMENTS THE
COMPANY FILES FROM TIME TO TIME WITH THE SECURITIES AND EXCHANGE COMMISSION,
INCLUDING THE QUARTERLY REPORTS ON FORM 10-Q TO BE FILED BY THE COMPANY IN
FISCAL YEAR 1998.
PART I.
ITEM 1. BUSINESS
GENERAL
HydroChem Industrial Services, Inc. ("HydroChem") was formed in September
1993 for the purpose of combining, in December 1993, the industrial cleaning
businesses of Hydro Environmental Services Limited Partnership ("Hydro
Services") and the Dowell Industrial Services division ("DIS") of Dowell
Schlumberger Inc. These businesses had been operating since 1961 and 1938,
respectively. In January 1995, HydroChem acquired the industrial cleaning
business of the Halliburton Industrial Services division ("HIS") of Brown & Root
Industrial Services, Inc. The HIS business was founded in 1962. HydroChem
generally conducts business outside the United States through its wholly owned
subsidiary, HydroChem International, Inc. ("International"). HydroChem and
International are collectively referred to as the "Company." HydroChem is a
wholly owned subsidiary of HydroChem Holding, Inc. ("Holding").
The Company is a leading provider of 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. Services provided include high pressure water cleaning (hydroblasting),
chemical cleaning, industrial vacuuming, waste minimization, commissioning and
other specialized services. 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. The Company provided services to approximately
1,000 customers at approximately 1,650 customer sites from 49 branch locations
in the United States and one location in Singapore for the year ended December
31, 1997.
In 1997, approximately 48.4% of the Company's revenue came from
petrochemical plants, 20.2% from oil refineries, 10.5% from electric utilities,
7.7% from pulp and paper mills and 13.2% from other industries. Approximately
46.5% of the Company's 1997 revenue was derived from its 15 largest customers,
all of which are Fortune 500 companies, and approximately 67.2% was derived from
its 40 largest customers, 30 of which are Fortune 500 companies.
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The Company's revenue from its major service lines is set forth in the
following table:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------
1995 % 1996 % 1997 %
---- ---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Hydroblasting........................... $ 70,565 45.1% $ 69,504 44.5% $ 78,919 49.1%
Chemical cleaning....................... 61,365 39.2 62,661 40.2 53,366 33.2
Industrial vacuuming.................... 8,113 5.2 11,484 7.4 17,534 10.9
Other................................... 16,441 10.5 12,354 7.9 10,785 6.8
-------- ----- -------- ----- -------- -----
Total......................... $156,484 100.0% $156,003 100.0% $160,604 100.0%
======== ===== ======== ===== ======== =====
</TABLE>
SERVICES
Hydroblasting and chemical cleaning are the Company's largest sources of
revenue, but the Company also offers a variety of other services, including
industrial vacuuming, waste minimization and commissioning services, as
described below. These services are typically part of a recurring maintenance
program and may be provided on a time and materials basis or bid on a project
basis. The Company believes that its ability to offer a broad range of services
is an attractive feature to customers as they seek to reduce the number of
contractors with which they do business. In addition, certain jobs can only be
accomplished using a combination of cleaning methods, and the Company generally
is able to perform such tasks without subcontracting.
Hydroblasting Services
The Company's hydroblasting services involve the application of high
pressure streams of water to clean the interior and exterior surfaces of process
equipment, storage tanks and other vessels and to unplug piping, tubes and
lines. Hydroblasting is particularly effective in cleaning deposits that cannot
be chemically dissolved or that are located on surfaces where the circulation of
chemical cleaning solvents is not feasible.
Hydroblasting is primarily used for the removal of scale and other fouling
deposits to improve the operating or energy efficiency of equipment, prevent
contamination of finished products and clean equipment in preparation for, or
subsequent to, other maintenance work. Hydroblasting is also used to prepare
surfaces for welding, inspection or painting, to clean exterior surfaces
cosmetically and, with special additives and equipment, to cut steel or
concrete.
The Company performs its hydroblasting services using equipment that
includes an engine, pump and high-pressure hoses that are attached to
specialized application devices. Water typically emerges at pressures from 5,000
to 10,000 pounds per square inch, although ultra-high pressures of up to 40,000
pounds per square inch are used for certain cleaning and cutting jobs. The
deposits and wastes removed by hydroblasting, along with water used in the
process, are typically deposited into the customer's waste treatment system for
further processing and disposal by the customer.
Chemical Cleaning Services
Chemical cleaning typically involves circulating chemical solvents through
process equipment, piping, and tanks or other storage vessels under controlled
conditions of temperature, pressure and time to remove fouling deposits from
interior surfaces. Chemical cleaning is generally performed in a closed loop
process and employed to dissolve substances on surfaces that are inaccessible to
hydroblasting, or where chemical cleaning is more effective or safer than
hydroblasting. Chemical cleaning also may involve the application of chemical
solvents to deposits on exterior surfaces that cannot be cleaned with water, or
the addition of chemicals to by-products or waste products.
Chemical cleaning has many of the same uses and applications as
hydroblasting in industrial cleaning. It is also used for "degassing" process
equipment to remove volatile substances. In addition, the Company's chemical
cleaning services are required from time-to-time in connection with the
commissioning, or pre-operational cleaning, of new equipment or
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an entire plant to remove soil, debris and other substances that accumulate
during construction.
Most of the Company's chemical cleaning services involve circulation of
chemical solvents through process equipment, piping, and tanks or other storage
vessels. For many of these jobs, a sample of the fouling deposit or substance to
be removed is sent to the Company's laboratory facility in Houston, Texas, where
the Company's chemists determine its chemical make-up, the combination and
concentration of chemicals best suited for the cleaning process and the
appropriate temperature, pressure and timing parameters for circulation of the
chemicals. The Company also has mobile laboratory units, which are used to
perform limited chemical analysis on-site and to assist in monitoring ongoing
chemical cleaning jobs. After the proper procedure for the on-site work has been
determined, a field crew mixes the chemicals, typically on the customer's
premises. Using pumping and circulating equipment, the field crew then
circulates the solution through the process equipment and, in most cases,
collects the waste material and used chemical solution. During the circulation
process, the concentration levels of the substance to be removed and the
chemicals that have been introduced into the system are monitored to determine
the rate at which the deposits are being removed and to ensure that proper
conditions are being maintained. After collection, the waste typically is
emptied at the customer's on-site disposal or storage facility, or it may be
pumped into holding tanks that remain on the customer's property for later
disposal or treatment by the customer.
Industrial Vacuuming Services
Industrial vacuuming is the process of removing industrial waste and debris
by conveyance of air or by traditional vacuuming techniques. The Company's
vacuuming services typically are required to recover these materials for
disposal or recycling, to move them within a plant, to remove waste from sumps,
to prepare tanks or other storage facilities for routine maintenance, and to
assist in other types of cleaning and maintenance services.
The Company provides air-moving services using specialized, truck and
trailer-mounted equipment to collect and remove a variety of solid and
semi-solid materials, including dust, powder, oil, resins, wood chips, steel
pellets, solid catalysts and bricks. The Company also furnishes liquid vacuuming
services using conventional vacuum trucks, which maintain a continuous negative
tank pressure, for the removal of liquid waste, sludge or spent process fluids
from pits, ponds, tanks or process equipment. The Company often provides
vacuuming services in connection with its other services.
Waste Minimization Services
The Company employs several techniques to reduce customer waste volumes
collected in the cleaning process before customer disposal, including
de-watering and chemical treatment techniques, as well as on-line water
recycling. Equipment often employed in these processes are plate and frame
filter presses and centrifuges, which are used to reduce the customer's cost of
disposing of these substances. Revenue from waste minimization services is
generally included in the other services category.
Commissioning Services
Commissioning services include a variety of processes utilized to clean
newly constructed systems of industrial processing plants prior to their initial
operation. These services include the Company's SILENTSTEAM(R) process for
cleaning steam path components, as well as the application of flushing, cleaning
and passivation technologies to piping, vessels, boilers, and lubrication and
hydraulic oil systems. Depending on the nature of the commissioning services,
the revenue derived therefrom may be attributable to hydroblasting, chemical
cleaning, industrial vacuuming or other services.
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COMPETITION AND MARKET FACTORS
The industrial cleaning service business is highly competitive. The Company
believes that the principal competitive factors in this business are price,
quality of service, safety record, reputation, responsiveness of personnel,
efficiency of service, and knowledge of customer plants and operations. Location
is an important factor in being able to provide timely and cost-effective
services, although this is more of a factor with respect to daily or more
frequently recurring maintenance services than project work.
The Company competes with a large number of companies in substantially all
of the regions in which it operates. Many of these competitors are local or
regional operations servicing a limited geographic area; however, others are
larger companies with broader geographic coverage, such as the Company.
Accordingly, HydroChem's competitors in any particular geographic market may
differ. In addition, competitors tend to be stronger in certain services and
weaker in others or may not offer a full range of services. While most of the
Company's direct competitors do not offer as extensive a line of services as the
Company, future expansion by such companies or the development of alternative
cleaning methods represent potential competition for the Company.
The Company believes that factors such as maintenance for improved
efficiency, a trend toward outsourcing, industry consolidation and environmental
regulations have favorably affected the demand for its industrial cleaning
services. The Company also believes that it benefits from competitive strengths
which include industry experience and long term relationships with quality
customers, a broad range of services and industry expertise, an excellent safety
record, strategic locations, customer contacts, customer alliances, and
experienced management. See "Marketing, Sales and Services Contracts."
BUSINESS STRATEGY
The Company's business strategy is to expand services provided to existing
customers, establish relationships with new customers in existing geographic
areas, expand geographically, establish additional customer alliances and pursue
additional strategic acquisitions.
In 1997, the Company's revenue growth principally resulted from expanded
services to existing customers and new customer alliances. The Company intends
to continue to focus on these two elements of its strategic growth as well as
strategic acquisitions.
FIELD ORGANIZATIONAL STRUCTURE
The Company's field organization is primarily based on geography. Two
divisions, the East Division and the West Division, are further subdivided into
areas, regions and branches. Branches, including certain on-site locations, are
the primary business or operating units.
The Company maintains operating and sales personnel at each of its branch
locations and operates each location under the direction of a branch manager in
accordance with policies, procedures and objectives established by the Company's
management. Subject to these guidelines, branch personnel have significant
autonomy in dealing with customers, employees and vendors in their geographic
area. Each branch operates as a separate profit center and is responsible for
collecting accounts receivable, although cash receipts are collected via
lockbox. Each branch location is also allotted certain equipment, including
pumps, vehicles and various types of specialized equipment. However, equipment
and personnel are shifted among branches as work loads dictate, enabling the
Company to realize better utilization of its resources.
MARKETING, SALES AND SERVICE CONTRACTS
The Company's sales and marketing success is characterized by long-term
customer relationships resulting from the consistent delivery of high quality,
dependable service, advanced technical capabilities, a broad service offering,
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competitive pricing and a strong customer service orientation among its
employees. The Company's services are marketed and sold through a tiered
approach, targeting both maintenance and purchasing personnel at the plant level
as well as corporate purchasing managers. Direct selling at the plant level is
the primary marketing thrust. The Company's sales people and account managers
maintain consistent communications with plant contacts to position the Company
better to obtain upcoming work and to ensure that on-going work is being
performed to meet or exceed customer expectations. The Company's national
marketing effort is focused on (i) servicing existing accounts, (ii)
establishing new customer accounts, (iii) obtaining multi-plant contracts
(regional or national in scope) and (iv) implementing alliance relationships.
These efforts are supplemented by advertising in industry publications and
participating in selected industry trade shows.
Most of the Company's customers, or prospective customers, have procedures
by which they qualify contractors to become approved vendors in their plants.
Customers award master service contracts or contracts for individual projects
only to such approved vendors. Contractors may be selected at the individual
plant level or on a regional or national basis, covering multiple plant
locations. A particular plant will typically have two or more approved
industrial cleaning providers. One of these may be designated as the primary
service provider and receive a majority of the work. Alternatively, the work may
be spread evenly between the contractors by the customer, or market share within
the plant may be determined by the sales, marketing and operating capabilities
of the different service providers. Plants also may have approved service
companies for specific services (for example, they may have hydroblasting
contracts with one or more vendors and separate industrial vacuuming contracts
with one or more other vendors) or may have contracts covering multiple services
provided by the same vendor.
Master service agreements typically establish general terms and conditions,
as well as time and material pricing for services. These contracts do not
guarantee a particular amount of work, but they do allow Company personnel to
enter the plants more easily, fostering the development of relationships with
plant personnel and the marketing of the Company's services. Specific jobs may
be performed on a time and materials basis or granted as part of a competitive
bid process. Daily or more frequently recurring maintenance work tends to be
performed on a time and materials basis, while larger, less frequent projects
tend to be bid. The Company estimates that approximately two-thirds of its
revenue comes from services performed under its master service agreements or
separately bid projects in plants where it has master service agreements. These
agreements enhance the consistency and stability of the Company's revenue
stream.
The Company's alliance or managed services process is an additional, newer
method of providing services to its customers. In an alliance, the Company
provides a more comprehensive outsourcing solution to the customer, with the
Company more involved in scheduling, managing and bench marking the delivery of
services in a manner that reduces costs for the customer and the Company, and
provides for a continuous improvement process over time. Generally, the customer
will further benefit from additional savings resulting from reduced downtime for
maintenance and increased production.
SAFETY AND TRAINING
Industrial cleaning involves exposure to potentially dangerous conditions.
For liability and other reasons, customers are very concerned with the safety
records of contractors used to perform services at their plants. To minimize the
dangers inherent in this type of work, the Company conducts broad training and
educational programs and has developed comprehensive safety policies and
regulations. The main factors driving the Company's investment in these programs
and policies are: (i) achieving employee and customer safety; (ii) controlling
insurance costs; (iii) satisfying customers' growing safety and training
requirements; (iv) meeting increasing governmental and regulatory requirements;
and (v) improving the Company's overall performance. The Company's safety
program includes educating Company personnel, implementing and monitoring
Company safety policies, safety personnel at most field locations, proactive
support by senior management, working with insurance companies and safety
organizations to make use of their resources and expertise, process improvement
teams and safety audits, cash incentive programs for employees and a component
of management bonuses tied to safety, substance abuse screening, investigating
all accidents, and company-wide dissemination of information regarding accidents
that have occurred and how they could have been avoided, without using names.
The Company's management believes its safety indices are among the best in
the industry. As an example,
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HydroChem's workers' compensation interstate experience modification rate
("EMR") is substantially below the average for companies in its industry. The
EMR, calculated by a private advisory rating organization supporting the
insurance industry, is one of the most widely observed safety statistics. The
EMR is a method of reflecting a company's actual workers' compensation claims
experience relative to the normally expected experience of companies within a
particular industry.
MAJOR CUSTOMER
In 1997, The Dow Chemical Company and its affiliates represented 11.9% of
the Company's total revenue.
GOVERNMENTAL REGULATION
The Company's operations are subject to various federal, state and local
regulations governing employee health and safety, protection of the environment,
and motor carriers. While the Company believes it operates safely and prudently
and is in substantial compliance with these laws and regulations, there can be
no assurance that accidents will not occur or that the Company will not incur
penalties or fines for violations. In addition, noncompliance with these laws
and regulations could negatively impact the Company's ability to secure
contracts with customers or obtain adequate insurance at reasonable costs. Any
of these factors could have a material adverse effect on the Company's financial
condition and results of operations.
Occupational Safety and Health Act. The operations of the Company are
subject to the requirements of the Occupational Safety and Health Act ("OSHA")
and comparable state laws. Regulations promulgated under OSHA by the U. S.
Department of Labor require employers in the industries that the Company serves
to implement work practices, medical surveillance systems and personnel
protection programs in order to protect employees from workplace hazards and
exposure to hazardous chemicals. The Company has established comprehensive
programs for complying with health and safety regulations. While the Company
believes it operates safely and prudently, there can be no assurance that
accidents will not occur or that the Company will not incur substantial fines.
Federal, State and Local Environmental Regulations. The Company performs
substantially all of its industrial cleaning services at industrial process
facilities owned by its customers. Although chemicals may be stored at the
Company's branch offices and are transported by the Company to its customers'
plants, no industrial cleaning services are performed at the branches.
Typically, all hazardous waste handled by the Company is disposed of by the
customer using the customer's waste disposal facilities. However, the Company
will transport the customer's waste collected in connection with the Company's
cleaning services from one point in the customer's plant to another point within
the plant, which may involve, on a very limited basis, crossing a public road.
As a part of its services to the customer, the Company may treat the customer's
hazardous waste collected by the Company in the cleaning process to neutralize,
minimize or separate it into its components, thus facilitating disposal or
recycling by the customer. At all times, the waste belongs to and is the
responsibility of the customer. The Company does not believe that its activities
subject it to the duties pertaining to hazardous waste treatment, storage or
disposal facilities. However, if it were determined that HydroChem was a
"transporter" of the hazardous wastes that it collects in the cleaning process,
the Company would be responsible for compliance with all duties imposed on such
persons under applicable environmental statutes and regulations.
Department of Transportation. Certain of the Company's vehicles are subject
to the regulations of the Department of Transportation, which address, among
other things, maintenance of the vehicles, driver qualification and record
keeping. Failure to comply with these regulations could result in fines or
modification of the Company's current procedures with respect to its vehicles.
Certain of the laws and regulations applicable to the Company require that
it obtain permits and licenses. The Company believes that it has obtained the
permits and licenses material to its business and believes that it is in
substantial compliance with all federal, state and local laws and regulations
governing it. To date, the Company has not been subject to any significant
fines, penalties or other labilities under these laws and regulations.
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INTELLECTUAL PROPERTY
While the Company has numerous patents and proprietary techniques related
to its products and services, it does not believe the ongoing success of its
operations is dependent on these patents or techniques, individually or taken as
a whole. The Company historically has not allocated significant financial
resources to research and development.
INSURANCE
In the normal course of business, the Company is subject to numerous
operating risks, including risks associated with the safety of its employees and
its customers' employees while providing industrial cleaning services, potential
damage to a customer's property or business in performing such services, and the
potential for an environmental accident.
The Company currently has in force insurance policies covering general
liability, workers' compensation/employer's liability, automobile liability,
environmental liability and property damage, and excess liability. All of these
policies are in amounts the Company believes are consistent with industry
practices and provide for the Company to pay a deductible or self insured
retention on each claim. However, no assurance can be given that the insurance
will adequately protect the Company and, if the Company is only partially
insured or completely uninsured, a related claim could result in a material
adverse effect on the Company's financial condition and results of operations.
WORKING CAPITAL
As a leading industrial service provider, the Company's working capital
requirements principally include its labor, equipment and debt service costs.
The Company believes it maintains adequate working capital to meet its needs in
the current business environment.
EMPLOYEES
As of December 31, 1997, the Company had approximately 1,700 employees.
None of the Company's employees are covered by collective bargaining agreements.
Management believes that relations between the Company and its employees are
good.
ITEM 2. PROPERTIES
The Company leases in the Houston, Texas area its corporate headquarters
(26,700 square feet), a laboratory facility (7,750 square feet) and a
manufacturing facility (13,760 square feet). Beginning in the third quarter of
1998, the Company intends to consolidate these facilities and certain other
operations located in the Houston area into a new 132,000 square foot facility
being constructed in nearby Deer Park, Texas on 19.4 acres of land. In January
1998, the Company purchased this land for approximately $1.1 million. The
Company estimates that total land acquisition and construction costs for the new
facility will be approximately $8.5 million. The Company intends to obtain
mortgage financing for approximately $7.5 million of this amount.
The Company also has 49 branch locations in the United States and one
location in Singapore. The Company's domestic branches are located in Texas,
Louisiana, Alabama, California, Florida, Georgia, Illinois, Kansas, Michigan,
Mississippi, Missouri, New Jersey, North Carolina, Ohio, Oklahoma, Virginia and
West Virginia. The Company owns 7 of these branch locations. Generally, the
remainder are leased. In certain instances, these branch locations are on-site
facilities provided by the Company's customers.
ITEM 3. LEGAL PROCEEDINGS
There are no material legal proceedings, other than ordinary routine
litigation incidental to its business, to which the Company is a party or any of
its property is the subject.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Not applicable.
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data below includes the accounts of all companies
acquired by the Company through December 31, 1997. These companies, all of which
were acquired during the past five years in transactions accounted for as
purchases, are included from their respective dates of acquisition. The selected
financial data should be read in conjunction with the Company's Consolidated
Financial Statements and the Notes thereto, and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------
1993(1) 1994 1995 1996 1997
------- ---- ---- ---- ----
(DOLLARS IN THOUSANDS)
FINANCIAL DATA:
<S> <C> <C> <C> <C> <C>
Revenue ............... $ 32,529 $ 101,103 $ 156,484 $ 156,003 $ 160,604
Gross profit .......... 12,041 36,521 61,855 61,630 65,019
Gross margin .......... 37.0% 36.1% 39.5% 39.5% 40.5%
EBITDA(2) ............. $ 5,113 $ 16,017 $ 22,390 $ 19,527 $ 22,405
EBITDA margin(3) ...... 15.7% 15.8% 14.3% 12.5% 14.0%
Operating income ...... $ 3,497 $ 12,087 $ 15,638 $ 11,762 $ 14,189
Income before taxes and
extraordinary loss 532 5,409 5,903 1,829 4,101
Net income (loss) ..... na 2,950 2,851 545 (523)
Capital expenditures .. 3,047 5,576 8,493 6,829 9,557
</TABLE>
<TABLE>
<CAPTION>
As of December 31,
---------------------------------------------------------
1993 1994 1995 1996 1997
---- ---- ---- ---- -----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents ............. $ 4,292 $ 2,529 $ 1,088 $ 671 $ 33,862
Working capital ....................... 10,458 10,170 17,961 13,216 52,324
Total assets .......................... 83,519 87,146 121,216 115,522 152,093
Total long-term debt, including current
maturities .......................... 57,000 52,739 76,894 68,325 110,000
Dividends paid ........................ -- -- -- -- 8,540
Stockholder's equity .................. 14,737 17,687 25,225 25,770 16,707
</TABLE>
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- ----------
(1) For purposes of this presentation, results for the year 1993 were derived
from combining (i) the audited financial statements of Hydro Services for
the period from January 1, 1993 to December 14, 1993, and (ii) the
Company's audited financial statements from December 15, 1993 to December
31, 1993. Because Hydro Services was reported on a limited partnership
basis, net income (loss) is not available on a comparable basis.
(2) EBITDA for any relevant period presented above represents income before
extraordinary loss plus interest expense, income tax provision,
depreciation, amortization, and other income and expense (including a
special charge of $511,000 in 1996) reflected in the determination of net
income (loss). 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 principles. 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.
(3) EBITDA margin for any relevant period reflects EBITDA divided by revenue.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the Selected
Financial Data, the Company's Consolidated Financial Statements and the Notes
thereto, and the other financial and operating information included elsewhere in
this Form 10-K. This Form 10-K contains, in addition to historical information,
forward-looking statements that include risks and uncertainties. The Company's
actual results may differ materially from the results discussed in the forward-
looking statements. Factors that might cause such a difference include those
discussed below, as well as those discussed elsewhere in this Form 10-K. 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.
11
<PAGE> 12
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.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1995 1996 1997
----- ---- ----
<S> <C> <C> <C>
Revenue .................................... 100.0% 100.0% 100.0%
Cost of revenue ............................ 60.5 60.5 59.5
----- ----- -----
Gross profit ....................... 39.5 39.5 40.5
SG&A expense ............................... 25.2 27.0 26.5
Depreciation ............................... 4.3 5.0 5.2
----- ----- -----
Operating income ................... 10.0 7.5 8.8
Other (income) expense:
Interest expense, net .................... 5.5 5.0 5.3
Special charge ........................... -- 0.3 --
Other (income) expense, net .............. (0.2) -- --
Amortization of intangibles .............. 0.9 1.0 1.0
----- ----- -----
Income before taxes and extraordinary loss . 3.8 1.2 2.5
Income tax provision ..................... 2.0 0.9 1.4
----- ----- -----
Income before extraordinary loss ........... 1.8 0.3 1.1
Extraordinary loss on early extinguishment
of debt, net of taxes .................. -- -- 1.4
----- ----- -----
Net income (loss) .......................... 1.8% 0.3% (0.3)%
===== ===== =====
EBITDA ..................................... 14.3% 12.5% 14.0%
</TABLE>
Comparison of 1997 results to 1996
Revenue. Revenue increased $4.6 million, or 2.9%, to $160.6 million for
the year ended December 31, 1997 from $156.0 million in the prior year. The
increase principally resulted from increased hydroblasting revenue of $9.4
million, or 13.5%, and increased industrial vacuuming revenue of $6.1 million,
or 52.7%, all of which was partially offset by decreased chemical cleaning
revenue of $9.3 million, or 14.8%, and decreased revenue from all other services
of $1.6 million, or 12.7%. 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 1996 and 1997. The decrease in chemical
cleaning revenue was primarily caused by a decrease in electric utility boiler
cleaning and certain other projects. The decrease in other services resulted
from reduced activity with one customer.
Gross profit. Gross profit increased $3.4 million, or 5.5%, to $65.0
million in 1997 from $61.6 million in the prior year, and gross profit margins
for the year increased from 39.5% to 40.5%. Cost of revenue increased $1.2
million, or 1.3%, to $95.6 million in 1997 from $94.4 million in the prior year
due to the revenue increases described above. The improvement in gross profit is
primarily attributable to a higher concentration of services being provided to
the Company's largest customers.
SG&A expense. SG&A expense as a percentage of revenue decreased to 26.5% in
1997 from 27.0% in 1996, while SG&A expense increased $511,000, or 1.2%, to
$42.6 million in 1997 from $42.1 million in the prior year. This increase
primarily resulted from increases in field compensation expense and the
Company's allowance for doubtful accounts, partially offset by lower insurance
costs.
12
<PAGE> 13
EBITDA. Increased gross profit, partially offset by increased SG&A expense,
resulted in an increase in EBITDA of $2.9 million, or 14.7%, to $22.4 million in
1997 from $19.5 million in the prior year. As a percentage of revenue, EBITDA
increased to 14.0% in 1997, compared to 12.5% in the prior year.
Depreciation. Depreciation expense increased $451,000, or 5.8%, to $8.2
million in 1997 from $7.8 million in the prior year and was 5.2% and 5.0% of
revenue, respectively.
Operating income. Increased gross profit, partially offset by increased
SG&A expense and depreciation expense, resulted in an increase in operating
income of $2.4 million, or 20.6%, to $14.2 million in 1997 from $11.8 million in
the prior year. As a percentage of revenue, operating income increased to 8.8%
in 1997, compared to 7.5% in the prior year.
Interest expense. Interest expense increased $598,000, or 7.6%, to $8.5
million in 1997 from $7.9 million in the prior year. 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, partially
offset by lower revolving and term loan balances prior to the extinguishment of
that debt, and increased interest income earned on higher invested cash
balances.
Special charge. In 1996, the Company incurred approximately $511,000 of
expenses related to merger negotiations between the Company and a
publicly-traded company, which were terminated prior to consummating the merger.
Amortization. Amortization expense of $1.5 million in 1997 was relatively
unchanged from the prior year.
Income before taxes and extraordinary loss. For the reasons described
above, income before taxes and extraordinary loss increased $2.3 million, or
124.2%, to $4.1 million in 1997 from $1.8 million in the prior year. As a
percentage of revenue, income before taxes and extraordinary loss was 2.6% in
1997, compared to 1.2% in the prior year.
Income tax provision. The effective tax rate decreased to 55.6% of income
before taxes and extraordinary loss in 1997 from 70.2% in the prior year. This
decrease principally resulted from proportionately lower nondeductible permanent
differences in 1997 than in the prior year.
Income before extraordinary loss. For the reasons described above, income
before extraordinary loss increased $1.3 million, or 233.8%, to $1.8 million in
1997 from $545,000 in the prior year. As a percentage of revenue, income before
extraordinary loss increased to 1.1% in 1997, from 0.3% in the prior year.
Extraordinary loss. In 1997, as a result of the early extinguishment of the
Company's debt, an extraordinary loss was recognized in the amount of $2.3
million (net of a related tax benefit of $1.4 million). The extraordinary loss
consisted of the write-off of associated deferred financing costs in the amount
of $3.2 million, as well as a prepayment premium and other related fees and
expenses.
Net income (loss). For the reasons described above, the Company incurred a
net loss of $523,000 in 1997 compared to net income of $545,000 in the prior
year.
Comparison of 1996 results to 1995
Revenue. Revenue decreased from $156.5 million in the year ended December
31, 1995, to $156.0 million in 1996, a decrease of $481,000, or 0.3%. The
decrease in 1996 revenue principally resulted from reduced services to three
large customers. Revenue from other customers, excluding these three large
customers, increased $8.8 million, or 6.9%, in 1996 as compared to 1995. Revenue
from the Company's 40 largest customers, excluding the three large customers
referenced above, increased $11.8 million, or 19.2%, in 1996 as compared to
1995. Revenue from one of the three large customers cited above declined $4.0
million in 1996 as the customer evaluated alternative industrial cleaning
vendors prior to entering into a managed services arrangement (alliance) with
HydroChem on March 1, 1997. Pursuant to this arrangement, HydroChem became the
sole source provider of industrial cleaning services for this customer's five
largest production facilities.
13
<PAGE> 14
During 1996, hydroblasting revenue decreased $1.1 million, or 1.5%,
primarily as a result of decreased revenue from two of the three large customers
discussed above. Chemical cleaning revenue increased $1.3 million, or 2.1%,
during 1996, principally due to the Company's expansion of this service offering
in certain geographic regions. During 1996, industrial vacuuming revenue
increased $3.4 million, or 41.6%, as the Company significantly increased its
fleet of vacuum trucks. Revenue from all other services decreased $4.1 million,
or 24.9%, during 1996. The decrease in other services was principally the result
of reduced activity with one large customer.
Gross profit. Gross profit margins were unchanged at 39.5% in both years.
The Company's cost of revenue decreased to $94.4 million in 1996, down $256,000,
or 0.3%, from $94.6 million in 1995. Gross profit decreased $225,000, or 0.4%,
to $61.6 million in 1996 from $61.9 million in 1995.
SG&A expense. SG&A expense increased $2.6 million, or 6.7%, to $42.1
million in 1996 from $39.5 million in 1995. This increase primarily resulted
from increases in (i) insurance costs, (ii) travel, communications, vehicle and
facilities costs associated with new branch locations and implementation of the
Company's customer alliance strategy, and (iii) property taxes related to
increased amounts of property and equipment. SG&A expense was 27.0% and 25.2% of
revenue in 1996 and 1995, respectively.
EBITDA. The combination of decreased gross profit and increased SG&A
expense resulted in a $2.9 million, or 12.8%, decline in EBITDA to $19.5 million
in 1996 from $22.4 million in 1995. As a percentage of revenue, EBITDA was 12.5%
in 1996, down from 14.3% in 1995.
Depreciation. Depreciation expense was $7.8 million in 1996, up $1.0
million, or 15.0%, from $6.8 million in 1995. The increase in depreciation
expense resulted from productive assets placed in service in 1995 and 1996.
Operating income. Operating income declined $3.9 million, or 24.8%, to
$11.8 million in 1996 from $15.6 million in 1995. Operating income was 7.5% and
10.0% of revenue in 1996 and 1995, respectively.
Interest expense. Interest expense decreased $773,000, or 8.9%, to $7.9
million in 1996 from $8.7 million in 1995. Reduced 1996 interest expense
resulted from (i) lower revolving loan balances due to cumulative increases in
net cash provided by operating activities, and (ii) lower term loan balances
following $3.3 million and $2.5 million in principal payments in 1996 and 1995,
respectively.
Special charge. In 1996, the Company incurred approximately $511,000 of
expenses relating to terminated merger negotiations between the Company and a
publicly-traded company.
Amortization. Amortization expense of $1.5 million in 1996 increased
$116,000, or 8.2%, from $1.4 million in 1995. The increase resulted from the
amortization of acquisition costs incurred in 1995.
Income before taxes. Income before taxes decreased $4.1 million, or 69.0%,
to $1.8 million in 1996 from $5.9 million in 1995. Income before taxes was 1.2%
and 3.8% of revenue in 1996 and 1995, respectively.
Income tax provision. The effective tax rate in 1996 increased to 70.2%
from 51.7% in 1995. This increase principally resulted from lower income before
taxes in 1996, and comparable amounts of nondeductible permanent differences in
both periods.
Net income. For the reasons described above, net income decreased $2.3
million, or 80.9%, to $545,000 in 1996 from $2.9 million in 1995.
14
<PAGE> 15
QUARTERLY FINANCIAL DATA
The following table sets forth certain unaudited consolidated statement of
operations and other supplemental data of the Company for the quarterly periods
shown. The unaudited quarterly information has been prepared on the same basis
as the annual financial information and, in management's opinion, includes all
adjustments, consisting of normal recurring accruals, necessary to present
fairly the information for the quarters presented. The operating results for any
quarter are not necessarily indicative of results for the year or for any future
period. The special charges incurred in the third and fourth quarters of 1996
were a result of terminated merger negotiations with a publicly-traded company.
The extraordinary loss recognized in the third quarter of 1997 was related to
early extinguishment of debt.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------------------------------------------------------------
1996 1997
--------------------------------------------- -------------------------------------------------
Mar. 31 June 30 Sept. 30 Dec. 31 Mar. 31 June 30 Sept. 30 Dec. 31
------- ------- -------- ------- ------- ------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue ....................... $ 38,035 $ 41,166 $ 35,450 $ 41,352 $ 38,388 $ 42,326 $ 40,030 $ 39,860
Cost of revenue ............... 22,936 24,940 22,183 24,314 22,919 24,871 23,687 24,108
-------- -------- -------- -------- -------- -------- -------- --------
Gross profit .......... 15,099 16,226 13,267 17,038 15,469 17,455 16,343 15,752
SG&A expense .................. 10,011 10,173 10,518 11,401 10,298 10,863 11,128 10,325
Depreciation .................. 1,812 1,900 1,982 2,071 1,911 1,978 2,094 2,233
-------- -------- -------- -------- -------- -------- -------- --------
Operating income ...... 3,276 4,153 767 3,566 3,260 4,614 3,121 3,194
Other (income) expense:
Interest expense, net ...... 2,041 1,997 1,955 1,927 1,862 1,925 2,374 2,357
Special charge ............. -- -- 500 11 -- -- -- --
Other (income) expense, net (41) (107) (11) 138 4 19 (17) 33
Amortization of intangibles 381 381 381 380 388 391 376 376
-------- -------- -------- -------- -------- -------- -------- --------
Income (loss) before taxes
and extraordinary loss 895 1,882 (2,058) 1,110 1,006 2,279 388 428
Income tax provision
(benefit) ............. 628 1,321 (1,444) 779 447 1,091 347 397
-------- -------- -------- -------- -------- -------- -------- --------
Income (loss) before
extraordinary loss .... 267 561 (614) 331 559 1,188 41 31
Extraordinary loss ......... -- -- -- -- -- -- 2,342 --
-------- -------- -------- -------- -------- -------- -------- --------
Net income (loss) ............. $ 267 $ 561 $ (614) $ 331 $ 559 $ 1,188 $ (2,301) $ 31
======== ======== ======== ======== ======== ======== ======== ========
EBITDA ........................ $ 5,088 $ 6,053 $ 2,749 $ 5,637 $ 5,171 $ 6,592 $ 5,215 $ 5,427
</TABLE>
15
<PAGE> 16
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 A Notes for the Series B
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, 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.
At December 31, 1997, the Company had $33.9 million of cash and cash
equivalents, and $2.9 million of restricted cash securing letters of credit
which were principally incurred in connection with the Company's property and
casualty insurance program. On that date, HydroChem entered into a credit
agreement with a financial institution (the "New Credit Facility") which
provides for unsecured borrowings of up to $25 million from time to time,
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 based upon the Company's financial performance. The interest rates are
based on LIBOR or the prime rate, at the discretion of HydroChem. The calculated
interest rates range from LIBOR plus 1.25% to LIBOR plus 2.00% or the prime rate
to the prime rate plus 0.25%. In addition, a commitment fee of 0.25% per annum
is payable quarterly on the unborrowed portion of the New Credit Facility. As of
December 31, 1997, the Company's borrowing base under the New Credit Facility
was $18.0 million, none of which was outstanding. The New Credit Facility
requires the Company to meet certain customary financial ratios and covenants
and generally restricts the Company from pledging its assets.
For the year ended December 31, 1997, the Company provided net cash of $3.5
million from operating and investing activities which consisted of $12.7 million
provided by operating activities and $9.2 million used in investing activities.
For the year ended December 31, 1996, $8.2 million of net cash was provided by
operating and investing activities which consisted of $14.9 million provided by
operating activities and $6.7 million used in investing activities. For the year
ended December 31, 1995, the Company used $29.6 million in operating and
investing activities which consisted of $10.1 million provided by operating
activities and $39.7 million used in investing activities. For all periods
presented, investing activities consisted primarily of expenditures for property
and equipment, except for 1995 which also included the purchase of substantially
all of the assets and the assumption of certain liabilities of HIS for $27.0
million, including direct cash acquisition costs.
Management believes that cash and cash equivalents at December 31, 1997 and
net cash expected to be provided by operating activities and borrowings, if
necessary, under the New Credit Facility 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 Note 6 to the
Company's Consolidated Financial Statements - Long-Term Debt.
16
<PAGE> 17
PENDING ACQUISITION
On March 20, 1998, the Company signed a letter of intent to acquire all the
stock of an entity in the industrial cleaning business for a purchase price of
approximately $34.0 million ($30.0 million in cash and a $4.0 million promissory
note). The Company intends to fund the purchase price through a combination of
its available cash and borrowings from a financial institution. The acquisition
is contingent upon, among other things, satisfactory completion of due
diligence, receipt of board approvals and the execution of a definitive
agreement. It is anticipated that the acquisition, if successful, will be
completed in the second calendar quarter of 1998. If the acquisition ultimately
is not consummated, the Company will not be liable for any acquisition
contingencies, except for related direct costs such as legal and accounting
fees.
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 intends to purchase and
implement upgrades for its current software and hardware to resolve this issue
within the next twelve months. Although there can be no assurance, the Company
does not anticipate the cost of such upgrades will be significant or that any
foreseeable problems would have a material adverse impact on the Company.
INFLATION
Certain of the Company's expenses, such as compensation and benefits,
chemicals and supplies, and equipment repair and replacement, are subject to
normal inflationary pressures. Although the Company to date has been able to
offset inflationary cost increases through increased operating efficiencies and
modest price increases, there can be no assurance that the Company will be able
to offset any future inflationary cost increases through these or similar means.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Reference is made to the Index to Consolidated Financial Statements on
page 18 for the Company's Consolidated Financial Statements and Notes thereto.
Quarterly financial data for the Company is presented on page 15 of this Form
10-K. Supplementary schedules for the Company have been omitted as not required
or not applicable because the information required to be presented is included
in the Company's Consolidated Financial Statements and Notes thereto.
17
<PAGE> 18
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
CONSOLIDATED FINANCIAL STATEMENTS PAGE
<S> <C>
Report of Independent Auditors.................................................................................19
Consolidated Balance Sheets as of December 31, 1996 and 1997...................................................20
Consolidated Statements of Operations for each of the years ended
December 31, 1995, 1996 and 1997...........................................................................21
Consolidated Statements of Stockholder's Equity for each of the years ended
December 31, 1995, 1996 and 1997...........................................................................22
Consolidated Statements of Cash Flows for each of the years ended
December 31, 1995, 1996 and 1997...........................................................................23
Notes to Consolidated Financial Statements.....................................................................24
</TABLE>
18
<PAGE> 19
REPORT OF INDEPENDENT AUDITORS
Board of Directors
HydroChem Industrial Services, Inc.
We have audited the accompanying consolidated balance sheets of HydroChem
Industrial Services, Inc. and Subsidiary (the "Company") as of December 31, 1996
and 1997, and the related consolidated statements of operations, stockholder's
equity and cash flows for each of the three years in the period ended December
31, 1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of HydroChem
Industrial Services, Inc. and Subsidiary at December 31, 1996 and 1997, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles.
ERNST & YOUNG LLP
Houston, Texas
February 6, 1998,
except for Note 17, as to which the date is
March 20, 1998
19
<PAGE> 20
HYDROCHEM INDUSTRIAL SERVICES, INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1996 1997
---------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ........................................ $ 671 $ 33,862
Restricted cash (Note 3) ......................................... -- 2,858
Receivables, less allowance of $622 and $1,280, respectively ..... 24,357 24,341
Inventories ...................................................... 3,569 3,863
Prepaid expenses and other current assets ........................ 1,140 1,791
Income taxes receivable .......................................... -- 407
Deferred income taxes (Note 9) ................................... 1,791 1,835
--------- ---------
Total current assets ........................................ 31,528 68,957
Property and equipment, at cost (Note 5) ............................. 54,772 63,210
Accumulated depreciation ......................................... (17,360) (24,872)
--------- ---------
37,412 38,338
Intangible assets, net (Note 2) ...................................... 46,582 44,798
--------- ---------
Total assets ................................................ $ 115,522 $ 152,093
========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable ................................................. $ 5,704 $ 4,823
Income taxes payable ............................................. 12 40
Accrued liabilities .............................................. 7,971 11,770
Current portion of long-term debt (Note 6) ....................... 4,625 --
--------- ---------
Total current liabilities ................................... 18,312 16,633
Long-term debt (Note 6) .............................................. 63,700 110,000
Deferred income taxes (Note 9) ....................................... 7,740 8,753
Commitments and contingencies (Note 10)
Stockholder's equity:
Common stock, $.01 par value:
1,000 shares authorized, 100 shares outstanding ............. 1 1
Additional paid in capital ....................................... 19,670 16,558
Retained earnings ................................................ 6,099 148
--------- ---------
Total stockholder's equity .................................. 25,770 16,707
--------- ---------
Total liabilities and stockholder's equity .................. $ 115,522 $ 152,093
========= =========
</TABLE>
See accompanying notes.
20
<PAGE> 21
HYDROCHEM INDUSTRIAL SERVICES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1995 1996 1997
---------- --------- --------
<S> <C> <C> <C>
Revenue ....................................... $ 156,484 $ 156,003 $ 160,604
Cost of revenue ............................... 94,629 94,373 95,585
--------- --------- ---------
Gross profit ............................. 61,855 61,630 65,019
Selling, general and administrative expense ... 39,465 42,103 42,614
Depreciation .................................. 6,752 7,765 8,216
--------- --------- ---------
Operating income ......................... 15,638 11,762 14,189
Other (income) expense:
Interest expense, net .................... 8,693 7,920 8,518
Special charge (Note 8) .................. -- 511 --
Other (income) expense, net .............. (365) (21) 39
Amortization of intangibles .............. 1,407 1,523 1,531
--------- --------- ---------
Income before taxes and
extraordinary loss ....................... 5,903 1,829 4,101
Income tax provision (Note 9) ............ 3,052 1,284 2,282
--------- --------- ---------
Income before extraordinary loss .............. 2,851 545 1,819
Extraordinary loss on early extinguishment
of debt, net of taxes (Note 6) ....... -- -- 2,342
--------- --------- ---------
Net income (loss) ............................. $ 2,851 $ 545 $ (523)
========= ========= =========
</TABLE>
See accompanying notes.
21
<PAGE> 22
HYDROCHEM INDUSTRIAL SERVICES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS TOTAL
----- ------- -------- -----
<S> <C> <C> <C> <C>
Balance at December 31, 1994 ......... $ 1 $ 14,983 $ 2,703 $ 17,687
Equity contribution from parent . -- 4,000 -- 4,000
Value of warrants issued (note 7) -- 687 -- 687
Net income ...................... -- -- 2,851 2,851
-------- -------- -------- --------
Balance at December 31, 1995 ......... 1 19,670 5,554 25,225
Net income ...................... -- -- 545 545
-------- -------- -------- --------
Balance at December 31, 1996 ......... 1 19,670 6,099 25,770
Dividend to parent (Note 6) ..... -- (3,112) (5,428) (8,540)
Net loss ........................ -- -- (523) (523)
-------- -------- -------- --------
Balance at December 31, 1997 ......... 1 $ 16,558 $ 148 $ 16,707
======== ======== ======== ========
</TABLE>
See accompanying notes.
22
<PAGE> 23
HYDROCHEM INDUSTRIAL SERVICES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1995 1996 1997
-------- -------- ------
<S> <C> <C> <C>
Operating activities:
Net income (loss) .......................................... $ 2,851 $ 545 $ (523)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation ........................................... 6,752 7,765 8,216
Amortization ........................................... 1,407 1,523 1,531
Amortization of deferred financing costs ............... 484 584 480
Write-off of deferred financing costs .................. -- -- 3,178
Deferred income tax expense provision .................. 2,468 755 969
Loss (gain) on sale of property and equipment .......... (296) 9 79
Changes in operating assets and liabilities:
Receivables, net ....................................... (2,256) 3,192 16
Inventories ............................................ 26 (430) (294)
Prepaid expenses and other current assets .............. 733 70 (651)
Income taxes receivable ................................ -- -- (407)
Accounts payable ....................................... (2,060) 777 (881)
Income taxes payable ................................... (263) (373) 28
Restricted cash ........................................ -- -- (2,858)
Accrued liabilities .................................... 276 444 3,799
--------- --------- ---------
Net cash provided by operating activities ......... 10,122 14,861 12,682
--------- --------- ---------
Investing activities:
Expenditures for property and equipment .................... (8,493) (6,829) (9,557)
Purchase of assets, net of cash acquired ................... (31,750) (256) --
Proceeds from sale of property and equipment ............... 525 376 336
--------- --------- ---------
Net cash used in investing activities ............. (39,718) (6,709) (9,221)
--------- --------- ---------
Financing activities:
Proceeds from issuance of senior subordinated notes,
net of offering costs .................................. -- -- 106,595
Proceeds from (repayments of) long-term debt, net .......... 24,155 (8,569) (68,325)
Dividend to parent ......................................... -- -- (8,540)
Equity contribution from parent ............................ 4,000 -- --
--------- --------- ---------
Net cash provided by (used in) financing activities 28,155 (8,569) 29,730
--------- --------- ---------
Net increase (decrease) in cash ................................. (1,441) (417) 33,191
Cash at beginning of period ..................................... 2,529 1,088 671
--------- --------- ---------
Cash at end of period ........................................... $ 1,088 $ 671 $ 33,862
========= ========= =========
Supplemental disclosure:
Cash paid during the year for interest ..................... $ 8,640 $ 7,409 $ 5,869
Cash paid during the year for income taxes, net of refunds . 852 902 255
</TABLE>
See accompanying notes.
23
<PAGE> 24
HYDROCHEM INDUSTRIAL SERVICES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. ORGANIZATION, FORMATION 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, chemical cleaning, industrial vacuuming, waste minimization,
commissioning, and other specialized services.
2. SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
HydroChem and International. All significant intercompany accounts and
transactions have been eliminated in consolidation.
Cash and Cash Equivalents
All highly liquid debt instruments or investments that are readily
convertible to known amounts of cash are considered to be cash equivalents.
Inventories
Inventories are stated at the lower of cost (weighted-average cost) or
market.
Property and Equipment
Property and equipment are recorded at cost. Costs assigned to property and
equipment of acquired businesses are based on estimated fair value at the date
of acquisition. Depreciation is provided for using the straight-line method over
estimated useful lives ranging from 3 to 20 years.
When property is retired or otherwise disposed of, the related cost and
accumulated depreciation are removed from the accounts and any resulting gain or
loss is reflected in income.
Intangible Assets
Intangible assets, which relate primarily to costs in excess of the fair
value of net assets acquired, are primarily being amortized over 40 years on a
straight-line basis. Intangible assets also include costs allocated to other
specifically identifiable assets arising from business acquisitions which are
being amortized on a straight-line basis over their estimated useful lives,
which range from 3 to 40 years. These intangible assets amounted to $43,064,000
and $41,534,000, net of accumulated amortization of $4,116,000 and $5,647,000,
at December 31, 1996 and 1997, respectively. The Company continually evaluates
whether events or circumstances have occurred that indicate the remaining
estimated useful lives of the intangible assets may warrant revision or that the
remaining balances may not be recoverable. Should factors indicate that the
intangible assets should be evaluated for possible impairment, the Company
24
<PAGE> 25
would use an estimate of the acquired business's undiscounted future cash flows
compared to the carrying value of the assets to determine whether the assets are
deemed impaired. Management believes there have been no events or circumstances
which warrant revision to the remaining useful lives or which affect the
recoverability of the Company's intangible assets.
Other intangibles include deferred financing costs of $3,518,000 and
$3,264,000, net of accumulated amortization of $1,149,000 and $945,000, at
December 31, 1996 and 1997, respectively. Deferred financing costs are being
amortized over a ten year financing term. Amortization of deferred financing
costs is recorded as interest expense.
Revenues
Revenues are recognized when services are provided.
Income Taxes
Income taxes are provided for based on the liability method of accounting.
Deferred income taxes are recorded to reflect the tax consequences of
differences between the financial statement basis and the tax basis of assets
and liabilities.
Stock-Based Compensation
Holding grants stock options to employees of the Company for a fixed number
of shares with an exercise price no less than the fair value of the shares at
the date of grant. The Company accounts for such stock option grants in
accordance with Accounting Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees ("APB 25").
Reclassifications
Certain 1995 and 1996 amounts have been reclassified to conform with the
1997 presentation.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Concentration of Credit Risk
The Company provides 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. The Company
believes its portfolio of accounts receivable is well diversified and, as a
result, its credit risks are minimal. The Company continually evaluates the
creditworthiness of its customers and monitors accounts on a periodic basis, but
typically does not require collateral. Credit losses have been within
management's expectations.
3. RESTRICTED CASH
At December 31, 1997, restricted cash represented security for letters of
credit which were principally incurred in connection with the Company's property
and casualty insurance program. These letters of credit were previously secured
by the Company's revolving loan and will be secured by cash of the Company until
renewed or replaced under the New Credit Facility (see Note 6).
4. RECEIVABLES
Receivables primarily include trade accounts and accrued receivables of
$24,357,000 and $24,341,000, net of allowance for doubtful accounts of $622,000
and $1,280,000, at December 31, 1996 and 1997, respectively. During 1996 and
1997, the Company recorded $270,000 and $539,000, respectively, as bad debt
expense, and in 1997 other
25
<PAGE> 26
adjustments to the allowance for doubtful accounts in the amount of $119,000
were recognized.
5. PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1996 and 1997 consisted of the
following (in thousands):
<TABLE>
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
Land ........................................................ $ 617 $ 617
Office facilities, furniture, fixtures and computer equipment 4,747 6,074
Machinery and equipment ..................................... 46,043 53,845
Vehicles .................................................... 2,254 2,150
Construction in progress .................................... 1,111 524
------- -------
$54,772 $63,210
======= =======
</TABLE>
6. LONG-TERM DEBT
Long-term debt at December 31, 1996 and 1997 consisted of the following (in
thousands):
<TABLE>
<CAPTION>
1996 1997
-------- --------
<S> <C> <C>
Revolving loan .................... $ 5,450 $ --
Term loan A ....................... 19,875 --
Term loan B ....................... 25,000 --
-------- --------
Total senior debt ................. 50,325 --
Less current portion of senior debt 4,625 --
-------- --------
Total senior debt ............ 45,700 --
Subordinated debt ................. 18,000 --
Senior subordinated notes ......... -- 110,000
-------- --------
Total long-term debt ......... $ 63,700 $110,000
======== ========
</TABLE>
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 A Notes for the Series B 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, 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 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 executed 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. The term of the
New Credit Facility is three years and any borrowings thereunder bear interest
at rates adjusted quarterly based upon the Company's operating performance. The
interest rates are based on LIBOR or the prime rate, at the discretion of
HydroChem. The calculated interest rates range from LIBOR plus 1.25% to LIBOR
plus 2.00% or the prime rate to the prime rate plus 0.25%. 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.
26
<PAGE> 27
7. STOCKHOLDER'S EQUITY
A warrant has been issued by Holding on behalf of HydroChem to provide an
option to purchase up to 496,623 shares of Holding's Class A Common Stock at an
exercise price of $.01 per share. This warrant currently expires on July 1, 2004
and has not been exercised as of December 31, 1997. An additional warrant has
been issued which provides an option to purchase up to 310,390 shares of
Holding's Class C Common Stock at an exercise price of $.01 per share. This
warrant expires on January 10, 2005 and has not been exercised as of December
31, 1997. The value of these warrants is associated with deferred financing
costs of extinguished debt (see Note 6).
8. SPECIAL CHARGE
In April 1996, the Company signed a letter of intent to merge with a
publicly traded company. The terms of the letter of intent included provisions
which would have resulted in a transfer of a majority of the shares of the
combined companies to Holding's stockholders. Upon subsequent negotiations and
the completion of due diligence, it was determined that the merger would not be
beneficial to both parties and it was agreed to terminate negotiations. The
Company incurred $511,000 of expenses relating to legal, accounting and
financial services which were provided in connection with the negotiation and
due diligence efforts. These expenses were recorded as a special charge in 1996.
9. INCOME TAXES
The Company files a consolidated tax return with Holding. Current and
deferred taxes are allocated on a separate company basis. Significant components
of the Company's deferred tax liabilities and assets as of December 31, 1996 and
1997 were as follows (in thousands):
<TABLE>
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
Deferred tax liabilities:
Property and equipment . $4,686 $4,370
Intangibles ............ 3,747 5,528
------ ------
Total deferred tax liabilities 8,433 9,898
Deferred tax assets:
Alternative minimum tax 676 1,338
Foreign tax credit ..... 329 422
Accrued liabilities .... 1,257 708
Receivables ............ 205 486
Inventory .............. 17 26
------ ------
Total deferred tax assets .... 2,484 2,980
------ ------
Net deferred tax liability ... $5,949 $6,918
====== ======
</TABLE>
The provision for income taxes for the years ended December 31, 1995, 1996
and 1997 consisted of the following (in thousands):
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Current........ $ 584 $ 529 $1,313
Deferred....... 2,468 755 969
------ ------ ------
$3,052 $1,284 $2,282
====== ====== ======
</TABLE>
The differences between income taxes computed at the federal statutory
income tax rate and the provision for income taxes for the years ended December
31, 1995, 1996 and 1997 consisted of the following (in thousands):
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Income taxes computed at federal income tax rate ............... $ 2,007 $ 622 $ 1,396
State income taxes, net of federal tax benefit ................. 414 222 339
Nondeductible permanent differences ............................ 579 730 718
Tax credits and other, net ..................................... 52 (290) (171)
------- ------- -------
Provision for income taxes ..................................... $ 3,052 $ 1,284 $ 2,282
======= ======= =======
</TABLE>
27
<PAGE> 28
At December 31, 1997, the Company had alternative minimum tax credit
carryforwards of approximately $1,338,000 and foreign tax credit carryforwards
of approximately $422,000. The alternative minimum tax credit carryforwards are
available indefinitely while the foreign tax credit carryforwards begin to
expire in 1999.
10. COMMITMENTS AND CONTINGENCIES
The Company leases most of its locations and certain automobiles and
trucks under operating leases. The leases contain various renewal options, rent
escalation provisions and insurance requirements. Lease expense for the years
ended December 31, 1995, 1996 and 1997 was $4,402,000, $6,191,000 and
$7,544,000, respectively.
Future minimum rental commitments under operating leases with initial terms
of one year or more at December 31, 1997 are as follows (in thousands):
1998............................ $ 6,090
1999............................ 4,364
2000............................ 2,734
2001............................ 845
2002............................ 351
Thereafter...................... 261
-------
Total........................... $14,645
=======
The Company is a defendant in various lawsuits arising in the normal course
of business. Substantially all of these suits are being defended by the
Company's insurance carriers. While the results of litigation cannot be
predicted with certainty, management believes the final outcome of such
litigation will not have a material adverse effect on the Company's consolidated
financial position.
11. 401(K) AND PROFIT SHARING PLAN
HydroChem maintains the HydroChem Industrial Services Discretionary Profit
Sharing Plan and 401(k) Plan (the "Plan"). Profit-sharing contributions to the
Plan are at the discretion of the Board of Directors of HydroChem. All profit
sharing contributions are allocated to the accounts of individual participants
based upon a formula. Eligible employees, at their option, may also make
contributions to their separate 401(k) accounts within the Plan. In 1995, 1996
and 1997, HydroChem matched, on a 50% basis, all employee contributions up to
$500. All profit sharing and 401(k) contributions, and any earnings thereon are
tax-deferred.
For the years ended December 31, 1995, 1996 and 1997, HydroChem recognized
as expense profit-sharing contributions to the Plan of $800,000, $100,000 and
$500,000, respectively. For the same years, there were employer 401(k) matching
contributions to the Plan of $111,000, $207,000 and $196,000, respectively.
12. STOCK OPTION PLAN
In 1994, the Board of Directors of Holding (the "Board") adopted, and the
stockholders approved, the HydroChem Holding, Inc. 1994 Stock Option Plan (the
"Option Plan"), pursuant to which options to purchase up to an aggregate of
620,779 shares of Holding's Class A Common Stock may be granted. The Option Plan
is administered by a committee of not fewer than two directors appointed by the
Board. Among other things, the committee decides which employees will receive
options, the number of shares covered by any option granted and the exercise
price and other terms and conditions of each such option. The committee also
decides if each option granted shall be an incentive stock option under Section
422 of the Internal Revenue Code of 1986 (the "Code") or an option that does not
qualify under that section of the Code ("Non-Qualified Stock Option"). The Board
may at any time suspend or terminate the Option Plan or revise or amend it in
any respect.
All options granted under the Option Plan are nontransferable except by the
laws of descent and distribution. All options also expire ten years after the
date of grant or upon earlier termination of employment unless due to death,
28
<PAGE> 29
disability or retirement, in which case the option remains exercisable for an
additional three months in the case of retirement and one year in the case of
death or disability, but, in all cases, only to the extent it was exercisable at
the time of termination of employment. All options granted since the inception
of the Option Plan have been Non-Qualified Stock Options and become exercisable
in installments over three to four year periods after the date of grant. The
weighted-average remaining contractual life of outstanding options at December
31, 1997 was 8.3 years. The exercise price of the options was equal to the fair
value of the common stock on the dates of grant and, accordingly, no
compensation expense was recorded.
A summary of the Option Plan as of December 31, 1995, 1996 and 1997 and
changes during the years ended on those dates is presented below:
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED-
SHARES AVERAGE
COVERED BY EXERCISE
OPTIONS PRICE
------- -----
<S> <C> <C>
Outstanding at January 1, 1995 . -- $ --
Granted .................... 584,390 1.00
Exercised .................. -- --
Canceled ................... 4,500 1.00
-------
Outstanding at December 31, 1995 579,890 1.00
Granted .................... 57,500 1.00
Exercised .................. -- --
Canceled ................... 17,500 1.00
-------
Outstanding at December 31, 1996 619,890 1.00
Granted .................... 27,000 1.00
Exercised .................. 2,000 1.00
Canceled ................... 26,500 1.00
-------
Outstanding at December 31, 1997 618,390 1.00
=======
Exercisable at:
December 31, 1995 .......... 186,234 $ 1.00
December 31, 1996 .......... 314,937 $ 1.00
December 31, 1997 .......... 409,101 $ 1.00
</TABLE>
The Company has elected to follow APB 25 and related interpretations in
accounting for employee stock options. Accordingly, no compensation expense has
been recognized for these stocks options. Pro forma information regarding net
income and earnings per share is required by Financial Accounting Standards
Board Statement No. 123, Accounting for Stock-Based Compensation ("FAS 123"),
which also requires that the information be determined as if the Company had
accounted for its employee stock options granted subsequent to December 31, 1994
under the fair value method of FAS 123. The fair value for these options was
estimated at the date of grant using a minimum value option pricing model. The
minimum value method calculated a fair value that is approximately the same as
recorded by the Company according to APB 25; therefore, pro forma presentation
has not been included.
13. FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values of certain financial instruments have been
determined by the Company using available market information and appropriate
valuation methodologies. Management believes that the book values of the
Company's cash, net accounts receivable and accounts payable approximate fair
values, principally due to the short-term maturities of these instruments.
Management also believes that the book value of the Company's long-term debt
approximates fair value (see Note 6).
14. ACQUISITION AND SUPPLEMENTAL CASH FLOW INFORMATION
On January 10, 1995, the Company purchased substantially all of the assets
and assumed certain liabilities of Halliburton Industrial Services ("HIS") for
$24,773,000 in cash, excluding $2,255,000 of direct cash acquisition costs.
29
<PAGE> 30
HIS was a leading provider of industrial cleaning services to the oil refining,
petrochemical, electric utility and pulp and paper industries. The liabilities
assumed in connection with the acquisition were as follows:
Fair value of assets acquired (including goodwill)............. $28,621,000
Cash paid for assets, including direct acquisition costs....... 27,028,000
----------
Liabilities assumed............................................ $ 1,593,000
===========
15. SUMMARY FINANCIAL INFORMATION
Summary financial information for International as consolidated with
HydroChem is as follows (in thousands):
AS OF DECEMBER 31,
------------------
1996 1997
---- ----
Current assets................... $1,476 $1,623
Noncurrent assets................ 155 127
Current liabilities.............. 85 131
Noncurrent liabilities........... - -
YEAR ENDED DECEMBER 31,
------------------------------------------
1995 1996 1997
----- ---- -----
Revenue...................... $4,850 $5,088 $3,576
Gross profit................. 2,023 2,257 1,497
Net income................... 366 100 73
16. MAJOR CUSTOMER
In 1995 and 1997, one customer and its affiliates represented 10.9% and
11.9%, respectively, of the Company's total revenue. No single customer
represented 10.0% or more of the Company's revenue in 1996.
17. SUBSEQUENT EVENT
On March 20, 1998, the Company signed a letter of intent to acquire all
the stock of an entity in the industrial cleaning business for a purchase price
of approximately $34,000,000 ($30,000,000 in cash and a $4,000,000 promissory
note). The Company intends to fund the purchase price through a combination of
its available cash and borrowings from a financial institution. The acquisition
is contingent upon, among other things, satisfactory completion of due
diligence, receipt of board approvals and the execution of a definitive
agreement. It is anticipated that the acquisition, if successful, will be
completed in the second calendar quarter of 1998. If the acquisition ultimately
is not consummated, the Company will not be liable for any acquisition
contingencies, except for related direct costs such as legal and accounting
fees.
30
<PAGE> 31
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The directors and executive officers of HydroChem are as follows:
<TABLE>
<CAPTION>
NAMES OF DIRECTORS
AND EXECUTIVE OFFICERS Age Position
---------------------- --- ------------------------------------------------------------
<S> <C> <C>
B. Tom Carter, Jr............ 53 Chairman of the Board, Chief Executive Officer and President
Robert B. Crates............. 35 Director
Thomas F. McWilliams......... 55 Director
Selby F. Little, III......... 44 Executive Vice President and Chief Financial Officer
J. Pat DeBusk................ 57 Executive Vice President
Gary D. Noto................. 43 Executive Vice President
Craig A. Kaple............... 39 Executive Vice President
Pelham H. A. Smith........... 41 Vice President
Michael P. Steindler......... 50 General Counsel and Secretary
</TABLE>
Subject to the terms of a stockholders agreement entered into by Holding
and all of its stockholders, (the "Stockholders Agreement") the Board of
Directors of the Company currently consists of three directors who hold office
until the next annual meeting of the stockholders of the Company or until their
successors are duly elected and qualified. Pursuant to the terms of the
Stockholders Agreement, one director, Mr. McWilliams, has been designated by
Citicorp Venture Capital, Ltd. ("CVC") and one director, Mr. Crates, has been
designated by LKCM Venture Partners I Ltd. The stockholders also agreed to elect
Mr. Carter as a director so long as he serves as Chief Executive Officer. The
Stockholders Agreement further provides that CVC has the right to designate an
additional director, and that the holders of a majority of the shares of
Holding's capital stock owned by such stockholders may designate a director, but
neither CVC nor the majority stockholders have exercised these rights. See Item
12. "Security Ownership of Certain Beneficial Owners and Management."
The executive officers are elected annually by the Board of Directors and
serve at the discretion of the Board until their successors are duly elected and
qualified.
B. Tom Carter, Jr. has been Chairman of the Board, Chief Executive Officer
and President of the Company or Hydro Services since 1990. As a private
investor, he assembled the investment groups which acquired Hydro Services in
1990 and formed HydroChem in 1993 for the purposes of combining the businesses
of Hydro Services and DIS.
Robert B. Crates has been a director of the Company since 1993. Since
December 1995, Mr. Crates has been a principal of Crates Thompson Capital, Inc.,
an investment company engaged in the management of private equity funds. From
May 1988 to November 1995, Mr. Crates served as the general partner of LKCM
Venture Partners I Ltd., a private equity fund affiliated with Luther King
Capital Management ("LKCM"), an investment advisory firm. From October 1994 to
January 1995, Mr. Crates concurrently served as interim Chairman and Chief
Executive Officer of Eddie Haggar Limited, Inc., a company in which LKCM had an
investment that subsequently filed for protection under federal bankruptcy laws.
Mr. Crates is also a director of HealthCor Holdings, Inc. and various privately
held companies.
31
<PAGE> 32
Thomas F. McWilliams has been a director of the Company since 1993. Mr.
McWilliams is a Managing Director of CVC where he has been employed since 1983.
He also serves as a director of Chase Industries, Inc., MMI Products, Inc., Ergo
Science Corporation, Pen-Tab Industries, Inc. and various privately held
companies.
Selby F. Little, III has been an Executive Vice President and Chief
Financial Officer of the Company since December 1996 and served as Vice
President and Chief Financial Officer of the Company from June 1996 until
December 1996. From September 1992 to May 1996, he was Vice President and Chief
Financial Officer of Ross Systems, Inc., a publicly held computer software
company.
J. Pat DeBusk has been an Executive Vice President of HydroChem since
December 1993. He has also held various executive or other management positions
since 1964 with Hydro Services or the predecessor to its operations.
Gary D. Noto has been an Executive Vice President of the Company since
December 1996. Prior thereto, he had served as a Vice President of HydroChem
since December 1993 and in various executive, management or other positions with
Hydro Services or the predecessor to its operations since 1978.
Craig A. Kaple has been an Executive Vice President of HydroChem since June
1997. Prior thereto, he had served as a Vice President of HydroChem since
November 1994 and in various executive, management or other positions with Hydro
Services or the predecessor to its operations since 1981.
Pelham H. A. Smith has been a Vice President of the Company since December
1993. Prior thereto, he had been assisting Mr. Carter since 1990 in various
private investment activities.
Michael P. Steindler has functioned as the General Counsel of the Company
since April 1994 and has been the Secretary of the Company since March, 1995.
From August, 1993 to February, 1998, he was also a partner in the law firm of
Cassell & Stone, L.L.P. in Dallas, Texas.
DIRECTORS AND OFFICERS OF HOLDING AND INTERNATIONAL
The directors of Holding and International are the same as those of
HydroChem. The executive officers of Holding and International are B. Tom
Carter, Jr. (Chief Executive Officer and President), Selby F. Little, III
(Executive Vice President and Chief Financial Officer), and Pelham H. A. Smith
(Vice President).
32
<PAGE> 33
ITEM 11. EXECUTIVE COMPENSATION
The following table provides certain information concerning compensation
earned by the Chief Executive Officer and the Company's next four most highly
compensated executive officers serving in such capacity at December 31, 1997 who
received compensation in excess of $100,000 (the "Named Executive Officers") for
the period indicated.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
------------------------------
NUMBER OF
ANNUAL COMPENSATION SHARES
------------------------------ UNDERLYING All Other
NAME AND PRINCIPAL POSITION YEAR Salary Bonus OPTIONS Compensation(1)
--------------------------- ---- ------ ------- ---------- ---------------
<S> <C> <C> <C> <C> <C>
B. TOM CARTER, JR.......... 1997 $239,077 $ --(2) -- $ 250
CHAIRMAN OF THE BOARD, .... 1996 239,231 100,000 25,000 250
CHIEF EXECUTIVE OFFICER AND 1995 229,139 100,000 310,390 250
PRESIDENT
SELBY F. LITTLE, III ........ 1997 125,936 74,000 11,500 250
EXECUTIVE VICE PRESIDENT .. 1996 67,308 71,000 15,000 --
AND CHIEF FINANCIAL OFFICER 1995 -- -- -- --
J. PAT DEBUSK ............... 1997 146,628 43,000 -- 250
EXECUTIVE VICE PRESIDENT .. 1996 136,000 45,000 -- 250
1995 135,803 60,000 20,000 250
GARY D. NOTO ................ 1997 122,551 66,000 -- 250
EXECUTIVE VICE PRESIDENT .. 1996 103,200 50,000 -- 250
1995 93,111 44,000 17,500 250
CRAIG A. KAPLE .............. 1997 115,167 62,000 -- 250
EXECUTIVE VICE PRESIDENT .. 1996 95,000 45,600 -- 250
1995 84,284 44,000 15,000 250
</TABLE>
- ----------
(1) Consists of Hydrochem's 401(K) matching contribution.
(2) Holding and Mr. Carter currently are negotiating an extension of and
certain modifications to Mr. Carter's employment agreement described below.
Mr. Carter's bonus for 1997 is not calculable at this time and will be
determined as part of these negotiations. It is anticipated that Mr.
Carter's bonus will not exceed $150,000.
DIRECTOR COMPENSATION
Directors who are employees of the Company do not receive additional
compensation for serving as directors. All directors of the Company are
reimbursed for out-of-pocket expenses incurred in attending meetings of the
Board of Directors and for other expenses incurred in their capacities as
directors of the Company.
STOCK OPTION INFORMATION
Holding has adopted the HydroChem Holding, Inc. 1994 Stock Option Plan (the
"Option Plan"). The Option Plan is administered by a committee of Holding's
Board of Directors (the "Committee"), which currently consists of Messrs.
McWilliams and Crates. The purpose of the Option Plan is to advance the
interests of Holding and its subsidiaries by encouraging certain employees of
the Company to acquire a proprietary interest in Holding through ownership of
Holding's Class A Common Stock ("Class A Common"). The total number of shares of
Class A Common that may be
33
<PAGE> 34
subject to options under the Option Plan is 620,779. As of December 31, 1997,
options for 618,390 shares of Class A Common were outstanding and options for
389 shares were available for grant. The duration of each option and the
exercise schedule therefor is determined by the Committee at the time of grant,
but in no event can an option intended to qualify as an incentive stock option
(an "ISO") under Section 422 of the Internal Revenue Code of 1986, as amended
(the "Code"), be exercisable after the expiration of ten years after the date of
grant. In the case of an employee who owns (or is considered to own under
Section 424(d) of the Code) stock representing more than 10% of the total
combined voting power of classes of stock of Holding and its subsidiaries, no
ISO shall be exercisable after expiration of five years from the date of grant.
The following table sets forth certain information concerning the grant of
options to Mr. Little. None of the other Named Executive Officers were granted
options in 1997.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
% OF TOTAL VALUE AT ASSUMED
NUMBER OF OPTIONS ANNUAL STOCK
SECURITIES GRANTED TO EXERCISE APPRECIATION FOR
UNDERLYING EMPLOYEES PRICE OPTION TERM (1)
OPTIONS IN PER ---------------
NAME GRANTED FISCAL YEAR SHARE EXPIRATION DATE 5% 10%
- -------------------- ---------- ----------- ----- ------------------- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
SELBY F. LITTLE, III 11,500 42.6% $1.00 OCTOBER 19, 2007 $7,232 $18,328
</TABLE>
- ----------
(1) Potential realizable value is based upon assumed annual growth rates of 5%
and 10% for the ten-year option term. Computations result in common stock
prices at the end of the option term of $1.63 and $2.59 per share based
upon 5% and 10% annual growth appreciation, respectively. The actual value,
if any, Mr. Little may realize will depend upon an available market for the
common stock, as well as the excess of the market price of the Class A
common over the exercise price on the date the option is exercised. There
can be no assurance that the value realized will be at or near the amounts
reflected in this table.
The following table sets forth certain information with respect to the
unexercised options granted to the named executive officers. None of the named
executive officers exercised any stock options during 1997.
FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
AT DECEMBER 31, 1997 AT DECEMBER 31, 1997(1)
----------------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
B. TOM CARTER, JR.......................... 285,601 49,789 $ 0 $ 0
SELBY F. LITTLE, III....................... 3,750 22,750 $ 0 $ 0
J. PAT DEBUSK.............................. 10,000 10,000 $ 0 $ 0
GARY D. NOTO............................... 8,750 8,750 $ 0 $ 0
CRAIG A. KAPLE............................. 7,500 7,500 $ 0 $ 0
</TABLE>
- ----------
(1) There is no established trading market for the Class A Common, but the
Company has attempted to determine its market value based upon the same
criteria which were used to determine the exercise prices of past options
granted. Based upon these criteria, at December 31, 1997, there were no
options which were in-the-money.
EMPLOYMENT AGREEMENTS
Holding has an employment agreement with Mr. Carter under which he serves
as the Chairman of the Board, Chief Executive Officer and President of Holding
and the Company (collectively, the "Employer"). The term of Mr. Carter's
34
<PAGE> 35
agreement is for five years through December 14, 1998. His current base
compensation under this Agreement is $240,000 per year and is subject to review
and may be increased periodically at the discretion of the Board. Mr. Carter's
agreement provided for an initial bonus of $150,000 in recognition of his
efforts in the DIS acquisition. For calendar years 1994 and thereafter, bonuses
are payable at the sole discretion of the Board. In connection with his
agreement, Holding also granted Mr. Carter in March 1995 an option to purchase
310,390 shares of Class A Common Stock at an exercise price of $1.00 per share
under Holding's 1994 Stock Option Plan. See "Stock Option Information." If the
Employer terminates Mr. Carter's employment without cause as defined in his
agreement, then he is entitled to a lump sum severance payment equal to one year
of his then current base compensation. Mr. Carter's agreement contains a
covenant not to compete and other customary restrictions. The covenant not to
compete does not apply if there is a termination without cause or a resignation
by Mr. Carter after a change in control as defined in his agreement or after a
diminution in his duties. The Company has guaranteed Holding's obligations under
the employment agreement.
HydroChem and Mr. Little are parties to a letter agreement dated June 3,
1996, relating to Mr. Little's initial employment by HydroChem (the "Offer
Letter"). Among other things, the Offer Letter provides that if HydroChem
terminates Mr. Little's employment at any time without cause as therein defined,
it will pay him severance compensation equal to 12 months of his then current
base compensation. The Offer Letter also provided for a bonus to Mr. Little of
$25,000 upon the commencement of his employment, performance bonuses of up to
50% of his base compensation for 1996 and 1997, with a minimum guarantee of
$31,250 for each year, and the reimbursement in 1996 of relocation expenses
which amounted to $93,065.
HydroChem also has employment agreements with Messrs. DeBusk, Noto and
Kaple. Each of these agreements renew automatically on an annual basis unless
either HydroChem or the employee gives 30 days notice to the contrary. The
current annual base compensation under these agreements for Messrs. DeBusk, Noto
and Kaple is $150,000, $127,500 and $120,000, respectively. Such amounts are
subject to review and may be increased periodically at the discretion of
HydroChem. Bonuses are also payable at the sole discretion of HydroChem. If
HydroChem terminates the employment of any of these individuals without cause as
defined in their respective agreements, then such individual is entitled to a
continuation of his then current base compensation for six months. Each of the
agreements for Messrs. DeBusk, Noto and Kaple contain covenants not to compete
and other customary restrictions.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
All of the outstanding capital stock of International is owned by
HydroChem. All of the outstanding capital stock of HydroChem is owned by
Holding. The authorized capital stock of Holding consists of (i) 8,000,000
shares of Class A Common, par value $.00005 per share, of which 855,402 shares
are issued and outstanding; (ii) 5,000,000 shares of Class B Common Stock, par
value $.00005 per share ("Class B Common"), of which 3,926,598 shares are issued
and outstanding; (iii) 1,000,000 shares of Class C Common Stock, par value
$.00005 per share ("Class C Common"), of which no shares are issued and
outstanding; and (iv) 5,000,000 shares of Series A 13% Cumulative Preferred
Stock, par value $.00005 per share ("Series A Preferred"), all of which are
issued and outstanding.
The following table sets forth certain information known to the Company
with respect to beneficial ownership of Holding's equity securities (rounded to
the nearest share) by (i) each director; (ii) each Named Executive Officer;
(iii) all executive officers and directors of the Company as a group; and (iv)
each stockholder known by the Company to be the beneficial owner of more than
five percent of any class of voting securities of Holding. Such information is
presented as of February 28, 1998.
35
<PAGE> 36
<TABLE>
<CAPTION>
Class A Common CLASS B COMMON SERIES A PREFERRED
---------------------- ------------------ ------------------
No. of % of No. of % of No. of % of
NAME Shares Class Shares Class Shares Class
- -------------------------------------- ------ ----- ------ ----- ------ -----
Executive Officers and Directors:
<S> <C> <C> <C> <C> <C> < C>
B. Tom Carter, Jr. (1) ............. 394,501 34.4% -- -- 360,993 7.2%
6210 Rothway
Houston, Texas 77040
Robert B. Crates ................... -- -- -- -- -- --
Thomas F. McWilliams (2)(3) ........ 67,343 7.3% 67,343 1.7% 33,871 *
7963 Grand Bay Dr. ............
Naples, Florida 34108
Selby F. Little, III (4) ........... 3,750 * -- -- -- --
J. Pat DeBusk (3)(5) ............... 51,727 5.9% 1,540 * 55,103 1.1%
1145 Highway 90-A
Missouri City, Texas 77489
Gary D. Noto (3)(6) ................ 31,705 3.6% 880 * 31,488 *
Craig A. Kaple (3)(7) .............. 26,934 3.1% 660 * 23,616 *
All directors and executive officers
as a group (9 persons)(3)(8) .. 598,460 46.6% 70,424 1.8% 505,070 10.1%
OTHER PRINCIPAL STOCKHOLDERS:
LKCM Venture Partners I Ltd. ....... 673,993 78.8% -- -- 2,100,628 42.0%
301 Commerce Street,
Suite 1600
Fort Worth, Texas 76102
Citicorp Venture Capital, Ltd. (3) . 2,461,712 74.2% 2,461,712 62.7% 1,250,861 25.0%
399 Park Avenue
New York, New York 10043
BT Capital Partners, Inc. (3) ...... 705,154 45.2% 705,154 18.0% 793,959 15.9%
280 Park Avenue (32W)
New York, New York 10017
World Equity Partners, L.P. (9) .... 496,623 36.7% -- -- -- --
399 Park Avenue
New York, New York 10043
CCT Partners II, L.P. (3)(10) ...... 434,420 33.4% 434,420 11.1% 220,740 4.4%
c/o Citicorp Venture Capital,
Ltd ...........................
399 Park Avenue
New York, New York 10043
Heller Financial, Inc. (11) ........ 310,390 26.6% -- -- -- --
500 West Monroe Street
Chicago, Illinois 60661
HES Management, Inc. ............... 102,650 12.0% -- -- 360,993 7.2%
5956 Sherry Lane, Suite 930
Dallas, Texas 75225
</TABLE>
- ----------
* Less than one percent.
36
<PAGE> 37
(1) Includes 102,650 shares of Class A Common and 360,993 shares of Series
A Preferred held in the name of HES Management, Inc., of which Mr.
Carter may be deemed the beneficial owner as the sole stockholder of
HES Management, Inc. and 291,851 shares of Class A Common that Mr.
Carter may acquire upon the exercise of options within 60 days of
February 28, 1998.
(2) Includes 56,393 shares of Class B Common held in the name of Alchemy,
L.P., of which Mr. McWilliams may be deemed the beneficial owner as the
sole general partner of Alchemy, L.P.
(3) Includes a number of shares of Class A Common that the stockholder may
acquire upon the conversion of shares of Class B Common on a 1-for-1
basis.
(4) Represents 3,750 shares of Class A Common that Mr. Little may acquire
upon the exercise of options within 60 days of February 28, 1998.
(5) Includes 15,000 shares of Class A Common that Mr. DeBusk may acquire
upon the exercise of options within 60 days of February 28, 1998.
(6) Includes 13,125 shares of Class A Common that Mr. Noto may acquire
upon the exercise of options within 60 days of February 28, 1998.
(7) Includes 11,250 shares of Class A Common that Mr. Kaple may acquire
upon the exercise of options within 60 days of February 28, 1998.
(8) Includes 357,476 shares of Class A Common that may be acquired upon the
exercise of options within 60 days of February 28, 1998, and 70,424
shares of Class A Common that may be acquired upon the conversion of
Class B Common.
(9) Represents 496,623 shares of Class A Common that World Equity Partners,
L.P. may purchase upon the exercise of a warrant within 60 days of
February 28, 1998.
(10) William T. Comfort, whose address is c/o Citicorp Venture Capital,
Ltd., 399 Park Avenue, New York, New York, 10043, is the sole director,
the sole executive officer, and the sole stockholder of the general
partner of CCT Partners II, L.P., and may be deemed the beneficial
owner of the securities held in the name of CCT Partners II, L.P.
(11) Heller Financial, Inc. may acquire 310,390 shares of Class C Common
upon the exercise of a warrant within 60 days of February 28, 1998.
Heller Financial, Inc. may acquire 310,390 shares of Class A Common
within 60 days of February 28, 1998, upon exercise of its right to
convert all of its shares of Class C Common into Class A Common on a
1-for-1 basis.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Argent Capital Corporation, of which Mr. Carter is the sole
stockholder, is the tenant under a lease in Dallas, Texas, for office space used
by the Company. The Company pays the rent for this office directly to the
landlord. Total rental payments for 1995, 1996 and 1997 were $46,330, $48,419
and $52,202, respectively.
The Company leases its manufacturing facility in Missouri City, Texas,
from Gracey Corporation ("Gracey"). The spouse of Mr. DeBusk is the beneficial
owner of 7 2/3% of the outstanding capital stock of Gracey held in a trust.
Total rental payments made by the Company to Gracey for 1995, 1996 and 1997 were
$56,100 in each year.
37
<PAGE> 38
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. See the Index to Consolidated Financial Statements in "Item 8 -
Financial Statements and Supplementary Data."
2. Schedules otherwise required by Item 8 or Item 14.2(d) have been
omitted as not required or not applicable.
3. 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.)
38
<PAGE> 39
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.)
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 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.)
10.6 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.)
10.7 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
on November 14, 1997, is hereby incorporated by
reference)
10.8 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.)
10.9 Form of Indemnification Agreement entered into
with directors and certain officers of HydroChem
Industrial Services, Inc. (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.)
10.10 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 (filed
herewith).
10.11 Letter agreement dated March 6, 1998 between
HydroChem Industrial Services, Inc. and
NationsBank of Texas, N.A. (filed herewith).
27.1 Financial Data Schedule (filed herewith).
(b) Reports on Form 8-K.
None.
39
<PAGE> 40
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on the 30th day of
March, 1998.
HYDROCHEM INDUSTRIAL SERVICES, INC.
By: /s/ SELBY F. LITTLE, III
-------------------------------
Selby F. Little, III, Executive Vice President
and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on the 30th day of March, 1998.
NAME: CAPACITIES:
/s/ B. TOM CARTER, JR.
-------------------------
B. Tom Carter, Jr. Chairman of the Board, President and
Chief Executive Officer
/s/ SELBY F. LITTLE, III
-------------------------
Selby F. Little, III Executive Vice President and Chief
Financial Officer
/s/ PATRICIA K. BURNS
-------------------------
Patricia K. Burns Corporate Controller
/s/ ROBERT B. CRATES
-------------------------
Robert B. Crates Director
/s/ THOMAS F. MCWILLIAMS
-------------------------
Thomas F. McWilliams Director
40
<PAGE> 41
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on the 30th day of
March, 1998.
HYDROCHEM INTERNATIONAL, INC.
By: /s/ SELBY F. LITTLE, III
------------------------------
Selby F. Little, III, Executive Vice
President and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on the 30th day of March, 1998.
NAME: CAPACITIES:
/s/ B. TOM CARTER, JR.
--------------------------
B. Tom Carter, Jr. Chairman of the Board, President and
Chief Executive Officer
/s/ SELBY F. LITLLE, III
--------------------------
Selby F. Little, III Executive Vice President and Chief
Financial Officer
/s/ PATRICIA K. BURNS
--------------------------
Patricia K. Burns Corporate Controller
/s/ ROBERT B. CRATES
--------------------------
Robert B. Crates Director
/S/ THOMAS F. MCWILLIAMS
--------------------------
Thomas F. McWilliams Director
41
<PAGE> 42
EXHIBIT INDEX
10.10 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.
10.11 Letter agreement dated March 6, 1998 between HydroChem Industrial
Services, Inc. and NationsBank of Texas, N.A.
27.1 Financial Data Schedule.
42
<PAGE> 1
EXHIBIT 10.10
CREDIT AGREEMENT
Among
HYDROCHEM INDUSTRIAL SERVICES, INC.
as Borrower,
THE FINANCIAL INSTITUTIONS
NAMED IN THIS CREDIT AGREEMENT
as Banks,
and
NATIONSBANK OF TEXAS, N.A.,
as Agent for the Banks
$25,000,000
December 31, 1997
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
ARTICLE 1. DEFINITIONS AND ACCOUNTING TERMS.......................................................1
1.1 Certain Defined Terms..................................................................1
1.2 Computation of Time Periods...........................................................17
1.3 Accounting Terms; Preparation of Financials...........................................17
1.4 Types.................................................................................18
1.5 Interpretation........................................................................18
ARTICLE 2. CREDIT FACILITIES.....................................................................19
2.1 Revolving Loan Facility...............................................................19
2.2 Letter of Credit Facility.............................................................23
2.3 Fees..................................................................................26
2.4 Interest..............................................................................27
2.5 Breakage Costs........................................................................30
2.6 Increased Costs.......................................................................30
2.7 Illegality............................................................................31
2.8 Market Failure........................................................................31
2.9 Payment Procedures and Computations...................................................32
2.10 Taxes.................................................................................34
ARTICLE 3. CONDITIONS PRECEDENT..................................................................35
3.1 Conditions Precedent to Initial Extensions of Credit..................................35
3.2 Conditions Precedent to Each Extension of Credit......................................36
ARTICLE 4. REPRESENTATIONS AND WARRANTIES........................................................36
4.1 Organization..........................................................................36
4.2 Authorization.........................................................................36
4.3 Enforceability........................................................................37
4.4 Absence of Conflicts and Approvals....................................................37
4.5 Investment Companies..................................................................37
4.6 Public Utilities......................................................................37
4.7 Financial Condition...................................................................37
4.8 Condition of Assets...................................................................38
4.9 Litigation............................................................................38
4.10 Subsidiaries..........................................................................38
4.11 Laws and Regulations..................................................................38
</TABLE>
-i-
<PAGE> 3
<TABLE>
<S> <C> <C>
4.12 Environmental Compliance..............................................................38
4.13 ERISA.................................................................................39
4.14 Taxes.................................................................................39
4.15 Authorization and Approvals...........................................................39
4.16 Margin Regulations....................................................................39
4.17 True and Complete Disclosure..........................................................39
4.18 Permits, Licenses, etc................................................................40
ARTICLE 5. COVENANTS.............................................................................40
5.1 Organization..........................................................................40
5.2 Reporting.............................................................................40
5.3 Inspection............................................................................42
5.4 Use of Proceeds.......................................................................42
5.5 Financial Covenants...................................................................43
5.6 Debt..................................................................................44
5.7 Liens.................................................................................44
5.8 Other Obligations.....................................................................44
5.9 Corporate Transactions................................................................44
5.10 Distributions.........................................................................45
5.11 Transactions with Affiliates..........................................................46
5.12 Insurance.............................................................................46
5.13 Investments...........................................................................46
5.14 Lines of Business.....................................................................46
5.15 Compliance with Laws..................................................................46
5.16 Environmental Compliance..............................................................46
5.17 ERISA Compliance......................................................................47
5.18 Payment of Certain Claims.............................................................47
5.19 Subsidiaries..........................................................................47
5.20 Agreements Restricting Liens and Distributions........................................48
5.21 Amendments to Senior Subordinated Notes...............................................48
ARTICLE 6. DEFAULT AND REMEDIES..................................................................48
6.1 Events of Default.....................................................................48
6.2 Termination of Revolving Loan Commitments.............................................49
6.3 Acceleration of Credit Obligations....................................................50
6.4 Cash Collateralization of Letters of Credit...........................................50
6.5 Default Interest......................................................................50
6.6 Right of Setoff.......................................................................50
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C> <C>
6.7 Actions Under Credit Documents........................................................51
6.8 Remedies Cumulative...................................................................51
6.9 Application of Payments...............................................................51
ARTICLE 7. THE AGENT AND THE ISSUING BANK........................................................52
7.1 Authorization and Action..............................................................52
7.2 Reliance, Etc.........................................................................52
7.3 Affiliates............................................................................53
7.4 Bank Credit Decision..................................................................53
7.5 Expenses..............................................................................53
7.6 Indemnification.......................................................................54
7.7 Successor Agent and Issuing Bank......................................................54
ARTICLE 8. MISCELLANEOUS.........................................................................55
8.1 Expenses..............................................................................55
8.2 Indemnification.......................................................................55
8.3 Modifications, Waivers, and Consents..................................................56
8.4 Survival of Agreements................................................................56
8.5 Assignment and Participation..........................................................56
8.6 Notice................................................................................59
8.7 Choice of Law.........................................................................59
8.8 Forum Selection.......................................................................59
8.9 Service of Process....................................................................60
8.10 Waiver of Jury Trial..................................................................60
8.11 Counterparts..........................................................................60
8.12 No Further Agreements.................................................................60
</TABLE>
-iii-
<PAGE> 5
EXHIBITS
Exhibit A - Form of Acquisition Certificate
Exhibit B - Form of Assignment and Acceptance
Exhibit C - Form of Borrowing Base and Compliance Certificate
Exhibit D - Form of Continuation/Conversion Request
Exhibit E - Form of Guaranty
Exhibit F - Form of Revolving Loan Borrowing Request
Exhibit G - Form of Revolving Loan Note
Exhibit H - Closing Documents List
Exhibit I - Form of Joinder Agreement
SCHEDULES
Schedule I - Administrative Information (Borrower; Agent; Banks)
Schedule II - Disclosures (Existing Debt and Existing Subsidiaries)
-iv-
<PAGE> 6
CREDIT AGREEMENT
This Credit Agreement dated as of December 31, 1997, is among HydroChem
Industrial Services, Inc., a Delaware corporation, as Borrower, the financial
institutions named herein, as Banks, and NationsBank of Texas, N.A., as Agent
for the Banks.
The parties hereto agree as follows:
ARTICLE 1. DEFINITIONS AND ACCOUNTING TERMS.
1.1 Certain Defined Terms. As used in this Agreement, the following
terms shall have the following meanings (unless otherwise indicated, such
meanings to be equally applicable to both the singular and plural forms of the
terms defined):
"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.
"Acquisition Certificate" means an acquisition certificate executed by
a Responsible Officer of the Borrower in substantially the form of Exhibit A.
"Adjusted Prime Rate" means, for any day, the fluctuating rate per
annum of interest equal to the greater of (a) the Prime Rate in effect on such
day or (b) the Federal Funds Rate in effect on such day plus 0.50%.
"Affiliate" means, as to any Person, any other Person that, directly or
indirectly, through one or more intermediaries, controls, is controlled by, or
is under common control with, such Person or any Subsidiary of such Person. The
term "control" (including the terms "controlled by" or "under common control
with") means the possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of a Person, whether through
ownership, by contract, or otherwise.
"Agent" means NationsBank in its capacity as an agent pursuant to
Article 7 and any successor agent pursuant to Section 7.7.
"Agreement" means this Credit Agreement.
"Applicable Margin" means, with respect to interest rates and letter of
credit fees and as of any date of its determination, an amount equal to the
percentage amount per annum set forth in the table below opposite the applicable
ratio of (a) the consolidated EBITDA of the Borrower as of the end of the fiscal
quarter then most recently ended for the four fiscal quarters then most recently
ended to (b) the consolidated Interest Charges of the Borrower as of the end of
the fiscal quarter then most recently ended for the four fiscal quarters then
most recently ended, as determined below:
<PAGE> 7
<TABLE>
<CAPTION>
EBITDA to Interest Applicable Margin for Applicable Margin for Applicable Letter of
- ------------------ --------------------- --------------------- --------------------
Charges Ratio LIBOR Tranches Prime Rate Tranches Credit Fees
- ------------- -------------- ------------------- -----------
<S> <C> <C> <C>
< 1.75 2.00% 0.25% 2.00%
- -
< 2.00 but > 1.75 1.75% 0.00% 1.50%
- -
< 2.50 but > 2.00 1.50% 0.00% 1.25%
- -
> .50 1.25% 0.00% 1.00%
</TABLE>
Beginning on the date of this Agreement, the foregoing ratio shall be deemed to
be greater than 1.75 to 1.00 and less than or equal to 2.00 to 1.00 until
receipt of the consolidated financial statements of the Borrower in accordance
with Section 5.2(b). Upon the receipt of such financial statements and
thereafter, the Agent shall periodically determine the Applicable Margin based
upon the most recent financial statements of the Borrower dated as of the end of
a fiscal quarter (including the fourth fiscal quarter) delivered to the Agent
pursuant to Section 5.2(b) (and in the case of the fourth fiscal quarter of each
fiscal year of the Borrower, subject to additional adjustment in accordance with
the following paragraph based upon audited financial statements delivered
pursuant to Section 5.2(a)).
Any such adjustments to the Applicable Margin shall become effective on the 45th
day following the last day of each fiscal quarter (including the fourth fiscal
quarter); provided that; any additional adjustments to the Applicable Margin
shall be made on the 90th day following the last day of the fourth fiscal
quarter of the Borrower; provided, further, that if such financial statements
are not delivered when required hereunder, the Applicable Margin shall increase
to the maximum percentage amount set forth in the table above from such 45th day
following the last day of the applicable quarter until such financial statements
are received by the Agent. Upon any change in the Applicable Margin, the Agent
shall promptly notify the Borrower and the Banks of the new Applicable Margin.
"Applicable Lending Office" means, with respect to each Bank and for
any particular type of transaction, the office of such Bank set forth in
Schedule I to this Agreement (or in the applicable Assignment and Acceptance by
which such Bank joined this Agreement) as its applicable lending office for such
type of transaction or such other office of such Bank as such Bank may from time
to time specify in writing to the Borrower and the Agent for such particular
type of transaction.
"Assignment and Acceptance" means an Assignment and Acceptance in
substantially the form of Exhibit B executed by an assignor Bank, an assignee
Bank, and the Agent, in accordance with Section 8.5.
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<PAGE> 8
"Autoborrow Advance" means an advance made by NationsBank to the
Borrower pursuant to the terms of the Autoborrow Agreement and evidenced by the
Autoborrow Note.
"Autoborrow Agreement" means the Autoborrow Service Agreement between
the Borrower and NationsBank providing for a line of credit in an amount not to
exceed $5,000,000.
"Autoborrow Note" means the Promissory Note made by the Borrower
payable to the order of NationsBank and issued pursuant to the terms of the
Autoborrow Agreement.
"Banks" means the lenders listed as Banks on the signature pages of
this Agreement and each Eligible Assignee that shall become a party to this
Agreement pursuant to Section 8.5(b).
"Borrower" means HydroChem Industrial Services, Inc., a Delaware
corporation.
"Borrower Account" means the principal operating account of Borrower
with the Agent or any other account of Borrower with the Agent which is
designated as Borrower's "Borrower Account" in writing by the Borrower to the
Agent.
"Borrowing Base" means, at any time, an amount equal to (a) 85% of the
Borrower's consolidated Eligible Accounts at such time plus (b) 60% of the
Borrower's consolidated Eligible Inventory at such time.
"Borrowing Base and Compliance Certificate" means a borrowing base and
compliance certificate executed by a Responsible Officer of the Borrower in
substantially the form of Exhibit C.
"Business Day" means any Monday through Friday during which commercial
banks are open for business in Houston, Texas, Dallas, Texas, and, if the
applicable Business Day relates to any LIBOR Tranche, on which dealings are
carried on in the London interbank market.
"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 Person in conformity with
GAAP, but excluding in every instance those expenditures made in connection with
an Acquisition.
-3-
<PAGE> 9
"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.
"Change of Control" means, with respect to the Borrower, (a) a Change
of Control as defined in the Indenture, (b) the direct or indirect acquisition
after the date hereof by any Person or related Persons constituting a group of
(i) beneficial ownership of issued and outstanding shares of Voting Securities
of the Borrower, the result of which acquisition is that such Person or such
group possesses 50% or more of the combined voting power of all then-issued and
outstanding Voting Securities of the Borrower or (ii) the power to elect,
appoint, or cause the election or appointment of at least a majority of the
members of the board of directors of the Borrower, or (c) the individuals who,
at the beginning of any period of 12 consecutive months, constitute the
Borrower's board of directors (together with any new director whose election by
the Borrower's board of directors or whose nomination for election by the
Borrower's stockholders entitled to vote thereon was approved by a vote of at
least a majority of the directors then still in office who either were directors
at the beginning of such period or whose election or nomination for election was
previously so approved) cease for any reason (other than death or disability) to
constitute a majority of the Borrower's board of directors then in office.
"Code" means the Internal Revenue Code of 1986, as amended, or any
successor statute.
"Commonly Controlled Entity" means, with respect to any Person, any
other Person which is under common control with such Person within the meaning
of Section 414 of the Code.
"Continuation/Conversion Request" means a Continuation/Conversion
Request in substantially the form of Exhibit D executed by a Responsible Officer
of the Borrower and delivered to the Agent.
"Credit Documents" means this Agreement, the Revolving Loan Notes, the
Autoborrow Agreement, the Letter of Credit Documents, the Guaranty, the Interest
Hedge Agreements, and each other agreement, instrument, or document executed at
any time in connection with this Agreement.
"Credit Obligations" means all principal, interest, fees,
reimbursements, indemnifications, and other amounts now or hereafter owed by the
Borrower to the Agent and the Banks (or with respect to the Interest Hedge
Agreements, any Affiliates of the Banks) under this Agreement, the Autoborrow
Agreement, the Revolving Loan Notes, the Letter of Credit Documents, and the
other Credit Documents and any increases, extensions, and rearrangements of
those obligations under any amendments, supplements, and other modifications of
the documents and agreements creating those obligations.
-4-
<PAGE> 10
"Credit Parties" means the Borrower and the Guarantors.
"Debt" means, with respect to any Person, without duplication, (a)
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 payable, and other deferred
revenue, deferred expenses and reserves); (b) obligations of such Person
evidenced by bonds, debentures, notes, or other similar instruments and which
constitute liabilities under GAAP; (c) 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; (d) obligations of such Person as
lessee under Capital Leases; (e) obligations of such Person under any swap,
hedge, cap, collar or similar agreement; (f) 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 (a)
through (e) 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, stock, or dividends of any Person; and (g) nonrecourse indebtedness
or obligations of others of the kinds referred to in clauses (a) through (f) 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 (f) 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 (g) that is not covered by clause (f)
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
(a) scheduled principal payments on long term Debt during such period plus (b)
Interest Charges accrued during such period.
"Default" means (a) an Event of Default or (b) any event or condition
which with notice or lapse of time or both would, unless cured or waived, become
an Event of Default.
"Default Rate" means, with respect to any amount due hereunder, a per
annum interest rate equal to (a) if such amount is either outstanding principal
accruing interest based upon a rate established elsewhere in this Agreement or
accrued but unpaid interest thereon, the sum of (i) the interest rate
established elsewhere in this Agreement from time to time for such principal
amount, including any applicable margin, plus (ii) 2.00% per annum or (b) in all
other cases, the Adjusted Prime Rate in effect from time to time plus the
Applicable Margin for Prime Rate Tranches in effect from time to time plus 2.00%
per annum.
-5-
<PAGE> 11
"Derivatives" means any swap, hedge, cap, collar, or similar
arrangement providing for the exchange of risks related to price changes in any
commodity, including money.
"Dollars or $" means lawful money of the United States of America.
"EBIT" 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, income taxes, and minus any interest income
and extraordinary gains of such Person for such period and included in the
calculation of consolidated net income.
"EBITDA" means, with respect to any Person and for any period of its
determination, the EBIT of such Person for such period, plus the consolidated
depreciation and amortization of such Person for such period.
"Eligible Accounts" means, with respect to any Person and as of any
date of its determination by the Agent, the accounts receivable of such Person
which are reflected on the balance sheet of such Person as of such date in
accordance with GAAP, excluding, however:
(a) accounts receivable which are not "accounts" as such term
is defined in the Texas Business & Commerce Code (including those represented by
any promissory note, trade acceptance, chattel paper, draft, or other
instrument);
(b) accounts receivable which did not arise from an
enforceable order or contract for the absolute and final sale of the inventory
or services of the Person, or accounts receivable for which the sales or
services have not been fully performed in the ordinary course of business of the
Person;
(c) all accounts receivable from any account debtor that has
20% or more of its accounts receivable to such Person past due more than 90 days
after the date of the invoices that generated such accounts receivable;
provided, however, that if an account debtor has multiple locations to which the
Borrower submits its invoices for payment, then, with respect to such an account
debtor, the test set forth in this clause (c) shall not be calculated with
respect to such account debtor based on the total accounts receivable due from
such account debtor but shall instead be calculated separately with respect to
the accounts receivable which shall be due from each such location that is
administratively distinctive in terms of the decision to approve invoices for
payment;
(d) any accounts receivable that are past due more than 90
days after the date of the invoice that generated such accounts receivable;
-6-
<PAGE> 12
(e) accounts receivable which are subject to any contest or
offset, including contra accounts, or which have been disputed;
(f) accounts receivable which were not generated in an arm's
length transaction or are accounts receivable from any Affiliate of the Person;
(g) accounts receivable from a foreign Person which are not
supported by a letter of credit approved by the Agent in writing; and
(h) accounts receivable which are otherwise unacceptable as
collateral as determined by the Agent according to the policies of the Agent.
"Eligible Inventory" means, with respect to any Person and as of any
date of its determination by the Agent, the inventory of such Person which is
reflected on the balance sheet of such Person as of such date in accordance with
GAAP, excluding, however:
(a) inventory of such Person out on consignment, inventory
held by such Person on consignment, and inventory which is not "inventory" as
such term is defined in the Texas Business & Commerce Code;
(b) inventory not produced by such Person unless purchased
from a supplier which was not an Affiliate of the Person; and
(c) inventory which is otherwise unacceptable as collateral as
determined by the Agent according to the policies of the Agent.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Eligible Assignee" means, with respect to any assignment hereunder at
the time of such assignment, any commercial bank organized under the laws of the
United States or any of the countries parties to the Organization for Economic
Cooperation and Development or any political subdivision of any thereof which
has primary capital (or its equivalent) of not less than $250,000,000, is
approved by the Agent, and, so long as no Event of Default exists, is approved
by the Borrower, in either case, such approval not to be unreasonably withheld.
"Environmental Law" means all federal, state, and local laws, rules,
regulations, ordinances, orders, decisions, agreements, and other requirements
now or hereafter in effect relating to the pollution, destruction, loss, or
injury of the environment, the presence of any contaminant in the environment,
the protection, cleanup, remediation, or restoration of the environment, the
creation, handling, transportation, use, or disposal of any waste product in the
environment, exposure of persons to any contaminant, waste, or hazardous
substance in the environment, and the health and safety of employees in relation
to their environment.
-7-
<PAGE> 13
"Event of Default" has the meaning specified in Section 6.1.
"Federal Funds Rate" means, for any period, a fluctuating per annum
interest rate equal for each day during such period to the weighted average of
the rates on overnight Federal funds transactions with members of the Federal
Reserve System arranged by Federal funds brokers, as published for such day (or,
if such day is not a Business Day, for the next preceding Business Day) by the
Federal Reserve Bank of New York, or, if such rate is not so published for any
day which is a Business Day, the average of the quotations for any such day on
such transactions received by the Agent from three Federal funds brokers of
recognized standing selected by it.
"Federal Reserve Board" means the Board of Governors of the Federal
Reserve System or any of its successors.
"Financial Statements" means (a) the consolidated balance sheet of the
Borrower and its consolidated Subsidiaries as at December 31, 1996, and the
related consolidated statements of income, cash flow, and retained earnings of
the Borrower and its consolidated Subsidiaries for the fiscal year then ended,
copies of which have been furnished to the Agent, and (b) the consolidated
balance sheet of the Borrower and its consolidated Subsidiaries as at September
30, 1997, and the related consolidated statements of income, cash flow, and
retained earnings of the Borrower and its consolidated Subsidiaries for the
three months and nine months then ended, copies of which have been furnished to
the Agent.
"Funded Debt" means, with respect to any Person, without duplication,
(a) 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 payable, and other deferred
revenues and expenses and reserves); (b) obligations of such Person evidenced by
bonds, debentures, notes, or other similar instruments and which constitute
liabilities under GAAP; (c) 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; (d) obligations of such Person as lessee
under Capital Leases; and (e) 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 (a) through (d) 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, stock,
or dividends of any Person.
-8-
<PAGE> 14
"GAAP" means United States generally accepted accounting principles.
"Governmental Authority" means any foreign governmental authority, the
United States of America, any state of the United States of America and any
subdivision of any of the foregoing, and any agency, department, commission,
board, authority, instrumentality, bureau, or court having jurisdiction over any
Bank, the Borrower, or the Borrower's Subsidiaries or any of their respective
properties.
"Guarantors" means (a) the Subsidiaries of the Borrower that have
executed the Guaranty in connection with the execution of this Agreement and (b)
any future Subsidiaries of the Borrower that join the Guaranty pursuant to
Section 5.19.
"Guaranty" means the Guaranty dated as of December 31, 1997, made by
the Subsidiaries of the Borrower in favor of the Agent for the benefit of the
Agent, the Banks, and the Issuing Bank, guaranteeing the Credit Obligations, in
substantially the form of Exhibit E.
"Hazardous Materials" means any substance or material identified as a
hazardous substance pursuant to the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended and as now or hereafter in
effect; any substance or material regulated as a hazardous waste pursuant to the
Resource Conservation and Recovery Act of 1976, as amended and as now or
hereafter in effect; and any substance or material designated as a hazardous
substance or hazardous waste pursuant to any other Environmental Law.
"Highest Lawful Rate" means the maximum lawful interest rate, if any,
that at any time or from time to time may be contracted for, charged, or
received under the laws applicable to the relevant Bank which are presently in
effect or, to the extent allowed by law, under such applicable laws which may
hereafter be in effect and which allow a higher maximum nonusurious interest
rate than applicable laws now allow. The maximum lawful rate under this
Agreement shall be the weekly indicated rate ceiling under Article 5069-1.04 of
the Texas Revised Civil Statutes, as amended, unless any other lawful rate
ceiling exceeds the rate ceiling so determined, and then the higher rate ceiling
shall apply.
"Indenture" means the Indenture dated as of August 1, 1997 among the
Borrower, Norwest Bank, Minnesota, N.A. as Trustee, and HydroChem International,
Inc. as guarantor.
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<PAGE> 15
"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 Hedge Agreements" means any swap, hedge, cap, collar, or
similar arrangement between the Borrower and any Bank (or any Affiliate of any
Bank or such other Person that has been approved by the Agent) providing for the
exchange of risks related to price changes in the interest rate on the Senior
Subordinated Notes under the Indenture or on the Revolving Loan Advances under
this Agreement.
"Interest Period" means, with respect to each LIBOR Tranche, the period
commencing on the date of such LIBOR Tranche and ending on the last day of the
period selected by the Borrower pursuant to the provisions below. The duration
of each such Interest Period shall be one, two, three, or six months, in each
case as the Borrower may select in the applicable Revolving Loan Borrowing
Request or Continuation/Conversion Request (unless there shall exist any Default
or Event of Default, in which case the Borrower may select only one month
Interest Periods); provided, however, that:
(a) whenever the last day of any Interest Period would otherwise occur
on a day other than a Business Day, the last day of such Interest Period shall
be extended to occur on the next succeeding Business Day; provided that if such
extension would cause the last day of such Interest Period to occur in the next
following calendar month, the last day of such Interest Period shall occur on
the next preceding Business Day;
(b) any Interest Period which begins on the last Business Day of the
calendar month (or on a day for which there is no numerically corresponding day
in the calendar month at the end of such Interest Period) shall end on the last
Business Day of the calendar month in which it would have ended if there were a
numerically corresponding day in such calendar month; and
(c) the Borrower may not, without the consent of the Agent and the
Banks, select an Interest Period for any LIBOR Tranche which ends after the
Revolving Loan Maturity Date.
"Issuing Bank" means NationsBank and any successor issuing bank
pursuant to Section 7.7.
"LIBOR" means, for any LIBOR Tranche for any Interest Period therefor,
the rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%)
appearing on Telerate Page 3750 (or any successor page) as the London interbank
offered rate for deposits in Dollars at approximately 11:00 a.m. (London time)
two Business Days prior to the first day of such Interest Period for a term
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<PAGE> 16
comparable to such Interest Period. If for any reason such rate is not
available, the term "LIBOR" shall mean, for any LIBOR Tranche for any Interest
Period therefor, the rate per annum (rounded upwards, if necessary, to the
nearest 1/100 of 1%) appearing on Reuters Screen LIBO Page as the London
interbank offered rate for deposits in Dollars at approximately 11:00 a.m.
(London time) two Business Days prior to the first day of such Interest Period
for a term comparable to such Interest Period; provided, however, if more than
one rate is specified on Reuters Screen LIBO Page, the applicable rate shall be
the arithmetic mean of all such rates.
"LIBOR Tranche" shall mean any Tranche which bears interest based upon
the LIBOR, as determined in accordance with Section 2.4.
"Legal Requirement" means any law, statute, ordinance, decree,
requirement, order, judgment, rule, regulation (or official interpretation of
any of the foregoing) of, and the terms of any license or permit issued by, any
Governmental Authority, including, but not limited to, Regulations G, T, U, and
X.
"Letter of Credit" means any commercial or standby letter of credit
issued by the Issuing Bank for the account of the Borrower pursuant to the terms
of this Agreement.
"Letter of Credit Application" means the Issuing Bank's standard form
letter of credit application for either a commercial or standby letter of
credit, as the case may be, which has been executed by a Borrower and accepted
by the Issuing Bank in connection with the issuance of a Letter of Credit.
"Letter of Credit Application Amendment" means the Issuing Bank's
standard form application to amend a letter of credit for either a commercial or
standby letter of credit, as the case may be, which has been executed by a
Borrower and accepted by the Issuing Bank in connection with the increase or
extension of a Letter of Credit.
"Letter of Credit Collateral Account" means a special cash collateral
account pledged to the Agent containing cash deposited pursuant to Sections
2.2(d) or 6.4 to be maintained with the Agent in accordance with Section 2.2(g).
"Letter of Credit Documents" means all Letters of Credit, Letter of
Credit Applications, Letter of Credit Application Amendments, and agreements,
documents, and instruments entered into in connection with or relating thereto.
"Letter of Credit Exposure" means, as of any date of its determination,
the aggregate outstanding undrawn amount of Letters of Credit plus (without
duplication) the aggregate of the
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<PAGE> 17
reimbursement obligations of the Borrower under the Letter of Credit
Applications and this Agreement.
"Letter of Credit Sublimit" means $10,000,000.
"Lien" means any mortgage, lien, pledge, charge, deed of trust,
security interest, encumbrance, or other type of preferential arrangement to
secure or provide for the payment of any obligation of any Person, whether
arising by contract, operation of law, or otherwise (including any title
retention for such purposes under any conditional sale agreement, any Capital
Lease, or any other title transfer or retention agreement).
"Majority Banks" means, at any time, Banks holding more than 662/3% of
the then aggregate unpaid principal amount of the Revolving Loan Notes held by
the Banks and the Letter of Credit Exposure of the Banks at such time; provided
that if no such principal amount or Letter of Credit Exposure is then
outstanding, "Majority Banks" shall mean Banks having more than 662/3% of the
aggregate amount of the Revolving Loan Commitments at such time.
"Material Adverse Change" means any material adverse change in the
business, operations, or financial condition of the Borrower and its
Subsidiaries on a consolidated basis.
"NationsBank" means NationsBank of Texas, N.A., in its individual
capacity.
"Net Worth" means, with respect to any Person and as of any date of its
determination, the excess of (a) the assets of such Person on such date over (b)
the liabilities of such Person on such date determined in accordance with GAAP.
"PBGC" means Pension Benefit Guaranty Corporation or its successor.
"Permitted Debt" means all of the following Debt:
(a) Debt in the form of the Credit Obligations;
(b) Debt existing at the date of this Agreement as set forth on
Schedule II;
(c) the Senior Subordinated Notes (and guaranties executed by the
Borrower's Subsidiaries with respect to such Senior Subordinated Notes);
(d) intercompany Debt between the Borrower and (i) any of the
Guarantors or (ii) any Subsidiary that has had at least 66-2/3% of its capital
stock pledged to the Agent for the benefit of
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<PAGE> 18
the Banks pursuant to Section 5.19, in each case subordinated on terms
acceptable to the Agent and Majority Banks;
(e) Debt constituting purchase money debt incurred with respect to the
purchase and construction of real property in an aggregate outstanding principal
amount not to exceed $8,500,000;
(f) Debt constituting purchase money debt incurred with respect to the
purchase of equipment and obligations under Capital Leases in an aggregate
outstanding principal amount for all such Debt under this clause (e) not to
exceed $5,000,000; and
(g) Debt under any Interest Hedge Agreement.
"Permitted Investments" means all of the following investments:
(a) investments in (i) wholly-owned Subsidiaries of the Borrower and
(ii) Persons other than wholly-owned Subsidiaries of the Borrower made in
connection with Acquisitions that have been approved by the Majority Banks, but
no further investments therein unless such further investments have been
approved by the Majority Banks;
(b) current investments in the form of loans, guaranties, open
accounts, and other extensions of trade credit in the ordinary course of
business;
(c) investments in commercial paper and bankers' acceptances maturing
in twelve months or less from the date of issuance and which, at the time of
acquisition, are rated A-2 or better by Standard & Poor's Corporation and P-2 or
better by Moody's Investors Services, Inc.;
(d) investments in direct obligations of the United States of America,
or investments in any Person which investments are guaranteed by the full faith
and credit of the United States, in either case maturing in twelve months or
less from the date of acquisition thereof and repurchase agreements having a
term of less than one year and fully collateralized by such obligations which
are entered into with banks or trust companies described in clause (e) below or
brokerage companies having net worth in excess of $250,000,000;
(e) investments in time deposits or certificates of deposit maturing
within one year from the date such investment is made, issued by a bank or trust
company organized under the laws of the United States of America or any state
thereof having capital, surplus, and undivided profits aggregating at least
$250,000,000 or a foreign branch thereof and whose long-term certificates of
deposit are, at the time of acquisition thereof, rated A-2 (or better) by
Standard & Poor's Corporation or P-2 (or better) by Moody's Investors Services,
Inc.;
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<PAGE> 19
(f) investments in money market funds which invest solely in the types
of investments described in paragraphs (c) through (d) above; and
(g) investments in any Person by HydroChem International, Inc.
consisting of a contribution of its assets located in Singapore and having a
fair market value at the time of contribution not in excess of $2,500,000.
In valuing any investments for the purpose of applying the limitations set forth
in this Agreement, such investments shall be taken at the original cost thereof
(but without reduction for any subsequent appreciation or depreciation thereof)
less any amount actually repaid or recovered on account of capital or principal
(but without reduction for any offsetting investments made by the investee in
the investor). For purposes of this Agreement, at any time when a Person becomes
a Subsidiary of the Borrower, all investments of such Person at the time of
acquisition shall be deemed to have been made by such Person at such time.
"Permitted Liens" means all of the following Liens:
(a) Liens securing the Credit Obligations;
(b) Liens securing purchase money debt or Capital Leases permitted
under clauses (e) and (f) of the definition of Permitted Debt provided that no
such Lien is spread to cover any property not purchased or leased in connection
with the incurrence of such Debt;
(c) Liens arising in the ordinary course of business which are not
incurred in connection with the borrowing of money, the obtaining of advances or
credit, or payment of legal judgments and which do not materially detract from
the value of any Restricted Entity's assets or materially interfere with any
Restricted Entity's business, including such (i) Liens for taxes, assessments,
or other governmental charges or levies; (ii) Liens in connection with worker's
compensation, unemployment insurance, or other social security, old age pension,
or public liability obligations; (iii) Liens in the form of legal or equitable
encumbrances deemed to exist by reason of negative pledge covenants and other
covenants or undertakings of like nature otherwise permitted by this Agreement;
(iv) Liens in the form of vendors', carriers', warehousemen's, repairmen's,
mechanics', workmen's, materialmen's, construction, or other like Liens arising
by operation of law in the ordinary course of business or incident to the
construction or improvement of any property; and (v) Liens in the form of zoning
restrictions, easements, licenses, and other restrictions on the use of real
property or minor irregularities in title thereto which do not materially impair
the use of such property in the operation of the business of the applicable
Restricted Entity or the value of such property; and
(d) Liens described on Schedule II (Disclosure Schedules) attached
hereto.
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"Person" means an individual, partnership, corporation (including a
business trust), joint stock company, trust, unincorporated association, joint
venture, or other entity, or a government or any political subdivision or agency
thereof, or any trustee, receiver, custodian, or similar official.
"Plan" means any (a) employee medical benefit plan under Section 3(1)
of ERISA, (b) employee pension benefit plan under Section 3(2) of ERISA, (c)
multiemployer plan under Section 4001(a)(3) of ERISA, and (d) employee account
benefit plan under Section 3(2) of ERISA.
"Prime Rate" means, for any day, the fluctuating per annum interest
rate in effect on such day equal to the rate of interest publicly announced by
the Agent as its prime rate, whether or not the Borrower has notice thereof.
"Prime Rate Tranche" means any Tranche which bears interest based upon
the Adjusted Prime Rate, as determined in accordance with Section 2.4.
"Prohibited Transaction" means any transaction set forth in Section 406
of ERISA or Section 4975 of the Code.
"ratable share" or "pro rata share" means, with respect to any Bank and
as of any date of its determination, either (a) the ratio of such Bank's
Revolving Loan Commitment at such time to the aggregate Revolving Loan
Commitments at such time or (b) if the Revolving Loan Commitments have been
terminated, the ratio of such Bank's aggregate outstanding Revolving Loan
Advances and share of the Letter of Credit Exposure at such time to the
aggregate outstanding Revolving Loan Advances and Letter of Credit Exposure at
such time.
"Regulations G, T, U, and X" means Regulations G, T, U, and X of the
Federal Reserve Board, as the same are from time to time in effect, and all
official rulings and interpretations thereunder or thereof.
"Related Parties" means, with respect to any Person, such Person's
stockholders, directors, officers, employees, agents, Affiliates, successors,
and assigns, and their respective stockholders, directors, officers, employees,
and agents, and, with respect to any Person that is an individual, such Person's
family relations and heirs.
"Reportable Event" means any of the events set forth in Section 4043 of
ERISA.
"Responsible Officer" means, with respect to any Person, such Person's
Chief Executive Officer, President, Chief Financial Officer, Vice President of
Corporate Development, Secretary,
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Treasurer, or any other officer of such Person designated by any of the
foregoing in writing from time to time.
"Restricted Entities" means the Borrower and each Subsidiary of the
Borrower.
"Restricted Payment" means (a) the declaration or payment by any Person
of any dividends; (b) the purchase, redemption, retirement, or other acquisition
for value of any of its capital stock (or other ownership interest) now or
hereafter outstanding, or any distribution of assets to its stockholders as
such, whether in cash, assets, or obligations of such Person; (c) any allocation
or other setting apart of any sum for the payment of any dividend or
distribution on, or purchase, redemption, or retirement of, any shares of its
capital stock (or other ownership interest); (d) any other distribution by
reduction of capital or otherwise in respect of any shares of its capital stock
(or other ownership interest); or (e) any payment, prepayment, or redemption of
any Subordinated Debt.
"Revolving Loan" means the aggregate outstanding principal amount of
the Revolving Loan Borrowings.
"Revolving Loan Advance" means the outstanding principal from a Bank
which represents such Bank's ratable share of a Revolving Loan Borrowing.
"Revolving Loan Borrowing" means any aggregate amount of principal
advanced on the same day and pursuant to the same Revolving Loan Borrowing
Request under the revolving loan facility created in Section 2.1.
"Revolving Loan Borrowing Request" means a Revolving Loan Borrowing
Request in substantially the form of Exhibit F executed by a Responsible Officer
of the Borrower and delivered to the Agent.
"Revolving Loan Commitment" means, for any Bank, the amount set forth
below such Bank's name on the signature pages of this Agreement as its Revolving
Loan Commitment, or if such Bank has entered into any Assignment and Acceptance
since the date of this Agreement, as set forth for such Bank as its Revolving
Loan Commitment in the Register maintained by the Agent pursuant to Section
8.5(c), in each case as such amount may be terminated pursuant to Section 6.2.
"Revolving Loan Maturity Date" means December 31, 2000.
"Revolving Loan Note" means a promissory note of the Borrower payable
to the order of a Bank, in substantially the form of Exhibit G, evidencing the
indebtedness of the Borrower to such Bank resulting from Revolving Loan Advances
made by such Bank to the Borrower.
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<PAGE> 22
"Senior Subordinated Notes" means the 103/8% Series B Senior
Subordinated Notes due August 1, 2007, issued pursuant to the Indenture.
"Subordinated Debt" means (a) the Senior Subordinated Notes and (b) any
other Debt issued by the Borrower that (i) is debt for borrowed money, (ii) is
unsecured, (iii) has no recourse to any of the Subsidiaries of the Borrower
(whether through a guaranty executed by any such Subsidiary, a pledge of assets
by such Subsidiary or otherwise), (iv) does not amortize and has a maturity no
earlier than the Revolving Loan Maturity Date, and (v) is subordinated on terms
that are acceptable to the Agent and the Majority Banks.
"Subsidiary" means, with respect to any Person, any other Person, a
majority of whose outstanding Voting Securities (other than directors'
qualifying shares) shall at any time be owned by such Person or one or more
Subsidiaries of such person.
"Tranche" means any tranche of principal outstanding under the
Revolving Loan accruing interest on the same basis whether created in connection
with new advances of principal under the Revolving Loan pursuant to Section
2.4(a)(i) or by the continuation or conversion of existing tranches of principal
under the Revolving Loan pursuant to Section 2.4(a)(ii) and shall include any
Prime Rate Tranche or LIBOR Tranche.
"Type" has the meaning set forth in Section 1.4.
"Voting Securities" means (a) with respect to any corporation, any
capital stock of the corporation having general voting power under ordinary
circumstances to elect directors of such corporation, (b) with respect to any
partnership, any partnership interest having general voting power under ordinary
circumstances to elect the general partner or other management of the
partnership, and (c) with respect to any other Person, such ownership interests
in such Person having general voting power under ordinary circumstances to elect
the management of such Person, in each case irrespective of whether at the time
any other class of stock, partnership interests, or other ownership interest
might have special voting power or rights by reason of the happening of any
contingency.
1.2 Computation of Time Periods. In this Agreement in the computation
of periods of time from a specified date to a later specified date, the word
"from" means "from and including" and the words "to" and "until" each means "to
but excluding."
1.3 Accounting Terms; Preparation of Financials.
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(a) All accounting terms, definitions, ratios, and other tests
described herein shall be construed in accordance with GAAP applied on a
consistent basis with those applied in the preparation of the financial
statements, except as expressly set forth in this Agreement.
(b) The Restricted Entities shall prepare their financial
statements in accordance with GAAP applied on a consistent basis with those
applied in the preparation of the Financial Statements, unless otherwise
approved in writing by the Agent.
(c) The Restricted Entities shall prepare all proforma
financial statements reflecting Acquisitions in accordance with the requirements
established by the Securities and Exchange Commission for acquisition accounting
for reported acquisitions by public companies, whether or not the applicable
Acquisitions are required to be publicly reported, and applying such
requirements to make such proforma financial statements reflect the accounting
procedures used in the preparation of the regular financial statements of the
Restricted Entities unless otherwise approved in writing by the Agent.
1.4 Types. The "Type" of a Tranche refers to the determination whether
such tranche is a LIBOR Tranche or a Prime Rate Tranche.
1.5 Interpretation. Article, Section, Schedule, and Exhibit references
are to this Agreement, unless otherwise specified. All references to
instruments, documents, contracts, and agreements are references to such
instruments, documents, contracts, and agreements as the same may be amended,
supplemented, and otherwise modified from time to time, unless otherwise
specified. The word "including" shall mean "including but not limited to." The
word "or" shall mean "and/or" wherever necessary to prevent interpretation of
any provision against the Agent or the Banks. Whenever the Borrower has an
obligation under this Agreement and the Credit Documents, the expense of
complying with that obligation shall be an expense of the Borrower unless
otherwise specified. Whenever any determination is to be made by the Agent or
any Bank, such determination shall be in such Person's sole discretion unless
otherwise specified in this Agreement. If any provision in this Agreement and
the Credit Documents is held to be illegal, invalid, not binding, or
unenforceable, such provision shall be fully severable and this Agreement and
the Credit Documents shall be construed and enforced as if such illegal,
invalid, not binding, or unenforceable provision had never comprised a part of
this Agreement and the Credit Documents, and the remaining provisions shall
remain in full force and effect. This Agreement and the Credit Documents have
been reviewed and negotiated by sophisticated parties with access to legal
counsel and shall not be construed against the drafter. In the event of a
conflict between this Agreement and any other Credit Documents, this Agreement
shall control.
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ARTICLE 2. CREDIT FACILITIES.
2.1 Revolving Loan Facility.
(a) (i) Revolving Loan Commitments. Each Bank severally
agrees, on the terms and conditions set forth in this Agreement and for the
purposes set forth in Section 5.4, to make Revolving Loan Advances to the
Borrower as such Bank's ratable share of Revolving Loan Borrowings requested by
the Borrower from time to time on any Business Day during the period from the
date of this Agreement until the Revolving Loan Maturity Date; provided that (i)
the aggregate outstanding principal amount of Revolving Loan Advances made by
such Bank plus such Bank's ratable share of the Letter of Credit Exposure shall
not exceed such Bank's Revolving Loan Commitment and (ii) the aggregate
outstanding principal amount of the Revolving Loan plus the Letter of Credit
Exposure plus the aggregate outstanding principal amount of the Autoborrow
Advances shall not exceed the aggregate Commitments. Revolving Loan Borrowings
must be made in an amount equal to or greater than (A) with respect to Revolving
Loan Advances bearing interest based on the Prime Rate, $100,000 and in integral
multiples of $100,000 in excess thereof and (B) with respect to Revolving Loan
Advances bearing interest based on LIBOR, $300,000 and in integral multiples of
$100,000 in excess thereof. Within the limits expressed in this Agreement, the
Borrower may from time to time borrow, prepay, and reborrow Revolving Loan
Borrowings. The indebtedness of the Borrower to the Banks resulting from the
Revolving Loan Advances made by the Banks shall be evidenced by Revolving Loan
Notes made by the Borrower.
(ii) Reduction of Revolving Loan Commitments The Borrower
shall have the right, upon at least 30 days' advance notice to the Agent, to
reduce ratably in part or terminate in whole the Revolving Loan Commitments.
Each such notice shall specify the amount of the termination or reduction and
shall be irrevocable and binding on the Borrower. Partial reductions shall be in
a minimum amount of $1,000,000 and be made in integral multiples of $1,000,000.
In the event of any partial reduction, each Bank's Revolving Loan Commitment
shall be reduced pro rata. The Revolving Loan Commitments cannot be reduced
below the amount of the Revolving Loan plus the Letter of Credit Exposure plus
the aggregate outstanding principal amount of the Autoborrow Advances. Any
termination or reduction of the Revolving Loan Commitments pursuant to this
Section 2.1(a)(ii) shall be permanent, with no obligation of the Banks to
reinstate such reduced or terminated Revolving Loan Commitments.
(b) Reimbursements for Autoborrow Advances. With respect to
any Autoborrow Advance and in accordance with the related Autoborrow Agreement,
the Borrower agrees to pay to NationsBank at the times required by the
Autoborrow Agreement any amount due to NationsBank under the Autoborrow
Agreement. If the Borrower does not pay any amount when due to NationsBank, in
addition to any rights NationsBank may have under such Autoborrow Agreement,
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<PAGE> 25
NationsBank may upon written notice to the Agent request the satisfaction of
such obligation by the making of a Revolving Loan Borrowing. Upon such request,
the Borrower shall be deemed to have requested the making of a Revolving Loan
Borrowing in the amount of such obligation and the transfer of the proceeds
thereof to NationsBank. Such Revolving Loan Borrowing shall be comprised of a
Prime Rate Tranche. The Agent shall promptly forward notice of such Revolving
Loan Borrowing to the Borrower and the Banks, and each Bank shall, in accordance
with the procedures of Section 2.1(c), other than limitations on the size of
Revolving Loan Borrowings, and notwithstanding the failure of any conditions
precedent, make available such Bank's ratable share of such Revolving Loan
Borrowing to the Agent, and the Agent shall promptly deliver the proceeds
thereof to NationsBank for application to such Bank's share of the obligations
under such Autoborrow Advance. The Borrower hereby unconditionally and
irrevocably authorizes, empowers, and directs NationsBank to make such requests
for Revolving Loan Borrowings on behalf of the Borrower, and the Banks to make
Revolving Loan Advances to the Agent for the benefit of NationsBank in
satisfaction of such obligations. The Agent and each Bank may record and
otherwise treat the making of such Revolving Loan Borrowings as the making of
Revolving Loan Borrowings to the Borrower under this Agreement as if requested
by the Borrower. Nothing herein is intended to release the Borrower's
obligations under the Autoborrow Agreement, but only to provide an additional
method of payment therefor. The making of any Revolving Loan Borrowing under
this Section 2.1(b) shall not constitute a cure or waiver of any Default or
Event of Default caused by the Borrower's failure to comply with the provisions
of this Agreement or the Autoborrow Agreement.
(c) Method of Advancing
(i) Each Revolving Loan Borrowing shall be made
pursuant to a Revolving Loan Borrowing Request given by the Borrower to the
Agent in writing or by telecopy not later than the time required pursuant to
Section 2.4(a)(i) to select the interest rate basis for the Revolving Loan
Borrowing. Each Revolving Loan Borrowing Request shall be fully completed and
shall specify the information required therein, and shall be irrevocable and
binding on the Borrower. If the Revolving Loan Borrowing Request is received by
the Agent and has been correctly completed, the Agent shall promptly forward
notice of the Revolving Loan Borrowing to the Banks. Each Bank shall, before
2:00 p.m. (local time at the Applicable Lending Office of the Agent) on the date
of the requested Revolving Loan Borrowing, make available from its Applicable
Lending Office to the Agent at the Agent's Applicable Lending Office, in
immediately available funds, such Bank's ratable share of such Revolving Loan
Borrowing. Subject to the satisfaction of all applicable conditions precedent,
after receipt by the Agent of such funds, the Agent shall before close of
business on the date requested for such Revolving Loan Borrowing make such
Revolving Loan Borrowing available to the Borrower in immediately available
funds at the Borrower Account.
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(ii) Unless the Agent shall have received notice from
a Bank before the date of any Revolving Loan Borrowing that such Bank shall not
make available to the Agent such Bank's ratable share of such Revolving Loan
Borrowing, the Agent may assume that such Bank has made its ratable share of
such Revolving Loan Borrowing available to the Agent on the date of such
Revolving Loan Borrowing in accordance with paragraph (i) above and the Agent
may, in reliance upon such assumption, make available to the Borrower on such
date a corresponding amount. If and to the extent that such Bank shall not have
so made its ratable share of such Revolving Loan Borrowing available to the
Agent, such Bank agrees that it shall pay interest on such amount for each day
from the date such amount is made available to the Borrower by the Agent until
the date such amount is paid to the Agent by such Bank at the Federal Funds Rate
in effect from time to time, provided that with respect to such Bank if such
amount is not paid by such Bank by the end of the second day after the Agent
makes such amount available to the Borrower, the interest rates specified above
shall be increased by a per annum amount equal to 2.00% on the third day and
shall remain at such increased rate thereafter. Interest on such amount shall be
due and payable by such Bank upon demand by the Agent. If such Bank shall pay to
the Agent such amount and interest as provided above, such amount so paid shall
constitute such Bank's Revolving Loan Advance as part of such Revolving Loan
Borrowing for all purposes of this Agreement even though not made on the same
day as the other Revolving Loan Advances comprising such Revolving Loan
Borrowing. In the event that such Bank has not repaid such amount by the end of
the fifth day after such amount was made available to the Borrower, the Borrower
agrees to repay to the Agent on demand such amount, together with interest on
such amount for each day from the date such amount was made available to the
Borrower until the date such amount is repaid to the Agent at the interest rate
charged to the Borrower for such Revolving Loan Borrowing under the terms of
this Agreement.
(iii) The failure of any Bank to make available its
ratable share of any Revolving Loan Borrowing shall not relieve any other Bank
of its obligation, if any, to make available its ratable share of such Revolving
Loan Borrowing. No Bank shall be responsible for the failure of any other Bank
to honor such other Bank's obligations hereunder, including any failure to make
available any funds as part of any Revolving Loan Borrowing.
(d) Prepayment.
(i) The Borrower may prepay the outstanding
principal amount of the Revolving Loan pursuant to written notice given by the
Borrower to the Agent in writing or by telecopy not later than (A) 2:00 p.m.
(local time at the Applicable Lending Office of the Agent) on the third Business
Day before the date of the proposed prepayment, in the case of the prepayment of
any portion of the Revolving Loan which is comprised of LIBOR Tranches, or (B)
12:00 noon (local time at the Applicable Lending Office of the Agent) on the
same Business Day of the proposed prepayment, in the case of the prepayment of
any portion of the Revolving Loan comprised solely
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of Prime Rate Tranches. Each such notice shall specify the principal amount and
Tranches of the Revolving Loan which shall be prepaid, the date of the
prepayment, and shall be irrevocable and binding on the Borrower. Prepayments of
the Revolving Loan shall be made in an amount equal to (I) with respect to
Revolving Loan Advances bearing interest based upon the Prime Rate, $100,000 and
in integral multiples of $100,000 in excess thereof and (II) with respect to
Revolving Loan Advances bearing interest based upon LIBOR, $300,000 and in
integral multiples of $100,000 in excess thereof. If the prepayment would cause
the aggregate outstanding principal amount of any LIBOR Tranche comprising all
or any part of the Revolving Loan to be less than $300,000, or the aggregate
outstanding principal amount of all Prime Rate Tranches comprising all or any
part of the Revolving Loan to be less than $100,000, the prepayment must be in
an amount equal to the entire outstanding principal amount of such LIBOR Tranche
under the Revolving Loan or the entire outstanding principal amount of all Prime
Rate Tranches under the Revolving Loan, as the case may be. Upon receipt of any
notice of prepayment, the Agent shall give prompt notice of the intended
prepayment to the Banks. For each such notice given by the Borrower, the
Borrower shall prepay the Revolving Loan in the specified amount on the
specified date as set forth in such notice. The Borrower shall have no right to
prepay any principal amount of the Revolving Loan except as provided in this
Section 2.1(d)(i).
(ii) If the aggregate outstanding principal
amount of the Revolving Loan plus the Letter of Credit Exposure plus the
aggregate outstanding principal amount of the Autoborrow Advances exceeds either
(A) the aggregate Commitments or (B) the Borrowing Base, the Borrower shall
prepay the Revolving Loan in an amount equal to such excess; provided that, if
the Revolving Loan shall have been paid in full, the Borrower shall prepay the
Autoborrow Advances until such Autoborrow Advances are paid in full and then, if
any excess shall still exist, the Borrower shall deposit cash collateral with
the Agent to secure the Letter of Credit Exposure in an amount equal to such
remaining excess.
(iii) Each prepayment of principal of any LIBOR
Tranche under the Revolving Loan pursuant to this Section 2.1(c) shall be
accompanied by payment of all accrued but unpaid interest on the principal
amount prepaid and any amounts required to be paid pursuant to Section 2.5 (and
specified by the Agent as owing) as a result of such prepayment.
(e) Repayment. The Borrower shall pay to the Agent for the
ratable benefit of the Banks the aggregate outstanding principal amount of the
Revolving Loan on the Revolving Loan Maturity Date.
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2.2 Letter of Credit Facility.
(a) Commitment for Letters of Credit. The Issuing Bank shall,
on the terms and conditions set forth in this Agreement and for the purposes set
forth in Section 5.4, issue, increase, and extend Letters of Credit at the
request of the Borrower from time to time on any Business Day during the period
from the date of this Agreement until the Revolving Loan Maturity Date provided
that (i) the Letter of Credit Exposure shall not exceed the Letter of Credit
Sublimit and (ii) the aggregate outstanding principal amount of Revolving Loan
Borrowings plus the Letter of Credit Exposure plus the aggregate outstanding
principal amount of Autoborrow Advances shall not exceed the lesser of (A) the
aggregate amount of the Revolving Loan Commitments and (B) the Borrowing Base.
No Letter of Credit may have an expiration date later than 12 months after its
issuance date, and each Letter of Credit which is self-extending beyond its
expiration date must be cancelable upon at least 30 days notice given by the
Issuing Bank to the beneficiary of such Letter of Credit. No Letter of Credit
may have an expiration date later than the Revolving Loan Maturity Date unless
approved by the Issuing Bank, the Agent, and the Banks. Each Letter of Credit
must be in form and substance acceptable to the Issuing Bank. The indebtedness
of the Borrower to the Issuing Bank resulting from Letters of Credit requested
by the Borrower shall be evidenced by the Letter of Credit Applications made by
the Borrower.
(b) Requesting Letters of Credit. Each Letter of Credit shall
be issued, increased, or extended pursuant to a Letter of Credit Application or
Letter of Credit Application Amendment, as applicable, given by the Borrower to
the Issuing Bank in writing or by telecopy promptly confirmed in writing, such
Letter of Credit Application or Letter of Credit Application Amendment being
given not later than 2:00 p.m. (local time at the Applicable Lending Office of
the Agent) on the third Business Day before the date of the proposed issuance,
increase, or extension of the Letter of Credit. Each Letter of Credit
Application or Letter of Credit Application Amendment shall be fully completed
and shall specify the information required therein (including the proposed form
of the Letter of Credit or change thereto), and shall be irrevocable and binding
on the Borrower. If the Issuing Bank accepts the Letter of Credit Application or
Letter of Credit Application Amendment, the Issuing Bank shall give prompt
notice thereof to the Agent, and the Agent shall promptly inform the Banks of
the proposed Letter of Credit or change thereto. Subject to the satisfaction of
all applicable conditions precedent, the Issuing Bank shall before close of
business on the date requested by the Borrower for the issuance, increase, or
extension of such Letter of Credit issue, increase, or extend such Letter of
Credit to the specified beneficiary. Upon the date of the issuance, increase, or
extension of a Letter of Credit, the Issuing Bank shall be deemed to have sold
to each other Bank and each other Bank shall be deemed to have purchased from
the Issuing Bank a ratable participation in the related Letter of Credit or
change thereto. The Issuing Bank shall notify the Agent of each Letter of Credit
issued, increased, or extended and the date and amount of each Bank's
participation in such Letter of Credit, and the Agent shall in turn notify the
Banks.
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(c) Reimbursements for Letters of Credit. With respect to any
Letter of Credit and in accordance with the related Letter of Credit
Application, the Borrower agrees to pay to the Issuing Bank on demand of the
Issuing Bank any amount due to the Issuing Bank under such Letter of Credit
Application (provided that fees due with respect to such Letter of Credit shall
be payable as specified in Section 2.3(c)). If the Borrower does not pay upon
demand of the Issuing Bank any amount due to the Issuing Bank under any Letter
of Credit Application, in addition to any rights the Issuing Bank may have under
such Letter of Credit Application, the Issuing Bank may upon written notice to
the Agent request the satisfaction of such obligation by the making of a
Revolving Loan Borrowing. Upon such request, the Borrower shall be deemed to
have requested the making of a Revolving Loan Borrowing in the amount of such
obligation and the transfer of the proceeds thereof to the Issuing Bank. Such
Revolving Loan Borrowing shall be comprised of a Prime Rate Tranche. The Agent
shall promptly forward notice of such Revolving Loan Borrowing to the Borrower
and the Banks, and each Bank shall, in accordance with the procedures of Section
2.1(c), other than limitations on the size of Revolving Loan Borrowings, and
notwithstanding the failure of any conditions precedent, make available such
Bank's ratable share of such Revolving Loan Borrowing to the Agent, and the
Agent shall promptly deliver the proceeds thereof to the Issuing Bank for
application to such Bank's share of the obligations under such Letter of Credit.
The Borrower hereby unconditionally and irrevocably authorizes, empowers, and
directs the Issuing Bank to make such requests for Revolving Loan Borrowings on
behalf of the Borrower, and the Banks to make Revolving Loan Advances to the
Agent for the benefit of the Issuing Bank in satisfaction of such obligations.
The Agent and each Bank may record and otherwise treat the making of such
Revolving Loan Borrowings as the making of Revolving Loan Borrowings to the
Borrower under this Agreement as if requested by the Borrower. Nothing herein is
intended to release the Borrower's obligations under any Letter of Credit
Application, but only to provide an additional method of payment therefor. The
making of any Revolving Loan Borrowing under this Section 2.2(c) shall not
constitute a cure or waiver of any Default or Event of Default caused by the
Borrower's failure to comply with the provisions of this Agreement or any Letter
of Credit Application.
(d) Prepayments of Letters of Credit. In the event that any
Letters of Credit shall be outstanding or shall be drawn and not reimbursed
after the Revolving Loan Maturity Date, the Borrower shall pay to the Agent an
amount equal to the Letter of Credit Exposure allocable to such Letters of
Credit to be held in the Letter of Credit Collateral Account and applied in
accordance with paragraph (g) below.
(e) Obligations Unconditional. The obligations of the Borrower
and each Bank under this Agreement and the Letter of Credit Applications to make
payments as required to reimburse the Issuing Bank for draws under Letters of
Credit and to make other payments due in respect of Letters of Credit shall be
unconditional and irrevocable, and shall be paid strictly in accordance with the
terms of this Agreement and the Letter of Credit Applications under all
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circumstances, including: (i) any lack of validity or enforceability of any
Letter of Credit Document; (ii) any amendment, waiver, or consent to departure
from any Letter of Credit Document; (iii) the existence of any claim, set-off,
defense, or other right which the Borrower or any Bank may have at any time
against any beneficiary or transferee of any Letter of Credit (or any Persons
for whom any such beneficiary or any such transferee may be acting), the Issuing
Bank, or any other person or entity, whether in connection with the transactions
contemplated in this Agreement or any unrelated transaction; (iv) any statement
or any other document presented under such Letter of Credit proving to be
forged, fraudulent, invalid, or insufficient in any respect or any statement
therein being untrue or inaccurate in any respect; or (v) payment by the Issuing
Bank under any Letter of Credit against presentation of a draft or certificate
which does not comply with the terms of such Letter of Credit; provided,
however, that nothing contained in this paragraph (e) shall be deemed to
constitute a waiver of any remedies of the Borrower or any Bank in connection
with the Letters of Credit or the Borrower's or such Bank's rights under
paragraph (f) below.
(f) Liability of Issuing Bank. The Issuing Bank shall
not be liable or responsible for: (i) the use which may be made of any Letter of
Credit or any acts or omissions of any beneficiary or transferee in connection
therewith; (ii) the validity, sufficiency, or genuineness of documents related
to Letters of Credit, or of any endorsement thereon, even if such documents
should prove to be in any or all respects invalid, insufficient, fraudulent, or
forged; (iii) payment by the Issuing Bank against presentation of documents
which do not strictly comply with the terms of a Letter of Credit, including
failure of any documents to bear any reference or adequate reference to the
relevant Letter of Credit; or (iv) any other circumstances whatsoever in making
or failing to make payment under any Letter of Credit (INCLUDING THE ISSUING
BANK'S OWN NEGLIGENCE); except that the Issuing Bank shall be liable to the
Borrower or any Bank to the extent of any direct, as opposed to consequential,
damages suffered by the Borrower or such Bank which the Borrower or such Bank
proves were caused by (A) the Issuing Bank's gross negligence or willful
misconduct in determining whether documents presented under a Letter of Credit
comply with the terms of such Letter of Credit or (B) the Issuing Bank's willful
failure to make or delay in making lawful payment under any Letter of Credit
after the presentation to it of documentation strictly complying with the terms
and conditions of such Letter of Credit.
(g) Letter of Credit Collateral Account.
(i) If the Borrower is required to deposit
funds in the Letter of Credit Collateral Account pursuant to Sections 2.2(d) or
6.4, then the Borrower and the Agent shall establish the Letter of Credit
Collateral Account and the Borrower shall execute any documents and agreements,
including the Agent's standard form assignment of deposit accounts, that the
Agent requests in connection therewith to establish the Letter of Credit
Collateral Account and grant the Agent a first priority security interest in
such account and the funds therein. The Borrower hereby
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pledges to the Agent and grants the Agent a security interest in the Letter of
Credit Collateral Account, whenever established, all funds held in the Letter of
Credit Collateral Account from time to time, and all proceeds thereof as
security for the payment of the Credit Obligations.
(ii) Funds held in the Letter of Credit Collateral
Account shall be held as cash collateral for obligations with respect to Letters
of Credit and promptly applied by the Agent at the request of the Issuing Bank
to any reimbursement or other obligations under Letters of Credit that exist or
occur. To the extent that any surplus funds are held in the Letter of Credit
Collateral Account above the Letter of Credit Exposure, during the existence of
an Event of Default the Agent may (A) hold such surplus funds in the Letter of
Credit Collateral Account as cash collateral for the Credit Obligations or (B)
apply such surplus funds to any Credit Obligations in accordance with Section
6.9. If no Default exists, the Agent shall release to the Borrower at the
Borrower's written request any funds held in the Letter of Credit Collateral
Account above the amounts required by Section 2.2(d).
(iii) Funds held in the Letter of Credit Collateral
Account shall be invested in Cash Equivalents (as defined in the Indenture)
maintained with, and under the sole dominion and control of, the Agent or in
another investment if mutually agreed upon by the Borrower and the Agent
(provided such investment is permitted by the Indenture), but the Agent shall
have no other obligation to make any other investment of the funds therein. The
Agent shall exercise reasonable care in the custody and preservation of any
funds held in the Letter of Credit Collateral Account and shall be deemed to
have exercised such care if such funds are accorded treatment substantially
equivalent to that which the Agent accords its own property, it being understood
that the Agent shall not have any responsibility for taking any necessary steps
to preserve rights against any parties with respect to any such funds.
2.3 Fees.
(a) Facility Fee. The Borrower shall pay the Agent for the
ratable benefit of the Banks a facility fee in an amount equal to .30%
multiplied by the aggregate Revolving Loan Commitments on the date of this
Agreement less any deposit made in respect of such facility fee before the date
of this Agreement. Such facility fee shall be due and payable within 90 days
after the date of this Agreement.
(b) Unused Revolving Loan Commitment Fees. The Borrower shall
pay to the Agent for the ratable benefit of the Banks an unused commitment fee
in an amount equal to .25% per annum multiplied by the average daily amount by
which (i) the aggregate amount of the Revolving Loan Commitments exceeds (ii)
the aggregate outstanding principal amount of the Revolving Loan plus the
aggregate outstanding principal amount of the Autoborrow Advances plus
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the Letter of Credit Exposure. The unused commitment fee shall commence to
accrue upon the date of this Agreement and shall be due and payable in arrears
on the last day of each calendar quarter and on the Revolving Loan Maturity
Date.
(c) Fees for Letters of Credit. For each Letter of Credit
issued by the Issuing Bank, the Borrower shall pay to the Agent for the ratable
benefit of the Banks a letter of credit fee equal to the Applicable Margin for
letter of credit fees per annum on the face amount of such Letter of Credit for
the stated term of such Letter of Credit. In addition, for each Letter of Credit
issued by the Issuing Bank and outstanding when any Person other than the Agent
is a Bank, the Borrower shall pay to the Agent for the benefit of the Issuing
Bank a fronting fee of 0.125% per annum on the face amount of such Letter of
Credit for the stated term of such Letter of Credit. The Borrower shall pay such
letter of credit fees for each Letter of Credit quarterly in arrears on the last
day of each calendar quarter.
(d) Administrative Fees. The Borrower shall pay to the Agent a
non-refundable administrative fee of $75,000, $15,000 of which has previously
been paid prior to the date of this Agreement and the $60,000 balance of which
is due and payable in immediately available funds on March 31, 1998.
2.4 Interest.
(a) Election of Interest Rate Basis. The Borrower may select
the interest rate basis for the Revolving Loan in accordance with the terms of
this Section 2.4(a):
(i) Under the Revolving Loan Borrowing Request
provided to the Agent in connection with the making of each Revolving Loan
Borrowing, the Borrower shall select the amount and the Type of the Tranches,
and for each LIBOR Tranche selected, any permitted Interest Period for each such
LIBOR Tranche, which will comprise such Revolving Loan Borrowing,
provided that (A) at no time shall there be more than four separate LIBOR
Tranches outstanding and (B) each Tranche must be in a principal amount equal to
or greater than (I) in the case of LIBOR Tranches, $300,000 and (II) in the case
of Prime Rate Tranches, $100,000, and in each case, shall be made in multiples
of $100,000 in excess thereof. Such interest rate elections must be provided to
the Agent in writing or by telecopy not later than 1:00 p.m. (local time at the
Applicable Lending Office of the Agent) on the third Business Day before the
date of any proposed Revolving Loan Borrowing comprised of a LIBOR Tranche or
11:00 a.m. (local time at the Applicable Lending Office of the Agent) on the
same day of any proposed Revolving Loan Borrowing comprised solely of a Prime
Rate Tranche. The Agent shall promptly forward copies of such interest rate
elections to the Banks. In the case of any Revolving Loan Borrowing comprised of
a LIBOR Tranche, upon
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determination by the Agent, the Agent shall promptly notify the Borrower and the
Banks of the applicable interest rate for such Tranche.
(ii) With respect to any Tranche, the Borrower
may continue or convert any portion of any LIBOR Tranche or Prime Rate Tranche
to form new LIBOR Tranches or Prime Rate Tranches in accordance with this
paragraph. Each such continuation or conversion shall be deemed to create a new
Tranche for all purposes of this Agreement. Each such continuation or conversion
shall be made pursuant to a Continuation/Conversion Request given by the
Borrower to the Agent in writing or by telecopy not later than 2:00 p.m. (local
time at the Applicable Lending Office of the Agent) on the third Business Day
before the date of the proposed continuation or conversion. Each
Continuation/Conversion Request shall be fully completed and shall specify the
information required therein, and shall be irrevocable and binding on the
Borrower. The Agent shall promptly forward notice of the continuation or
conversion to the Banks. In the case of any continuation or conversion into
LIBOR Tranches, upon determination by the Agent, the Agent shall notify the
Borrower and the Banks of the applicable interest rate. Continuations and
conversions of Tranches shall be made in a minimum amount of $300,000 and in
integral multiples of $100,000 in excess thereof. No continuation or conversion
shall be permitted if such continuation or conversion would cause the aggregate
outstanding principal amount of any LIBOR Tranche which would remain outstanding
to be less than $300,000 or the aggregate outstanding principal amount of all
Prime Rate Tranches which would remain outstanding to be less than $100,000. At
no time shall there be more than four separate LIBOR Tranches outstanding. Any
conversion of an existing LIBOR Tranche is subject to Section 2.5. Subject to
the satisfaction of all applicable conditions precedent, the Agent and the Banks
shall before close of business on the date requested by the Borrower for the
continuation or conversion, make such continuation or conversion.
(iii) At the end of the Interest Period for any LIBOR
Tranche if the Borrower has not continued or converted such LIBOR Tranche into
new Tranches as provided for in paragraph (ii) above, the Borrower shall be
deemed to have converted such LIBOR Tranche to a Prime Rate Tranche. Each Prime
Rate Tranche shall continue as a Prime Rate Tranche unless the Borrower converts
such Prime Rate Tranche as provided for in paragraph (ii) above.
(b) LIBOR Tranches. Each LIBOR Tranche shall bear interest
during its Interest Period at a per annum interest rate equal to the sum of the
LIBOR for such Tranche plus the Applicable Margin for LIBOR Tranches in effect
from time to time. The Borrower shall pay to the Agent for the ratable benefit
of the Banks all accrued but unpaid interest on each LIBOR Tranche on the last
day of the applicable Interest Period for such LIBOR Tranche (and with respect
to LIBOR Tranches with Interest Periods of greater than three months, on the
date which is three months after the first date of the Interest Period for such
LIBOR Tranche), when required upon prepayment as
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specified elsewhere in this Agreement, on any date when such LIBOR Tranche is
prepaid in full, and on the Revolving Loan Maturity Date.
(c) Prime Rate Tranches. Each Prime Rate Tranche shall bear
interest at a per annum interest rate equal to the Adjusted Prime Rate in effect
from time to time plus the Applicable Margin for Prime Rate Tranches in effect
from time to time. The Borrower shall pay to the Agent for the ratable benefit
of the Banks all accrued but unpaid interest on outstanding Prime Rate Tranches
on the last day of each calendar quarter, when required upon prepayment as
specified elsewhere in this Agreement, on any date all Prime Rate Tranches are
prepaid in full, and on the Revolving Loan Maturity Date.
(d) Usury Protection.
(i) If, with respect to any Bank and the
Borrower, the effective rate of interest contracted for by such Bank with the
Borrower under the Credit Documents, including the stated rates of interest
contracted for hereunder and any other amounts contracted for under the Credit
Documents which are deemed to be interest, at any time exceeds the Highest
Lawful Rate, then the outstanding principal amount of the loans made by such
Bank to the Borrower hereunder shall bear interest at a rate which would make
the effective rate of interest on the loans made by such Bank to the Borrower
under the Credit Documents equal the Highest Lawful Rate until the difference
between the amounts which would have been due by the Borrower to such Bank at
the stated rates and the amounts which were due by the Borrower to such Bank at
the Highest Lawful Rate (the "Lost Interest") has been recaptured by such Bank.
If, when the loans made hereunder are repaid in full, the Lost Interest has not
been fully recaptured by such Bank pursuant to the preceding paragraph, then, to
the extent permitted by law, the interest rates charged by such Bank to the
Borrower hereunder shall be retroactively increased such that the effective rate
of interest on the loans made by such Bank to the Borrower under the Credit
Documents was at the Highest Lawful Rate since the effectiveness of this
Agreement to the extent necessary to recapture the Lost Interest not recaptured
pursuant to the preceding sentence and, to the extent allowed by law, the
Borrower shall pay to such Bank the amount of the Lost Interest remaining to be
recaptured by such Bank.
(ii) In calculating all sums paid or agreed to
be paid to any Bank by the
Borrower for the use, forbearance, or detention of money under the Credit
Documents, such amounts shall, to the extent permitted by applicable law, be
amortized, prorated, allocated, and spread in equal parts throughout the term of
the Credit Documents.
(iii) NOTWITHSTANDING THE FOREGOING OR ANY OTHER
TERM IN THIS AGREEMENT AND THE CREDIT DOCUMENTS TO THE CONTRARY, it is
the intention of each Bank and the Borrower to conform strictly to any
applicable usury laws.
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Accordingly, if any Bank contracts for, charges, or receives any consideration
from the Borrower which constitutes interest in excess of the Highest Lawful
Rate, then any such excess shall be canceled automatically and, if previously
paid, shall at such Bank's option be applied to the outstanding amount of the
loans made hereunder by such Bank to the Borrower or be refunded to the
Borrower.
2.5 Breakage Costs. If (i) any payment of principal on or any
conversion of any LIBOR Tranche is made on any date other than the last day of
the Interest Period for such LIBOR Tranche, whether as a result of any voluntary
or mandatory prepayment, any acceleration of maturity, or any other cause, (ii)
any payment of principal on any LIBOR Tranche is not made when due, or (iii) any
LIBOR Tranche is not borrowed, converted, or prepaid in accordance with the
respective notice thereof provided by the Borrower to the Agent, whether as a
result of any failure to meet any applicable conditions precedent for borrowing,
conversion, or prepayment, the permitted cancellation of any request for
borrowing, conversion, or prepayment, the failure of the Borrower to provide the
respective notice of borrowing, conversion, or prepayment, or any other cause
not specified above which is created by the Borrower, then the Borrower shall
pay to each Bank upon demand any amounts required to compensate such Bank for
any losses, costs, or expenses, including lost profits and administrative
expenses, which are reasonably allocable to such action, including losses,
costs, and expenses related to the liquidation or redeployment of funds acquired
or designated by such Bank to fund or maintain such Bank's ratable share of such
LIBOR Tranche or related to the reacquisition or redesignation of funds by such
Bank to fund or maintain such Bank's ratable share of such LIBOR Tranche
following any liquidation or redeployment of such funds caused by such action.
Such Bank need not prove matched funding of any particular funds, and a
certificate as to the amount of such loss, cost, or expense detailing the
calculation thereof and certifying that such Bank customarily charges such
amounts to its other customers in similar circumstances submitted by such Bank
to the Borrower shall be conclusive and binding for all purposes, absent
manifest error.
2.6 Increased Costs.
(a) Cost of Funds. If due to either (i) any introduction of,
change in, or change in the interpretation of any law or regulation after the
date of this Agreement or (ii) compliance with any guideline or request from any
central bank or other Governmental Authority having appropriate jurisdiction
(whether or not having the force of law) given after the date of this Agreement,
there shall be any increase in the costs of any Bank allocable to (x) committing
to make any Revolving Loan Advance or obtaining funds for the making, funding,
or maintaining of such Bank's ratable share of any LIBOR Tranche in the relevant
interbank market or (y) committing to make Letters of Credit or issuing,
funding, or maintaining Letters of Credit (including any increase in any
applicable reserve requirement specified by the Federal Reserve Board, including
those for emergency, marginal, supplemental, or other reserves), then the
Borrower shall pay to such Bank upon demand
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any amounts required to compensate such Bank for such increased costs, such
amounts being due and payable upon demand by such Bank. A certificate as to the
cause and amount of such increased cost detailing the calculation of such cost
and certifying that such Bank customarily charges such amounts to its other
customers in similar circumstances submitted by such Bank to the Borrower shall
be conclusive and binding for all purposes, absent manifest error.
(b) Capital Adequacy. If, due to either (i) any introduction
of, change in, or change in the interpretation of any law or regulation after
the date of this Agreement or (ii) compliance with any guideline or request from
any central bank or other Governmental Authority having appropriate jurisdiction
(whether or not having the force of law) given after the date of this Agreement,
there shall be any increase in the capital requirements of any Bank or its
parent or holding company allocable to (x) committing to make Revolving Loan
Advances or making, funding, or maintaining Revolving Loan Advances or (y)
committing to make Letters of Credit or issuing, funding, or maintaining Letters
of Credit, as such capital requirements are allocated by such Bank, then the
Borrower shall pay to such Bank upon demand any amounts required to compensate
such Bank or its parent or holding company for such increase in costs (including
an amount equal to any reduction in the rate of return on assets or equity of
such Bank or its parent or holding company), such amounts being due and payable
upon demand by such Bank. A certificate as to the cause and amounts detailing
the calculation of such amounts and certifying that such Bank customarily
charges such amounts to its other customers in similar circumstances submitted
by such Bank to the Borrower shall be conclusive and binding for all purposes,
absent manifest error.
2.7 Illegality. Notwithstanding any other provision in this Agreement,
if it becomes unlawful for any Bank to obtain deposits or other funds for making
or funding such Bank's ratable share of any LIBOR Tranche in the relevant
interbank market, such Bank shall so notify the Borrower and the Agent and such
Bank's commitment to create LIBOR Tranches shall be suspended until such
condition has passed, all LIBOR Tranches applicable to such Bank shall be
converted to Prime Rate Tranches as of the end of each applicable Interest
Period (or earlier if required pursuant to, or in connection with, any Legal
Requirement), and all subsequent requests for LIBOR Tranches shall be deemed to
be requests for Prime Rate Tranches with respect to such Bank.
2.8 Market Failure. Notwithstanding any other provision in this
Agreement, if the Agent determines that: (a) quotations of interest rates for
the relevant deposits referred to in the definition of "LIBOR" are not being
provided in the relevant amounts, or maturities for purposes of determining the
rate of interest referred to in the definition of "LIBOR" or (b) the relevant
rates of interest referred to in the definition of "LIBOR" which are used as the
basis to determine the rate of interest for LIBOR Tranches are not likely to
adequately cover the cost to any Bank of making or maintaining such Bank's
ratable share of any LIBOR Tranche, then if the Agent so notifies the Borrower,
the Agent and the Banks' commitment to create LIBOR Tranches shall be suspended
until
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such condition has passed, all LIBOR Tranches shall be converted to Prime
Rate Tranches as of the end of each applicable Interest Period (or earlier if
required pursuant to, or in connection with, any Legal Requirement) and all
subsequent requests for LIBOR Tranches shall be deemed to be requests for Prime
Rate Tranches.
2.9 Payment Procedures and Computations.
(a) Payment Procedures. Time is of the essence in this
Agreement and the Credit Documents. All payment hereunder shall be made in
Dollars. The Borrower shall make each payment under this Agreement and under the
Revolving Loan Notes not later than 12:00 noon (local time at the Applicable
Lending Office of the Agent) on the day when due to the Agent at the Agent's
Applicable Lending Office in immediately available funds. All payments by the
Borrower hereunder shall be made without any offset, abatement, withholding, or
reduction. Upon receipt of payment from the Borrower of any principal, interest,
or fees due to the Banks, the Agent shall promptly after receipt thereof
distribute to the Banks their ratable share of such payments for the account of
their respective Applicable Lending Offices. Interest on such amount shall be
due and payable by the Agent upon demand by such Bank. Upon receipt of other
amounts due solely to the Agent, the Issuing Bank, or a specific Bank, the Agent
shall distribute such amounts to the appropriate party to be applied in
accordance with the terms of this Agreement.
(b) Agent Reliance. Unless the Agent shall have received
written notice from the Borrower prior to any date on which any payment is due
to the Banks that the Borrower shall not make such payment in full, the Agent
may assume that the Borrower has made such payment in full to the Agent on such
date and the Agent may, in reliance upon such assumption, cause to be
distributed to each Bank on such date an amount equal to the amount then due
such Bank. If and to the extent the Borrower shall not have so made such payment
in full to the Agent, each Bank shall repay to the Agent forthwith on demand
such amount distributed to such Bank, together with interest thereon from the
date such amount is distributed to such Bank until the date such Bank repays
such amount to the Agent, at an interest rate equal to, the Federal Funds Rate
in effect from time to time, provided that with respect to such Bank, if such
amount is not repaid by such Bank by the end of the second day after the date of
the Agent's demand, the interest rates specified above shall be increased
by a per annum amount equal to 2.00% on the third day after the date of the
Agent's demand and shall remain at such increased rate thereafter.
(c) Sharing of Payments. Each Bank agrees that if it should
receive any payment (whether by voluntary payment, by realization upon security,
by the exercise of the right of setoff or banker's lien, by counterclaim or
cross action, by the enforcement of any right under the Credit Documents, or
otherwise) in respect of any obligation of the Borrower to pay principal,
interest, fees, or any other obligation incurred under the Credit Documents in a
proportion greater than the total
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amount of such principal, interest, fees, or other obligations then owed and due
by the Borrower to such Bank bears to the total amount of principal, interest,
fees, or other obligations then owed and due by the Borrower to all of the Banks
immediately prior to such receipt, then such Bank receiving such excess payment
shall purchase for cash without recourse from the other Banks an interest in the
obligations of the Borrower to such Banks in such amount as shall result in a
participation by all of the Banks, in proportion with the Banks' respective pro
rata shares, in the aggregate unpaid amount of principal, interest, fees, or any
such other obligation, as the case may be, owed by the Borrower to all of the
Banks; provided that if all or any portion of such excess payment is thereafter
recovered from such Bank, such purchase shall be rescinded and the purchase
price restored to the extent of such recovery, in proportion with the Banks'
respective pro rata shares, but without interest.
(d) Authority to Charge Accounts. The Agent, if and to the
extent payment owed to the Agent or any Bank is not made when due, may charge
from time to time against any account of the Borrower with the Agent any amount
so due. The Agent agrees promptly to notify the Borrower after any such charge
and application made by the Agent provided that the failure to give such notice
shall not affect the validity of such charge and application.
(e) Interest and Fees. Unless expressly provided for in this
Agreement, (i) all computations of interest based on the Prime Rate (including
the Adjusted Prime Rate, when applicable) shall be made on the basis of a
365/366 day year, as the case may be, (ii) all computations of interest based on
the Federal Funds Rate (including the Adjusted Prime Rate, when applicable)
shall be made on the basis of a 360 day year, (iii) all computations of interest
based upon the LIBOR shall be made on the basis of a 360 day year, and (iv) all
computations of fees shall be made on the basis of a 360 day year, in each case
for the actual number of days (including the first day, but excluding the last
day) occurring in the period for which such interest or fees are payable. Each
determination by the Agent of an interest rate or fee shall be conclusive and
binding for all purposes, absent manifest error.
(f) Payment Dates. Whenever any payment shall be stated to be
due on a day other than a Business Day, such payment shall be made on the next
succeeding Business Day, and such extension of time shall in such case be
included in the computation of payment of interest or fees, as the case may be.
If the time for payment for an amount payable is not specified in this
Agreement or in any other Credit Document, the payment shall be due and payable
on demand by the Agent or the applicable Bank.
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2.10 Taxes.
(a) No Deduction for Certain Taxes. Any and all payments by
the Borrower shall be made free and clear of and without deduction for any and
all present or future taxes, levies, imposts, deductions, charges, or
withholdings, and all liabilities with respect thereto, other than taxes imposed
on the income and franchise taxes imposed on the Agent, any Bank, or the
Applicable Lending Office thereof by any jurisdiction in which any such entity
is a citizen or resident or any political subdivision of such jurisdiction (all
such nonexcluded taxes, levies, imposts, deductions, charges, withholdings, and
liabilities being hereinafter referred to as "Taxes"). If the Borrower shall be
required by law to deduct any Taxes from or in respect of any sum payable to the
Agent, any Bank, or the Applicable Lending Office thereof, (i) the sum payable
shall be increased as may be necessary so that, after making all required
deductions (including deductions applicable to additional sums payable under
this Section 2.10), such Person receives an amount equal to the sum it would
have received had no such deductions been made; (ii) the Borrower shall make
such deductions; and (iii) the Borrower shall pay the full amount deducted to
the relevant taxation authority or other authority in accordance with applicable
law.
(b) Other Taxes. The Borrower agrees to pay any present or
future stamp or documentary taxes or any other excise or property taxes,
charges, or similar levies which arise from any payment made or from the
execution, delivery, or registration of, or otherwise with respect to, this
Agreement or the other Credit Documents (other than those which become due as a
result of any Bank joining this Agreement as a result of any Assignment and
Acceptance, which shall be paid by the Bank which becomes a Bank hereunder as a
result of such Assignment and Acceptance).
(c) Foreign Bank Withholding Exemption. Each Bank and Issuing
Bank that is not incorporated under the laws of the United States of America or
a state thereof agrees that it shall deliver to the Borrower and the Agent (i)
two duly completed copies of United States Internal Revenue Service Form 1001 or
4224 or successor applicable form, as the case may be, certifying in each case
that such Bank is entitled to receive payments under this Agreement and the
Revolving Loan Notes payable to it, without deduction or withholding of any
United States federal income taxes, (ii) if applicable, an Internal Revenue
Service Form W-8 or W-9 or successor applicable form, as the case may be, to
establish an exemption from United States backup withholding tax, and (iii) any
other governmental forms which are necessary or required under an applicable tax
treaty or otherwise by law to reduce or eliminate any withholding tax, which
have been reasonably requested by the Borrower. Each Bank which delivers to the
Borrower and the Agent a Form 1001 or 4224 and Form W-8 or W-9 pursuant to the
next preceding sentence further undertakes to deliver to the Borrower and the
Agent two further copies of the said letter and Form 1001 or 4224 and Form W-8
or W-9, or successor applicable forms, or other manner of certification, as the
case may be, on or before the date that any such letter or form expires or
becomes obsolete or after the
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occurrence of any event requiring a change in the most recent letter and form
previously delivered by it to the Borrower and the Agent, and such extensions or
renewals thereof as may reasonably be requested by the Borrower and the Agent
certifying in the case of a Form 1001 or 4224 that such Bank is entitled to
receive payments under this Agreement without deduction or withholding of any
United States federal income taxes. If an event (including without limitation
any change in treaty, law or regulation) has occurred prior to the date on which
any delivery required by the preceding sentence would otherwise be required
which renders all such forms inapplicable or which would prevent any Bank from
duly completing and delivering any such letter or form with respect to it and
such Bank advises the Borrower and the Agent that it is not capable of receiving
payments without any deduction or withholding of United States federal income
tax, and in the case of a Form W-8 or W-9, establishing an exemption from United
States backup withholding tax, such Bank shall not be required to deliver such
letter or forms. The Borrower shall withhold tax at the rate and in the manner
required by the laws of the United States with respect to payments made to a
Bank failing to provide the requisite Internal Revenue Service forms in a timely
manner. Each Bank which fails to provide to the Borrower in a timely manner such
forms shall reimburse the Borrower upon demand for any penalties paid by the
Borrower as a result of any failure of the Borrower to withhold the required
amounts that are caused by such Bank's failure to provide the required forms in
a timely manner.
ARTICLE 3. CONDITIONS PRECEDENT.
3.1 Conditions Precedent to Initial Extensions of Credit. The
obligation of each Bank to make the initial extension of credit under this
Agreement, including the making of the initial Revolving Loan Advances, the
making of the initial Autoborrow Advances, and the issuance of the initial
Letters of Credit, shall be subject to the following conditions precedent:
(a) Documents. The Borrower shall have delivered or caused to
be delivered the documents and other items listed on Exhibit H, together with
any other documents reasonably requested by the Agent to document the agreements
and intent of the Credit Documents, each in form and with substance satisfactory
to the Agent and its counsel.
(b) Due Diligence. The Agent shall have completed and be
satisfied with due diligence with respect to the Restricted Parties, including
due diligence regarding the individual executives and directors of the
Restricted Parties and all litigation, tax, accounting, labor, insurance, and
pension liabilities, actual or contingent, with respect to the Restricted
Parties, all real estate leases, debt agreements, and property ownership of the
Restricted Parties, and such other matters as the Agent deems appropriate; and
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(c) Material Adverse Change. No Material Adverse Change shall
have occurred since December 31, 1996.
3.2 Conditions Precedent to Each Extension of Credit. The obligation of
each Bank to make any extension of credit under this Agreement or any extension
under the Autoborrow Agreement, including the making of any Revolving Loan
Advances, the making of the Autoborrow Advances, and the issuance, increase, or
extension of any Letters of Credit, shall be subject to the further conditions
precedent that on the date of such extension of credit:
(a) Representations and Warranties. As of the date of the
making of any extension of credit hereunder or under the Autoborrow Agreement,
the representations and warranties contained in each Credit Document shall be
true and correct in all material respects as of such date (and the Borrower's
request for the making of any extension of credit hereunder shall be deemed to
be a restatement, representation, and additional warranty of the representations
and warranties contained in each Credit Document as of such date); and
(b) Default. As of the date of the making of any extension of
credit hereunder or under the Autoborrow Agreement, there shall exist no Default
or Event of Default, and the making of the extension of credit would not cause
or be reasonably expected to cause a Default or Event of Default.
ARTICLE 4. REPRESENTATIONS AND WARRANTIES. The Borrower represents and warrants
to the Agent and each Bank, and with each request for any extension of credit
hereunder or under the Autoborrow Agreement, including the making of any
Revolving Loan Advances, the making of any Autoborrow Advances, and the
issuance, increase, or extension of any Letters of Credit, again represents and
warrants to the Agent and each Bank, as follows:
4.1 Organization. As of the date of this Agreement, each Restricted
Entity (a) is duly organized, validly existing, and in good standing under the
laws of such Person's respective jurisdiction of organization and (b) is duly
licensed, qualified to do business, and in good standing in each jurisdiction in
which such Person is organized, owns property, or conducts operations to the
extent that any failure to be so licensed, qualified, or in good standing in
accordance with this clause (b) could reasonably be expected to cause a Material
Adverse Change.
4.2 Authorization. The execution, delivery, and performance by each
Credit Party of the Credit Documents to which such Credit Party is a party and
the consummation of the transactions contemplated thereby (a) do not contravene
the organizational documents of such Credit Party, (b) have been duly authorized
by all necessary corporate action of each Credit Party, and (c) are within each
Credit Party's corporate powers.
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4.3 Enforceability. Each Credit Document to which any Credit Party is a
party has been duly executed and delivered by each Credit Party which is a party
to such Credit Document and constitutes the legal, valid, and binding obligation
of each such Credit Party, enforceable against each such Credit Party in
accordance with such Credit Document's terms, except as limited by applicable
bankruptcy, insolvency, reorganization, moratorium, or similar laws at the time
in effect affecting the rights of creditors generally and subject to the
availability of equitable remedies.
4.4 Absence of Conflicts and Approvals. The execution, delivery, and
performance by each Credit Party of the Credit Documents to which such Credit
Party is a party and the consummation of the transactions contemplated thereby,
(a) do not result in any violation or breach of any provisions of, or constitute
a default under, any note, indenture, credit agreement, security agreement,
credit support agreement, or other similar agreement to which such Credit Party
is a party or any other material contract or agreement to which such Credit
Party is a party, (b) do not violate any law or regulation binding on or
affecting such Credit Party, (c) do not require any authorization, approval, or
other action by, or any notice to or filing with, any Governmental Authority,
and (d) do not result in or require the creation or imposition of any Lien
prohibited by this Agreement.
4.5 Investment Companies. No Restricted Entity or Affiliate thereof is
an "investment company" or a company "controlled" by an "investment company"
within the meaning of the Investment Company Act of 1940, as amended.
4.6 Public Utilities. No Restricted Entity or Affiliate thereof 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. No Restricted Entity or Affiliate thereof is a regulated public
utility.
4.7 Financial Condition.
(a) The Borrower has delivered to the Agent the Financial
Statements, and the Financial Statements are accurate and complete in all
material respects and present fairly the financial condition of Borrower as of
their respective dates and for their respective periods in accordance with GAAP.
(b) As of the date of the Financial Statements, there were no
material contingent obligations, liabilities for taxes, unusual forward or
long-term commitments, or unrealized or anticipated losses of the Borrower or
any of the Borrower's Subsidiaries, except as disclosed therein and adequate
reserves for such items have been made in accordance with GAAP. No Material
Adverse Change has occurred since the date of the Financial Statements. No
Default exists.
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4.8 Condition of Assets. Each Restricted Entity has good and
indefeasible title to substantially all of its owned property and valid
leasehold rights in all of its leased property, as reflected in the financial
statements most recently provided to the Agent, free and clear of all Liens
except Permitted Liens. Each Restricted Entity possesses and has properly
approved, recorded, and filed, where applicable, all permits, licenses, patents,
patent rights or licenses, trademarks, trademark rights, trade name rights, and
copyrights which are useful in the conduct of its business and which the failure
to possess could reasonably be expected to cause a Material Adverse Change. The
material properties used or to be used in the continuing operations of each
Restricted Entity are in good repair, working order, and condition, normal wear
and tear excepted. The properties of each Restricted Entity have not been
adversely affected as a result of any fire, explosion, earthquake, flood,
drought, windstorm, accident, strike or other labor disturbance, embargo,
requisition or taking of property or cancellation of contracts, permits, or
concessions by a Governmental Authority, riot, activities of armed forces, or
acts of God or of any public enemy in any manner which (after giving effect to
any insurance proceeds) could reasonably be expected to cause a Material Adverse
Change.
4.9 Litigation. There are no actions, suits, or proceedings pending or,
to the knowledge of the Borrower, threatened against any Restricted Entity at
law, in equity, or in admiralty, or by or before any Governmental Authority, or
any arbitrator which could reasonably be expected to cause a Material Adverse
Change.
4.10 Subsidiaries. As of the date of this Agreement, the Borrower has
no Subsidiaries except as disclosed in Schedule II. The Borrower has no
Subsidiaries which have not been disclosed in writing to the Agent.
4.11 Laws and Regulations. Each Restricted Entity has been and is in
compliance with all federal, state, and local laws and regulations which are
applicable to the operations and property of such Person where the failure to
comply with the same could reasonably be expected to cause a Material Adverse
Change.
4.12 Environmental Compliance. Each Restricted Entity has been and is
in compliance with all Environmental Laws and has obtained and is in compliance
with all related permits necessary for the ownership and operation of any such
Person's properties where the failure to be in compliance with the same could
reasonably be expected to cause a Material Adverse Change. Each Restricted
Entity has not received notice of and has not been investigated for any
violation or alleged violation of any Environmental Law in connection with any
such Person's presently or previously owned properties which currently threaten
action or suggest liabilities which could reasonably be expected to cause a
Material Adverse Change. Each Restricted Entity does not and has not created,
handled, transported, used, or disposed of any Hazardous Materials on or about
any such Person's properties (nor has any such Person's properties been used for
those purposes); has never been
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responsible for the release of any Hazardous Materials into the environment in
connection with any such Person's operations and has not contaminated any
properties with Hazardous Materials; and does not and has not owned any
properties contaminated by any Hazardous Materials, in each case in any manner
which could reasonably be expected to cause a Material Adverse Change.
4.13 ERISA. Each Restricted Entity and each of its Commonly Controlled
Entities are in compliance with all provisions of ERISA to the extent that the
failure to be in compliance could reasonably be expected to cause a Material
Adverse Change. No Restricted Entity nor its Commonly Controlled Entities
participates in or during the past five years has participated in any employee
pension benefit plan covered by Title IV of ERISA or any multiemployer plan
under Section 4001(a)(3) of ERISA. With respect to the Plans of the Restricted
Entities, no Material Reportable Event or Prohibited Transaction has occurred
and exists that could reasonably be expected to cause a Material Adverse Change.
4.14 Taxes. Each Restricted Entity has filed all United States federal,
state, and local income tax returns and all other domestic and foreign tax
returns which are required to be filed by such Person and has paid, or provided
for the payment before the same became delinquent of, all taxes due pursuant to
such returns or pursuant to any assessment received by such Person except for
tax payments being contested in good faith for which adequate reserves have been
established and reported in accordance with GAAP which could not reasonably be
expected to cause a Material Adverse Change. The charges, accruals, and reserves
on the books of the Restricted Entities in respect of taxes are adequate in
accordance with GAAP.
4.15 Authorization and Approvals. No authorization or approval or other
action by, and no notice to or filing with, any Governmental Authority or other
third party is required for the due execution, delivery, and performance by the
Restricted Entities of the Credit Documents to which each is a party, or for the
consummation of the transactions contemplated thereby. At the time of each
Revolving Loan Borrowing and the issuance, amendment, or increase of each Letter
of Credit, no further authorization or approval or other action by, and no
notice to or filing with, any Governmental Authority or other third party will
be required for such Revolving Loan Borrowing or the use of the proceeds of such
Revolving Loan Borrowing.
4.16 Margin Regulations. Each Restricted Entity is in compliance with
Regulations G, T, U, and X.
4.17 True and Complete Disclosure. All factual information furnished by
or on behalf of any Credit Party in writing to the Agent or any Bank in
connection with the Credit Documents and the transactions contemplated thereby
is true and accurate in all material respects on the date as of which such
information was dated or certified and does not contain any untrue statement of
material
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fact or omit to state any material fact necessary to make the statements
contained therein not misleading. All projections, estimates, and pro forma
financial information furnished by any Credit Party were prepared on the basis
of assumptions, data, information, tests, or conditions believed to be
reasonable at the time such projections, estimates, and pro forma financial
information were furnished.
4.18 Permits, Licenses, etc. The Borrower and the Restricted Entities
possess all permits, licenses, patents, patent rights or licenses, trademarks,
trademark rights, trade name rights, and copyrights which are necessary and
material to the conduct of their business. The Borrower and the Restricted
Entities manage and operate their business in all material respects in
accordance with all applicable Legal Requirements and standard industry
practices.
ARTICLE 5. COVENANTS. Until the Agent and the Banks receive irrevocable payment
of the Credit Obligations and have terminated this Agreement and each other
Credit Document, the Borrower shall comply with and cause compliance with the
following covenants:
5.1 Organization. The Borrower shall cause each Restricted Entity to
(a) maintain itself as an entity duly organized, validly existing, and in good
standing under the laws of such Person's respective jurisdiction of organization
and (b) be duly licensed, qualified to do business, and in good standing in each
jurisdiction in which such Person is organized, owns property, or conducts
operations and which requires such licensing or qualification where failure to
be so licensed, qualified, or in good standing as required by this clause (b)
could reasonably be expected to cause a Material Adverse Change; provided,
however, that nothing in this Section 5.1 shall be interpreted to be violated as
a result of a transaction permitted by Section 5.9.
5.2 Reporting. The Borrower shall furnish to the Agent all of the
following:
(a) Annual Reports. As soon as available and in any event not
later than 90 days after the end of each fiscal year of the Borrower, (i) a copy
of the annual audit report for such fiscal year for the Borrower, including
therein the consolidated balance sheet of the Borrower as of the end of such
fiscal year and the consolidated statements of income, stockholders' equity, and
cash flows for the Borrower for such fiscal year, setting forth the consolidated
financial position and results of the Borrower for such fiscal year and
certified, without any qualification or limit of the scope of the examination of
matters relevant to the financial statements, by a nationally recognized
certified public accounting firm, and (ii) a completed Borrowing Base and
Compliance Certificate duly certified by a Responsible Officer of the Borrower;
(b) Quarterly Reports. As soon as available and in any event
not later than 45 days after the end of each fiscal quarter, (i) a copy of the
internally prepared consolidated financial
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statements of the Borrower for such fiscal quarter and for the fiscal year to
date period ending on the last day of such fiscal quarter, including therein the
consolidated balance sheet of the Borrower as of the end of such fiscal quarter
and the consolidated statements of income, and cash flows for such year to date
period and, except with respect to the statement of cash flows, for such fiscal
quarter, setting forth the consolidated financial position and results of the
Borrower for such fiscal quarter and fiscal year to date period, all in
reasonable detail and duly certified by a Responsible Officer of the Borrower as
having been prepared in accordance with GAAP, including those applicable to
interim financial reports which permit normal year end adjustments and do not
require complete financial notes, (ii) a copy of the internally prepared
consolidating financial schedules of the Borrower from which the consolidated
financial statements of Borrower provided to Agent pursuant to clause (i) were
prepared, and (iii) a completed Borrowing Base and Compliance Certificate duly
certified by a Responsible Officer of the Borrower;
(c) Borrowing Base Reports. As soon as available and in any
event within 45 days of each calendar month, a certificate of a Responsible
Officer of the Borrower calculating the Borrowing Base then in effect as of the
end of such calendar month;
(d) Acquisition Information. As soon as available prior to the
closing of any Acquisition but in any event 10 Business Days prior to the
closing of the Acquisition, a completed Acquisition Certificate duly certified
by a Responsible Officer of the Borrower, which the Agent shall forward to the
Banks for any Acquisition requiring approval of the Majority Banks pursuant to
Section 5.5(b) or Section 5.9(c)(ii) (and prior to the consummation of the
Acquisition, the Borrower shall make available at its offices in Houston, Texas,
the acquisition documents regarding the acquired assets, including schedules
reflecting litigation liabilities, environmental liabilities, and other assumed
liabilities, and any other information regarding the acquired assets as the
Agent may reasonably request);
(e) SEC Filings. As soon as available and in any event not
later than thirty days after the filing or delivery thereof, copies of all
financial statements, reports, and proxy statements which the Borrower shall
have sent to its stockholders generally and copies of all regular and periodic
reports, if any, which any Restricted Entity shall have filed with the
Securities and Exchange Commission;
(f) Defaults. Promptly, but in any event within five Business
Days after the discovery thereof, a notice of any facts known to any Restricted
Entity which constitute a Default, together with a statement of a Responsible
Officer of the Borrower setting forth the details of such facts and the actions
which the Borrower has taken and proposes to take with respect thereto (and the
Agent shall, promptly upon receipt from the Borrower of a notice pursuant to
this Section 5.2(f), forward a copy of such notice to each Bank);
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(g) Litigation. Promptly, but in any event within 10 Business
Days after the Borrower receives notice thereof (whether constructive or actual
notice), notice of all actions, suits, and proceedings before any Governmental
Authority affecting any Restricted Entity which, if determined adversely, could
reasonably be expected to cause a Material Adverse Change;
(h) Material Contingent Liabilities. Promptly, but in any
event within 10 Business Days after acquiring knowledge thereof, notice of any
material contingent liabilities that could reasonably be expected to cause a
Material Adverse Change;
(i) Material Agreement Default. Promptly, but in any event
within 10 Business Days after obtaining knowledge thereof, notice of any breach
by any Restricted Entity of any contract or agreement which breach could
reasonably be expected to cause a Material Adverse Change;
(j) Material Changes. Prompt written notice of any
other condition or event of which any Restricted Entity has knowledge, which
condition or event has resulted or could reasonably be expected to cause a
Material Adverse Change; and
(k) Other Information. Such other information respecting the
business operations or property of any Restricted Entity, financial or
otherwise, as the Agent or the Majority Banks may from time to time reasonably
request.
5.3 Inspection. The Borrower shall cause each Restricted Entity to
permit the Agent and the Banks to visit and inspect any of the properties of
such Restricted Entity, to examine all of such Person's books of account,
records, reports, and other papers, to make copies and extracts therefrom, and
to discuss their respective affairs, finances, and accounts with their
respective officers, employees, and independent public accountants all at such
reasonable times and as often as may be reasonably requested provided that the
Borrower is given at least one Business Day advance notice thereof and
reasonable opportunity to be present when independent public accountants or
other third parties are contacted.
5.4 Use of Proceeds. The proceeds of the Revolving Loan Borrowings
shall be used by the Borrower for Acquisitions which are permitted under this
Agreement, working capital needs, Capital Expenditures, and other lawful
corporate purposes. The Borrower shall not, directly or indirectly, use any part
of such proceeds for any purpose which violates or is inconsistent with
Regulations G, T, U, or X.
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5.5 Financial Covenants. The Agent shall determine compliance with the
following financial covenants based upon the most recent financial statements
dated as of the end of a fiscal quarter delivered to the Agent pursuant to
Section 5.2(b) (subject to revisions on subsequent testing dates based upon
audited financial statements delivered pursuant to Section 5.2(a)) or, if any
Acquisitions have occurred that are not reflected in such financial statements
and the inclusion of the financial effects of such Acquisitions are expressly
stated to be included in the financial covenants below, based upon historical
proforma financial statements for the Borrower and its Subsidiaries as of such
date and for the appropriate period that are prepared by the Borrower in
accordance with Section 1.3(c) and presented to the Agent in accordance with
Section 5.2(c).
(a) 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) 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) 80% of the net proceeds resulting from any
sale or issuance of any stock of the Borrower or its Subsidiaries since
September 30, 1997.
(b) Maximum Funded Debt to Proforma EBITDA Ratio. As of the
last day of each fiscal quarter of the Borrower, the Borrower shall not permit
the ratio of (i) the consolidated Funded Debt of the Borrower as of the end of
such fiscal quarter to (ii) the consolidated EBITDA of the Borrower for the
preceding four fiscal quarters then ended, to be greater than the minimum ratio
set forth in the table below for the applicable period set forth in the table
below (provided that in calculating the foregoing, the financial results and
balance sheet effects of any Acquisitions may, if requested by the Borrower and
approved by the Majority Banks (including approval of any pro forma financial
statements), be included in such calculations on a proforma basis for the full
period and on the relevant dates.
Period Maximum Ratio
------ -------------
Prior to and including
December 31, 1998 6.00 to 1.00
Thereafter 5.50 to 1.00
(c) Minimum Fixed Charge Coverage Ratio. As of the last day of
each fiscal quarter of the Borrower, the Borrower shall not permit the ratio of
(i) the consolidated EBITDA of the Borrower for the preceding four fiscal
quarters then ended, less consolidated cash taxes paid and Capital Expenditures
made by the Borrower during such period, to (ii) Debt Service, plus any cash
dividends made by the Borrower during the preceding four fiscal quarters then
ended, to be less than 1.00 to 1.00.
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(d) Minimum Interest Charge Coverage Ratio. As of the last day of
each fiscal quarter, the Borrower shall not permit the ratio of (i) the
consolidated EBIT of the Borrower for the preceding four fiscal quarters then
ended to (ii) Interest Charges for the preceding four fiscal quarters then ended
to be less than the minimum ratio set forth in the table below for the
applicable period set forth in the table below.
Period Minimum Ratio
------ -------------
Prior to and including
December 31, 1998 1.00 to 1.00
Thereafter 1.15 to 1.00
5.6 Debt. The Borrower shall not permit any Restricted Entity to
create, assume, incur, suffer to exist, or in any manner become liable,
directly, indirectly, or contingently in respect of, any Debt other than
Permitted Debt.
5.7 Liens. The Borrower shall not permit any Restricted Entity to
create, assume, incur, or suffer to exist any Lien on any of its real or
personal property whether now owned or hereafter acquired, or assign any right
to receive its income, except for Permitted Liens.
5.8 Other Obligations.
(a) The Borrower shall not permit any Restricted Entity to create,
incur, assume, or suffer to exist any obligations in respect of unfunded vested
benefits under any pension Plan or deferred compensation agreement.
(b) The Borrower shall not permit any Restricted Entity to create,
incur, assume, or suffer to exist any obligations in respect of Derivatives,
except that nothing in this clause (b) shall be construed to prohibit the
execution, delivery or performance by the Borrower of any Interest Hedge
Agreement .
5.9 Corporate Transactions. The Borrower shall not, without the
Majority Banks' consent, permit any Restricted Entity to (a) merge, consolidate,
or amalgamate with another Person, or liquidate, wind up, or dissolve itself (or
take any action towards any of the foregoing), (b) convey, sell, lease, assign,
transfer, or otherwise dispose of any of its property, businesses, or other
assets outside of the ordinary course of business, or (c) make any Acquisition
except that:
(i) Any Subsidiary of the Borrower may merge, consolidate, or
amalgamate into any wholly owned Subsidiary of the Borrower or convey, sell,
lease, assign, transfer, or otherwise dispose of any of its assets to any
wholly-owned Subsidiary of the Borrower (and
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if such disposition transfers all or substantially all of the assets of
transferring Subsidiary, such subsidiary may then liquidate, wind up,
or dissolve itself); provided that the wholly-owned Subsidiary is the
surviving or acquiring Subsidiary;
(ii) the Borrower or any Subsidiary of the Borrower may make
any Acquisition (by purchase or merger) provided that (A) the Borrower
or the Subsidiary of the Borrower is the acquiring or surviving entity;
(B) the aggregate non-equity consideration paid by the Restricted
Entities in connection with all Acquisitions up to and including such
Acquisition does not exceed $25,000,000 or, if so, the Agent and the
Majority Banks have granted prior approval for such Acquisition if the
aggregate non-equity consideration paid by the Restricted Entities in
connection with such Acquisition exceeds $10,000,000; (C) no Default or
Event of Default exists and the Acquisition would not reasonably be
expected to cause a Default or Event of Default (including any default
under Section 5.5 with respect to historical and future proforma
financial status and results); (D) the transaction is not hostile, as
reasonably determined by the Agent; and (E) if the aggregate non-equity
consideration to be paid by the Restricted Entities in connection with
such Acquisition exceeds $5,000,000, then the Borrower has provided to
the Agent the following information at least 10 Business Days prior to
the closing of such Acquisition: (1) financial statements for the
Person to be acquired which include at least 2 full years of income and
cash flow information prepared by an independent certified public
accountant acceptable to the Agent; (2) the consolidated income and
cash flow information of the Person to be acquired for the preceding
four fiscal quarters then ended and the projected income and cash flow
information of the Person to be acquired for the succeeding four fiscal
quarters, adjusted for known changes; and (3) a Compliance Certificate
evidencing proforma compliance with this Agreement; and
(iii) HydroChem International, Inc. may contribute to any
Person, in exchange for an equity ownership percentage in such Person,
all or a portion of its assets located in Singapore; provided that the
fair market value of such assets at the time they are contributed may
not exceed $2,500,000.
5.10 Distributions. No Restricted Entity shall make any Restricted
Payment, except that (i) any wholly-owned Subsidiary of the Borrower may make
Restricted Payments to the Borrower or to any Guarantor [or to any Subsidiary
that has had at least 66-/23% of its capital stock pledged to the Agent for the
benefit of the Banks pursuant to Section 5.19], and (ii) the Borrower may, if no
Default or Event of Default shall have occurred and is continuing, (A) make
scheduled payments of interest on the Senior Subordinated Notes and (B) prepay
the Senior Subordinated Notes with the net proceeds received from any offering
by the Borrower of shares of its capital stock.
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5.11 Transactions with Affiliates. The Borrower shall not permit any
Restricted Entity to enter into any transaction directly or indirectly with or
for the benefit of an Affiliate except transactions with an Affiliate for the
leasing of property, the rendering or receipt of services, or the purchase or
sale of inventory or other assets in the ordinary course of business if the
monetary or business consideration arising from such a transaction would be
substantially as advantageous to such Restricted Entity as the monetary or
business consideration which such Restricted Entity would obtain in a comparable
arm's length transaction.
5.12 Insurance. The Borrower shall cause each Restricted Entity to
maintain insurance with responsible and reputable insurance companies or
associations reasonably acceptable to the Agent in such amounts and covering
such risks as are usually carried by companies engaged in similar businesses and
owning similar properties in the same general areas in which such Persons
operate. The Borrower shall deliver to the Agent certificates evidencing such
policies or copies of such policies at the Agent's request following a
reasonable period to obtain such certificates taking into account the
jurisdiction where the insurance is maintained.
5.13 Investments. The Borrower shall not permit any Restricted Entity
to make or hold any direct or indirect investment in any Person, including
capital contributions to the Person, investments in the debt or equity
securities of the Person, and loans, guaranties, trade credit, or other
extensions of credit to the Person, except for Permitted Investments.
5.14 Lines of Business. The Borrower shall not permit the Restricted
Entities to change the character of their business as conducted on the date of
this Agreement, or engage in any type of business not reasonably related to such
business as presently and normally conducted.
5.15 Compliance with Laws. The Borrower shall cause each Restricted
Entity to comply with all Legal Requirements which are applicable to the
operations and property of such Persons where the failure to comply could
reasonably be expected to cause a Material Adverse Change.
5.16 Environmental Compliance. The Borrower shall cause each Restricted
Entity to comply with all Environmental Laws and obtain and comply with all
related permits necessary for the ownership and operation of any such Person's
properties where the failure to comply could reasonably be expected to cause a
Material Adverse Change. The Borrower shall cause each Restricted Entity to
promptly disclose to the Agent any notice to or investigation of such Persons
for any violation or alleged violation of any Environmental Law in connection
with any such Person's presently or previously owned properties which represent
liabilities which could reasonably be expected to cause a Material Adverse
Change. The Borrower shall not permit any Restricted Entity to create, handle,
transport, use, or dispose of any Hazardous Materials on or about any such
Person's properties; release any Hazardous Materials into the environment in
connection with any
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such Person's operations or contaminate any properties with Hazardous Materials;
or own properties contaminated by any Hazardous Materials, in each case except
in compliance with all Environmental Laws and related permits and in such a
manner that such actions could not reasonably be expected to cause a Material
Adverse Change.
5.17 ERISA Compliance. The Borrower shall cause each Restricted Entity
to (i) comply in all material respects with all applicable provisions of ERISA
and prevent the occurrence of any Reportable Event or Prohibited Transaction
with respect to, or the termination of, any of their respective Plans where the
failure to do so could reasonably be expected to cause a Material Adverse Change
and (ii) not create or participate in any employee pension benefit plan covered
by Title IV of ERISA or any multiemployer plan under Section 4001(a)(3) of
ERISA.
5.18 Payment of Certain Claims. The Borrower shall cause each
Restricted Entity to pay and discharge, before the same shall become delinquent,
(a) all taxes, assessments, levies, and like charges imposed upon any such
Person or upon any such Person's income, profits, or property by authorities
having competent jurisdiction prior to the date on which penalties attach
thereto except for tax payments being contested in good faith for which adequate
reserves have been established and reported in accordance with GAAP which could
not reasonably be expected to cause a Material Adverse Change and (b) all trade
payables and current operating liabilities, unless the same are less than 90
days past due or are being contested in good faith, have adequate reserves
established and reported in accordance with GAAP, and could not reasonably be
expected to cause a Material Adverse Change.
5.19 Subsidiaries. Upon the formation or acquisition of any new
Subsidiary, the Borrower shall and shall cause such Subsidiary to promptly, but
in any event within 45 days after the formation or acquisition of such new
Subsidiary, execute and deliver to the Agent such guaranties, amendment
agreements, and other documents and agreements as the Agent requests so that
such Subsidiary guarantees and secures the Credit Obligations on the same terms
as the existing Guarantors (including the execution and delivery of a Joinder
Agreement in substantially the form of Exhibit I for the purpose of joining such
Subsidiary as a party to the Guaranty or the execution of such new guaranties as
the Agent determines are necessary to have the same effect in different
jurisdictions). Notwithstanding the preceding sentence, no Subsidiary of the
Borrower that is organized outside of the jurisdiction of the United States
shall be required to execute a Joinder Agreement or otherwise guarantee the
Credit Obligations but instead shall be required to cause at least 662/3% of the
capital stock of such Subsidiary to be pledged to the Agent for the benefit of
the Banks on terms satisfactory to the Agent and the Majority Banks. In
connection with the preceding requirements and within 45 days after the
formation or acquisition of such new Subsidiary, the Borrower shall provide
corporate documentation and opinion letters reasonably satisfactory to the Agent
reflecting the corporate status of such new Subsidiary of the Borrower and the
enforceability of such agreements.
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5.20 Agreements Restricting Liens and Distributions. The Borrower will
not, nor will it permit any of its Subsidiaries to, enter into any agreement
(other than a Credit Document) which (a) except with respect to specific
property encumbered to secure payment of Debt related to such property, imposes
restrictions upon the creation or assumption of any Lien upon its properties,
revenues or assets, whether now owned or hereafter acquired or (b) limits
Restricted Payments to or any advance by any of the Borrower's Subsidiaries to
the Borrower.
5.21 Amendments to Senior Subordinated Notes. The Borrower shall not,
without the consent of the Agent and the Majority Banks, amend, modify,
supplement, terminate, waive or otherwise consent to modify any provisions
relating to the Senior Subordinated Notes (or the Indenture and other documents
evidencing such Senior Subordinated Notes).
ARTICLE 6. DEFAULT AND REMEDIES.
6.1 Events of Default. Each of the following shall be an "Event of
Default" for the purposes of this Agreement and for each of the Credit
Documents:
(a) Payment Failure. The Borrower (i) fails to pay when due
any principal amounts due under this Agreement or any other Credit Document or
(ii) fails to pay when due any interest, fees, reimbursements, indemnifications,
or other amounts due under this Agreement or any other Credit Document and such
failure has not been cured within five Business Days;
(b) False Representation. Any written representation or
warranty made by any Credit Party or any Responsible Officer thereof in this
Agreement or in any other Credit Document proves to have been false or erroneous
in any material respect at the time it was made or deemed made;
(c) Breach of Covenant. (i) Any breach by the Borrower of any
of the covenants contained in Sections 5.1(a) (with respect to the Borrower),
5.2(e), 5.3, 5.4, 5.5, 5.6, 5.7, 5.8, 5.9, 5.10, 5.13 or 5.19 or (ii) any breach
by any Credit Party of any other covenants contained in this Agreement or any
other Credit Document and such breach is not cured within 30 days following the
earlier of knowledge of such breach by such Credit Party or the receipt of
written notice thereof from the Agent;
(d) Guaranty. (i) The Guaranty shall at any time and for any
reason cease to be in full force and effect with respect to any Guarantor
(except as permitted under Section 5.9 hereof) or shall be contested by any
Guarantor, or any Guarantor shall deny it has any further liability or
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obligation thereunder, or (ii) any breach by any Guarantor of any of the
covenants contained in Section 4.1 of the Guaranty;
(e) Material Debt Default. (i) Any principal, interest, fees,
or other amounts due on any Debt of any Restricted Entity (other than the Credit
Obligations) is not paid when due, whether by scheduled maturity, required
prepayment, acceleration, demand, or otherwise, and such failure is not cured
within the earlier of 30 days and the applicable grace period, if any, and the
aggregate amount of all Debt of such Persons so in default exceeds $1,000,000;
(ii) any other event shall occur or condition shall exist under any agreement or
instrument relating to any Debt of any such Person (other than the Credit
Obligations) the effect of which is to accelerate or to permit the acceleration
of the maturity of any such Debt, whether or not any such Debt is actually
accelerated, and such event or condition shall not be cured within the earlier
of 30 days and the applicable grace period, if any, and the aggregate amount of
all Debt of such Persons so in default exceeds $1,000,000; or (iii) any Debt of
any such Person shall be declared to be due and payable, or required to be
prepaid (other than by a regularly scheduled prepayment) prior to the stated
maturity thereof, and the aggregate amount of all Debt of such Persons so
accelerated exceeds $1,000,000.
(f) Bankruptcy and Insolvency. (i) There shall have been filed
against any Restricted Entity or any such Person's properties, without such
Person's consent, any petition or other request for relief seeking an
arrangement, receivership, reorganization, liquidation, or similar relief under
bankruptcy or other laws for the relief of debtors and such request for relief
(A) remains in effect for 60 or more days, whether or not consecutive, or (B) is
approved by a final nonappealable order, or (ii) any such Person consents to or
files any petition or other request for relief of the type described in clause
(i) above seeking relief from creditors, makes any assignment for the benefit of
creditors or other arrangement with creditors, or admits in writing such
Person's inability to pay such Person's debts as they become due (the occurrence
of any Event of Default under clause (i) or (ii) of this paragraph being a
"Bankruptcy Event of Default");
(g) Adverse Judgment. The aggregate outstanding amount of
judgments against the Restricted Entities not discharged or stayed pending
appeal or other court action within 30 days following entry is greater than an
amount equal to 30% of the Restricted Entities' consolidated Net Worth as of the
last day of the Borrower's most recent fiscal quarter or otherwise causes a
Material Adverse Change; or
(h) Change of Control. There shall occur any Change of Control
not approved in writing by the Majority Banks.
6.2 Termination of Revolving Loan Commitments. Upon the occurrence of
any Bankruptcy Event of Default, all of the commitments of the Agent and the
Banks hereunder shall
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terminate. During the existence of any Event of Default other than a Bankruptcy
Event of Default, the Agent shall at the request of the Majority Banks declare
by written notice to the Borrower all of the commitments of the Agent and the
Banks hereunder terminated, whereupon the same shall immediately terminate.
6.3 Acceleration of Credit Obligations. Upon the occurrence of any
Bankruptcy Event of Default, the aggregate outstanding principal amount of all
loans made hereunder, all accrued interest thereon, and all other Credit
Obligations shall immediately and automatically become due and payable. During
the existence of any Event of Default other than a Bankruptcy Event of Default,
the Agent shall at the request of the Majority Banks declare by written notice
to the Borrower the aggregate outstanding principal amount of all loans made
hereunder, all accrued interest thereon, and all other Credit Obligations to be
immediately due and payable, whereupon the same shall immediately become due and
payable. In connection with the foregoing, except for the notice provided for
above, the Borrower waives notice of any Default or Event of Default, grace,
notice of intent to accelerate, notice of acceleration, presentment, demand,
notice of nonpayment, protest, and all other notices.
6.4 Cash Collateralization of Letters of Credit. Upon the occurrence of
any Bankruptcy Event of Default, the Borrower shall pay to the Agent an amount
equal to the Letter of Credit Exposure allocable to the Letters of Credit
requested by the Borrower to be held in the Letter of Credit Collateral Account
for disposition in accordance with Section 2.2(g). During the existence of any
Event of Default other than a Bankruptcy Event of Default, the Agent shall at
the request of the Majority Banks require by written notice to the Borrower that
the Borrower pay to the Agent an amount equal to the Letter of Credit Exposure
allocable to the Letters of Credit requested by the Borrower to be held in the
Letter of Credit Collateral Account for disposition in accordance with Section
2.2(g), whereupon the Borrower shall pay to the Agent such amount for such
purpose.
6.5 Default Interest. If any Event of Default exists, the Agent shall
at the request of the Majority Banks declare by written notice to the Borrower
that the Credit Obligations specified in such notice shall bear interest
beginning on the date specified in such notice until paid in full at the
applicable Default Rate for such Credit Obligations, whereupon the Borrower
shall pay such interest to the Agent for the benefit of the Agent and the Banks,
as applicable, upon demand by the Agent.
6.6 Right of Setoff. During the existence of an Event of Default, the
Agent and each Bank is hereby authorized at any time, to the fullest extent
permitted by law, to set off and apply any indebtedness owed by the Agent or
such Bank to the Borrower against any and all of the obligations of the Borrower
under this Agreement and the Credit Documents, irrespective of whether or not
the Agent or such Bank shall have made any demand under this Agreement or the
Credit Documents and although such obligations may be contingent and unmatured.
The Agent and each Bank, as the case
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may be, agrees promptly to notify the Borrower after any such setoff and
application made by such party provided that the failure to give such notice
shall not affect the validity of such setoff and application.
6.7 Actions Under Credit Documents. Following an Event of Default, the
Agent shall at the request of the Majority Banks take any and all actions
permitted under the other Credit Documents, including the Guaranty.
6.8 Remedies Cumulative. No right, power, or remedy conferred to the
Agent or the Banks in this Agreement and the Credit Documents, or now or
hereafter existing at law, in equity, by statute, or otherwise, shall be
exclusive, and each such right, power, or remedy shall to the full extent
permitted by law be cumulative and in addition to every other such right, power,
or remedy. No course of dealing and no delay in exercising any right, power, or
remedy conferred to the Agent or the Banks in this Agreement and the Credit
Documents, or now or hereafter existing at law, in equity, by statute, or
otherwise, shall operate as a waiver of or otherwise prejudice any such right,
power, or remedy.
6.9 Application of Payments. Prior to the Revolving Loan Maturity Date
or any acceleration of the Credit Obligations, all payments made hereunder shall
be applied to the Credit Obligations as directed by the Borrower, subject to the
rules regarding the application of payments to certain Credit Obligations
provided for hereunder and in the Credit Documents. Following the Revolving Loan
Maturity Date or any acceleration of the Credit Obligations, all payments and
collections shall be applied to the Credit Obligations in the following order:
First, to the payment of the costs, expenses, reimbursements (other
than reimbursement obligations with respect to draws under Letters
of Credit), and indemnifications of the Agent that are due and
payable under the Credit Documents;
Second, ratably to the payment of the costs, expenses,
reimbursements (other than reimbursement obligations with respect
to draws under Letters of Credit), and indemnifications of the
Banks that are due and payable under the Credit Documents;
Third, ratably to the payment of all accrued but unpaid interest
and fees and obligations under Interest Hedge Agreements due and
payable under the Credit Documents;
Fourth, ratably to the payment of all outstanding principal and
reimbursement obligations for draws under Letters of Credit due and
payable under the Credit Documents;
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Fifth, ratably to the payment of any other amounts due and owing
with respect to the Credit Obligations; and
Finally, any surplus held by the Agent and remaining after payment
in full of all the Credit Obligations and reserve for Credit
Obligations not yet due and payable shall be promptly paid over to
the Borrower or to whomever may be lawfully entitled to receive such
surplus. All applications shall be distributed in accordance with
Section 2.9(a).
ARTICLE 7. THE AGENT AND THE ISSUING BANK
7.1 Authorization and Action. Each Bank hereby appoints and authorizes
the Agent to take such action as agent on its behalf and to exercise such powers
under this Agreement as are delegated to the Agent by the terms hereof and of
the other Credit Documents, together with such powers as are reasonably
incidental thereto. Statements under the Credit Documents that the Agent may
take certain actions, without further qualification, means that the Agent may
take such actions with or without the consent of the Banks or the Majority
Banks, but where the Credit Documents expressly require the determination of the
Banks or the Majority Banks, the Agent shall not take any such action without
the prior written consent thereof. As to any matters not expressly provided for
by this Agreement or any other Credit Document (including, without limitation,
enforcement or collection of the Revolving Loan Notes), the Agent shall not be
required to exercise any discretion or take any action, but shall be required to
act or to refrain from acting (and shall be fully protected in so acting or
refraining from acting) upon the written instructions of the Majority Banks, and
such instructions shall be binding upon all Banks and all holders of Revolving
Loan Notes; provided, however, that the Agent shall not be required to take any
action which exposes the Agent to personal liability or which is contrary to
this Agreement, any other Credit Document, or applicable law.
7.2 Reliance, Etc. Neither the Agent, the Issuing Bank, nor any of
their respective Related Parties (for the purposes of this Section 7.2,
collectively, the "Indemnified Parties") shall be liable for any action taken or
omitted to be taken by any Indemnified Party under or in connection with this
Agreement or the other Credit Documents, INCLUDING ANY INDEMNIFIED PARTY'S OWN
NEGLIGENCE, except for any Indemnified Party's gross negligence or willful
misconduct. Without limitation of the generality of the foregoing, the Agent and
the Issuing Bank: (a) may treat the payee of any Revolving Loan Note as the
holder thereof until the Agent receives written notice of the assignment or
transfer thereof signed by such payee and in form satisfactory to the Agent; (b)
may consult with legal counsel (including counsel for the Borrower), independent
public accountants, and other experts selected by it and shall not be liable for
any action taken or omitted to be taken in good faith by it in accordance with
the advice of such counsel, accountants, or experts; (c) make no warranty or
representation to any Bank and shall not be responsible to any
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Bank for any statements, warranties, or representations made in or in connection
with this Agreement or the other Credit Documents; (d) shall not have any duty
to ascertain or to inquire as to the performance or observance of any of the
terms, covenants, or conditions of this Agreement or any other Credit Document
on the part of the Credit Parties or to inspect the property (including the
books and records) of the Credit Parties; (e) shall not be responsible to any
Bank for the due execution, legality, validity, enforceability, genuineness,
sufficiency, or value of this Agreement or any other Credit Document; and (f)
shall incur no liability under or in respect of this Agreement or any other
Credit Document by acting upon any notice, consent, certificate, or other
instrument or writing (which may be by telecopier or telex) reasonably believed
by it to be genuine and signed or sent by the proper party or parties.
7.3 Affiliates. With respect to its Revolving Loan Commitments, the
Revolving Loan Advances made by it, its interests in the Letters of Credit, and
the Revolving Loan Notes issued to it, the Agent and the Issuing Bank shall have
the same rights and powers under this Agreement as any other Bank and may
exercise the same as though it were not the Agent. The term "Bank" or "Banks"
shall, unless otherwise expressly indicated, include the banks serving as Agent
and the Issuing Bank in their individual capacity; provided that, if any bank
acting as the Agent or the Issuing Bank is not also a "Bank" for purposes of
this Agreement, such bank will only have the rights and obligations of the Agent
or the Issuing Bank, as applicable, and shall not have the rights and
obligations of a "Bank" hereunder. The Agent, the Issuing Bank, and their
respective Affiliates may accept deposits from, lend money to, act as trustee
under indentures of, and generally engage in any kind of business with, any
Credit Party, and any Person who may do business with or own securities of any
Credit Party, all as if the Agent were not an agent hereunder and the Issuing
Bank were not the issuer of Letters of Credit hereunder and without any duty to
account therefor to the Banks.
7.4 Bank Credit Decision. Each Bank acknowledges that it has,
independently and without reliance upon the Agent or any other Bank and based on
the Financial Statements and such other documents and information as it has
deemed appropriate, made its own credit analysis and decision to enter into this
Agreement. Each Bank also acknowledges that it shall, independently and without
reliance upon the Agent or any other Bank and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit decisions in taking or not taking action under this Agreement.
7.5 Expenses. To the extent not paid by the Borrower, each Bank
severally agrees to pay to the Agent and the Issuing Bank on demand such Bank's
ratable share of the following: (a) all reasonable out-of-pocket costs and
expenses of the Agent and the Issuing Bank in connection with the preparation,
due diligence, execution, delivery, syndication, administration, modification,
and amendment of this Agreement and the other Credit Documents, including the
reasonable fees and
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expenses of outside counsel for the Agent and the Issuing Bank with respect to
advising the Agent and the Issuing Bank as to their respective rights and
responsibilities under this Agreement and the Credit Documents, and (b) all
out-of-pocket costs and expenses of the Agent and the Issuing Bank in connection
with the preservation or enforcement of the rights of the Agent, the Issuing
Bank, and the Banks under this Agreement and the other Credit Documents, whether
through negotiations, legal proceedings, or otherwise, including fees and
expenses of counsel for the Agent and the Issuing Bank. The provisions of this
paragraph shall survive the repayment and termination of the credit provided for
under this Agreement and any purported termination of this Agreement which does
not expressly refer to this paragraph and shall apply whether or not an initial
extension of credit is made.
7.6 Indemnification. To the extent not reimbursed by the Borrower, each
Bank severally agrees to protect, defend, indemnify, and hold harmless the
Agent, the Issuing Bank, and each of their respective Related Parties (for the
purposes of this Section 7.6, collectively, the "Indemnified
Parties"), from and against all demands, claims, actions, suits, damages,
judgments, fines, penalties, liabilities, and out-of-pocket costs and expenses,
including reasonable costs of attorneys and related costs of experts such as
accountants (collectively, the "Indemnified Liabilities"), actually incurred by
any Indemnified Party which are related to any litigation or proceeding relating
to this Agreement, the Credit Documents, or the transactions contemplated
thereunder, INCLUDING ANY INDEMNIFIED LIABILITIES CAUSED BY ANY INDEMNIFIED
PARTY'S OWN NEGLIGENCE, but not Indemnified Liabilities which are a result of
any Indemnified Party's gross negligence or willful misconduct. The provisions
of this paragraph shall survive the repayment and termination of the credit
provided for under this Agreement and any purported termination of this
Agreement which does not expressly refer to this paragraph.
7.7 Successor Agent and Issuing Bank. The Agent or the Issuing Bank may
resign at any time by giving written notice thereof to the Banks and the
Borrower and may be removed at any time with or without cause by the Majority
Banks upon receipt of written notice from the Majority Banks to such effect.
Upon receipt of notice of any such resignation or removal, the Majority Banks
shall have the right to appoint a successor Agent or Issuing Bank with the
consent of the Borrower, which consent shall not be unreasonably withheld. If no
successor Agent or Issuing Bank shall have been so appointed by the Majority
Banks with the consent of the Borrower, and shall have accepted such
appointment, within 30 days after the retiring Agent's or Issuing Bank's giving
of notice of resignation or the Majority Banks' removal of the retiring Agent or
Issuing Bank, then the retiring Agent or Issuing Bank may, on behalf of the
Banks and the Borrower, appoint a successor Agent or Issuing Bank, which shall
be, in the case of a successor agent, a commercial bank organized under the laws
of the United States of America or of any State thereof and having a combined
capital and surplus of at least $500,000,000 and, in the case of the Issuing
Bank, a Bank. Upon the acceptance of any appointment as Agent or Issuing Bank by
a successor Agent or Issuing Bank, such successor Agent or Issuing Bank shall
thereupon succeed to and become vested with all the rights, powers,
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privileges, and duties of the retiring Agent or Issuing Bank, and the retiring
Agent or Issuing Bank shall be discharged from any duties and obligations under
this Agreement and the other Credit Documents after such acceptance, except that
the retiring Issuing Bank shall remain the Issuing Bank with respect to any
Letters of Credit outstanding on the effective date of its resignation or
removal and the provisions affecting the Issuing Bank with respect to such
Letters of Credit shall inure to the benefit of the retiring Issuing Bank until
the termination of all such Letters of Credit. After any Agent's or Issuing
Bank's resignation or removal hereunder as Agent or Issuing Bank, the provisions
of this Article 7 shall inure to such Person's benefit as to any actions taken
or omitted to be taken by such Person while such Person was Agent or Issuing
Bank under this Agreement and the other Credit Documents.
ARTICLE 8. MISCELLANEOUS.
8.1 Expenses. The Borrower shall pay on demand of the applicable party
specified herein (a) all reasonable out-of-pocket costs and expenses of the
Agent and the Issuing Bank in connection with the preparation, due diligence,
execution, delivery, syndication, administration, modification, and amendment of
this Agreement and the other Credit Documents, including the reasonable fees and
expenses of outside counsel for the Agent and the Issuing Bank, and (b) all
out-of-pocket costs and expenses of the Agent, the Issuing Bank, and each Bank
in connection with the preservation or enforcement of their respective rights
under this Agreement and the other Credit Documents, whether through
negotiations, legal proceedings, or otherwise, including fees and expenses of
counsel for the Agent, the Issuing Bank, and each Bank. The provisions of this
paragraph shall survive the repayment and termination of the credit provided for
under this Agreement and any purported termination of this Agreement which does
not expressly refer to this paragraph and shall apply whether or not an initial
extension of credit is made.
8.2 Indemnification. The Borrower agrees to protect, defend, indemnify,
and hold harmless the Agent, the Issuing Bank, each Bank, and each of their
respective Related Parties (for the purposes of this Section 8.2, collectively,
the "Indemnified Parties"), from and against all demands, claims, actions,
suits, damages, judgments, fines, penalties, liabilities, and out-of-pocket
costs and expenses, including reasonable costs of attorneys and related costs of
experts such as accountants (collectively, the "Indemnified Liabilities"),
actually incurred by any Indemnified Party which are related to any litigation
or proceeding relating to this Agreement, the Credit Documents, or the
transactions contemplated thereunder, INCLUDING ANY INDEMNIFIED LIABILITIES
CAUSED BY ANY INDEMNIFIED PARTY'S OWN NEGLIGENCE, but not Indemnified
Liabilities which are a result of any Indemnified Party's gross negligence or
willful misconduct. The provisions of this paragraph shall survive the repayment
and termination of the credit provided for under this Agreement and any
purported termination of this Agreement which does not expressly refer to this
paragraph.
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8.3 Modifications, Waivers, and Consents. No modification or waiver of
any provision of this Agreement, the Revolving Loan Notes or any other Credit
Document (other than the Autoborrow Agreement), nor any consent required under
this Agreement, the Revolving Loan Notes, or any other Credit Document (other
than the Autoborrow Agreement) shall be effective unless the same shall be in
writing and signed by the Agent and Majority Banks and the Borrower, and then
such modification, waiver, or consent shall be effective only in the specific
instance and for the specific purpose for which given; provided, however, that
no modification, waiver, or consent shall, unless in writing and signed by the
Agent, all the Banks, and the Borrower do any of the following: (a) waive any of
the conditions specified in Section 3.1 or 3.2, (b) increase the Revolving Loan
Commitments of the Banks, (c) forgive or reduce the amount or rate of any
principal, interest, or fees payable under the Credit Documents, or postpone or
extend the time for payment thereof, (d) release any Guarantor from its guaranty
obligations (except as otherwise permitted or required herein), or (e) change
the percentage of Banks required to take any action under this Agreement or the
Revolving Loan Notes, including any amendment of the definition of "Majority
Banks" or this Section 8.3. No modification, waiver, or consent shall, unless in
writing and signed by the Agent or the Issuing Bank affect the rights or
obligations of the Agent or the Issuing Bank, as the case may be, under the
Credit Documents. The Agent shall not modify or waive or grant any consent under
any other Credit Document if such action would be prohibited under this Section
8.3 with respect to the Credit Agreement or the Revolving Loan Notes. The
Autoborrow Agreement may not be amended, modified or supplemented nor may any
waiver be granted thereunder without the express written consent of the Borrower
and NationsBank.
8.4 Survival of Agreements. All representations, warranties, and
covenants of the Borrower in this Agreement and the Credit Documents shall
survive the execution of this Agreement and the Credit Documents and any other
document or agreement.
8.5 Assignment and Participation. This Agreement and the Credit
Documents shall bind and inure to the benefit of the Borrower and its respective
successors and assigns and the Agent and the Banks and their respective
successors and assigns. The Borrower may not assign its rights or delegate its
duties under this Agreement or any Credit Document.
(a) Assignments. Any Bank may assign to one or more banks or
other entities all or any portion of its rights and obligations under this
Agreement (including, without limitation, all or a portion of its Revolving Loan
Commitments, the Revolving Loan Advances owing to it, the Revolving Loan Notes
held by it, and the participation interest in the Letters of Credit owned by
it); provided, however, that (i) each such assignment shall be of a constant,
and not a varying, percentage of all of such Bank's rights and obligations under
this Agreement, (ii) assignments of Revolving Loan Commitments shall be made in
minimum amounts of $5,000,000 and be made in integral multiples of $1,000,000 in
excess thereof and the assigning Bank, if it retains any Revolving Loan
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Commitments, shall maintain at least $5,000,000 in Revolving Loan Commitments,
(iii) each such assignment shall be to an Eligible Assignee, (iv) the parties to
each such assignment shall execute and deliver to the Agent, for its acceptance
and recording in the Register, an Assignment and Acceptance, together with the
Revolving Loan Notes subject to such assignment, and (v) each Eligible Assignee
(other than the Eligible Assignee of the Agent) shall pay to the Agent a $5,000
administrative fee. Upon such execution, delivery, acceptance, and recording,
from and after the effective date specified in each Assignment and Acceptance,
which effective date shall be at least three Business Days after the execution
thereof, (A) the assignee thereunder shall be a party hereto for all purposes
and, to the extent that rights and obligations hereunder have been assigned to
it pursuant to such Assignment and Acceptance, have the rights and obligations
of a Bank hereunder and (B) such Bank thereunder shall, to the extent that
rights and obligations hereunder have been assigned by it pursuant to such
Assignment and Acceptance, relinquish its rights and be released from its
obligations under this Agreement (and, in the case of an Assignment and
Acceptance covering all or the remaining portion of such Bank's rights and
obligations under this Agreement, such Bank shall cease to be a party hereto).
(b) Term of Assignments. By executing and delivering an
Assignment and Acceptance, the Bank thereunder and the assignee thereunder
confirm to and agree with each other and the other parties hereto as follows:
(i) other than as provided in such Assignment and Acceptance, such Bank makes no
representation or warranty and assumes no responsibility with respect to any
statements, warranties or representations made in or in connection with this
Agreement or the execution, legality, validity, enforceability, genuineness,
sufficiency of value of this Agreement or any other instrument or document
furnished pursuant hereto; (ii) such Bank makes no representation or warranty
and assumes no responsibility with respect to the financial condition of any
Credit Party or the performance or observance by any Credit Party of any of its
obligations under this Agreement or any other instrument or document furnished
pursuant hereto; (iii) such assignee confirms that it has received a copy of
this Agreement, together with copies of the Financial Statements and such other
documents and information as it has deemed appropriate to make its own credit
analysis and decision to enter into such Assignment and Acceptance; (iv) such
assignee shall, independently and without reliance upon the Agent, such Bank or
any other Bank and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking action under this Agreement; (v) such assignee appoints and
authorizes the Agent to take such action as agent on its behalf and to exercise
such powers under this Agreement as are delegated to the Agent by the terms
hereof, together with such powers as are reasonably incidental thereto; and (vi)
such assignee agrees that it shall perform in accordance with their terms all of
the obligations which by the terms of this Agreement are required to be
performed by it as a Bank.
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(c) The Register. The Agent shall maintain at its address
referred to in Section 8.6 a copy of each Assignment and Acceptance delivered to
and accepted by it and a register for the recordation of the names and addresses
of the Banks and the Revolving Loan Commitments of each Bank from time to time
(the "Register"). The entries in the Register shall be conclusive and binding
for all purposes, absent manifest error, and the Borrower, the Agent, the
Issuing Bank, and the Banks may treat each Person whose name is recorded in the
Register as a Bank hereunder for all purposes of this Agreement. The Register
shall be available for inspection by the Borrower or any Bank at any reasonable
time and from time to time upon reasonable prior notice.
(d) Procedures. Upon its receipt of an Assignment and
Acceptance executed by a Bank and an Eligible Assignee, together with the
Revolving Loan Notes subject to such assignment, the Agent shall, if such
Assignment and Acceptance has been completed in the appropriate form, (i) accept
such Assignment and Acceptance, (ii) record the information contained therein in
the Register, and (iii) give prompt notice thereof to the Borrower. Within five
Business Days after its receipt of such notice, the Borrower shall execute and
deliver to the Agent in exchange for the surrendered Revolving Loan Notes a new
Revolving Loan Note to the order of such Eligible Assignee in an amount equal to
the Revolving Loan Commitment assumed by it pursuant to such Assignment and
Acceptance and, if such Bank has retained any Revolving Loan Commitment
hereunder, a new Revolving Loan Note to the order of such Bank in an amount
equal to the Revolving Loan Commitment retained by it hereunder. Such new
Revolving Loan Notes shall be dated the effective date of such Assignment and
Acceptance and shall be in the appropriate form.
(e) Participation. Each Bank may sell participation to one or
more banks or other entities in or to all or a portion of its rights and
obligations under this Agreement (including, without limitation, all or a
portion of its Revolving Loan Commitments, the Revolving Loan Advances owing to
it, its participation interest in the Letters of Credit, and the Revolving Loan
Notes held by it); provided, however, that (i) such Bank's obligations under
this Agreement (including, without limitation, its Revolving Loan Commitments to
the Borrower hereunder) shall remain unchanged, (ii) such Bank shall remain
solely responsible to the other parties hereto for the performance of such
obligations, (iii) such Bank shall remain the holder of any such Revolving Loan
Notes for all purposes of this Agreement, (iv) the Borrower, the Agent, and the
Issuing Bank and the other Banks shall continue to deal solely and directly with
such Bank in connection with such Bank's rights and obligations under this
Agreement, and (v) such Bank shall not require the participant's consent to any
matter under this Agreement, except for change in the principal amount of the
Revolving Loan Notes, reductions in fees or interest, extending the applicable
maturity date, or releasing any collateral or guarantor (except to the extent
otherwise permitted herein or in any of the other Credit Documents). The
Borrower hereby agrees that participants shall have the same rights under
Sections 2.5, 2.6, 2.7, 2.8, 2.9, and 8.2 as a Bank to the extent of their
respective participation.
-58-
<PAGE> 64
(f) Assignments or Pledges to Federal Reserve Banks. In
addition to the foregoing rights of assignment and participation, any Bank may
assign or pledge any portion of its rights under this Agreement (including the
Revolving Loan Advances owed to such Bank) to any Federal Reserve Bank in
accordance with applicable law without notice to or the consent of the Borrower
or the Agent, provided that (i) such Bank shall not be relieved of its
obligations under this Agreement as a result thereof and (ii) in no event shall
the Federal Reserve Bank be entitled to direct the actions of the pledging or
assigning Bank under this Agreement.
8.6 Notice. All notices and other communications under this Agreement
and the Revolving Loan Notes shall be in writing and mailed by certified mail
(return receipt requested), telecopied, telexed, hand delivered, or delivered by
a nationally recognized overnight courier, to the address for the appropriate
party specified in Schedule I or at such other address as shall be designated by
such party in a written notice to the other parties. Mailed notices shall be
effective when received. Telecopied or telexed notices shall be effective when
transmission is completed or confirmed by telex answerback. Delivered notices
shall be effective when delivered by messenger or courier. Notwithstanding the
foregoing, notices and communications to the Agent pursuant to Article 2 or 7
shall not be effective until received by the Agent.
8.7 Choice of Law. This Agreement and the Revolving Loan Notes have
been prepared, are being executed and delivered, and are intended to be
performed in the State of Texas, and the substantive laws of the State of Texas
and the applicable federal laws of the United States shall govern the validity,
construction, enforcement, and interpretation of this Agreement and the
Revolving Loan Notes; provided however, Chapter 15 of the Texas Credit Code does
not apply to this Agreement or the Revolving Loan Notes. Each Letter of Credit
shall be governed by the Uniform Customs and Practice for Documentary Credits,
International Chamber of Commerce Publication No. 500 (1993 version).
8.8 Forum Selection. THE BORROWER IRREVOCABLY CONSENTS TO THE
JURISDICTION OF THE COURTS OF THE STATE OF TEXAS AND OF ANY FEDERAL COURT
LOCATED IN SUCH STATE IN CONNECTION WITH ANY ACTION OR PROCEEDING ARISING OUT OF
OR RELATING TO THE CREDIT DOCUMENTS OR ANY TRANSACTIONS RELATED THERETO. THE
BORROWER AGREES AND SHALL NOT CONTEST THAT PROPER FORUM AND VENUE FOR ANY ACTION
OR PROCEEDING ARISING OUT OF OR RELATING TO THE CREDIT DOCUMENTS OR ANY
TRANSACTIONS RELATING THERETO ARE IN THE COURTS OF THE STATE OF TEXAS IN HARRIS
COUNTY, TEXAS, AND THE FEDERAL COURTS LOCATED IN HARRIS COUNTY, TEXAS. THE
BORROWER IRREVOCABLY WAIVES ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO
THE FOREGOING BASED UPON CLAIMS THAT THE FOREGOING COURTS ARE AN INCONVENIENT
FORUM.
-59-
<PAGE> 65
8.9 Service of Process. IN ANY ACTION OR PROCEEDING ARISING OUT OF OR
RELATING TO THE CREDIT DOCUMENTS OR ANY TRANSACTIONS RELATING THERETO, THE
BORROWER WAIVES PERSONAL SERVICE OF ANY SUMMONS, COMPLAINT, OR OTHER PROCESS OR
NOTICE AND AGREES THAT SERVICE BY FIRST CLASS MAIL, RETURN RECEIPT REQUESTED, TO
THE BORROWER AT ITS ADDRESS FOR NOTICES HEREUNDER, OR ANY OTHER FORM OF SERVICE
PROVIDED FOR IN THE TEXAS CIVIL PRACTICE LAW AND RULES THEN IN EFFECT SHALL
CONSTITUTE GOOD AND SUFFICIENT SERVICE UPON THE BORROWER.
8.10 Waiver of Jury Trial. THE BORROWER IRREVOCABLY WAIVES ANY RIGHT TO
TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THE CREDIT
DOCUMENTS OR ANY TRANSACTIONS RELATING THERETO.
8.11 Counterparts. This Agreement may be executed in multiple
counterparts which together shall constitute one and the same instrument.
8.12 No Further Agreements. THIS WRITTEN AGREEMENT AND THE CREDIT
DOCUMENTS REPRESENT THE FINAL AGREEMENT AMONG THE PARTIES AND MAY
NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR
SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.
<PAGE> 66
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
EXECUTED as of the date first above written.
BORROWER:
HYDROCHEM INDUSTRIAL SERVICES, INC.
By: /s/ SELBY F. LITTLE, III.
-------------------------------
Name: Selby F. Little, III
Title: Executive Vice President &
Chief Financial Officer
<PAGE> 67
AGENT:
NATIONSBANK OF TEXAS, N.A., as Agent
By: /s/ WILLIAM T. GRIFFIN, JR.
-------------------------------
William T. Griffin, Jr.
Vice President
<PAGE> 68
BANKS:
NATIONSBANK OF TEXAS, N.A.
By: /s/William T. Griffin, Jr.
-------------------------------
William T. Griffin, Jr.
Vice President
Revolving Loan Commitment: $25,000,000
<PAGE> 69
Exhibit A
FORM OF ACQUISITION
CERTIFICATE
[date]
NationsBank of Texas, N.A., as Agent
for the financial institutions parties to the
Credit Agreement referred to below
700 Louisiana, 7th Floor
Houston, Texas 77002
Attention: Mr. William T. Griffin, Jr.
Ladies and Gentlemen:
The undersigned refers to the Credit Agreement dated as of December 31, 1997 (as
amended, modified, or supplemented from time to time, the "Credit Agreement",
the defined terms of which are used herein unless otherwise defined herein),
among HydroChem Industrial Services, Inc. (the "Borrower"), the financial
institutions parties thereto, and NationsBank of Texas, N.A., as Agent for such
financial institutions ("Agent").
The Borrower intends to make an Acquisition (the "Proposed Acquisition"), and in
connection therewith hereby certifies the following to the Agent and the Banks:
1. Attached hereto as Exhibit A is a summary of the Proposed
Acquisition, including a description of the business operations and assets to be
acquired and the consideration to be paid (including assumed indebtedness and
liabilities and Debt issued in connection therewith), and such summary fairly
presents the contemplated transaction.
2. Attached hereto as Exhibit B are historical financial statements
regarding the operations to be acquired in the Proposed Acquisition covering the
period of the most
<PAGE> 70
recently completed four fiscal quarters of the Borrower, the Borrower's proposed
adjustments to the historical financial statements reflecting nonrecurring
expenses and income, and historical proforma financial statements for the
operations to be acquired in the Proposed Acquisition giving effect to such
adjustments. The Borrower's proposed adjustments to the historical financial
statements and the historical proforma financial statements have been prepared
in accordance with the requirements of the Credit Agreement, including Section
1.3 of the Credit Agreement.
3. Attached hereto as Exhibit C are consolidated historical proforma
financial statements for the Borrower for the most recently completed four
fiscal quarters of the Borrower giving effect to the Proposed Acquisition as set
forth in the historical proforma financial statements described in paragraph 2
above. The consolidated historical proforma financial statements have been
prepared in accordance with the requirements of the Credit Agreement, including
Section 1.3 of the Credit Agreement.
[4. Attached hereto as Exhibit D is a completed Borrowing Base and
Compliance Certificate duly certified by a Responsible Officer of the Borrower,
demonstrating the Borrower's compliance with the covenants contained in Section
5.5 of the Credit Agreement on a proforma basis after giving effect to the
Proposed Acquisition in accordance with the consolidated historical proforma
financial statements described in paragraph 3 above.]1
The Borrower represents and warrants that there are no contingent liabilities,
including environmental liabilities, litigation liabilities, and assumed
contractual liabilities, associated with the Proposed Acquisition that could
reasonably be expected to cause a Material Adverse Change.
[The Borrower hereby requests the Agent's approval as required by Section
[5.5(b)] [5.9(c)(iii)] of the Credit Agreement.]2
[The Borrower hereby further requests the following waivers and consents in
connection with the Proposed Acquisition:]3
- --------------------------
1 Include if Acquisition requires approval under Section 5.5(b) or
Section 5.9(c)(ii).
2 Include if Acquisition requires approval under Section 5.5(b) or
Section 5.9(c)(ii).
3 Include if applicable.
-2-
<PAGE> 71
Very truly yours,
HYDROCHEM INDUSTRIAL SERVICES, INC.
By:
---------------------
Name:
-------------------
Title:
------------------
-3-
<PAGE> 72
Exhibit B
FORM OF
ASSIGNMENT AND ACCEPTANCE
[date]
Reference is made to the Credit Agreement dated as of December 31, 1997
(as the same may be amended, modified, or supplemented from time to time,
"Credit Agreement"), among HydroChem Industrial Services, Inc., a Delaware
corporation ("Borrower"), the financial institutions parties thereto ("Banks"),
and NationsBank of Texas, N.A., as agent for the Banks ("Agent"). Capitalized
terms used herein but not defined herein shall have the meanings specified by
the Credit Agreement.
Pursuant to the terms of the Credit Agreement, [ ] ("Assignor"), wishes
to assign and delegate to [ ] ("Assignee"), [ ]%1 of its rights and obligations
under the Credit Agreement. Therefore, Assignor, Assignee, and Agent agree as
follows:
i. The Assignor hereby sells and assigns and delegates
to the Assignee, and the Assignee hereby purchases and assumes
from the Assignor, without recourse to the Assignor and
without representation or warranty except for the
representations and warranties specifically set forth in
clauses (i), (ii), and (iii) of this Assignment and
Acceptance, a [ ]% interest in and to all of the Assignor's
rights and obligations under the Credit Agreement and the
other Credit Documents as of the Effective Date (as defined
below), including such percentage interest in the Assignor's
Revolving Loan Commitment, the Revolving Loan Advances owing
to the Assignor, the Assignor's ratable participation interest
in the Letters of Credit, and the Revolving Loan Note[s] held
by the Assignor.
- --------
(1) Specify percentage to 4 decimal points.
<PAGE> 73
ii. The Assignor (a) represents and warrants that, prior to
executing this Assignment and Acceptance, its Revolving Loan
Commitment is $[ ], the aggregate outstanding principal amount
of Revolving Loan Advances owed by the Borrower to the
Assignor is $[ ], and its ratable share of the Letter of
Credit Exposure is $[ ]; (b) represents and warrants that it
is the legal and beneficial owner of the interest being
assigned by it hereunder and that such interest is free and
clear of any adverse claim; (c) makes no representation or
warranty and assumes no responsibility with respect to any
statements, warranties, or representations made in or in
connection with the Credit Agreement or any other Credit
Document or the execution, legality, validity, enforceability,
genuineness, sufficiency, or value of the Credit Agreement or
any other Credit Document or any other instrument or document
furnished pursuant thereto; (d) makes no representation or
warranty and assumes no responsibility with respect to the
financial condition of the Borrower or any Guarantor or the
performance or observance by the Borrower or any Guarantor of
any of its obligations under the Credit Agreement or any other
Credit Document or any other instrument or document furnished
pursuant thereto; and (e) attaches the Revolving Loan Note[s]
referred to in clause (i) above and requests that the Agent
exchange such Revolving Loan Note[s] for a new Revolving Loan
Note dated [ ] made by [ ], in the principal amount of $[ ]
payable to the order of the Assignee[, and a new Revolving
Loan Note dated [ ], in the principal amount of $[ ] payable
to the order of Assignor].
iii. The Assignee (a) confirms that it has received a copy
of the Credit Agreement, together with copies of the Financial
Statements referred to in Section 4.7 thereof, and such other
documents and information as it has deemed appropriate to make
its own credit analysis and decision to enter into this
Assignment and Acceptance; (b) agrees that it will,
independently and without reliance upon the Agent, the
Assignor, or any other Bank, and based on such documents and
information as it shall deem appropriate at the time, continue
to make its own credit decisions in taking or not taking
action under the Credit Agreement or any other Credit
Document; (c) appoints and authorizes the Agent to take such
action as agent on its behalf and to exercise such powers
under the Credit Agreement and any other Credit Document as
are delegated to the Agent by the terms thereof, together with
such powers as are reasonably incidental thereto; (d) agrees
that it will perform all of the obligations which by the terms
of the Credit Agreement or any other Credit Document it is
required to perform as a Bank; (e) specifies as its Applicable
Lending Office and address for notices the offices set forth
beneath its name on the signature pages hereof; (f) attaches
the forms prescribed by the Internal Revenue Service of the
-2-
<PAGE> 74
United States certifying as to the Assignee's status
for purposes of determining exemption from United
States withholding taxes and back-up withholding
taxes with respect to all payments to be made to the
Assignee under the Credit Agreement and the Revolving
Loan Notes or such other documents as are necessary
to indicate that all such payments are subject to
such rates at a rate reduced by an applicable tax
treaty(2); and (g) represents that it is an Eligible
Assignee.
iv. The effective date for this Assignment and Acceptance
shall be [ ] ("Effective Date")(3), and following the
execution of this Assignment and Acceptance, the Agent will
record it in the register.
v. Upon such recording, and as of the Effective Date,
(i) the Assignee shall be a party to the Credit Agreement for
all purposes and, to the extent provided in this Assignment
and Acceptance, have the rights and obligations of a Bank
thereunder and (ii) the Assignor shall, to the extent provided
in this Assignment and Acceptance, relinquish its rights
(other than rights against the Borrowers pursuant to Section
8.1 and 8.2 of the Credit Agreement, which shall survive this
Assignment and Acceptance) and be released from its
obligations (other than obligations to the Agent pursuant to
Section 7.5 and 7.6 of the Credit Agreement, which shall
survive this Assignment and Acceptance) under the Credit
Agreement.
vi. Upon such recording, from and after the Effective
Date, the Agent shall make all payments under the Credit
Agreement and the Revolving Loan Notes in respect of the
interest assigned hereby (including all payments of principal,
interest, and fees) to the Assignee. The Assignor and Assignee
shall make all appropriate adjustments for amounts earned
under the Credit Agreement and the Revolving Loan Notes for
periods prior to the Effective Date directly between
themselves.
vii. This Assignment and Acceptance shall be governed by,
and construed and enforced in accordance with, the laws of the
State of Texas.
- --------
(2) If the Assignee is organized under the laws of a jurisdiction outside the
United States.
(3) See Section 8.5 of the Credit Agreement. Such date shall be at least three
Business Days after the execution of this Assignment and Acceptance.
-3-
<PAGE> 75
The parties hereto have caused this Assignment and Acceptance to be
duly executed as of the date first above written.
ASSIGNOR:
[ASSIGNOR]
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
ASSIGNEE:
[ASSIGNEE]
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
Notice Address:
Address:
--------------------------
----------------------------------
----------------------------------
Attention:
------------------------
Telephone:
------------------------
Telecopy:
------------------------
-4-
<PAGE> 76
Applicable Lending Office:
Address:
-------------------------
-------------------------
-------------------------
Attention:
----------------------
Telephone:
----------------------
Telecopy:
----------------------
AGENT:
NATIONSBANK OF TEXAS, N.A.,
as Agent
By:
------------------------------
William T. Griffin, Jr.
Vice President
-5-
<PAGE> 77
[ACKNOWLEDGED
this _____ day of _________________, ____.
BORROWER:
HYDROCHEM INDUSTRIAL SERVICES, INC.
By:
-----------------------------------------------
Name:
---------------------------------------------
Title: ]4
--------------------------------------------
- ------------
(4) The Borrower's acknowledgement of this Assignment and Acceptance is not
required after the occurrence and continuance of a Default.
-6-
<PAGE> 78
Exhibit C
FORM OF
BORROWING BASE AND COMPLIANCE CERTIFICATE
[date]
NationsBank of Texas, N.A., as Agent
for the financial institutions parties to the
Credit Agreement referred to below
700 Louisiana, 7th Floor
Houston, Texas 77002
Attention: Mr. William T. Griffin, Jr.
Ladies and Gentlemen:
I refer to the Credit Agreement dated as of December 31, 1997 (as the same may
be amended, modified, or supplemented from time to time, the "Credit Agreement",
the defined terms of which are used herein unless otherwise defined herein)
among HydroChem Industrial Services, Inc. (the "Borrower"), the financial
institutions parties thereto, and NationsBank of Texas, N.A., as Agent for such
financial institutions.
I hereby certify that I have no knowledge of any Defaults by the Borrower in the
observance of any of the provisions in the Credit Agreement which existed as of
[_______________] or which exist as of the date of this letter.
I also certify that the accompanying consolidated Financial Statements present
fairly, in all material respects, the consolidated financial condition of the
Borrower as of [_______________], and the related results of operations for the
[_______________] then ended, in conformity with generally accepted accounting
principles.
The following sets forth the information and computations to demonstrate the
calculation of the Borrowing Base as of [______________] and to demonstrate
compliance with the requirements of Section 5.5 of the Credit Agreement as of
[_______________]:
1
<PAGE> 79
<TABLE>
<CAPTION>
I. Borrowing Base
<S> <C>
A. Eligible Accounts $
--------------------
B. .85 .85
--------------------
C. Eligible Inventory $
--------------------
D. .60 .60
E. Borrowing Base $
(AxB) + (CxD) --------------------
II. Compliance Certificate
A. Section 5.5(a) Net Worth
1. $15,000,000 $ 15,000,000
--------------------
2. 50% of cumulative quarterly consolidated
net income of Borrower since September 30, 1997 for
each fiscal quarter ending after that date during
which Borrower has positive consolidated net income $
--------------------
3. 80% of net proceeds resulting from any sale or
issuance of any stock of Borrower or its
Subsidiaries since September 30, 1997 $
--------------------
4. Minimum Net Worth requirement =
A.1 + A.2 + A.3 $
--------------------
5. Actual Net Worth $
--------------------
B. Section 5.5(b) Maximum Funded Debt to Proforma EBITDA Ratio
1. consolidated Funded Debt as of fiscal quarter
then ended $
--------------------
2. consolidated EBITDA for preceding
four fiscal quarters $
--------------------
3. ratio B.1 / B.2 to 1.00
---------------
4. maximum permitted
a. prior to and including 12/31/98 6.00 to 1.00
b. thereafter 5.50 to 1.00
C. Section 5.5(c) Minimum Fixed Charge Coverage Ratio
1. consolidated EBITDA for preceding
four fiscal quarters $
--------------------
</TABLE>
2
<PAGE> 80
<TABLE>
<S> <C>
2. consolidated cash taxes paid for preceding
four fiscal quarters $
---------------
3. Capital Expenditures for preceding
four fiscal quarters $
---------------
4. consolidated interest expense for preceding
four fiscal quarters $
---------------
5. capitalized interest for preceding
four fiscal quarters $
---------------
6. consolidated scheduled principal payments on
long term debt (INCLUDING CAPITAL LEASES) for
preceding four fiscal quarters $
---------------
7. cash dividends made in preceding
four fiscal quarters $
---------------
8. ratio = (C.1 - C.2 - C.3) / (C.4 + C.5 + C.6 + C.7) to 1.00
------
9. minimum required: 1.00 to 1.00
D. Section 5.5(d) Minimum Interest Charge Coverage Ratio
1. consolidated EBIT for
preceding four fiscal quarters $
---------------
2. consolidated interest expense for preceding
four fiscal quarters $
---------------
3. capitalized interest for preceding
four fiscal quarters $
---------------
4. ratio = (D.1)/(D.2 + D.3) to 1.00
------
5. minimum required:
to and including December 31, 1998 1.00 to 1.00
thereafter 1.15 to 1.00
</TABLE>
Very truly yours,
-----------------------------------
Name:
-----------------------------
Title:
-----------------------------
3
<PAGE> 81
Exhibit D
FORM OF
CONTINUATION/CONVERSION REQUEST
[date]
NationsBank of Texas, N.A.,
as Agent
Attn: William T. Griffin, Jr.
700 Louisiana, 7th Floor
Houston, Texas 77002
Telephone: 713-247-7756
Telecopy: 713-247-7748
Ladies and Gentlemen:
The undersigned, HydroChem Industrial Services, Inc., a Delaware corporation
(the "Borrower"), refers to the Credit Agreement dated as of December 31, 1997
(as the same may be amended, modified, or supplemented from time to time, the
"Credit Agreement," the defined terms of which are used in this
Continuation/Conversion Request unless otherwise defined in this
Continuation/Conversion Request), among the Borrower, the financial institutions
parties thereto ("Banks"), and NationsBank of Texas, N.A., as agent for the
Banks ("Agent"), and hereby gives you irrevocable notice pursuant to Section
2.4(a)(ii) of the Credit Agreement that the undersigned hereby requests a
[conversion][continuation] of [outstanding Revolving Loan Borrowings][an
outstanding Revolving Loan Borrowing] into a new Revolving Loan Borrowing (the
"Proposed Borrowing") on the terms set forth below:
<PAGE> 82
Outstanding Revolving Loan Borrowing #1
Date of Revolving Loan Borrowing:
Type of Tranche:
Aggregate Amount(1)
for Continuation/
Conversion:
Interest Period:
[Outstanding Revolving Loan Borrowing #2
Date of Revolving Loan Borrowing:
Type of Tranche :
Aggregate Amount(1)
for Continuation/
Conversion :
Interest Period :]
- --------
(1) The Aggregate Amount for Conversion with respect to Tranches must be in
an amount at least equal to $300,000 or in integral multiples of $100,000 in
excess thereof. No continuation or conversion may be made if such continuation
or conversion would cause the aggregate amount of any LIBOR Tranche to be less
than $300,000 or all Prime Rate Tranches to be less than $100,000.
-2-
<PAGE> 83
Proposed Borrowing
Date of Continuation
or Conversion(2) :
Type of Tranche(3) :
Aggregate Amount(4) :
Interest Period(5) :
The undersigned hereby certifies that the following statements are true on the
date hereof and will be true on the date of the Proposed Borrowing:
(a) the representations and warranties contained in the Credit
Agreement are correct in all material respects, before and after giving effect
to the Proposed Borrowing and the application of the proceeds therefrom, as
though made on the date of the Proposed Borrowing; and
- --------
(2) The date of the proposed continuation or conversion must be a Business
Day. The Borrower must give three Business Days' advance notice for conversions
into or continuations of Revolving Loan Borrowings comprised of LIBOR Tranches.
(3) The Type of Tranches comprising a Proposed Borrowing may be Prime Rate
Tranches or LIBOR Tranches.
(4) The Aggregate Amount of the Proposed Borrowing must be in an amount
at least equal to $300,000 or in integral multiples of $100,000 in
excess thereof in the case of LIBOR Tranches and must be in an amount
at least equal to $100,000 or in integral multiples of $100,000 in
excess thereof. No continuation or conversion may be made if such
continuation or conversion would cause the aggregate amount of any
LIBOR Tranche to be less than $300,000 or all Prime Rate Tranches to be
less than $100,000.
(5) The Interest Period applies only to Revolving Loan Borrowings
comprised of LIBOR Tranches and may be one, two, three, or six months.
Insert "N/A" for Revolving Loan Borrowings comprised of Prime Rate
Tranches.
-3-
<PAGE> 84
(b) no Default has occurred and remains uncured, nor would result from
the Proposed Borrowing.
Very truly yours,
HYDROCHEM INDUSTRIAL
SERVICES, INC.
By:
--------------------------
Name:
-------------------------
Title:
------------------------
-4-
<PAGE> 85
Exhibit E
FORM OF GUARANTY
This Guaranty dated as of December 31, 1997 ("Agreement"), is made by
the undersigned subsidiaries of HydroChem Industrial Services, Inc., a Delaware
corporation, (each a "Guarantor") in favor of NationsBank of Texas, N.A., in its
capacity as agent ("Agent") for certain financial institutions which are or may
become parties to the Credit Agreement described below.
INTRODUCTION
This Agreement is given in connection with the Credit Agreement dated
as of December 31, 1997 (as amended, modified or supplemented from time to time,
the "Credit Agreement", the defined terms of which are used herein unless
otherwise defined herein) among HydroChem Industrial Services, Inc., a Delaware
corporation ("Borrower"), certain financial institutions which are or may become
parties thereto ("Banks"), and the Agent. Each Guarantor is a Subsidiary of the
Borrower. Because each Guarantor receives and, as a result of its ownership by
the Borrower, expects to continue to receive financial and management support
from the Borrower, each Guarantor will obtain substantial benefit from the
extensions of credit expected to be made to the Borrower under the Credit
Agreement.
Therefore, to induce the Agent and the Banks to enter into the Credit
Agreement, the Guarantors jointly and severally agree with the Agent as follows:
Section 1. Guaranty. The Guarantors irrevocably and jointly and severally
guarantee to the Agent the full payment when due of (a) all principal, interest,
fees, reimbursements, indemnifications, and other amounts now or hereafter owed
by the Borrower to the Agent and the Banks (and with respect to the Interest
Hedge Agreements, the Banks and their Affiliates) under the terms of the Credit
Agreement, the Autoborrow Agreement and the other Credit Documents, including
amounts owed under the terms of the Credit Agreement and the other Credit
Documents for which the Borrower has obtained relief under bankruptcy or other
laws providing for relief from creditors, and (b) any increases, extensions, and
rearrangements of the foregoing obligations under any amendments, supplements,
and other modifications of the documents and agreements creating the foregoing
obligations
<PAGE> 86
(collectively, the "Guaranteed Obligations"). This is a guaranty of payment and
not merely a guaranty of collection, and each Guarantor is liable as a primary
obligor. If any of the Guaranteed Obligations are not punctually paid when due,
whether by maturity, acceleration, or otherwise, and the Agent shall notify any
Guarantor of such default and make demand for payment hereunder, such Guarantor
shall immediately pay to the Agent the full amount of the Guaranteed Obligations
which are due and payable. Each Guarantor shall make each payment to the Agent
in U.S. Dollars in immediately available funds as directed by the Agent. The
Agent is hereby authorized at any time following any demand for payment
hereunder to set off and apply any indebtedness owed by the Agent to any
Guarantor against any and all of the obligations of such Guarantor under this
Agreement. The Agent agrees to promptly notify such Guarantor after any such
setoff and application, but the failure to give such notice shall not affect the
validity of such setoff and application.
Section 2. Guaranty Absolute.
2.1 This Agreement shall be deemed accepted by the Agent for the
benefit of itself and the Banks upon receipt, and the obligations of the
Guarantors under this Agreement are effective immediately and are continuing and
cover all Guaranteed Obligations arising prior to and after the date hereof.
This Agreement may not be revoked by any Guarantor and shall continue to be
effective with respect to Guaranteed Obligations arising or created after any
attempted revocation by any Guarantor.
2.2 Each Guarantor guarantees that the Guaranteed Obligations will be
paid strictly in accordance with the terms of the Credit Agreement and the other
Credit Documents, regardless of any law, regulation, or order now or hereafter
in effect in any jurisdiction affecting any of such terms or the rights of the
Agent or the Banks with respect thereto. Each Guarantor agrees that such
Guarantor's obligations under this Agreement shall not be released, diminished,
or impaired by, and waives any rights which such Guarantor might otherwise have
which relate to:
(a) Any lack of validity or enforceability of the Guaranteed
Obligations, any Credit Document, or any other agreement or instrument relating
thereto; any increase, reduction, extension, or rearrangement of the Guaranteed
Obligations; any amendment, supplement, or other modification of the Credit
Documents; any waiver or consent granted under the Credit Documents, including
waivers of the payment and performance of the Guaranteed Obligations; or any
sale, assignment, delegation, or other transfer of the Guaranteed Obligations or
the Credit Documents;
-2-
<PAGE> 87
(b) Any grant of any security or support for the Guaranteed
Obligations or any impairment of any security or support for the Guaranteed
Obligations, including any full or partial release of the Borrower, any
Guarantor, or any other Person liable for the payment or performance of the
Guaranteed Obligations; any change in the organization or structure of the
Borrower, any Guarantor, or any other Person liable for the payment or
performance of the Guaranteed Obligations; or the insolvency, bankruptcy,
liquidation, or dissolution of the Borrower, any Guarantor, or any other Person
liable for the payment or performance of the Guaranteed Obligations;
(c) The manner of applying payments on the Guaranteed
Obligations or the proceeds of any security or support for the Guaranteed
Obligations against the Guaranteed Obligations;
(d) The failure to give notice of the occurrence of any of the
events or actions referred to in this Section 2.2, notice of any default or
event of default, however denominated, under the Credit Documents, notice of
intent to demand, notice of demand, notice of presentment for payment, notice of
nonpayment, notice of intent to protest, notice of protest, notice of grace,
notice of dishonor, notice of intent to accelerate, notice of acceleration,
notice of bringing of action to enforce the payment or performance of the
Guaranteed Obligations, notice of any sale or foreclosure of any collateral for
the Guaranteed Obligations, notice of any transfer of the Guaranteed
Obligations, notice of the financial condition of or other circumstances
regarding the Borrower, any Guarantor, or any other Person liable for the
Guaranteed Obligations, or any other notice of any kind relating to the
Guaranteed Obligations (and the parties intend that no Guarantor shall be
considered a "Debtor" as defined in Section 9.105 of the Texas Business and
Commerce Code for the purpose of notices required to be given to a Debtor
thereunder); or
(e) Any other action taken or omitted which affects the
Guaranteed Obligations, whether or not such action or omission prejudices any
Guarantor or increases the likelihood that any Guarantor will be required to pay
the Guaranteed Obligations pursuant to the terms hereof--it is the unambiguous
and unequivocal intention of each Guarantor that such Guarantor shall be
obligated to pay the Guaranteed Obligations when due, notwithstanding any
occurrence, circumstance, event, action, or omission whatsoever, whether
contemplated or uncontemplated, and whether or not particularly described
herein.
2.3 This Agreement shall continue to be effective or be reinstated, as
the case may be, if any payment on the Guaranteed Obligations must be refunded
for any reason including any bankruptcy proceeding. In the event that the Agent
or any Bank must refund any
-3-
<PAGE> 88
payment received against the Guaranteed Obligations, any prior release from the
terms of this Agreement given to any Guarantor by the Agent shall be without
effect, and this Agreement shall be reinstated in full force and effect. It is
the intention of each Guarantor that such Guarantor's obligations hereunder
shall not be discharged except by final payment of the Guaranteed Obligations.
2.4 (a) Each Guarantor is a Subsidiary of the Borrower and receives
and, because of its ownership by the Borrower, expects to continue to receive
business opportunities, financial support, and management support from the
Borrower. Each Guarantor has agreed to enter into this Agreement so that the
Borrower can receive the benefits of the Guaranteed Obligations and continue to
provide these services to such Guarantor.
(b) In consummating the transactions contemplated by the
Credit Documents, no Guarantor intends to disturb, delay, hinder, or defraud
either present or future creditors of such Guarantor. Each Guarantor is familiar
with, and has independently reviewed books and records regarding, the financial
condition of the Borrower and is familiar with the value of the security and
support for the payment and performance of the Guaranteed Obligations. Based
upon such examination, and taking into account the fairly discounted value of
such Guarantor's contingent obligations under this Agreement and the value of
the subrogation and contribution claims such Guarantor could make in connection
with this Agreement, and assuming each of the transactions contemplated by the
Credit Documents is consummated and the Borrower makes full use of the credit
facilities thereunder, the present realizable fair market value of the assets of
such Guarantor exceeds the total obligations of such Guarantor, and such
Guarantor is able to realize upon its assets and pay its obligations as such
obligations mature in the normal course of business.
(c) If notwithstanding the foregoing it is judicially
determined with respect to any Guarantor that entering into this Agreement would
violate Section 548 of the United States Bankruptcy Code or any comparable
provisions of any state law, then such Guarantor shall be liable under this
Guaranty only for amounts aggregating up to the largest amount that would not
render such Guarantor's obligations hereunder subject to avoidance under Section
548 of the United States Bankruptcy Code or any comparable provisions of any
state law.
(d) Each Guarantor agrees that each Guarantor shall have
rights of contribution and subrogation against each other Guarantor with respect
to any payments made in connection with the Guaranteed Obligations.
-4-
<PAGE> 89
Section 3. Unimpaired Collection.
3.1 There are no conditions precedent to the enforcement of this
Agreement, except as expressly contained herein. It shall not be necessary for
the Agent, in order to enforce payment by any Guarantor under this Agreement, to
show any proof of the Borrower's default, to exhaust the Agent's remedies
against the Borrower, any Guarantor, or any other Person liable for the payment
or performance of the Guaranteed Obligations, to enforce any security or support
for the payment or performance of the Guaranteed Obligations, or to enforce any
other means of obtaining payment or performance of the Guaranteed Obligations.
Each Guarantor waives any rights under Chapter 34 of the Texas Business and
Commerce Code, Section 17.001 of the Texas Civil Practice and Remedies Code, and
Rule 31 of the Texas Rules of Civil Procedure related to the foregoing. Neither
the Agent nor the Banks shall be required to mitigate damages or take any other
action to reduce, collect, or enforce the Guaranteed Obligations.
3.2 With respect to each Guarantor, all Subordinated Obligations of
such Guarantor (as defined below) shall be subordinate and junior in right of
payment and collection to the payment and collection in full of all Guaranteed
Obligations as described below:
(a) As used herein, the term "Subordinated Obligations" for
such Guarantor means: (i) all present and future indebtedness, liabilities, and
obligations of any kind owed by the Borrower, any Guarantor, or any other Person
liable for the payment or performance of the Guaranteed Obligations to such
Guarantor, including debt obligations, equity obligations, and other contractual
obligations requiring payments of any kind to be made to such Guarantor and
including any right of subrogation (including any statutory rights of
subrogation under Section 509 of the Bankruptcy Code, 11 U.S.C. ss. 509, or
under Chapter 34 of the Texas Business and Commerce Code), contribution,
indemnification, reimbursement, exoneration, or any right to participate in any
claim or remedy of the Agent against the Borrower, any Guarantor, or any Person
liable for the payment or performance of the Guaranteed Obligations, or any
collateral which the Agent now has or may acquire, and (ii) any increases,
extensions, and rearrangements of the foregoing obligations under any
amendments, supplements, and other modifications of the documents and agreements
creating the foregoing obligations.
(b) Until all Guaranteed Obligations have been irrevocably
paid in full (and therefore the payment thereof is no longer subject to being
set aside or returned under the law), such Guarantor agrees not to take any
action to enforce payment of the
-5-
<PAGE> 90
Subordinated Obligations of such Guarantor, but this standstill is not intended
as a permanent waiver of the subrogation, contribution, indemnification,
reimbursement, exoneration, participation, or other rights of such Guarantor.
(c) Upon any receivership, insolvency proceeding, bankruptcy
proceeding, assignment for the benefit of creditors, reorganization, arrangement
with creditors, sale of assets for creditors, dissolution, liquidation, or
marshaling of the assets of the Borrower, any Guarantor, or any other Person
liable for the payment or performance of the Guaranteed Obligations, all amounts
due with respect to the Guaranteed Obligations shall be paid in full before such
Guarantor shall be entitled to collect or receive any payment with respect to
the Subordinated Obligations of such Guarantor, and all payments to which such
Guarantor would be entitled to collect or receive on the Subordinated
Obligations of such Guarantor shall be paid over to the Agent for application to
the Guaranteed Obligations.
(d) Following notice from the Agent to the Borrower that an
Event of Default exists and that no further payments shall be made on the
Subordinated Obligations of such Guarantor, all amounts due with respect to the
Guaranteed Obligations shall be paid in full before such Guarantor shall be
entitled to collect or receive any payment with respect to the Subordinated
Obligations of such Guarantor.
(e) Any lien, security interest, or assignment securing the
repayment of the Subordinated Obligations of such Guarantor shall be fully
subordinate to any lien, security interest, or assignment in favor of the Agent
which secures the Guaranteed Obligations. At the request of the Agent, such
Guarantor will take any and all steps necessary to fully evidence the
subordination granted hereunder, including amending or terminating financing
statements and executing and recording subordinations of liens.
(f) This is an absolute and irrevocable agreement of
subordination and the Agent may, without notice to such Guarantor, take any
action described in Section 2.2 without impairing or releasing the obligations
of such Guarantor hereunder.
(g) Such Guarantor shall not assign or otherwise transfer to
any other Person any interest in the Subordinated Obligations of such Guarantor
without the prior written permission of the Agent and unless such Guarantor
causes the assignee or other transferee to execute and deliver to the Agent a
subordination agreement in substantially the form of the subordination
provisions in this Agreement.
-6-
<PAGE> 91
(h) If any amount shall be paid to such Guarantor in violation
of this Section 3.2, such amount shall be held in trust for the benefit of the
Agent and immediately turned over to the Agent, with any necessary endorsement,
to be applied to the Guaranteed Obligations.
Section 4. Miscellaneous.
4.1 Each Guarantor hereby affirms and shall comply with the
representations, warranties, and covenants made by the Borrower in the Credit
Agreement to the extent that such representations, warranties, and covenants are
applicable to such Guarantor, including all of the covenants in Section 5 of the
Credit Agreement.
4.2 Each Guarantor shall pay to the Agent on demand (without
duplication) (a) all reasonable out-of-pocket costs and expenses of the Agent in
connection with the preparation, execution, delivery, administration,
modification, and amendment of this Agreement and the other Credit Documents to
which such Guarantor is a party, including the reasonable fees and out-of-pocket
expenses of outside counsel for the Agent with respect to advising the Agent as
to its rights and responsibilities under this Agreement and the Credit Documents
to which such Guarantor is a party, and (b) all costs and expenses of the Agent
and the Banks in connection with the preservation or enforcement of the Agent's
rights under this Agreement and the other Credit Documents to which such
Guarantor is a party, whether through negotiations, legal proceedings, or
otherwise, including fees and expenses of counsel for the Agent. The provisions
of this paragraph shall survive any purported termination of this Agreement and
the Credit Documents that does not expressly reference this paragraph.
4.3 Each Guarantor agrees to protect, defend, indemnify, and hold
harmless the Agent, each Bank, and each of their respective Related Parties
(collectively, the "Indemnified Parties"), from and against all demands, claims,
actions, suits, damages, judgments, fines, penalties, liabilities, and costs and
expenses (without duplication), including reasonable costs of attorneys and
related costs of experts such as accountants (collectively, the "Indemnified
Liabilities"), actually incurred by the Indemnified Parties which are related to
any litigation or proceeding relating to this Agreement, the Credit Documents,
or the transactions contemplated thereunder, INCLUDING INDEMNIFIED LIABILITIES
CAUSED BY ANY INDEMNIFIED PARTY'S OWN NEGLIGENCE, but not Indemnified
Liabilities which are a result of any Indemnified Party's gross negligence or
willful misconduct. The provisions of this paragraph shall survive any purported
termination of this Agreement and the Credit Documents that does not expressly
reference this paragraph.
-7-
<PAGE> 92
4.4 Each Guarantor agrees that this Agreement shall be governed by the
laws of the State of Texas. If any provision in this Agreement is held to be
unenforceable, such provision shall be severed and the remaining provisions
shall remain in full force and effect. All representations, warranties, and
covenants of any Guarantor in this Agreement shall survive the execution of this
Agreement and any other contract or agreement. If a due date for an amount
payable is not specified in this Agreement, the due date shall be the date on
which the Agent demands payment therefor. The Agent's remedies under this
Agreement and the Credit Documents to which any Guarantor is a party shall be
cumulative, and no delay in enforcing this Agreement and the Credit Documents to
which such Guarantor is a party shall act as a waiver of the Agent's rights
thereunder. The provisions of this Agreement may be waived or amended only in a
writing signed by the party against whom enforcement is sought. This Agreement
shall bind and inure to the benefit of each Guarantor and the Agent, the Banks
and their respective successors and assigns. Each Guarantor may not assign its
rights or delegate its duties under this Agreement. The Agent may assign its
rights and delegate its duties under this Agreement in accordance with the terms
of the Credit Agreement. This Agreement may be executed in multiple counterparts
each of which shall constitute one and the same agreement. Unless otherwise
specified, all notices and other communications between such Guarantor and the
Agent provided for in this Agreement and the Credit Documents to which such
Guarantor is a party shall be in writing, including telecopy, and delivered or
transmitted to the addresses set forth below, or to such other address as shall
be designated by such Guarantor or the Agent in written notice to the other
party. All such notices shall be effective at the times provided for in Section
8.6 of the Credit Agreement.
If to any Guarantor:
[Guarantor]
c/o HydroChem Industrial Services, Inc.
6210 Rothway
Houston, Texas 77040
Attn: Chief Financial Officer
telephone: (713) 462-2130
telecopier: (713) 329-2440
<PAGE> 93
If to the Agent:
NationsBank of Texas, N.A.,
700 Louisiana, 7th Floor
Houston, Texas 77002
Attn: Mr. William T. Griffin, Jr., Vice President
telephone: 713-247-7457
telecopier: 713-247-7748
4.5 Any present or future Subsidiary of the Borrower may become a
Guarantor under and a party to this Agreement by executing and delivering to the
Agent a Joinder Agreement in accordance with Section 5.19 of the Credit
Agreement or by otherwise assuming in writing in favor of the Agent the
liabilities of a Guarantor under this Agreement. Upon execution and delivery of
a Joinder Agreement or otherwise assuming the liabilities of a Guarantor under
this Agreement such Subsidiary shall be deemed to be a Guarantor under this
Agreement and a party to this Agreement for all purposes hereunder.
4.6 WAIVER OF JURY TRIAL. EACH GUARANTOR IRREVOCABLY
WAIVES ANY RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING
OUT OF OR RELATING TO THE CREDIT DOCUMENTS OR ANY TRANSACTIONS
RELATING THERETO.
[the remainder of this page is intentionally blank]
-9-
<PAGE> 94
THIS WRITTEN AGREEMENT AND THE CREDIT DOCUMENTS REPRESENT THE FINAL AGREEMENT
AMONG 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 AMONG THE PARTIES.
EXECUTED as of the date first above written.
[SUBSIDIARIES]
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
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<PAGE> 95
EXHIBIT F
FORM OF
REVOLVING LOAN BORROWING REQUEST
[date]
NationsBank of Texas, N.A.,
as Agent
Attn: Mr. William T. Griffin, Jr.
700 Louisiana, 7th Floor
Houston, Texas 77002
Telephone: 713-247-7756
Telecopy: 713-247-7748
Ladies and Gentlemen:
The undersigned, HydroChem Industrial Services, Inc. a Delaware corporation
("Borrower"), refers to the Credit Agreement dated as of December 31, 1997 (as
the same may be amended, modified, or supplemented from time to time, the
"Credit Agreement," the defined terms of which are used in this Borrowing
Request unless otherwise defined in this Borrowing Request) among the Borrower,
the financial institutions parties thereto ("Banks"), and NationsBank of Texas,
N.A., as agent for the Banks ("Agent"), and hereby gives you irrevocable notice
pursuant to Section 2.1(b)(i) of the Credit Agreement that the undersigned
hereby requests a Revolving Loan Borrowing (the "Proposed Borrowing") on the
terms set forth below:
Date of Revolving Loan Borrowing(1) :
Type of Tranche(2) :
Aggregate Amount(3) :
Interest Period (4) :
- --------------------------
(1) The Date of Revolving Loan Borrowing for the Proposed Borrowing must be
a Business Day. The Borrower must give three Business Days' advance notice for
Revolving Loan Borrowings including LIBOR Tranches or same day notice for
Revolving Loan Borrowings including only Prime Rate Tranches.
(2) The Type of Tranches comprising the Proposed Borrowing may be Prime
Rate Tranches or LIBOR Tranches subject to the provisions of Section 2.4(a)(i).
(3) The Aggregate Amount of the Proposed Borrowing must be in a minimum
amount of (a) in the case of LIBOR Tranches, $300,000 and in multiples of
$100,000 in excess thereof and (b) in the case of Prime Rate Tranches, $100,000
and in integral multiples of $100,000 in excess thereof.
(4) The Interest Period applies only to Revolving Loan Borrowings including
LIBOR Tranches and may be one, two, three, or six months. Insert "N/A" for
Revolving Loan Borrowings including any Prime Rate Tranches.
<PAGE> 96
The undersigned hereby certifies that the following statements are true on the
date hereof, and will be true on the date of the Proposed Borrowing:
(a) the representations and warranties contained in the Credit
Agreement are correct in all material respects, before and after giving effect
to the Proposed Borrowing and the application of the proceeds therefrom, as
though made on the Proposed Borrowing;
(b) no Default has occurred and remains uncured, nor would any
Default result from the Proposed Borrowing or from the application of the
proceeds therefrom; and
(c) following the making of the proposed Revolving Loan Borrowing
and all other Revolving Loan Borrowings to be made on the same day to the
Borrower, the aggregate outstanding principal amount of the Revolving Loan plus
the aggregate outstanding principal amount of the Autoborrow Advances plus the
Letter of Credit Exposure shall not exceed the aggregate amount of the Revolving
Loan Commitments.
Very truly yours,
HYDROCHEM INDUSTRIAL
SERVICES, INC.
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
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<PAGE> 97
Exhibit G
FORM OF
REVOLVING LOAN NOTE
([Bank Name])
$[Amount] Houston, Texas [date]
For value received, the undersigned HYDROCHEM INDUSTRIAL SERVICES,
INC., a Delaware corporation ("Borrower"), hereby promises to pay to the order
of [Bank Name] ("Bank"), the principal amount of [Amount] ($[ ]) or, if less,
the aggregate outstanding principal amount of the Revolving Loan Advances (as
defined in the Credit Agreement referred to below) made by the Bank to the
Borrower, together with accrued but unpaid interest on the principal amount of
each such Revolving Loan Advance from the date of such Revolving Loan Advance
until such principal amount is paid in full, at such interest rates, and at such
times, as are specified in the Credit Agreement.
This Revolving Loan Note is one of the Revolving Loan Notes referred to
in, and is entitled to the benefits of, and is subject to the terms of, the
Credit Agreement dated as of December 31, 1997 (as the same may be amended,
modified, or supplemented from time to time, the "Credit Agreement"), among the
Borrower, the financial institutions parties thereto ("Banks"), and NationsBank
of Texas, N.A., as agent for the Banks ("Agent"). Capitalized terms used herein
but not defined herein shall have the meanings specified by the Credit
Agreement. The Credit Agreement (a) provides for, among other things, the making
of Revolving Loan Advances by the Bank to the Borrower from time to time, the
indebtedness of the Borrower resulting from each such Revolving Loan Advance
being evidenced by this Revolving Loan Note, and (b) contains provisions for,
among other things, acceleration of the maturity of this Revolving Loan Note
upon the happening of certain events stated in the Credit Agreement and for
prepayments of principal prior to the maturity of this Revolving Loan Note upon
the terms and conditions specified in the Credit Agreement.
Both principal and interest are payable to the Agent in the currency,
at the times, in the locations, and in the manner specified in the Credit
Agreement. The Bank shall record all Revolving
<PAGE> 98
Loan Advances and payments of principal made under this Revolving Loan Note, but
no failure of the Bank to make such recordings shall affect the Borrower's
repayment obligations under this Revolving Loan Note.
It is contemplated that because of prepayments there may be times when
no indebtedness is owed under this Revolving Loan Note. Notwithstanding such
prepayments, this Revolving Loan Note shall remain valid and shall be in force
as to Revolving Loan Advances made pursuant to the Credit Agreement after such
prepayments.
It is the intention of the Bank and the Borrower to conform strictly to
any applicable usury laws. Accordingly, the terms of the Credit Agreement
relating to the prevention of usury will be strictly followed.
EXECUTED as of the date first above written.
HYDROCHEM INDUSTRIAL
SERVICES, INC.
By:
-----------------------------
Name:
---------------------------
Title:
--------------------------
<PAGE> 99
Exhibit H
CLOSING DOCUMENTS
Credit Provided by
NationsBank of Texas, N.A., as Agent and Bank,
for HydroChem Industrial Services, Inc.
[effective date]
Agent = NationsBank of Texas, N.A.
Banks = NationsBank of Texas, N.A.
Borrower = HydroChem Industrial Services, Inc.
B&P = Bracewell & Patterson, L.L.P.
<TABLE>
<CAPTION>
Responsible
Party Credit Documents
----- ----------------
<S> <C> <S>
1. B&P Credit Agreement dated as of December
31, 1997, among the Borrower, the Banks, and
the Agent providing for a $25,000,000 senior
revolving credit facility.
B&P Exhibit A - Form of Acquisition Certificate
B&P Exhibit B - Form of Assignment and Acceptance
B&P Exhibit C - Form of Borrowing Base and Compliance
Certificate
B&P Exhibit D - Form of Continuation/Conversion Request
B&P Exhibit E - Form of Guaranty
B&P Exhibit F - Form of Revolving Loan Borrowing Request
B&P Exhibit G - Form of Revolving Loan Note
B&P Exhibit H - Closing Document List
B&P Exhibit I - Form of Joinder Agreement
B&P Schedule I - Administrative Information (Borrower and
Bank)
Borrower Schedule II - Disclosures (Existing Other Debt and Existing
Subsidiaries)
</TABLE>
<PAGE> 100
<TABLE>
<S> <C>
2. B&P Promissory Note, dated as of December
31, 1997, made by the Borrower and payable
to the order of Bank in the original
principal amount of $25,000,000.
3. Agent Autoborrow Service Agreement dated as
of December 31, 1997, between the Borrower
and NationsBank.
4. B&P Guaranty Agreement dated as of December
31, 1997, among the Subsidiaries of the
Borrower and the Agent.
Corporate Documents
5. Borrower Opinion of Cassell & Stone, L.L.P. regarding
the existence and good standing of the
Borrower and its Subsidiaries the
authorization of the Credit Documents by the
Borrower and its Subsidiaries the
enforceability of the Credit Documents, the
absence of conflicting agreements, the
absence of litigation, and certain other
matters as described therein.
6. Borrower Certificate of Assistant Secretary of the
Borrower certifying such corporation's
articles, bylaws, and resolutions and such
corporation's existence and good standing in
its state of incorporation and qualification
and good standing in material jurisdictions
where it conducts business.
Exhibit A - Articles/Certificates of Incorporation
Exhibit B - Bylaws
Exhibit C - Resolutions
Exhibit D - Certificates of Existence and Good Standing;
Qualification and Good Standing
7. Borrower Certificate of Assistant Secretary of each
of the Subsidiaries of the Borrower
certifying each such corporation's articles,
bylaws, and resolutions and each such
corporation's existence and good standing in
its state of incorporation and qualification
and good standing in material jurisdictions
where it conducts business.
Exhibit A - Articles/Certificates of Incorporation
</TABLE>
-2-
<PAGE> 101
<TABLE>
<S> <C>
Exhibit B - Bylaws
Exhibit C - Resolutions
Exhibit D - Certificates of Existence and Good Standing;
Qualification and Good Standing
8. Borrower Lien Releases
Indenture
9. Borrower Certified copy of the Indenture dated as of
August 1, 1997 among the Borrower, HydroChem
International, Inc., as Guarantor, and
Norwest Bank, Minnesota, N.A., as Trustee,
governing the 103/8 Series B Senior
Subordinated Notes due August 1, 2007,
together with a certified copy of all
amendments or modifications of such
Indenture.
</TABLE>
-3-
<PAGE> 102
Exhibit I
FORM OF
JOINDER AGREEMENT
([Subsidiary])
[Subsidiary], a [ ] corporation (the "Subsidiary"), hereby
agrees with (a) NationsBank of Texas, N.A., as Agent (the "Agent"), under the
Credit Agreement dated as of December 31, 1997 among HydroChem Industrial
Services, Inc. a Delaware corporation, the financial institutions parties
thereto, as Banks, and the Agent (as amended, modified, or supplemented from
time to time, the "Credit Agreement," the capitalized terms of which are used
herein unless otherwise defined herein), and (b) the other parties to the
Guaranty dated as of December 31, 1997 executed in connection with the Credit
Agreement, as follows:
In accordance with Section 5.19 of the Credit Agreement, the Subsidiary
hereby (a) joins the Guaranty as a party thereto and assumes all the obligations
of a Guarantor (as defined in the Guaranty) under the Guaranty, (b) agrees to be
bound by the provisions of the Guaranty as if the Subsidiary had been an
original party to the Guaranty, and (c) confirms that, after joining the
Guaranty as set forth above, the representations and warranties set forth in the
Credit Agreement and the Guaranty with respect to the Subsidiary are true and
correct in all material respects as of the date of this Joinder Agreement.
For purposes of notices under the Guaranty, the notice address for the
Subsidiary is as follows:
--------------------------
--------------------------
--------------------------
Attention: ---------------
Telephone: ( )----------
Telecopy: ( )----------
<PAGE> 103
THIS WRITTEN AGREEMENT AND THE CREDIT DOCUMENTS REPRESENT THE
FINAL AGREEMENT AMONG 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 AMONG THE PARTIES.
IN WITNESS WHEREOF this Joinder Agreement is executed and delivered as
of the ___ day of ________, 19__.
[SUBSIDIARY]
By:
-----------------------------
Name:
---------------------------
Title:
--------------------------
-2-
<PAGE> 1
EXHIBIT 10.11
March 6, 1998
Mr. Selby F. Little, III
Chief Financial Officer
HydroChem Industrial Services, Inc.
6210 Rothway
Houston, TX 77040
Re: Credit Agreement dated as of December 31, 1997 ("Agreement") among
HydroChem Industrial Services, Inc. ("Borrower") and NationsBank of
Texas, N.A. (as "Agent" and "Bank")
Dear Mr. Little:
This letter agreement ("Letter Agreement") references the Agreement defined
above. Any capitalized terms used herein shall have the same meanings assigned
to them in the Agreement unless otherwise defined herein.
It is agreed that (i) the cash dividend of $8,539,668.40 paid in August of 1997
to HydroChem Holding, Inc., (ii) the principal payments of $68,325,000 made to
Heller Financial, Inc. and World Subordinated Debt Partners, L.P. during 1997,
and (iii) the deferred financing costs, prepayments premiums and breakage fees
amounting to $3,777,942 incurred as a result of the debt restructuring in
August of 1997 shall be excluded from the calculation of Section 5.5(c).
Additionally, in your letter dated January 14, 1998, (the "Vacuum Truck
Letter") you described the Borrower's plan to invest approximately $5 million
to purchase vacuum trucks. It is also agreed that, for the purpose of
calculating Capital Expenditures, the Borrower may exclude the lesser of (i)
$5,000,000 and (ii) the actual expenditures made during 1998 which are
described in the Vacuum Truck Letter and detailed in an attachment to the
Borrowing Base and Compliance Certificate as incurred.
Further, it is agreed that the fee described in Section 2.3(d) is duplicative
and should be deleted. As described in Section 2.3(a), the remaining balance
of the Facility Fee ($60,000) is due and payable on or before March 31, 1998.
Further, it is agreed that, in the definition of Eligible Accounts, accounts
receivable due from foreign Persons approved by the Agent may be considered
Eligible Accounts without support by a letter of credit. To obtain approval,
the names and pertinent credit information about such foreign Persons may be
submitted to the Agent as an attachment to the Borrowing Base and Compliance
Certificate.
<PAGE> 2
Except as specifically described herein, the Agreement and the other Credit
Documents remain in full force and effect as originally executed. Nothing
herein shall act as a waiver of any of the Bank's rights under the Credit
Documents as amended, including the waiver of any Default, however denominated.
The Borrower must continue to comply with the terms of the Credit Documents, as
amended.
THIS WRITTEN AGREEMENT AND THE CREDIT DOCUMENTS REPRESENT THE FINAL AGREEMENT
AMONG 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 AMONG THE PARTIES.
EXECUTED as of the date first above written.
BORROWER:
HYDROCHEM INDUSTRIAL SERVICES, INC.
By: /s/ Selby F. Little
--------------------------------------
Name: Selby F. Little
--------------------------------------
Title: Executive Vice President and Chief
financial Officer
AGENT:
NATIONSBANK OF TEXAS, N.A., as Agent
By: /s/ William T. Griffin
---------------------------------------
William T. Griffin
Vice President
BANKS:
NATIONSBANK OF TEXAS, N.A.
By: /s/ William T. Griffin
---------------------------------------
William T. Griffin
Vice President
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 33,862
<SECURITIES> 0
<RECEIVABLES> 24,341
<ALLOWANCES> 0
<INVENTORY> 3,863
<CURRENT-ASSETS> 68,957
<PP&E> 63,210
<DEPRECIATION> 24,872
<TOTAL-ASSETS> 152,093
<CURRENT-LIABILITIES> 16,663
<BONDS> 0
0
0
<COMMON> 1
<OTHER-SE> 16,706
<TOTAL-LIABILITY-AND-EQUITY> 152,093
<SALES> 160,604
<TOTAL-REVENUES> 160,604
<CGS> 95,585
<TOTAL-COSTS> 95,585
<OTHER-EXPENSES> 52,400
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,518
<INCOME-PRETAX> 4,101
<INCOME-TAX> 2,282
<INCOME-CONTINUING> 1,819
<DISCONTINUED> 0
<EXTRAORDINARY> (2,342)
<CHANGES> 0
<NET-INCOME> (523)
<EPS-PRIMARY> .00
<EPS-DILUTED> .00
</TABLE>
